<PAGE>
As filed with the Securities and Exchange Commission on October 10, 1997.
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------
DELCO REMY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 6719 35-1909253
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction Industrial Classification Identification No.)
of Incorporation Code Number)
or Organization)
2902 Enterprise Drive, Anderson, Indiana 46013, Telephone: (765) 778-6499
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Susan E. Goldy, Esq.
Vice President and General Counsel
Delco Remy International, Inc.
2902 Enterprise Drive, Anderson, Indiana, 46013, Telephone (765) 778-6799
(Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent For Service)
---------------
Copies to:
Christopher G. Karras, Esq. Marc S. Rosenberg, Esq.
Dechert Price & Rhoads Cravath, Swaine & Moore
4000 Bell Atlantic Tower Worldwide Plaza
1717 Arch Street 825 Eighth Avenue
Philadelphia, Pennsylvania 19103-2793 New York, New York 10019
(215) 994-4000 (212) 474-1000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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, please 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(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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
---------------
CALCULATION OF REGISTRATION FEE
================================================= ======================= =====================
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered Price (1) Registration Fee
- ------------------------------------------------- ----------------------- ---------------------
<S> <C> <C>
Class A Common Stock, par value $.01 per share
$69,000,000 $20,910
================================================= ======================= =====================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K
<TABLE>
<CAPTION>
Form S-1 Part I Item Caption or Location in Prospectus
- -------------------- ---------------------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................... Inside Front
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges................ Prospectus Summary; Risk Factors
4. Use of Proceeds............................... Use of Proceeds
5. Determination of Offering Price............... Underwriters
6. Dilution...................................... Dilution
7. Selling Security Holders...................... Not Applicable
8. Plan of Distribution.......................... Outside Front Cover Page; Underwriters
9. Description of Securities to be Registered.... Description of Capital Stock
10. Interests of Named Experts and Counsel........ Not Applicable
11. Information with Respect to the Registrant.... Prospectus Summary; Risk Factors; Company History;
Use of Proceeds; Dividend Policy; Capitalization;
Selected Consolidated Historical Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Principal
Stockholders; Description of Capital Stock;
Description of Indebtedness; Index to Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with the +
+ Securities and Exchange Commission. These securities may not be sold nor may +
+ offers to buy be accepted prior to the time the registration statement +
+ becomes effective. This prospectus shall not constitute an offer to sell or +
+ the solicitation of an offer to buy nor shall there be any sale of these +
+ securities in any State in which such offer, solicitation or sale would be +
+ unlawful prior to registration or qualification under the securities laws of +
+ any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued October 10, 1997
[LOGO OF DELCO REMY Shares
INTERNATIONAL APPEARS DELCO REMY INTERNATIONAL, INC.
HERE] CLASS A COMMON STOCK
----------------------
All of the Shares of Class A Common Stock offered hereby (this "Offering" or the
"Equity Offering") are being sold by the Company. Prior to the Equity Offering,
there has been no public market for the Class A Common Stock. It is currently
estimated that the initial public offering price per share will be between $
and $ . See "Underwriters" for a discussion of the factors considered in
determining the initial public offering price.
Concurrently with the Equity Offering, $130,000,000 of % Senior Notes Due
2007 are being offered to the public by the Company (the "Notes Offering" and,
together with the Equity Offering, the "Offerings"). See "Prospectus Summary--
The Offering--Concurrent Offerings." The Notes Offering and the Equity Offering
are each contingent on consummation of the other.
----------------------
Application has been made to list the Class A Common Stock on the New York Stock
Exchange under the symbol "RMY."
----------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
PRICE $ A SHARE
----------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
------ --------------- -----------
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total (3).............................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate
of additional shares of Class A Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the Underwriters exercise such option in full, the
total price to public, underwriting discounts and commissions and proceeds
to Company will be $ , $ and $ ,
respectively. See "Underwriters."
----------------------
The shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Cravath, Swaine & Moore, counsel for the Underwriters. It is expected that
the delivery of the Shares will be made on or about , 1997 at
the office of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in immediately available funds.
----------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
, 1997
<PAGE>
Certain statements contained in this Prospectus that are not related to
historical results are forward-looking statements. Actual results may differ
materially from those projected or implied in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Further, certain forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate. These forward-looking
statements involve risks and uncertainties including, but not limited to, those
set forth under "Risk Factors."
--------------
Until , 1997 (25 days after the commencement of this
offering), all dealers effecting transactions in the Class A Common Stock,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
unsold allotments or subscriptions.
--------------
TABLE OF CONTENTS
Prospectus Summary..................................4
Risk Factors.......................................11
Company History....................................16
Use of Proceeds....................................17
Dividend Policy....................................19
Dilution...........................................19
Capitalization.....................................20
Selected Consolidated Historical Financial Data....21
Pro Forma Condensed Consolidated Financial
Data (Unaudited)................................23
Management's Discussion and Analysis of
Financial Condition and Results of Operations...31
Business...........................................38
Management.........................................52
Principal Stockholders.............................58
Certain Transactions...............................61
Description of Capital Stock.......................61
Description of Indebtedness........................63
Shares Eligible for Future Sale....................67
Certain United States Federal Tax Consequences
to Non-United States Holders....................67
Underwriters.......................................69
Legal Matters......................................71
Experts............................................71
Additional Information.............................71
Index to Financial Statements.....................F-1
--------------
No person is authorized in connection with any offering made hereby to give
any information or to make any representation other than as contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy the Class A Common Stock offered hereby by any person in any jurisdiction in
which it is unlawful for such person to make any such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstances imply that the information contained herein is correct as of
any date subsequent to the date hereof.
--------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE CLASS A COMMON STOCK IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. The disclosure contained throughout this Prospectus which is
identified as being presented on a pro forma ("pro forma") basis has been
prepared as if the following transactions (the "Transactions") occurred (a) for
purposes of statement of operations and cash flow data, on August 1, 1996 and
(b) for purposes of balance sheet data, on July 31, 1997 (except for (i) below,
which is included in the historical balance sheet data): (i) the acquisition by
the Company of World Wide Automotive, Inc. ("World Wide") on May 8, 1997, (ii)
the acquisition by the Company of Ballantrae Corporation ("Ballantrae") for
which the Company has entered into an Agreement and Plan of Merger dated October
, 1997, (iii) the completion of both Offerings, (iv) the payment in full by
the Company of the 10 1/2% Senior Note due July 31, 2003 to World Subordinated
Debt Partners, L.P., (v) the payment in full by the Company of the 11.50%
Subordinated Notes due July 31, 2004 to General Motors Corporation, (vi) the
exchange of the 11% Junior Subordinated Notes due July 31, 2004 (the "Junior
Subordinated Notes") for shares of Class A Common Stock, (vii) the
exchange, in accordance with their terms, of the outstanding shares of 8%
preferred stock of Delco Remy America, Inc. ("DRA") to an 8% subordinated
debenture of DRA, (viii) a stock dividend to existing holders of Common Stock
resulting in a -for-one increase in the outstanding shares of Common Stock
(the "Stock Split"), (ix) the payment in full by the Company of subordinated
notes payable to certain former stockholders of A&B Group and Power Investments
(as defined) and (x) the amendment of the Senior Credit Facility (as defined) in
connection with the consummation of the Offerings. Unless otherwise indicated,
the information contained in this Prospectus assumes no exercise of the over-
allotment option in connection with the Equity Offering. For purposes of this
Prospectus, the "Company" shall refer to Delco Remy International, Inc. ("DRI")
and all of its consolidated subsidiaries, unless the context otherwise requires.
THE COMPANY
General
The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and related components for automobiles and
light trucks, medium and heavy duty trucks and other heavy duty vehicles. The
Company's products include starter motors ("starters"), alternators, engines,
transmissions, traction control systems and fuel systems. The Company serves the
aftermarket and the original equipment manufacturer ("OEM") market, principally
in North America as well as in Europe, Latin America and Asia-Pacific. Net sales
and EBITDA (as defined) for fiscal year 1997 were $689.8 million and $87.3
million, respectively. For the same period, the aftermarket accounted for
approximately 45.2% of the Company's net sales and 62.8% of EBITDA, with the OEM
market accounting for the balance.
The Company believes that it is the largest manufacturer and remanufacturer
in North America of (i) starters for automobiles and light trucks (including
sport-utility vehicles, minivans and pickup trucks) and (ii) starters and
alternators for medium and heavy duty vehicles. The Company's products are
principally sold or distributed to OEMs for both original equipment manufacture
and aftermarket operations, as well as to warehouse distributors and retail
automotive parts chains. Major customers include General Motors ("GM"), General
Motors Service Parts Operations ("GM SPO"), Navistar, Caterpillar, Freightliner,
PACCAR, Auto Zone, Cummins, Western Auto, Ford, Detroit Diesel, Volvo Trucks,
Mack, Pep Boys, Advance Auto and O'Reilly Automotive.
The Company sells its products principally under the "Delco Remy" brand
name and other major brand names worldwide. In connection with the GM
Acquisition (as defined), the Company obtained perpetual rights to the "Delco
Remy" brand name, which was first used in 1918. The Company also received the
right to use "Delco Remy" as a corporate name until 2004 and the "Remy" name in
perpetuity. In addition, GM entered into a long-term contract to purchase from
the Company substantially all of its North American requirements for automotive
starters and its U.S. and Canadian requirements for heavy duty starters and
alternators. GM also entered into a distribution agreement to sell the Company's
aftermarket products through the GM SPO distribution system. See
"Business--Customers."
Citicorp Venture Capital Ltd. ("CVC") and Harold K. Sperlich, former
president of Chrysler Corporation, together with a subsidiary of MascoTech Inc.
("MascoTech") and certain senior management of the former Delco Remy Division of
GM (the "Former GM Division"), formed the Company for the purpose of acquiring
the assets of
4
<PAGE>
the automotive starter and the heavy duty starter and alternator businesses of
the Former GM Division (the "GM Acquisition"). Upon consummation of the
Offerings and the other Transactions, CVC, management of the Company and other
existing stockholders of the Company will beneficially own approximately % of
the Company's outstanding Common Stock ( % of the voting power), and will be
able to control the Company and elect its Board of Directors.
Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations, and
entered into two international joint ventures. The Company is also in the
process of completing the strategic acquisition of Ballantrae, which will expand
the Company's drivetrain product position. Through Ballantrae's wholly owned
subsidiary, Tractech Inc. ("Tractech"), the Company will offer high quality
traction control systems to heavy duty OEMs and the aftermarket. These
acquisitions and joint ventures have broadened the Company's product line,
expanded its remanufacturing capability, extended its participation in
international markets and increased its penetration of the retail automotive
parts channel. As a result of these acquisitions and joint ventures and the
Company's focus on increasing its participation in the aftermarket, the
Company's reliance on GM has declined since the Company's formation. Net sales
to customers other than GM increased from 41.0% in fiscal year 1995 to 56.3% in
fiscal year 1997.
The Company's expanding aftermarket business benefits from the
non-deferrable nature of the repairs for which many of the Company's products
are used. Additionally, the Company's aftermarket business benefits from the
design, manufacturing and technological expertise of the Company's OEM
operations. This OEM expertise provides the Company with advantages over many of
its aftermarket competitors. The Company believes that its participation in both
OEM and aftermarket businesses and its diversified customer base reduce its
exposure to the cyclicality of the automotive industry. The Company's growth
strategy is designed to capitalize on its position as a consolidator in the
large and highly fragmented remanufacturing aftermarket.
Growth Strategy
The Company plans to continue to increase revenues and profitability of its
aftermarket and OEM businesses through a strategy of internal growth and growth
through acquisitions. Key elements of the Company's growth strategy include:
Increasing Aftermarket Presence
Strengthening Customer Relationships. The Company intends to increase its
sales to new and existing customers by capitalizing on its balanced coverage of
the key channels of aftermarket distribution and its competitive strengths as an
OEM supplier. The Company plans to strengthen its customer relationships by (i)
continuing to expand its product offerings, (ii) capitalizing on the expansion
of the national automotive retail parts chains and warehouse distributors that
are customers of the Company, (iii) meeting the increasing demands of OEMs and
their dealer networks for high quality remanufactured units, which enable them
to reduce warranty and extended service costs, and (iv) growing sales of
existing and new product lines to OEM dealer networks as dealers continue to
capture an increasing percentage of vehicle repairs, due to longer warranty and
service programs and growing vehicle complexity. Additionally, with the recent
acquisition of World Wide, the Company expanded its product line and now offers
a full line of starters and alternators for domestic and import vehicles. The
acquisition also has improved the Company's distribution capabilities, which now
include a nationwide overnight delivery service.
Consolidating the Fragmented Aftermarket. The portion of the aftermarket in
which the Company participates is large and highly fragmented, with most
participants being small, regional companies offering relatively narrow product
lines. Although the Company believes that it is the largest manufacturer and
remanufacturer of aftermarket starters and alternators in North America, its
sales of these products account for less than 12% of this market. Consolidation
of the aftermarket is occurring as many competitors are finding it difficult to
meet the increasing quality, cost and service demands of customers, who, in
turn, are seeking to rationalize their supplier base. With its OEM capabilities,
remanufacturing expertise, full product line, greater access to "cores" and
ability to capitalize on economies of scale, the Company is well positioned to
benefit from the consolidation of the aftermarket.
Expanding Globally
The Company is expanding its international operations in order to (i)
benefit from the trend toward international standardization of automotive and
heavy duty vehicle platforms and (ii) participate in rapidly
5
<PAGE>
growing foreign markets. The Company has recently been awarded new business by
GM, Volkswagen, Mercedes Benz, Ford and Caterpillar in Brazil; Opel in Europe;
Daewoo Motors in India; and Mercedes Benz, Volvo Trucks, John Deere and Dina in
Mexico. The Company intends to supply its existing OEM customers on a global
basis as they expand their operations and require local supply of component
parts that meet their demands for quality, technology, delivery and service. The
Company believes that its global expansion will enable it to gain new
international OEM customers who will also require local production of high
quality products. In addition, the expansion of the Company's OEM business into
international markets has provided the Company with the infrastructure necessary
to develop an aftermarket presence in these countries. The Company has
established manufacturing operations and strategic ventures in Hungary, Korea
and Mexico, and plans to complete a strategic alliance in India and a joint
venture in Brazil in fiscal year 1998. The acquisition of Ballantrae will
provide the Company with a European manufacturing plant which has been in
operation since 1983. Aided by this facility, Ballantrae has developed strong
relationships with European customers for traction control systems, especially
in the market for construction equipment.
Introducing Technologically Advanced New Products
As a Tier 1 OEM supplier, the Company continues to provide technologically
advanced products by regularly updating and enhancing its product line. Since
the GM Acquisition, the Company has (i) completed the introduction of a new
family of gear reduction starters that will replace all straight drive starters
in GM vehicles by the end of the 1998 model year and (ii) introduced several
longer-life heavy duty alternators. The Company is also developing a small gear
reduction starter specifically designed for application on world car platforms.
These new products underscore the Company's commitment to developing
state-of-the-art products that address the higher output, lower weight and
increased durability requirements of OEM customers.
Operating Strategy
The Company's operating strategy is designed to improve manufacturing
efficiency, reduce costs and increase productivity while continuing to achieve
the highest levels of product quality. Key elements of this operating strategy
include:
"Focus" Factories to Drive Manufacturing Excellence
The Company is shifting its OEM production from old, vertically-integrated
manufacturing plants to new, smaller and more efficient "focus" factories. The
Company's focus factories generally produce one product line in a plant designed
to facilitate lean manufacturing techniques. The Company has successfully
launched three new focus factories since 1996. When the currently planned shift
to focus factories is completed, the Company will occupy five focus factories
and will have reduced its floor space for OEM production by more than 70%. The
Company believes that the benefits of the focus factories include reduced
overhead costs, enhanced productivity, increased product quality and lower
inventories.
Productivity Improvements
In conjunction with its emphasis on focus factories, the Company continues
to work with its local union representatives to establish best-in-class work
practices, such as reducing the number of job classifications per focus factory
and implementing team-based manufacturing processes. Since the GM Acquisition,
employee productivity has increased by 33%. The Company's labor contract with
the UAW (as defined) contains provisions that are expected to permit the Company
to continue to achieve productivity improvements in the existing and new focus
factories. The increased productivity achieved since the GM Acquisition is due
primarily to continuous improvement initiatives and the significant number of
employees who have exercised their contract rights to return ("flowback") to GM
or to retire.
Product Quality and Continuous Improvement
In July 1997, the Company received the prestigious Supplier of the Year
award from GM, an award given to fewer than 1% of all GM suppliers. The
Company's commitment to product quality and continuous improvement is further
evidenced by the QS9000 certification received by nine of its manufacturing and
remanufacturing facilities in 1997. The Company expects that the remainder of
its manufacturing and remanufacturing facilities will receive QS9000
certification by the end of fiscal year 1998. In addition, the Company's
powertrain/drivetrain operations that remanufacture products for Ford have
received the Q-1 rating, Ford's highest quality rating, and
6
<PAGE>
the Company is a Ford Authorized Remanufacturer ("Ford FAR") in five of the
seven Canadian provinces. Global purchasing has further enhanced the Company's
continuous improvement efforts. The Company is utilizing its international
ventures to develop new, lower cost sources of materials and is consolidating
its vendor base to fewer, more competitive suppliers.
Recent Developments
On October , 1997, the Company entered into a definitive agreement to
acquire Ballantrae for $49.2 million (including assumed debt). Ballantrae
operates through two subsidiaries: Tractech, a leading producer of traction
control systems for heavy duty OEMs and the aftermarket; and Kraftube, Inc., a
tubing assembly business which sells products to compressor manufacturers for
commercial air conditioners and refrigeration equipment. In fiscal year 1997,
Tractech accounted for approximately 70% of Ballantrae's $37.6 million of net
sales. The Company's acquisition of Ballantrae strengthens the Company's overall
market position by (i) adding traction control systems to the Company's range of
drivetrain products, (ii) increasing sales to existing heavy duty OEM customers
and (iii) expanding the Company's customer base. The acquisition is expected to
be completed at or prior to the consummation of the Offerings. See "Risk
Factors--Acquisition of Ballantrae; Conflicts of Interest," "Company History,"
"Business--Acquisition of Ballantrae" and "Certain Transactions."
Other Information
For purposes of the financial information set forth in this Prospectus, (i)
EBITDA represents the sum of income from continuing operations before interest
expense, income taxes, preferred dividend requirement of subsidiary, minority
interest in income of subsidiaries, gain on sale of building and restructuring
charges, plus depreciation, amortization and non-cash post-retirement benefits
other than pensions, and (ii) unless otherwise indicated, all references to
years are to the twelve months ended July 31, the Company's fiscal year end.
The Company's world headquarters are located at 2902 Enterprise Drive,
Anderson, Indiana, 46013, and its telephone number is (765) 778-6499.
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered hereby(1).................. shares
Common Stock to be outstanding after the Equity shares of Class A Common Stock
Offering(2)(3).......................................... and shares of Class B Common Stock.
See "Description of Capital Stock."
Concurrent Offerings.................................... Concurrently with the Equity Offering, the Company
is offering $130,000,000 of % Senior Notes
Due 2007 (the "Notes"). The Notes Offering and the
Equity Offering are each contingent upon consummation
of the other. See "Description of Indebtedness."
Use of Proceeds......................................... The net proceeds of the Offerings (estimated to be
approximately $181.1 million) will be used primarily
to repay outstanding indebtedness. See "Use of
Proceeds."
Proposed NYSE Symbol.................................... RMY
Risk Factors............................................ See "Risk Factors" beginning on page for a discussion
of certain factors that should be considered by
prospective purchasers of the Class A Common Stock.
</TABLE>
- -------------------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriters."
(2) Does not include (i) up to shares of Class A Common Stock that
may be subject to a stock option plan which the Company expects to adopt
prior to the consummation of the Offerings and (ii)
7
<PAGE>
shares of Class A Common Stock issuable upon exercise of the Warrants (as
defined). See "Management--Stock Options" and "Description of Capital
Stock."
(3) Shares of Class A Common Stock and Class B Common Stock are generally
convertible into each other on a one-for-one basis. Subject to certain
exceptions, shares of Class B Common Stock are non-voting. See "Description
of Capital Stock."
8
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary consolidated historical financial
data of the Company for the years ended July 31, 1995, 1996 and 1997 and as of
July 31, 1997 and summary consolidated pro forma financial data for the Company
as of and for the year ended July 31, 1997. The statement of operations data for
the years ended July 31, 1995, 1996 and 1997 and the balance sheet data as of
July 31, 1997 were derived from audited Consolidated Financial Statements of the
Company included elsewhere herein. The pro forma consolidated statement of
operations data for the year ended July 31, 1997 were prepared to illustrate the
estimated effect of the Transactions, including the Offerings and the
application of the estimated net proceeds therefrom, as if they had occurred on
August 1, 1996. The pro forma consolidated balance sheet data were prepared to
illustrate the estimated effect of the Transactions, including the Offerings and
the application of the estimated net proceeds therefrom, as if they had occurred
on July 31, 1997 (other than the acquisition of World Wide, which is reflected
in the consolidated historical balance sheet data). The pro forma data do not
purport to be indicative of the results of operations or the financial position
of the Company that would have been obtained if the Transactions had in fact
been completed as of such dates or to project the results of operations or the
financial position of the Company for any future date or period. The table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements of the Company, "Pro Forma Condensed Consolidated Financial Data,"
related notes and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
For the Year Ended July 31
---------------------------------------------------------------
Pro Forma
1995 1996 1997 1997
------------- ------------- ------------- -------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of operations data:
Net sales................................ $ 573,423 $ 636,852 $ 689,787 $ 776,368
Gross profit............................. 98,207 126,774 149,553 170,522
Selling, engineering and administrative
expenses............................. 61,206 77,994 89,098 101,567
Restructuring charges.................... -- 8,101 34,500 34,500
Operating income......................... 37,001 40,679 25,955 34,455
Interest expense......................... 18,432 27,367 38,774 35,295
Income (loss) from continuing
operations........................... 9,326 5,796 (10,263) (1,377)
Loss from discontinued operations, net of
tax.................................. 2,363 10,637 1,682 --
Net income (loss)........................ 6,963 (4,841) (14,296) --
Income (loss) from continuing
operations per share................. $ $ $ $
Net income (loss) per share..............
Financial ratios and other data:
Depreciation and amortization............ $ 14,533 $ 19,555 $ 22,323 $ 24,961
Capital expenditures..................... 11,241 32,741 31,888 32,974
EBITDA(a)................................ 55,968 72,087 87,269 99,493
Gross margin............................. 17.1% 19.9% 21.7% 22.0%
Cash flow from operations................ 21,921 (684) 22,537 33,832
EBITDA margin............................ 9.8% 11.3% 12.7% 12.8%
Ratio of EBITDA to interest expense...... 3.0x 2.6x 2.3x 2.8x
Ratio of total debt to EBITDA............ 3.5x 4.1x 4.2x 3.4x
Ratio of earnings to fixed charges(b).... 1.8x 1.3x --(c) 1.0x
</TABLE>
<TABLE>
<CAPTION>
As of July 31, 1997
------------------------------
Historical Pro Forma
------------- -------------
<S> <C> <C>
Balance sheet data:
Working capital.......................................................... $ 155,302 $ 171,023
Total assets............................................................. 570,569 632,060
Total debt............................................................... 363,768 341,294
Total stockholders' (deficit) equity..................................... (8,536) 86,153
</TABLE>
9
<PAGE>
(a) EBITDA represents the sum of income from continuing operations before
interest expense, income taxes, preferred dividend requirement of subsidiary,
minority interest in income of subsidiaries, gain on sale of building and
restructuring charges, plus depreciation, amortization and non-cash
post-retirement benefits other than pensions. EBITDA should not be construed as
a substitute for income from operations, net income or cash flow from operating
activities for the purpose of analyzing the Company's operating performance,
financial position and cash flows. The Company has presented EBITDA because it
is commonly used by certain investors to analyze and compare companies on the
basis of operating performance and to determine a company's ability to service
debt. This definition of EBITDA differs from the definition of EBITDA used in
the Indenture for the Notes and may not be comparable to EBITDA as defined by
other companies. See "Description of Notes--Certain Definitions."
(b) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
fixed charges. Fixed charges include preferred dividend requirement of
subsidiary, interest expense and the portion of operating rents that is deemed
representative of an interest factor.
(c) The deficiency of earnings to fixed charges was $13.5 million.
Excluding the restructuring charge, the ratio of earnings to fixed charges would
have been 1.5x.
10
<PAGE>
RISK FACTORS
In evaluating an investment in the securities offered hereby, prospective
investors should carefully consider the following risk factors, as well as the
other information set forth elsewhere in this Prospectus.
Substantial Leverage and Debt Service Obligations
The Company incurred substantial indebtedness in connection with the GM
Acquisition. After adjusting for the Transactions and the application of the net
proceeds therefrom, at July 31, 1997, the Company's total indebtedness would
have been $341.3 million (exclusive of unused commitments and outstanding
letters of credit), and the Company would have had common stockholders' equity
of $86.2 million. The degree to which the Company is leveraged could have
important consequences, including the following: (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest on its existing indebtedness, thereby reducing the funds
available to the Company for other purposes; (iii) the Company's operations are
restricted by the agreements governing the Company's long-term indebtedness
which contain certain financial and operating covenants; (iv) certain
indebtedness under the Senior Credit Facility will be at variable rates of
interest, which will cause the Company to be vulnerable to increases in interest
rates; (v) all of the indebtedness outstanding under the Senior Credit Facility
will be secured by substantially all the assets of the Company and that
indebtedness, together with the Senior Subordinated Notes (as defined), will
become due prior to the time the principal on the Notes will become due; (vi)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; and (vii) the Company's substantial degree of leverage could make it
more vulnerable in the event of a downturn in general economic conditions or in
its business.
The Company may be required to refinance all or a portion of its present
indebtedness, substantially all of which matures prior to the maturity of the
Notes, at or prior to the maturity of such indebtedness. In the event that the
Company is unable to refinance its existing indebtedness or otherwise raise
funds to repay such indebtedness, the Company's financial condition and ability
to fund its operations would be materially adversely affected. See "Description
of Capital Stock," "Description of Indebtedness" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Dependence on General Motors
GM accounted for approximately 97% of the Company's 1997 pro forma
automotive OEM net sales and approximately 4.5% of the Company's 1997 pro forma
heavy duty OEM net sales. GM SPO accounted for approximately 24.2% of the
Company's 1997 pro forma aftermarket net sales, and GM and GM SPO collectively
accounted for approximately 38.8% of the Company's total 1997 pro forma net
sales. In connection with the GM Acquisition, GM entered into long-term
contracts pursuant to which it has agreed to purchase from the Company 100% of
its North American requirements for automotive starters (other than for Saturn
and Geo) and 100% of its U.S. and Canadian requirements for heavy duty starters
and alternators, in each case to purchase the existing product line (as of
August 1994). GM's obligations to purchase automotive starters and heavy duty
starters and alternators from the Company terminate in 2004 and 2000,
respectively, except for automotive products released in 1996 and 1997, for
which GM's obligation will terminate in 2006 and 2007, respectively. GM's
commitments to purchase products from the Company in the future are subject,
however, to the Company's remaining competitive as to technology, design and
price. See "Business--Customers." There can be no assurance that GM will not
develop alternative sources for components currently produced by the Company and
purchase some or all of its requirements for starters and alternators from these
alternative sources at the expiration of its obligation to purchase such
components from the Company. In addition, GM has been designated as an exclusive
distributor of a significant amount of the Company's automotive and heavy duty
aftermarket products and has agreed to provide the Company with purchasing
support, which enables it to obtain raw materials at competitive prices. The
Company's exclusive distribution arrangements with GM for the Company's heavy
duty aftermarket products and automotive aftermarket products terminate on July
31, 1998 and in 2009, respectively. There can be no assurance that the Company
and GM will negotiate a new arrangement for the distribution of heavy duty
aftermarket products when the current distribution arrangement terminates on
July 31, 1998, or whether the Company or GM will develop alternative
distribution channels.
11
<PAGE>
The loss of GM as a customer of OEM or aftermarket products, the default by
GM on its obligations to act as a distributor or to purchase the Company's OEM
or aftermarket products, a substantial decrease in demand for GM's automobile
models containing the Company's products or the failure of the Company to obtain
supply orders for its products used in GM's new automobile models could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, strikes and work stoppages affecting GM's
operations may postpone GM's need for components produced by the Company, which,
because of the Company's highly leveraged position, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Labor Negotiations."
Relocation of Facilities
The Company is in the process of relocating certain of its manufacturing
facilities. Specifically, the Company has relocated certain production lines
from three of its OEM manufacturing facilities to three focus factories. The
Company has entered into leases for two additional focus factories and will
relocate additional production lines to those facilities and one additional
facility over the next year. At the conclusion of the relocation, the Company
will have vacated the three plants leased from GM. In addition, the Company
expects to relocate certain of its aftermarket facilities due to increased space
requirements and the need for a regional presence. The Company's subsidiaries
have conducted these moves in the past without significant disruption to
operations. While the Company believes that it has prepared for such
relocations, there can be no assurance that the complicated nature of such moves
will not result in unforeseen costs or delays or result in disruptions in the
Company's operations at the affected facilities. In addition, there can be no
assurance that additional moves will not be required in the future. The
restructuring charge recorded by the Company in 1997 does not include startup
costs the Company expects to incur, based on its prior startups, in connection
with the new focus factories. See "Risk Factors--Restructuring Charges; Net
Losses" and "Business--Manufacturing and Facilities."
Concentration of Ownership
Upon completion of the Transactions, CVC will own beneficially
approximately % of the Company's outstanding Common Stock (including
non-voting Class B Common Stock which, subject to applicable law, is convertible
at the holder's option into voting Class A Common Stock and after giving pro
forma effect to the exchange of the Company's Junior Subordinated Notes for
Class A Common Stock) and members of the management of the Company will own
beneficially approximately % of the Company's outstanding Common Stock.
Certain other existing stockholders of the Company will own beneficially
approximately % of the Company's outstanding Common Stock. If these
stockholders were to vote all of their shares in a similar manner, they would
effectively control the Company. In most circumstances, they would have
sufficient voting power to elect the entire Board of Directors of the Company
and, in general, to determine (without the consent of the Company's other
stockholders) the outcome of any corporate transaction or other matter submitted
to the stockholders for approval, including mergers, consolidations and the sale
of all or substantially all of the Company's assets, and to prevent or cause a
change in control of the Company. Further, CVC, certain members of management
and other existing stockholders have entered into a Stockholders' Agreement (as
defined) whereby they have agreed to vote their shares in such a manner as to
elect the entire Board of Directors of the Company. See "Principal
Stockholders--Stockholders' Agreement."
Restructuring Charges; Net Losses
The Company incurred restructuring charges totaling $34.5 million and $8.1
million in fiscal years 1997 and 1996, respectively. These charges contributed
to a loss from continuing operations and a net loss in fiscal year 1997 of $10.3
million and $14.3 million, respectively, and to a net loss in fiscal year 1996
of $4.8 million. These charges substantially reduced the Company's stockholders'
equity. For a discussion of these charges and other factors contributing to such
losses, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations." There can be no assurance that the Company will be able
to realize the benefits it anticipates from the restructurings or that the
Company will not incur additional charges in the future in connection with these
restructurings or other actions. See "Risk Factors--Relocation of Facilities"
and "Risk Factors--Labor Negotiations."
12
<PAGE>
Restrictive Debt Covenants
The agreements governing the Company's bank and other indebtedness include
certain covenants that, among other things, restrict the Company's ability to:
(i) pay dividends and make certain other restricted payments; (ii) incur
additional indebtedness; (iii) grant liens, other than liens created pursuant to
such agreements and certain permitted liens; and (iv) sell material assets. The
Senior Credit Facility also requires the Company to maintain certain financial
ratios, including interest coverage and leverage ratios, and to maintain a
minimum level of consolidated cash flow. There can be no assurance that these
requirements will be met in the future. If they are not, the holders of the
indebtedness under such agreements would be entitled to declare such
indebtedness immediately due and payable. See "Description of Capital Stock" and
"Description of Indebtedness."
Dependence on Automotive Industry; Cyclical Business
The sale of a significant portion of the Company's products is directly
related to the overall level of automobile, truck and heavy duty vehicle
production in North America, which is cyclical. Consequently, a decline in the
demand for new automobiles and trucks, particularly in North America, could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company has not yet operated during a general
economic downturn, and historical financial information for the Company during
adverse economic conditions is not available.
Risk Relating to Acquisitions
To expand its markets and take advantage of the consolidation trend in the
automotive parts industry, the Company's business strategy includes growth
through acquisitions. Although the Company believes that the operations of the
five companies it has acquired since the GM Acquisition are being successfully
integrated with the Company's operations, there can be no assurance that such
integration will continue to be successful, that future acquisitions can be
consummated on acceptable terms or that any acquired companies can be
successfully integrated into the Company's operations. The Company currently has
no commitments, understandings or arrangements with respect to any specific
acquisitions (other than for Ballantrae). However, the Company has entered into
strategic joint ventures in Mexico and Korea and expects to complete a strategic
alliance in India and a joint venture in Brazil in fiscal year 1998 and is
continually investigating opportunities for domestic and foreign acquisitions.
The Company's ability to make future acquisitions may also be constrained by its
ability to obtain financing. To the extent the Company uses equity to finance
future acquisitions, there is a risk of dilution to holders of Class A Common
Stock. See "Risk Factors--Substantial Leverage and Debt Service Obligations,"
"Risk Factors--Restrictive Debt Covenants," "Risk Factors--Acquisition of
Ballantrae; Conflicts of Interest," "Business--Business Strategy" and
"Description of Indebtedness."
In addition, acquisitions may involve a number of special risks, including:
initial reductions in the Company's reported operating results; diversion of
management's attention; unanticipated problems or legal liabilities; and a
possible reduction in reported earnings due to amortization of acquired
intangible assets in the event that such acquisitions are made at levels that
exceed the fair market value of net tangible assets. Some or all of these items
could have a material adverse effect on the Company. There can be no assurance
that businesses acquired in the future will achieve sales and profitability that
justify the investment therein. In addition, to the extent that consolidation
becomes more prevalent in the industry, the prices for attractive acquisition
candidates may increase to unacceptable levels.
Labor Negotiations
As of July 31, 1997, the Company employed 4,949 people, 848 of whom were in
management, engineering, supervision and administration and 4,101 of whom were
hourly employees. Of the Company's hourly employees, 1,969 are represented by
unions. In the United States, 1,485 of the Company's hourly workers are
represented by the International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America ("UAW") under a master agreement
between DRA (a wholly owned subsidiary of the Company) and the UAW. The Company
and the UAW agreed to a new master agreement in March 1997 when the agreement
that had been assumed by the Company expired. Wage and benefit increases under
the new contract generally follow the same pattern of the prior agreement and
continue to track the wages and benefits paid by GM and, as a result, the
Company will experience higher wage and benefit rates in future periods. In
addition, grow-in provisions under the
13
<PAGE>
new agreement will require the Company to move lower wage and benefit employees
to higher wage and benefit levels. There can be no assurance that the Company
will be able to effect cost reductions or productivity improvements to offset
such increased wage and benefit levels or that the Company's labor costs will
not increase significantly, in which case the Company's competitive position and
results of operations would be adversely affected. The master agreement between
the UAW and DRA will expire on March 22, 2001.
As of July 31, 1997, 141 of the Company's 459 Canadian employees were
represented by the Canadian Auto Workers and 97 were represented by the
Metallurgists Unis d'Amerique. The agreements with these unions expire on
November 8, 1999 and September 30, 1998, respectively.
As of July 31, 1997, approximately 246 of Autovill's 366 employees were
affiliated with the Hungarian Steel Industry Workers Union. The agreement was
signed July 17, 1996 and is perpetual, subject to termination upon three months'
notice from either party.
The Company's other facilities are primarily non-union. The Company is
unaware of any current efforts to organize any of the Company's facilities.
There can be no assurance that there will not be any labor union efforts to
organize employees at facilities that are not currently unionized.
Since the GM Acquisition, the Company has not experienced any organized
work stoppages. There can be no assurance, however, that any actions taken by
the Company, including the current restructurings, will not adversely affect the
Company's relations with its employees. At the present time, the Company
believes that its relations with its employees are good. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General."
Competition
The motor vehicle parts industry in which the Company operates is highly
competitive. Some of the Company's OEM competitors are divisions or subsidiaries
of companies that are larger and have substantially greater resources than the
Company. There can be no assurance that the Company will be able to compete
successfully with its competitors. See "Business--Competition."
Availability of Cores
In its remanufacturing operations, the Company obtains used components,
commonly known as "cores," from various sources, principally the Company's
existing customers. The Company also obtains cores from brokers who specialize
in buying and selling cores. The ability to obtain cores of the types and
quantities required by the Company is essential to the Company's ability to meet
demand and expand production in the remanufacturing business.
A sufficient supply of cores may not always be available to the Company to
permit it to respond fully to customer demands for the Company's remanufactured
products. Shortages of cores could result from, among other things, (i) a time
lag between the initial customer order for a remanufactured product and the
return of cores for such products, (ii) an inability to salvage cores for reuse
due to excessive wear or deterioration or (iii) an inability of the Company to
acquire cores because of loss or significant deterioration of the Company's
relationships with its customers. Although the Company believes that its
relationships with several of its customers will continue to provide it with
access to cores, there can be no assurance that the Company will continue to
have an adequate supply of cores for its remanufactured products.
Acquisition of Ballantrae; Conflicts of Interest
On October , 1997, the Company entered into an Agreement and Plan of
Merger to acquire Ballantrae (the "Ballantrae Acquisition Agreement"). Although
the Company has entered into the Ballantrae Acquisition Agreement and completed
its due diligence, the consummation of the transactions contemplated thereby are
subject to customary closing conditions for a transaction of this type,
including termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the lack of any material
adverse change in the business of Ballantrae. Although the Company does not
currently foresee any impediments to the consummation of the acquisition of
Ballantrae, the Company cannot offer any assurances that the acquisition will be
consummated. Even if consummated, the Company cannot guarantee that the
businesses conducted by Ballantrae can be effectively integrated into the
Company's other operations or that the Company will realize the
14
<PAGE>
benefits it expects to achieve through the acquisition of Ballantrae. The
Company has incurred due diligence, legal and other expenses in anticipation of
the acquisition of Ballantrae. If the acquisition is not consummated, these
expenses will have to be written off as non-recurring charges. See "Company
History," "Business--Acquisition of Ballantrae," and "Certain Transactions."
The terms of the Ballantrae Acquisition Agreement were not negotiated on an
arm's-length basis. As of July 31, 1997, CVC owned, on a fully-diluted basis,
71.9% of the outstanding common stock and 74.7% of the outstanding preferred
stock of Ballantrae. At that date, CVC also owned 47.5% of the Company's Common
Stock. See "Risk Factors--Concentration of Ownership." The Company believes,
however, that the terms of such agreement are fair to the Company and has
obtained a fairness opinion from Salomon Brothers Inc. The Company's directors,
excluding Messrs. Delaney, Cashin and Gerrity, have determined that the
acquisition of Ballantrae is in the best interests of the Company and its
stockholders and have approved the acquisition of Ballantrae. Because Mr.
Gerrity is a director of Ballantrae and as of July 31, 1997 owned, on a
fully-diluted basis, 15.0% of Ballantrae's common stock and 10.4% of its
preferred stock and Messrs. Delaney and Cashin are directors of Ballantrae, as
well as each being a stockholder and director of the Company, there is a
conflict of interest with respect to the acquisition of Ballantrae. As a
consequence, their economic interest in the transaction may result in decisions
that do not reflect the interests of the Company. Any damages which the Company
may suffer which result from a breach of the Ballantrae Acquisition Agreement
will be subject to a $10 million cap and the Company will only be able to
recover approximately % and % of its damages from CVC and Mr.
Gerrity, respectively (in each case including their affiliates). See "Company
History," "Business--Acquisition of Ballantrae" and "Certain Transactions."
Environmental Risks
The Company's operations and properties are subject to federal, state,
local and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, transportation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes. The nature of the
Company's operations exposes it to the risk of liabilities or claims with
respect to environmental matters, including off-site disposal matters, and there
can be no assurance that material costs will not be incurred in connection with
such liabilities or claims or that the indemnities provided by the sellers of
the various businesses acquired will be applicable or available.
Based upon the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws, regulations and
ordinances (or liability for known environmental claims) will not have a
material adverse effect on the Company's business, financial condition and
results of operations. However, future events, such as changes in existing laws
and regulations or their interpretation, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the Company's
business, financial condition and results of operations. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
may require additional expenditures by the Company that may be material. See
"Business--Regulatory Matters."
Shares Eligible for Future Sale; Registration Rights
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Class A Common Stock prevailing from time to time. Sales of
substantial amounts of Class A Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices of the Class A
Common Stock. The existing stockholders of the Company (the "Existing
Stockholders") were granted piggyback registration rights with respect to the
Company's Class A Common Stock when they purchased such shares. These piggyback
registration rights cover substantially all of the shares of Class A
Common Stock beneficially owned by the Existing Stockholders. In addition, CVC
and (after the consummation of the Equity Offering) World Equity Partners, L.P.
have demand rights to require registration of the shares of Class A Common
Stock held by them (including shares of Common Stock issuable upon exercise of
the Warrants). Of the shares of Common Stock to be outstanding after
the Offerings and the other Transactions, approximately million shares
will be shares of Class A Common Stock, and million shares will be
shares of Class B Common Stock. In addition, up to shares of Class A
Common Stock may be subject to a stock option plan of the Company and
shares of Class A Common Stock are issuable upon exercise of the Warrants. The
Company and each of the Company's current stockholders, directors, senior
15
<PAGE>
officers and warrant holders have agreed, subject to certain exceptions, not to
register for sale or offer, sell or transfer any shares of Common Stock for a
period of 180 days after the date of this Prospectus, without the prior written
consent of Morgan Stanley & Co. Incorporated. These agreements cover
approximately million shares of Class A Common Stock and
million shares of Class B Common Stock. The registration rights and related
restrictions described above apply to the shares of Class A Common Stock subject
to the stock option plan and the Warrants and any shares of Class B Common Stock
converted into Class A Common Stock. See "Shares Eligible for Future Sale" and
"Principal Stockholders--Registration Rights Agreement."
Dilution
Purchasers of Class A Common Stock in this Offering will experience
immediate and substantial dilution in net tangible book value per share of Class
A Common Stock from the initial public offering price. The Existing Stockholders
will experience an increase in net tangible book value per share as a result of
this Offering. Assuming an offering price of $ per share (the midpoint
of the range of prices set forth on the cover of this Prospectus), the dilution
in net tangible book value to purchasers of Class A Common Stock in this
Offering would be $ per share, and the Existing Stockholders, including
certain members of the management of the Company, CVC and current and former
employees and directors of the Company, would experience an increase in net
tangible book value of $ per share as a result of this Offering. In
addition, the price per share of Common Stock paid by the Existing Stockholders
is significantly lower than the assumed price for the shares offered hereby. In
connection with the Offerings, the holders of the Company's Junior Subordinated
Notes will exchange such notes for shares of Class A Common Stock at a
per share price equal to the price of the shares of Class A Common Stock offered
by this Prospectus less underwriting discounts and commissions. The calculations
in this paragraph give effect to such exchange. See "Dilution" and "Principal
Stockholders."
Holding Company Structure
Because the Company is a holding company which derives all of its operating
income from its subsidiaries, the Company will be dependent on dividends and
other payments from its subsidiaries to generate the funds necessary to meet its
obligations and pay any dividends. The ability of the Company's subsidiaries to
pay dividends and make other payments are subject to certain statutory,
contractual and other restrictions. See "Description of Indebtedness."
Absence of Public Market for the Class A Common Stock
Prior to the Offering, there has been no public market for the Class A
Common Stock. Although application has been made to list the Class A Common
Stock on the New York Stock Exchange, there can be no assurance that an active
or liquid trading market in the Class A Common Stock will develop upon
completion of the Equity Offering or, if developed, that it will be sustained.
The initial public offering price of the Class A Common Stock will be determined
through negotiations between the Company and the Underwriters and may not be
indicative of the market price for the Class A Common Stock after the Equity
Offering. The market price for shares of the Company's Class A Common Stock may
be highly volatile depending on changes in general market and industry
conditions. See "Underwriters."
COMPANY HISTORY
The Company was formed in November 1993 for the purpose of acquiring
certain assets of the automotive starter business and the heavy duty starter and
alternator business of the Former GM Division, which businesses the Company
acquired in July 1994.
Between January 1995 and May 1997, the Company completed five strategic
acquisitions and two international joint ventures. On January 6, 1995, the
Company acquired all of the capital stock of Nabco, Inc. ("Nabco") (the "Nabco
Acquisition"), a producer of remanufactured automotive starters and alternators.
In addition to selling its products to national automotive parts chains
(primarily Western Auto), prior to its acquisition by the Company, Nabco
supplied remanufactured parts in bulk (known as "kits") to the Company and GM
for final assembly and distribution.
On March 31, 1995, the Company acquired all of the capital stock of The A&B
Group, Inc. ("A&B Group") (the "A&B Acquisition"), a remanufacturer of
automotive starters, heavy duty starters and alternators and related
16
<PAGE>
subcomponents and parts. Prior to its acquisition by the Company, the A&B Group
was the Company's contract supplier of all heavy duty and certain automotive
remanufactured products.
On April 14, 1995, the Company acquired 96% of the capital stock of
Autovill, RT Ltd. ("Autovill") (the "Autovill Acquisition and, together with the
Nabco Acquisition and the A&B Acquisition, the "1995 Acquisitions"), a Budapest,
Hungary-based producer of new and remanufactured heavy duty starters and
alternators both for the OEM market and the aftermarket in Western and Eastern
Europe. Principal customers of Autovill include Caterpillar and Mercedes Benz.
The remaining 4% of the capital stock of Autovill is owned by current and former
employees of Autovill.
On February 6, 1996, the Company acquired 82.5% of the capital stock of
Power Investments, Inc. ("Power Investments") (the "Power Investments
Acquisition"), a remanufacturer of diesel and gasoline engines, transmissions,
fuel systems, alternators and starters for medium and heavy duty trucks and
automobiles; and, to a lesser extent, a remanufacturer of brakes, water pumps,
power steering pumps and various other truck parts and assemblies. Power
Investments has 15 facilities located in the United States and in five provinces
of Canada and is designated as a Ford FAR in such provinces. The remaining 17.5%
of the capital stock of Power Investments is owned by current management of
Power Investments, subject to put/call arrangements at a formula price for the
purchase by the Company of the remaining 17.5% of the shares of Power
Investments beginning in 2001.
In December 1996, the Company formed a 50/50 joint venture in Korea with
individual Korean investors to purchase the assets related to the starter motor
operations of the Company's former Korean licensee. In April 1997, the Company
and its former Mexican licensee, Sistemas y Electricos Componetos ("Sistemas"),
formed a joint venture, 76% of which is owned by the Company and 24% of which is
owned by an affiliate of Sistemas. Each of these joint ventures will manufacture
starters and alternators for the OEM market.
On May 8, 1997, the Company acquired 82.5% of the capital stock of World
Wide (the "World Wide Acquisition"), a remanufacturer and distributor of import
automotive starters and alternators. World Wide sells its products to national
automotive parts chains, including Auto Zone, Pep Boys, Advance Auto and
Discount Auto. The remaining 17.5% of the capital stock of World Wide is owned
by current management of World Wide, subject to put/call arrangements at a
formula price for the purchase by the Company of the remaining 17.5% of the
shares beginning in 2000.
On October , 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire Ballantrae for $49.2 million (including assumed debt).
Ballantrae operates through two subsidiaries: Tractech, a leading producer of
traction control systems for heavy duty OEMs and the aftermarket; and Kraftube,
Inc., a tubing assembly business which sells products to compressor
manufacturers for commercial air conditioners and refrigeration equipment. In
fiscal year 1997, Tractech accounted for approximately 70% of Ballantrae's $37.6
million of net sales. The Company will exchange shares of its Common Stock with
a value (at the initial public offering price in the Equity Offering) of
approximately $19 million for the equity of Ballantrae and will repay
approximately $30 million of Ballantrae's debt. The Common Stock of the Company
received by Ballantrae's existing stockholders in the acquisition will be
subject to resale restrictions under applicable securities laws. The acquisition
is expected to be completed at or prior to the consummation of the Offerings.
See "Risk Factors--Acquisition of Ballantrae; Conflicts of Interest,"
"Business--Acquisition of Ballantrae" and "Certain Transactions."
USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
approximately $181.1 million (approximately $189.4 million if the over-allotment
option in the Equity Offering is exercised in full) assuming an initial public
offering price of $ per share in the Equity Offering and after
deduction of underwriting discounts and commissions and estimated offering
expenses. The use of the proceeds of the Offerings, together with $1.4 million
of available cash, will be to repay in full the following indebtedness, which
was incurred by the Company in connection with the GM Acquisition and certain of
the Company's subsequent acquisitions: (i) the $75 million 10 1/2% Senior Note
due July 31, 2003 to World Subordinated Debt Partners, L.P., an affiliate of one
of the Company's existing stockholders (the "World Note"), at a price equal to
103% of such principal amount, (ii) the $59.2 million 11 1/2% Subordinated Note
due July 31, 2004 to GM (the "GM Acquisition Note"), (iii) the $8.3 million
9.86% Subordinated Notes due February 6, 2001 to the selling stockholders of
Power Investments (the
17
<PAGE>
"Power Investments Seller Notes"), (iv) the $3.5 million 10% Subordinated Notes
due September 30, 2001 to the selling stockholders of A&B Group (the "A&B Seller
Notes"), (v) the $20.8 million of borrowings outstanding under Ballantrae's
senior credit facility (the "Ballantrae Senior Bank Debt") and (vi) $9.3 million
of Tractech's $10.0 million 11% Subordinated Note due October 31, 2006 to Dyneer
Corporation (the "Ballantrae Subordinated Debt"). Any accrued and unpaid
interest on such indebtedness will also be repaid with the proceeds of the
Offerings.
The following table sets forth a summary of the expected sources and uses
of the estimated net proceeds from the Offerings, assuming no exercise of the
over-allotment option in the Equity Offering and including interest accrued to
December 15, 1997, the assumed date of the consummation of the Offerings (in
millions of dollars):
<TABLE>
<CAPTION>
Sources of Funds (net of underwriting discounts and commissions)
<S> <C>
Equity Offering.................................. $ 55.8
Notes Offering................................... 126.8
Available Cash................................... 1.4
-------------
Total sources of funds...................... $ 184.0
=============
<CAPTION>
Uses of Funds
<S> <C>
Repayment of Power Investments Seller Notes...... $ 8.3
Repayment of World Note.......................... 78.9
Repayment of GM Acquisition Note................. 61.7
Repayment of A&B Seller Notes.................... 3.6
Repayment of Ballantrae Senior Bank Debt......... 20.8
Repayment of Ballantrae Subordinated Debt........ 9.2
Fees and expenses for the Offerings.............. 1.5
-------------
Total uses of funds......................... $ 184.0
=============
</TABLE>
18
<PAGE>
DIVIDEND POLICY
Payment of dividends is within the discretion of the Company's Board of
Directors and will depend, among other factors, upon the Company's earnings,
financial condition and capital requirements and the terms of the Company's
financing agreements. The Company plans to retain future earnings for use in the
business and, accordingly, the Company does not anticipate paying dividends in
the foreseeable future. The Company has not previously paid any cash dividends
to its stockholders. The Senior Credit Facility and the indentures for the Notes
and the Senior Subordinated Notes restrict the ability of the Company to make
dividend payments.
DILUTION
The deficiency in net tangible book value (tangible assets minus total
liabilities) of the Company as of July 31, 1997 was $ million, or $
per share of Class A Common Stock assuming the Stock Split. After
giving effect to the sale of the shares, of Class A Common Stock offered by the
Company hereby at an assumed initial offering price of $ per share (and
deducting the estimated underwriting discount and offering expenses), the pro
forma net tangible book value of the Company as of July 31, 1997 would have been
approximately $ , or $ per share. This change represents an
immediate increase in net tangible book value of $ per share to the
Existing Stockholders and an immediate dilution of $ per share to
investors purchasing shares of Class A Common Stock in this Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.......................... $
Net tangible book value (deficit) per share before this Offering. ( )
Increase in net tangible book value per share attributable to new
investors........................................................
---------------
Net tangible book value per share after this Offering............
--------------
Dilution per share to new investors.............................. $
==============
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option. After giving effect to the issuance of Common Stock in connection with
the acquisition of Ballantrae, the dilution per share to new investors would be
$ .
The following table summarizes as of , 1997, the differences
between Existing Stockholders and investors purchasing shares of Class A Common
Stock in this Offering with respect to the number of shares of Common Stock
purchased from the Company (assuming no exercise of the Underwriters' over-
allotment option), the total consideration paid and the average price per share
paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------------------- ---------------------------------
Average Price
Number Percent Amount Percent Per Share
-------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders % $ % $
New Investors
-------------- --------------- -------------- ---------------
Total % $ %
============== =============== ============== ===============
</TABLE>
In connection with the Offerings, the holders of the Company's Junior
Subordinated Notes will exchange such notes for shares of Class A
Common Stock at a per share price equal to the price of the shares of Class A
Common Stock offered by this Prospectus less underwriting discounts and
commissions. The calculations set forth in this section give effect to such
exchange.
19
<PAGE>
CAPITALIZATION
The following table sets forth the current portion of the long-term debt
and the consolidated capitalization of the Company as of July 31, 1997 and pro
forma to give effect to the Transactions including the Offerings (assuming no
exercise of the over-allotment option in connection with the Equity Offering)
and the application of the net proceeds thereof. See "Use of Proceeds." This
table should be read in conjunction with the unaudited "Pro Forma Condensed
Consolidated Financial Data," "Selected Consolidated Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes thereto
included elsewhere in this Prospectus. See also "Description of Capital Stock"
and "Description of Indebtedness."
<TABLE>
<CAPTION>
As of July 31, 1997
-------------------------------------
Historical Pro Forma
----------------- ----------------
(in thousands)
<S> <C> <C>
Current portion of long-term debt.................................. $ 507 $ 507
================= ================
Long-term debt:
Senior Credit Facility........................................ $ 34,963 $ 34,963
Power Investments Seller Notes................................ 8,300 --
World Note.................................................... 75,000 --
% Senior Notes Due 2007................................... -- 130,000
Senior Subordinated Notes..................................... 140,000 140,000
GM Acquisition Note........................................... 59,155 --
8% Subordinated Debenture..................................... -- 17,942(a)
A&B Seller Notes.............................................. 3,500 --
Ballantrae Subordinated Debt.................................. -- 750
Other, including capital lease obligations.................... 17,132 17,132
Junior Subordinated Notes..................................... 25,211 --
----------------- ----------------
Total long-term debt...................................... 363,261 340,787
Minority interest.................................................. 8,032 8,032
Redeemable exchangeable preferred stock of subsidiary.............. 16,071(a) --
Stockholders' (deficit) equity:
Class A Common Stock (par value $.01; authorized 1,000,000;
issued and outstanding 525,477 historical, pro forma) 5 5
Class B Common Stock (par value $.01; authorized 1,000,000;
issued and outstanding 385,523 historical, pro forma). 4 4
Additional paid-in capital.................................... 10,194 109,455
Retained (deficit) earnings................................... (12,174) (16,746)
Cumulative translation adjustment............................. (1,752) (1,752)
Stock purchase plan........................................... (4,813) (4,813)
----------------- ----------------
Total stockholders' (deficit) equity...................... (8,536) 86,153
----------------- ----------------
Total capitalization...................................... $ 378,828 $ 434,972
================= ================
</TABLE>
- ---------------
(a) Reflects the exchange of the redeemable exchangeable preferred stock of
subsidiary to the 8% Subordinated Debenture as permitted by the terms of
such preferred stock. For details regarding this exchange, see footnote (d)
to the "Unaudited Pro Forma Condensed Consolidated Statement of
Operations."
20
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical financial
data of the Company for and as of the years ended July 31, 1995, 1996 and 1997.
The statement of operations data for the years ended July 31, 1995, 1996 and
1997 and the balance sheet data as of July 31, 1995, 1996 and 1997 were derived
from audited Consolidated Financial Statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors. The table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements of the Company
and related notes and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
For the Year Ended July 31
---------------------------------------------------------
1995 1996 1997
---------------- ---------------- -----------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Statement of operations data:
Net sales................................ $ 573,423 $ 636,852 $ 689,787
Gross profit............................. 98,207 126,774 149,553
Selling, engineering and administrative
expense.............................. 61,206 77,994 89,098
Restructuring charges.................... -- 8,101 34,500
Operating income......................... 37,001 40,679 25,955
Interest expense......................... 18,432 27,367 38,774
Income (loss) from continuing operations. 9,326 5,796 (10,263)
Loss from discontinued operations, net of
tax benefit.......................... 2,363 10,637 1,682
Net income (loss)........................ 6,963 (4,841) (14,296)
Income (loss) from continuing operations
per share............................ $ $ $
Net income (loss) per share..............
Financial ratios and other data:
Depreciation and amortization............ $ 14,533 $ 19,555 $ 22,323
Capital expenditures..................... 11,241 32,741 31,888
EBITDA(a)................................ 55,968 72,087 87,269
Cash flow from operations................ 21,921 (684) 22,537
Gross margin............................. 17.1% 19.9% 21.7%
EBITDA margin............................ 9.8% 11.3% 12.7%
Ratio of EBITDA to interest expense...... 3.0x 2.6x 2.3x
Ratio of total debt to EBITDA............ 3.5x 4.1x 4.2x
Ratio of earnings to fixed charges(b).... 1.8x 1.3x --(c)
Balance sheet data (at end of period):
Working capital.......................... $ 61,268 $ 113,801 $ 155,302
Total assets............................. 322,527 475,082 570,569
Total debt............................... 196,988 298,796 363,768
Redeemable exchangeable preferred stock
of subsidiary........................ 12,903 14,420 16,071
Total stockholders' equity (deficit)..... 8,430 1,589 (8,536)
</TABLE>
See Accompanying Notes
21
<PAGE>
(a) EBITDA represents the sum of income from continuing operations before
interest expense, income taxes, preferred dividend requirement of subsidiary,
minority interest in income of subsidiaries, gain on sale of building and
restructuring charges, plus depreciation, amortization and non-cash
post-retirement benefits other than pensions. EBITDA should not be construed as
a substitute for income from operations, net income or cash flow from operating
activities for the purpose of analyzing the Company's operating performance,
financial position and cash flows. The Company has presented EBITDA because it
is commonly used by certain investors to analyze and compare companies on the
basis of operating performance and to determine a company's ability to service
debt. This definition of EBITDA differs from the definition of EBITDA used in
the Indenture for the Notes and may not be comparable to EBITDA as defined by
other companies. See "Description of Notes--Certain Definitions."
(b) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
fixed charges. Fixed charges include preferred dividend requirement of
subsidiary, interest expense (which includes amortization of deferred financing
costs) and the portion of operating rents that is deemed representative of an
interest factor.
(c) Earnings were insufficient to cover fixed charges by $13.5 million.
Excluding the restructuring charge, the ratio of earnings to fixed charges would
have been 1.5x.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial data are
based on the Consolidated Financial Statements included elsewhere in this
Prospectus, adjusted to give effect to the Transactions, including the
Offerings.
The unaudited pro forma condensed consolidated statement of operations for
the year ended July 31, 1997 have been adjusted to give effect to the
Transactions, including the Offerings, as if they had occurred on August 1,
1996. The unaudited pro forma condensed consolidated balance sheet at July 31,
1997 has been adjusted to give effect to the Transactions, including the
Offerings, as if they had occurred on July 31, 1997 (other than the acquisition
of World Wide, which is reflected in the historical balance sheet data).
The unaudited pro forma financial data do not purport to be indicative of
the results of operations or the financial position that would actually have
been obtained if the Transactions, including the Offerings, had occurred on the
dates indicated or of the results of operations or the financial position that
may be obtained in the future. The unaudited pro forma financial data are
presented for comparative purposes only. The pro forma adjustments, as described
in the accompanying data, are based on available information and certain
assumptions that management believes are reasonable. The unaudited pro forma
financial data should be read in conjunction with the Consolidated Financial
Statements of the Company and related notes thereto included elsewhere in this
Prospectus.
The unaudited pro forma financial data with respect to the acquisitions of
World Wide and Ballantrae are based on the historical financial statements of
the businesses acquired and have been accounted for using the purchase method of
accounting. The purchase price, including the related fees and expenses, have
been allocated to the tangible and identifiable intangible assets and
liabilities of the acquired businesses based upon the Company's estimates of
their fair value, with the remainder allocated to goodwill. The pro forma
adjustments directly attributable to the acquisitions of World Wide and
Ballantrae include adjustments to interest expense related to the financing,
charges for amortization of intangible assets and depreciation of property and
equipment relating to the allocation of the purchase price and the related tax
effects.
23
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended July 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Adjustments Pro Forma
for the for the
Acquisitions Acquisitions
of of
World Wide World Wide Adjustments Pro Forma
and and for Other for
Historical Ballantrae(a) Ballantrae Transactions Transactions
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $689,787 $ 86,581 $ 776,368 $ -- $ 776,368
Cost of goods sold............................ 540,234 65,612 605,846 -- 605,846
------------ ------------- ------------ ------------ ------------
Gross profit.................................. 149,553 20,969 170,522 -- 170,522
Selling, engineering, and administrative
expenses................................. 89,098 12,469 101,567 -- 101,567
Restructuring charges......................... 34,500 -- 34,500 -- 34,500
------------ ------------- ------------ ------------ ------------
Operating income.............................. 25,955 8,500 34,455 -- 34,455
Other income (expense):
Gain on sale of building................. 2,082 -- 2,082 -- 2,082
Interest expense......................... (38,774) (4,905) (43,679) 8,384 (b) (35,295)
------------ ------------- ------------ ------------ ------------
(Loss) income from continuing operations
before income taxes, preferred dividend
requirement of subsidiary, and minority
interest................................. (10,737) 3,595 (7,142) 8,384 1,242
Minority interest in income of subsidiary..... 892 -- 892 -- 892
Income taxes (benefit)........................ (3,014) 1,387 (1,627) 3,354 (c) 1,727
Preferred dividend requirement of subsidiary.. 1,648 -- 1,648 (1,648)(d) --
------------ ------------- ------------ ------------ ------------
(Loss) income from continuing operations...... $(10,263) $ 2,208 $ (8,055) $ 6,678 $ (1,377)
============ ============= ============ ============ ============
Loss from continuing operations per share..... $
============
</TABLE>
See Accompanying Notes
24
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
(in thousands)
(a) The adjustments for the acquisitions of World Wide and Ballantrae represent
the effects on the statement of operations of such acquisitions as if they
occurred on August 1, 1996. These adjustments are summarized in the
following table:
<TABLE>
<CAPTION>
World Wide Ballantrae Combined
-------------- --------------- ---------------
<S> <C> <C> <C>
Net sales.................................................. $ 49,014 $ 37,567 $ 86,581
Cost of goods sold......................................... 40,935 24,677 65,612
-------------- --------------- ---------------
Gross profit............................................... 8,079 12,890 20,969
Selling, engineering, and administrative expenses.......... 6,319 6,150 12,469
-------------- --------------- ---------------
Operating income........................................... 1,760 6,740 8,500
Interest expense........................................... (2,280) (2,625) (4,905)
Income taxes (benefit)..................................... (47) 1,434 1,387
-------------- --------------- ---------------
(Loss) income from continuing operations................... $ (473) $ 2,681 $ 2,208
============== =============== ===============
</TABLE>
(b) Reflects decreases (or increases) in interest expense and amortization of
deferred financing costs as if the Transactions occurred on August 1, 1996
as follows:
<TABLE>
<CAPTION>
For the
Year Ended
July 31, 1997
---------------
<S> <C>
Reduced interest from the amendment of the Senior Credit Facility.............. $ 190
Amortization of deferred financing costs associated with the amendment to the
Senior Credit Facility.................................................... (30)
Repayment of Power Investments Seller Notes.................................... 818
Repayment of World Note........................................................ 7,875
Reversal of 1997 amortization of deferred financing costs associated with
repayment of World Note................................................... 454
Interest expense for the % Senior Notes Due 2007......................... (11,050)
Amortization of deferred financing costs associated with % Senior
Notes Due 2007............................................................ (400)
Repayment of GM Acquisition Note............................................... 6,552
Repayment of A&B Seller Notes.................................................. 350
Repayment of Ballantrae Senior Bank Debt....................................... 1,552
Repayment of Ballantrae Subordinated Debt...................................... 1,073
Exchange of Junior Subordinated Notes.......................................... 2,593
Interest expense relating to the 8% Subordinated Debenture exchanged for the
redeemable exchangeable preferred stock of subsidiary..................... (1,593)
---------------
Net reduction in interest expense.............................................. $ 8,384
===============
</TABLE>
The interest rate on the % Senior Notes Due 2007 is assumed to be 8 1/2%.
For each 1/4% difference in the interest rate the annual interest expense would
change by $325.
(c) Represents the income tax expense related to the pro forma interest expense
reduction at an assumed marginal tax rate of 40%.
25
<PAGE>
(d) Represents the reversal of preferred dividend requirement of subsidiary
recorded in 1997 which results from the assumed exchange of the preferred
stock for the 8% Subordinated Debenture effective August 1, 1996.
A deemed preferred dividend of subsidiary arises from the exchange of the
redeemable exchangeable preferred stock of subsidiary for the excess of the
fair value of the 8% Subordinated Debenture over the carrying value of the
redeemable exchangeable preferred stock of subsidiary as shown below. This
nonrecurring charge, which has not been reflected in the pro forma
condensed consolidated statement of operations, will be charged against the
income of the Company in the period of exchange. Upon completion of the
exchange no further dividends will occur.
<TABLE>
<CAPTION>
For the
Year Ended
July 31, 1997
---------------
<S> <C>
Fair value of the 8% Subordinated Debenture.................................... $ 17,942
Carrying value of the redeemable exchangeable preferred stock of subsidiary.... 16,071
---------------
Deemed preferred dividend of subsidiary arising from exchange.................. $ 1,871
===============
</TABLE>
26
<PAGE>
Unaudited Pro Forma Condensed Consolidated Balance Sheet
July 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Adjustments Pro Forma
for for Adjustments Pro Forma
Ballantrae Ballantrae for Other for
Historical Acquisition(a) Acquisition Transactions Transactions
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents........ $ 10,050 $ 347 $ 10,397 $ 2,635(b) $ 13,032
Trade accounts receivable........ 110,184 5,838 116,022 -- 116,022
Other receivables................ 10,487 -- 10,487 -- 10,487
Recoverable income tax........... 2,889 -- 2,889 1,801(g) 4,690
Inventories...................... 164,417 10,127 174,544 -- 174,544
Deferred income taxes............ 21,474 -- 21,474 -- 21,474
Other current assets............. 4,643 55 4,698 -- 4,698
------------- ------------- -------------- ------------- --------------
Total current assets............. 324,144 16,367 340,511 4,436 344,947
Property and equipment............... 147,222 16,834 164,056 -- 164,056
Less accumulated depreciation........ 26,858 -- 26,858 -- 26,858
------------- ------------- -------------- ------------- --------------
120,364 16,834 137,198 -- 137,198
Deferred financing costs............. 8,803 -- 8,803 1,958(c) 10,761
Goodwill (less accumulated
amortization).................... 86,612 21,168 107,780 -- 107,780
Net assets held for disposal......... 25,279 -- 25,279 -- 25,279
Investment in affiliate.............. 3,119 -- 3,119 -- 3,119
Other assets......................... 2,248 728 2,976 -- 2,976
------------- ------------- -------------- ------------- --------------
Total assets......................... $ 570,569 $ 55,097 $ 625,666 $ 6,394 $ 632,060
============= ============= ============== ============= ==============
Liabilities and stockholders'
(deficit) equity:
Current liabilities:
Accounts payable................. $ 88,578 $ 2,398 $ 90,976 -- $ 90,976
Accrued interest payable......... 3,107 2,078 5,185 -- 5,185
Accrued restructuring charges.... 37,377 -- 37,377 -- 37,377
Liabilities related to
discontinued operations 3,324 -- 3,324 -- 3,324
Other liabilities and accrued
expenses......................... 35,949 606 36,555 -- 36,555
Current portion of long-term debt 507 -- 507 -- 507
------------- ------------- -------------- ------------- --------------
Total current liabilities........ 168,842 5,082 173,924 -- 173,924
Deferred income taxes................ 1,556 265 1,821 -- 1,821
Long-term debt, less current
portion(d)....................... 363,261 30,750 394,011 (53,224) 340,787
Post-retirement benefits other than
pension.......................... 12,677 -- 12,677 -- 12,677
Accrued pension benefit.............. 4,542 -- 4,542 -- 4,542
Other non-current liabilities........ 4,124 -- 4,124 -- 4,124
Minority interest in subsidiary...... 8,032 -- 8,032 -- 8,032
Redeemable exchangeable preferred
stock of subsidiary.............. 16,071 -- 16,071 (16,071)(e) --
Stockholders' (deficit) equity:
Common Stock:....................
Class A Shares................ 5 -- 5 -- 5
Class B Shares................ 4 -- 4 -- 4
Paid-in capital(f)............... 10,194 19,000 29,194 80,261(f) 109,455
Retained earnings (deficit)...... (12,174) -- (12,174) (4,572)(g) (16,746)
Cumulative translation adjustment (1,752) -- (1,752) -- (1,752)
Stock purchase plan.............. (4,813) -- (4,813) -- (4,813)
------------- ------------- -------------- ------------- --------------
Stockholders' (deficit) equity....... (8,536) 19,000 10,464 75,689 86,153
------------- ------------- -------------- ------------- --------------
Total liabilities and stockholders'
(deficit) equity................. $ 570,569 $ 55,097 $ 625,666 $ 6,394 $ 632,060
============= ============= ============== ============= ==============
</TABLE>
See Accompanying Notes
27
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(in thousands)
(a) Represents the adjustments for the Ballantrae acquisition as if it had
occurred as of July 31, 1997. The acquisition will be accounted for by the
purchase method of accounting. Using the purchase method of accounting, the
total purchase price will be allocated to tangible and intangible assets
and liabilities of Ballantrae based upon the Company's estimates of their
respective fair values at the date of the acquisition.
(b) Represents the sources and uses of cash in connection with the Transactions
as follows:
<TABLE>
<CAPTION>
As of
July 31, 1997
---------------
<S> <C>
Estimated proceeds from the Offerings (net of underwriting
discounts and commissions)............................... $ 182,550
Senior Credit Facility refinancing fee........................ (210)
Repayment of Power Investments Seller Notes................... (8,300)
Repayment of World Note....................................... (77,250)
Repayment of GM Acquisition Note.............................. (59,155)
Repayment of A&B Seller Notes................................. (3,500)
Repayment of Ballantrae Senior Bank Debt...................... (20,750)
Repayment of Ballantrae Subordinated Debt..................... (9,250)
Other fees and expenses of the Offerings...................... (1,500)
---------------
Cash available for general corporate purposes................. $ 2,635
===============
</TABLE>
(c) Represents the change in the deferred financing costs and related tax
benefit with respect to the World Note as follows:
<TABLE>
<CAPTION>
As of
July 31, 1997
---------------
<S> <C>
Deferred financing costs related to the Offerings............. $ 4,000
Deferred financing costs related to the Senior Credit Facility
refinancing.............................................. 210
Write-off of World Note deferred financing costs as a result
of early extinguishment.................................. (2,252)
---------------
$ 1,958
===============
</TABLE>
28
<PAGE>
(d) Details regarding the changes to long-term debt are as follows:
<TABLE>
<S> <C>
Total long-term debt (historical)........................ $ 363,261
Ballantrae Senior Bank Debt.............................. 20,750
Ballantrae Subordinated Debt............................. 10,000
-----------------
Pro forma for Ballantrae Acquisition..................... 394,011
-----------------
Power Investments Seller Notes........................... (8,300)
World Note............................................... (75,000)
GM Acquisition........................................... (59,155)
A&B Seller Notes......................................... (3,500)
Ballantrae Senior Bank Debt.............................. (20,750)
Ballantrae Subordinated Debt............................. (9,250)
Junior Subordinated Notes................................ (25,211)
% Senior Notes Due 2007............................ 130,000
8% Subordinated Debenture................................ 17,942
-----------------
Adjusted for other Transactions.......................... (53,224)
-----------------
Pro forma for Transactions............................... $ 340,787
=================
</TABLE>
(e) Elimination of redeemable exchangeable preferred stock of subsidiary
exchanged for the 8% Subordinated Debenture.
(f) Details regarding the changes to equity, exchange of equity, issuance of
Common Stock and exchange of Junior Subordinated Notes are as follows:
<TABLE>
<S> <C>
Paid in capital (historical)....................................... $ 10,194
Common Stock issued in Ballantrae acquisition...................... 19,000
---------------
Pro forma for Ballantrae acquisition............................... 29,194
---------------
Equity Offering.................................................... 55,800
Exchange of Junior Subordinated Notes.............................. 25,211
Fees for Equity Offering........................................... (750)
---------------
Adjusted from other transactions................................... 80,261
---------------
Pro forma for Transactions......................................... $ 109,455
===============
</TABLE>
29
<PAGE>
(g) Represents the extraordinary loss relating to the early extinguishment of
the World Note net of taxes at a marginal rate of 40% and the deemed
preferred dividend of subsidiary arising from the exchange of the
redeemable exchangeable preferred stock of subsidiary as follows:
<TABLE>
<CAPTION>
As of
July 31, 1997
---------------
<S> <C>
Early extinguishment penalty on World Note.................... $ (2,250)
Write-off of World Note deferred financing costs as a result
of early extinguishment.................................. (2,252)
Tax effect of early extinguishments........................... 1,801
Deemed dividend of preferred stock of subsidiary.............. (1,871)
---------------
Net charge to retained earnings (deficit)..................... $ (4,572)
===============
</TABLE>
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company sells its products in the aftermarket and the OEM market,
principally in North America and also in Europe, Latin America and Asia-Pacific.
In addition to purchasing newly manufactured parts for use in new vehicle
production, OEMs are also significant customers of the Company's aftermarket
products. These aftermarket products are distributed through the OEMs'
affiliated dealer networks.
The aftermarket is highly fragmented and competitive. The Company believes
that consolidation of aftermarket suppliers is occurring due, in part, to higher
quality standards for remanufactured products, which may be more expensive or
technically difficult for smaller remanufacturers to meet. The Company plans to
continue to increase its penetration of the aftermarket through internal growth
and strategic acquisitions.
The demand for components in the OEM market is cyclical. The Company
believes that opportunities for growth in the OEM market will come primarily
through the introduction of new products and expansion of the Company's global
operations. The Company believes that its aftermarket and OEM businesses are
complementary and provide the Company with a competitive advantage in meeting
customer needs and maintaining the high levels of expertise necessary to compete
successfully in both markets. The high capability necessary to meet the
stringent requirements for OEM technology and quality are transferable by the
Company to its aftermarket operations.
For 1997, the aftermarket accounted for approximately 45.2% of the
Company's net sales and approximately 62.8% of the Company's EBITDA (as
defined). Net sales and EBITDA attributable to the OEM market accounted for the
remainder.
The primary components of cost of goods sold in the Company's aftermarket
business include the cost of cores and component parts, labor costs and
overhead. While the availability and cost of cores fluctuate based on supply and
demand, the Company's relationships with dealers and other customers have
historically provided it with sufficient access to cores at favorable prices.
The primary components of cost of goods sold in the Company's OEM business
include material, labor and overhead. The Company's domestic OEM labor force is
represented primarily by the UAW. In March 1997, the Company signed a new master
agreement with the UAW. Wage and benefit increases under the new agreement
generally follow the same pattern as the prior agreement and continue to track
the wages and benefits paid by GM and, as a result, the Company will experience
higher wage and benefit rates in future periods. In addition, grow-in provisions
under the new agreement will require the Company to move lower wage and benefit
employees to higher wage and benefit levels. Under provisions of the national
agreement, the UAW and the Company have recently developed a special program of
incentives for hourly employees who agree to leave the Company. The cost of this
program is included in the restructuring charges for fiscal year 1997 described
below. The Company is in the process of shifting OEM production to focus
factories which the Company believes can reduce costs.
Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations, and
entered into two international joint ventures. These acquisitions and joint
ventures have broadened the Company's product line, expanded its remanufacturing
capability, extended its participation in international markets and increased
its penetration of the retail automotive parts channel. As a result of these
acquisitions, joint ventures and the Company's focus on increasing its
participation in the aftermarket, the Company's reliance on GM has declined
since the Company's formation. Net sales to customers other than GM increased
from 41.0% in fiscal year 1995 to 56.1% in fiscal year 1997.
The portion of the Company's net sales derived from the aftermarket have
increased significantly over the past two years, from approximately 19.2% in
fiscal year 1995 to 45.2% in fiscal year 1997. For fiscal year 1997, GM
accounted for approximately 43.7% of the Company's total net sales, of which
30.3% were to GM's OEM businesses and 13.4% were to GM SPO. Substantially all of
the Company's fiscal year 1997 automotive OEM sales were to GM.
31
<PAGE>
In connection with the GM Acquisition, GM entered into long-term contracts
(the "Supply Agreements") pursuant to which it has agreed to purchase from the
Company 100% of its North American requirements for automotive starters (other
than for Saturn and Geo) and 100% of its U.S. and Canadian requirements for
heavy duty starters and alternators, in each case with respect to the Company's
existing product line. In addition, GM has been designated as an exclusive
distributor of a significant amount of the Company's automotive and heavy duty
aftermarket products and has agreed to provide the Company with purchasing
support, which enables it to obtain raw materials at competitive prices. GM's
obligations to purchase the Company's automotive starters and heavy duty
starters and alternators under the Supply Agreements are subject to such
products remaining competitive as to price, technology and design. However, GM
may not terminate the Supply Agreement for the Company's prices of automotive
products for failing to be so competitive prior to July 31, 2001. The Supply
Agreements will terminate (i) with respect to automotive products, on July 31,
2004 (except that GM's obligations with respect to automotive products
introduced in 1996 and 1997 will terminate on July 31, 2006 and July 31, 2007,
respectively), and (ii) with respect to heavy duty products, July 31, 2000. GM's
obligations to distribute the Company's heavy duty aftermarket products
terminate on July 31, 1998, and GM's obligations to distribute the Company's
automotive aftermarket products terminate on July 31, 2009. See
"Business--Customers." Although the Company expects that its automotive and
heavy duty products will remain competitive throughout the term of the
agreements with GM, there can be no assurance that GM will not develop
alternative sources for such components and purchase some or all of its
requirements from these sources prior to or following the expiration of the
agreements. See "Risk Factors--Dependence on General Motors."
In fiscal year 1997, the Company decided to restructure its OEM
manufacturing operations, incurring a restructuring charge of $34.5 million and
establishing a reserve for that amount. The Company's OEM business has seven
principal manufacturing operations, two in Meridian, Mississippi and five in
Anderson, Indiana. The Company has announced its intention to close its two
facilities in Meridian, Mississippi by the end of the 1998 fiscal year,
including one facility leased from GM at the time of the GM Acquisition. The
balance of the Company's OEM facilities are located in Anderson, Indiana. Two of
the Anderson facilities are leased from GM and will be vacated by the end of
1999. The Company is operating three new focus factories in Anderson and intends
to begin operations in two additional focus factories by the end of 1999. This
restructuring will provide a reduction of over 70% in square footage from the
Company's existing plants to the focus factories due to streamlining of
manufacturing processes, phasing out of certain manufacturing equipment and
elimination of excess unutilized floor space or floor space used by GM in each
of the existing facilities. The restructuring reserve does not include
approximately $3 million in startup costs the Company expects to incur, based on
its prior focus factory startups, in connection with the two additional focus
factories.
The restructuring plan included accelerating the Company's move to focus
factories and closing the Company's operations in three old,
vertically-integrated factories. These decisions resulted in the impairment of
certain production assets with a carrying amount of $30.3 million, which the
Company plans to dispose of. The Company has estimated the loss on disposal
including related costs at $26.3 million. In addition, the Company has estimated
a cost of $8.2 million for reducing its workforce through several transition
programs related to the restructuring of the operations. The results of
operations for the products which will be discontinued are not separately
identifiable. The 1997 restructuring reserve is expected to be utilized
throughout 1998 and 1999. In 1998, the Company expects to reduce the 1997
restructuring reserve balance to approximately $12.1 million through cash
payments of $5.8 million and other charges of $16.6 million. The remaining
balance is expected to be completely utilized in 1999 through cash payments of
$4.5 million and other charges of $7.6 million. See "Risk Factors--Restructuring
Charges; Net Losses."
In fiscal year 1996, the Company decided to eliminate the production of
certain parts and certain straight drive starter motors and offered a voluntary
retirement transition program to certain eligible salaried employees resulting
in the recognition of a restructuring charge of $8.1 million. The Company
purchased new, more efficient equipment for use in the production of certain
heavy duty alternators resulting in the impairment of certain production
equipment with a carrying amount of approximately $5.2 million, which the
Company plans to dispose of at an estimated loss of $4.4 million, including
disposal costs. The retirement transition program, which was charged to
operations for $3.7 million in 1996, was offered in conjunction with a similar
plan offered by GM which allowed employees special additional benefits not
typically provided upon retirement. These additional benefits included salaried
payments for six months and future supplemental payments under the salaried
retirement
32
<PAGE>
plan. Cost savings have been identified and realized in the decisions to
eliminate specific parts and motors and implement the voluntary retirement
transition program. The results of operations for the parts and straight drive
starter motors for which production will be discontinued are not separately
identifiable.
In fiscal year 1996, cash payments of $1.7 million and other charges of
$0.9 million reduced the outstanding balance of the restructuring reserves to
$5.5 million as of July 31, 1996. In 1997, cash payments of $0.8 million and
other charges of $1.8 million further reduce the outstanding balance to $2.9
million as of July 31, 1997. This remaining balance is expected to be completely
utilized during 1998.
The following table sets forth certain statement of operations data
expressed as a percentage of sales:
<TABLE>
<CAPTION>
For the Year Ended July 31
----------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................ 100.0% 100.0% 100.0%
Cost of goods sold............................................... 82.9 80.1 78.3
------------- ------------- -------------
Gross profit..................................................... 17.1 19.9 21.7
Selling, engineering and administrative expenses................. 10.7 12.2 12.9
Restructuring charges............................................ -- 1.3 5.0
------------- ------------- -------------
Operating income................................................. 6.5 6.4 3.8
Other income (expense):
Gain on sale of building.................................... -- -- 0.3
Interest expense............................................ (3.2) (4.3) (5.6)
------------- ------------- -------------
Income (loss) from continuing operations before minority interest,
income taxes and preferred divided requirement of
subsidiary.................................................. 3.2 2.1 (1.6)
Minority interest................................................ -- 0.0 0.1
Income taxes..................................................... 1.4 0.9 (0.4)
Preferred dividend requirement of subsidiary..................... 0.2 0.2 0.2
------------- ------------- -------------
Income (loss) from continuing operations......................... 1.6 0.9 (1.5)
Discontinued operations:
Loss from operations of discontinued businesses
(less applicable income tax benefit).................... 0.4 0.2 0.1
Loss on disposal of businesses
(less applicable income tax benefit).................... -- 1.4 0.1
Extraordinary item:
Write-off of debt issuance costs (less applicable income tax
benefit).................................................... -- -- 0.3
------------- ------------- -------------
Net income (loss)................................................ 1.2% (0.8)% (2.0)%
============= ============= =============
</TABLE>
Fiscal Year Ended July 31, 1997 Compared to Fiscal Year Ended July 31, 1996
Net Sales. Net sales were $689.8 million for 1997, an increase of $52.9
million, or 8.3%, over the prior year. The increase resulted from the inclusion
of the net sales of World Wide from its acquisition date and Power Investments
for the entire 1997 fiscal year. These sales increases were partially offset by
the absence in 1997 of orders for the initial stocking of stores that occurred
when the Company added a new retail customer and one of its existing retail
customers made significant acquisitions.
33
<PAGE>
Gross Profit. Gross profit was $149.6 million for 1997, an increase of
$22.8 million, or 18.0%, over the prior year. As a percentage of net sales,
gross profit increased to 21.7% for the year ended July 31, 1997 from 19.9% for
the prior year. This increase was primarily attributable to the higher gross
profit margins of the Power Investments Acquisition and the World Wide
Acquisition as well as improved productivity and cost reductions in the
Company's OEM operations. These profitability improvements and cost reductions
represent the benefits from the restructuring actions begun in 1996 and were
partially offset by start-up costs for the focus factories. The Company also
launched a family of new gear reduction starters that initially generate lower
margins than those of the mature straight drive starters. The continued
replacement of the straight drive starter with the new gear reduction starter is
expected to have a less adverse effect on gross profit margin in 1998.
Selling, Engineering and Administrative Expenses. Selling, engineering and
administrative ("SE&A") expenses were $89.1 million for 1997, an increase of
$11.1 million, or 14.2%, over the prior year. As a percentage of net sales, SE&A
expenses increased to 12.9% for 1997 from 12.2% during the prior year. The
increase in SE&A expense as a percent of net sales resulted primarily from
higher SE&A expense as a percent of net sales for the acquired companies,
start-up costs for the focus factories and costs for information systems.
Operating Income. Operating income was $26.0 million for 1997, a decrease
of $14.7 million, or 36.2%, from the prior year. As a percent of net sales,
operating income decreased to 3.8% for the year ended July 31, 1997 from 6.4%
for the prior year. This decrease was attributable to the inclusion of $34.5
million of restructuring charges, as compared to restructuring charges of $8.1
million in 1996, as discussed above. Excluding the restructuring charges,
operating income was 8.8% of sales in 1997 and 7.7% in 1996.
Interest Expense. Interest expense was $38.8 million for 1997, an increase
of $11.4 million, or 41.7%, over the prior year. The increase was due primarily
to the additional debt incurred to finance acquisitions and increased borrowings
to fund working capital requirements.
Income Taxes. The Company had an income tax benefit of $3.0 million in 1997
as compared to income tax expense of $5.7 million for 1996. The tax benefit was
28.1% of the loss from continuing operations before tax in 1997, and the income
tax expense was 43.1% of income from continuing operations before tax for the
prior year. Due to continuing tax planning initiatives, the Company expects its
effective tax rate to be approximately 38% in future years.
Loss From Discontinued Operations. The after-tax loss from discontinued
operations of $1.7 million for 1997 relates to the Company's plan to divest its
large bore diesel remanufacturing operations and its marine operations. These
operations were not part of the Company's core strategic focus. The loss
reflects the direct costs of production and identifiable SE&A expense expected
to be incurred by these businesses from the date the Company decided to dispose
of them until the expected disposal date, and a loss on disposal of assets and
an allocation of interest expense based on capital employed by the business.
Net Income (Loss). As a result of the foregoing factors, the net loss was
$14.3 million for 1997, compared to a loss of $4.8 million in the prior year.
Excluding restructuring charges and loss on discontinued operations, the
Company's net income for 1997 was $10.5 million and $10.7 million for 1996.
Fiscal Year Ended July 31, 1996 Compared to Fiscal Year Ended July 31, 1995
Net Sales. Net sales were $636.9 million for 1996, an increase of $63.4
million, or 11.1%, over the prior year. The increase resulted from the inclusion
of the net sales of the 1995 Acquisitions for the entire 1996 fiscal year and
the net sales of the Power Investments Acquisition for the last six months of
the 1996 fiscal year. Sales increases from these newly-acquired subsidiaries
were partially offset by decreased sales to GM as a result of certain work
actions at GM, GM's high inventory levels at the beginning of 1996, and an
industry-wide softening of OEM heavy duty truck production.
Gross Profit. Gross profit was $126.8 million for 1996, an increase of
$28.6 million, or 29.1%, over the prior year. As a percentage of net sales,
gross profit increased to 19.9% for the year ended July 31, 1996 from 17.1% for
the prior year. This increase was attributable primarily to the higher gross
profit margins of the businesses acquired as well as improved productivity and
cost reductions in the OEM operations. These benefits were partially offset by
decreased sales to GM which negatively affected gross profit margins at certain
of the Company's OEM operations.
34
<PAGE>
Selling, Engineering and Administrative Expenses. SE&A expenses were $78.0
million for 1996, an increase of $16.8 million, or 27.4%, over the prior year.
As a percentage of net sales, SE&A expenses increased to 12.2% for 1996 from
10.7% during the prior year. The increase in SE&A expenses as a percent of net
sales reflects the relatively higher SE&A expenses the acquired businesses
incurred in order to service the aftermarket.
Operating Income. Operating income was $40.7 million for 1996, an increase
of $3.7 million, or 9.9%, over the prior year. As a percentage of net sales,
operating income decreased slightly to 6.4% for the year ended July 31, 1996
from 6.5% for the prior year. This decrease was attributable to the inclusion of
restructuring charges of $8.1 million, as discussed above. Excluding the
restructuring charges, operating income was 7.7% of sales in 1996.
Interest Expense. Interest expense was $27.4 million for 1996, an increase
of $8.9 million, or 48.5% over the prior year. The increase was due primarily to
the additional debt incurred to finance acquisitions and increased borrowings to
fund working capital requirements.
Income Taxes. Income taxes were $5.7 million for 1996, a decrease of $2.1
million from the prior year. The Company's effective tax rate was 43.1% for 1996
and 42.3% for the prior year. The increase in the effective tax rate was due, in
part, to the inclusion of Power Investments and higher tax rates in foreign
operations.
Loss From Discontinued Operations. The after-tax loss from discontinued
operations of $10.6 million for 1996 relates principally to the Company's Powder
Metal Forge ("PMF") business. PMF manufactures products that are not part of the
Company's core business. This loss reflects the direct costs of production and
identifiable SE&A expense incurred by the PMF business, and estimated losses
from operations during a transition period from the date the Company decided to
dispose of PMF until production is relocated to the seller's facility, as well
as a loss on disposal of assets and an allocation of interest expense based on
capital employed by the business.
Net Income (Loss). Net loss was $4.8 million for 1996, an earnings decrease
of $11.8 million from the prior year. The decrease in net income was
attributable to the restructuring charges and the loss on discontinued
operations discussed above. Excluding loss from discounted operations and
restructuring charges, net income was $10.7 million in 1996.
Quarterly Results of Operations
The following table sets forth, for the periods shown, certain statements
of operations data for the Company (in millions):
<TABLE>
<CAPTION>
Fiscal 1996 Quarter Ended Fiscal 1997 Quarter Ended
---------------------------------- ----------------------------------
Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30 July 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 156.7 $ 147.8 $ 164.5 $ 167.9 $ 167.6 $ 164.9 $ 180.4 $ 176.9
Gross profit............... 31.1 28.3 34.1 33.4 38.8 32.0 38.4 40.2
SE&A....................... 17.8 17.5 21.4 21.3 24.1 20.4 23.3 21.3
Restructuring charges...... -- -- -- 8.1 -- -- -- 34.5
Operating income........... 13.3 10.8 12.6 4.0 14.7 11.6 15.1 (15.4)
EBITDA..................... 17.9 15.5 17.4 21.3 22.6 18.6 21.9 24.2
</TABLE>
The following table sets forth, for the periods shown, certain statement of
operations data for the Company, expressed as a percent of sales:
<TABLE>
<CAPTION>
Fiscal 1996 Quarter Ended Fiscal 1997 Quarter Ended
---------------------------------- ----------------------------------
Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30 July 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.............. 19.8% 19.1% 20.7% 19.9% 23.2% 19.4% 21.3% 22.7%
SE&A...................... 11.4% 11.8% 13.0% 12.7% 14.4% 12.3% 12.9% 12.0%
Restructuring charges..... -- -- -- 4.8% -- -- -- 19.5%
Operating income.......... 8.5% 7.3% 7.7% 2.4% 8.8% 7.0% 8.4% (8.7)%
EBITDA.................... 11.4% 10.5% 10.6% 12.7% 13.5% 11.3% 12.1% 13.7%
</TABLE>
35
<PAGE>
Liquidity and Capital Resources
The Company's liquidity needs include required debt service, working
capital needs and the funding of capital expenditures. The Company does not
currently have any significant maturities of long-term debt prior to 2006 other
than the Senior Credit Facility, any potential payments under the GM Contingent
Note and the 8% Subordinated Debenture. See "Description of Indebtedness." The
Company anticipates temporary additional working capital requirements for
increased inventories at its existing facilities in connection with the
relocation to focus factories.
The Company estimates that net proceeds from the Offerings will be
approximately $181.1 million, net of fees and related costs and assuming no
exercise of the over-allotment option in the Equity Offering. The net proceeds
will be used to repay (i) the World Note with a principal amount of $75.0
million at a price equal to 103% of the principal amount, (ii) the GM
Acquisition Note of $59.2 million, (iii) the Power Investments Seller Notes and
the A&B Seller Notes of in an aggregate of $11.8 million, (iv) the Ballantrae
Senior Bank Debt of $20.8 million and (v) the Ballantrae Subordinated Debt of
$9.3 million. Any accrued and unpaid interest on such indebtedness will also be
repaid with the proceeds of the Offerings. See "Use of Proceeds."
In connection with the Offerings, the Company will amend and restate its
Senior Credit Facility to provide up to $180 million of revolving credit
availability. Each of the Company's domestic operating subsidiaries will be
parties to the Senior Credit Facility. The obligations under the Senior Credit
Facility of each domestic operating subsidiary will be unconditionally
guaranteed by each other domestic operating subsidiary and each of the Company
and its domestic subsidiaries which are holding companies.
Initially, the amount available to the Company for borrowing under the
Senior Credit Facility (the "Commitment Amount") will be $180 million, all of
which will be available for general corporate purposes including acquisitions
(with a sub-limit for letters of credit equal to the lesser of the Commitment
Amount at the time of issuance of a letter of credit and $30 million). Beginning
with the thirteenth quarter following the date of the Senior Credit Facility,
the Commitment Amount will decrease by $11.25 million at the end of each quarter
through the twenty-eighth such quarter, at which time the Senior Credit Facility
terminates. As of July 31, 1997, after giving pro forma effect to the
Transactions, approximately $35.0 million in borrowings would have been
outstanding under the Senior Credit Facility, together with approximately $11.6
million in outstanding stand-by letters of credit thereunder.
Cash interest expense for 1995, 1996 and 1997 was $10.3 million, $19.5
million and $30.8 million, respectively. The portion of total interest
represented by non-cash interest for the three years was $8.1 million, $7.9
million and $7.9 million for 1995, 1996 and 1997 respectively. Interest payments
under the Company's indebtedness will continue to result in significant
liquidity requirements for the Company. Following the Offerings, all of the
Company's interest payments must be made in cash.
The Company's capital expenditures were $31.9 million in 1997 and are
expected to be $22.5 million in 1998. Planned capital expenditures consist
primarily of new capacity to accommodate the introduction of several new
products, including additional gear reduction starters for automotive
applications and alternators with enhanced features for the medium and heavy
duty truck market, as well as production equipment for the Company's new focus
factories. Cost reduction programs account for a significant portion of planned
capital expenditures and include upgrades in machinery technology, new quality
standards and environmental compliance. The Company's ability to make capital
expenditures is subject to certain restrictions under the Senior Credit
Facility.
The Company granted put/call options in connection with the acquisitions of
Power Investments and World Wide that become exercisable in March 2001 for Power
Investments and November 2000 for World Wide. The exercise prices of the
put/call options are based on an earnings formula and cannot now be estimated.
See "Company History."
The Company's principal sources of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Senior Credit
Facility. The Company's cash position increased to $10.0 million at year end
1997 compared to $3.4 million at year end 1996. Cash provided by operating
activities was $22.5 million in 1997 as compared to cash used in operating
activities of $684,000 in 1996. Non-cash items in 1997, including
36
<PAGE>
$22.0 million of depreciation and amortization and the $32.9 million
restructuring reserve, more than offset the Company's net loss and increased
working capital requirements. From July 31, 1996 to July 31, 1997, the Company's
inventory increased by $40.8 million. The increase in inventory was attributable
primarily to the Company's expanding aftermarket business, including inventory
associated with the World Wide acquisition as well as higher levels of finished
goods inventory required to service aftermarket customers. Cash used in
investing activities of $74.1 million in 1997 was composed of $42.2 million for
the acquisition of World Wide and $31.9 million of capital expenditures. Cash
provided by financing activities in 1997 was $57.8 million, as debt issuances
exceeded debt repayments. The components of net cash from operating activities
are detailed in the Consolidated Financial Statements and related notes.
Under the terms of the GM Acquisition, GM retained the liability for
post-retirement benefits earned by the Company's employees while employed by GM.
In addition, GM retained the liability for post-retirement benefits for all of
the Company's employees that return to GM pursuant to contractual arrangements
at the time of the GM Acquisition. Since relatively senior employees have
returned to GM and have been replaced by the Company with employees who have
later retirement dates, the Company's actual cash expenditures for
post-retirement benefits will be significantly less than the amount recorded as
an expense over the next ten years. The excess of the amount accrued over the
cash paid for post-retirement benefits during 1995, 1996 and 1997 was $4.4
million, $3.8 million and $4.5 million, respectively.
The Company believes that cash generated from operations, together with the
amounts available under the Senior Credit Facility, will be adequate to meet its
debt service requirements, capital expenditures and working capital needs for at
least the next twelve months, although no assurance can be given in this regard.
The Company's future operating performance and ability to extend or refinance
its indebtedness will be dependent on future economic conditions and financial,
business and other factors that are beyond the Company's control.
Seasonality
The Company's business is moderately seasonal, as its major OEM customers
historically have one- to two-week summer shutdowns of operations during July.
In addition, the Company typically has shut down its own operations for one week
each July, depending on backlog, scheduled maintenance and inventory buffers, as
well as an additional week during the December holidays. Consequently, the
Company's second and fourth quarter results reflect the effects of these
shutdowns.
Effects of Inflation
The Company believes that the relatively moderate inflation over the last
few years has not had a significant impact on the Company's revenues or
profitability and that it has been able to offset the effects of inflation by
increasing prices or by realizing improvements in operating efficiency. The
Company has provisions in many of its contracts which provide for the pass
through of fluctuations in the price of certain raw materials, such as copper
and aluminum.
Foreign Sales
Approximately 15.9%, 12.4% and 21.1% of the Company's 1995, 1996 and 1997
net sales, respectively, were derived from sales made to customers in foreign
countries. Because of these foreign sales, the Company's business is subject to
the risks of doing business abroad, including currency exchange rate
fluctuations, limits on repatriation of funds, compliance with foreign laws and
other economic and political uncertainties.
Accounting Pronouncements
For a discussion of pending accounting pronouncements that may affect the
Company, see Note 2 to the Consolidated Financial Statements included elsewhere
in this Prospectus.
37
<PAGE>
BUSINESS
General
The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and related components for automobiles and
light trucks, medium and heavy duty trucks and other heavy duty vehicles. The
Company's products include starter motors ("starters"), alternators, engines,
transmissions, traction control systems and fuel systems. The Company serves the
aftermarket and the original equipment manufacturer ("OEM") market, principally
in North America as well as in Europe, Latin America and Asia-Pacific. Net sales
and EBITDA (as defined) for fiscal year 1997 were $689.8 million and $87.3
million, respectively. For the same period, the aftermarket accounted for
approximately 45.2% of the Company's net sales and 62.8% of EBITDA, with the OEM
market accounting for the balance.
The Company believes that it is the largest manufacturer and remanufacturer
in North America of (i) starters for automobiles and light trucks (including
sport-utility vehicles, minivans and pickup trucks) and (ii) starters and
alternators for medium and heavy duty vehicles. The Company's products are
principally sold or distributed to OEMs for both original equipment manufacture
and aftermarket operations, as well as to warehouse distributors and retail
automotive parts chains. Major customers include General Motors ("GM"), General
Motors Service Parts Operations ("GM SPO"), Navistar, Caterpillar, Freightliner,
PACCAR, Auto Zone, Cummins, Western Auto, Ford, Detroit Diesel, Volvo Trucks,
Mack, Pep Boys, Advance Auto and O'Reilly Automotive.
The Company sells its products principally under the "Delco Remy" brand
name and other major brand names worldwide. In connection with the GM
Acquisition (as defined), the Company obtained perpetual rights to the "Delco
Remy" brand name, which was first used in 1918. The Company also received the
right to use "Delco Remy" as a corporate name until 2004 and the "Remy" name in
perpetuity. In addition, GM entered into a long-term contract to purchase from
the Company substantially all of its North American requirements for automotive
starters and its U.S. and Canadian requirements for heavy duty starters and
alternators. GM also entered into a distribution agreement to sell the Company's
aftermarket products through the GM SPO distribution system. See
"Business--Customers."
Citicorp Venture Capital Ltd. ("CVC") and Harold K. Sperlich, former
president of Chrysler Corporation, together with a subsidiary of MascoTech Inc.
("MascoTech") and certain senior management of the former Delco Remy Division of
GM (the "Former GM Division"), formed the Company for the purpose of acquiring
the assets of the automotive starter and the heavy duty starter and alternator
businesses of the Former GM Division (the "GM Acquisition"). Upon consummation
of the Offerings and the other Transactions, CVC, management of the Company and
other existing stockholders of the Company will beneficially own approximately %
of the Company's outstanding Common Stock ( % of the voting power), and will be
able to control the Company and elect its Board of Directors.
Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations, and
entered into two international joint ventures. The Company is also in the
process of completing the strategic acquisition of Ballantrae, which will expand
the Company's drivetrain product position. Through Ballantrae's wholly owned
subsidiary, Tractech Inc. ("Tractech"), the Company will offer high quality
traction control systems to heavy duty OEMs and the aftermarket. These
acquisitions and joint ventures have broadened the Company's product line,
expanded its remanufacturing capability, extended its participation in
international markets and increased its penetration of the retail automotive
parts channel. As a result of these acquisitions and joint ventures and the
Company's focus on increasing its participation in the aftermarket, the
Company's reliance on GM has declined since the Company's formation. Net sales
to customers other than GM increased from 41.0% in fiscal year 1995 to 56.3% in
fiscal year 1997.
The Company's expanding aftermarket business benefits from the
non-deferrable nature of the repairs for which many of the Company's products
are used. Additionally, the Company's aftermarket business benefits from the
design, manufacturing and technological expertise of the Company's OEM
operations. This OEM expertise provides the Company with advantages over many of
its aftermarket competitors. The Company believes that its participation in both
OEM and aftermarket businesses and its diversified customer base reduce its
exposure to the
38
<PAGE>
cyclicality of the automotive industry. The Company's growth strategy is
designed to capitalize on its position as a consolidator in the large and highly
fragmented remanufacturing aftermarket.
Growth Strategy
The Company plans to continue to increase revenues and profitability of its
aftermarket and OEM businesses through a strategy of internal growth and growth
through acquisitions. Key elements of the Company's growth strategy include:
Increasing Aftermarket Presence
Strengthening Customer Relationships. The Company intends to increase its
sales to new and existing customers by capitalizing on its balanced coverage of
the key channels of aftermarket distribution and its competitive strengths as an
OEM supplier. The Company plans to strengthen its customer relationships by (i)
continuing to expand its product offerings, (ii) capitalizing on the expansion
of the national automotive retail parts chains and warehouse distributors that
are customers of the Company, (iii) meeting the increasing demands of OEMs and
their dealer networks for high quality remanufactured units, which enable them
to reduce warranty and extended service costs, and (iv) growing sales of
existing and new product lines to OEM dealer networks as dealers continue to
capture an increasing percentage of vehicle repairs, due to longer warranty and
service programs and growing vehicle complexity. Additionally, with the recent
acquisition of World Wide, the Company expanded its product line and now offers
a full line of starters and alternators for domestic and import vehicles. The
acquisition also has improved the Company's distribution capabilities, which now
include a nationwide overnight delivery service.
Consolidating the Fragmented Aftermarket. The portion of the aftermarket in
which the Company participates is large and highly fragmented, with most
participants being small, regional companies offering relatively narrow product
lines. Although the Company believes that it is the largest manufacturer and
remanufacturer of aftermarket starters and alternators in North America, its
sales of these products account for less than 12% of this market. Consolidation
of the aftermarket is occurring as many competitors are finding it difficult to
meet the increasing quality, cost and service demands of customers, who, in
turn, are seeking to rationalize their supplier base. With its OEM capabilities,
remanufacturing expertise, full product line, greater access to "cores" and
ability to capitalize on economies of scale, the Company is well positioned to
benefit from the consolidation of the aftermarket.
Expanding Globally
The Company is expanding its international operations in order to (i)
benefit from the trend toward international standardization of automotive and
heavy duty vehicle platforms and (ii) participate in rapidly growing foreign
markets. The Company has recently been awarded new business by GM, Volkswagen,
Mercedes Benz, Ford and Caterpillar in Brazil; Opel in Europe; Daewoo Motors in
India; and Mercedes Benz, Volvo Trucks, John Deere and Dina in Mexico. The
Company intends to supply its existing OEM customers on a global basis as they
expand their operations and require local supply of component parts that meet
their demands for quality, technology, delivery and service. The Company
believes that its global expansion will enable it to gain new international OEM
customers who will also require local production of high quality products. In
addition, the expansion of the Company's OEM business into international markets
has provided the Company with the infrastructure necessary to develop an
aftermarket presence in these countries. The Company has established
manufacturing operations and strategic ventures in Hungary, Korea and Mexico,
and plans to complete a strategic alliance in India and a joint venture in
Brazil in fiscal year 1998. The acquisition of Ballantrae will provide the
Company with a European manufacturing plant which has been in operation since
1983. Aided by this facility, Ballantrae has developed strong relationships with
European customers for traction control systems, especially in the market for
construction equipment.
Introducing Technologically Advanced New Products
As a Tier 1 OEM supplier, the Company continues to provide technologically
advanced products by regularly updating and enhancing its product line. Since
the GM Acquisition, the Company has (i) completed the introduction of a new
family of gear reduction starters that will replace all straight drive starters
in GM vehicles by the end of the 1998 model year and (ii) introduced several
longer-life heavy duty alternators. The Company is also developing a small gear
reduction starter specifically designed for application on world car platforms.
These new
39
<PAGE>
products underscore the Company's commitment to developing state-of-the-art
products that address the higher output, lower weight and increased durability
requirements of OEM customers.
Operating Strategy
The Company's operating strategy is designed to improve manufacturing
efficiency, reduce costs and increase productivity while continuing to achieve
the highest levels of product quality. Key elements of this operating strategy
include:
"Focus" Factories to Drive Manufacturing Excellence
The Company is shifting its OEM production from old, vertically-integrated
manufacturing plants to new, smaller and more efficient "focus" factories. The
Company's focus factories generally produce one product line in a plant designed
to facilitate lean manufacturing techniques. The Company has successfully
launched three new focus factories since 1996. When the currently planned shift
to focus factories is completed, the Company will occupy five focus factories
and will have reduced its floor space for OEM production by more than 70%. The
Company believes that the benefits of the focus factories include reduced
overhead costs, enhanced productivity, increased product quality and lower
inventories.
Productivity Improvements
In conjunction with its emphasis on focus factories, the Company continues
to work with its local union representatives to establish best-in-class work
practices, such as reducing the number of job classifications per focus factory
and implementing team-based manufacturing processes. Since the GM Acquisition,
employee productivity has increased by 33%. The Company's labor contract with
the UAW (as defined) contains provisions that are expected to permit the Company
to continue to achieve productivity improvements in the existing and new focus
factories. The increased productivity achieved since the GM Acquisition is due
primarily to continuous improvement initiatives and the significant number of
employees who have exercised their contract rights to return ("flowback") to GM
or to retire.
Product Quality and Continuous Improvement
In July 1997, the Company received the prestigious Supplier of the Year
award from GM, an award given to fewer than 1% of all GM suppliers. The
Company's commitment to product quality and continuous improvement is further
evidenced by the QS9000 certification received by nine of its manufacturing and
remanufacturing facilities in 1997. The Company expects that the remainder of
its manufacturing and remanufacturing facilities will receive QS9000
certification by the end of fiscal year 1998. In addition, the Company's
powertrain/drivetrain operations that remanufacture products for Ford have
received the Q-1 rating, Ford's highest quality rating, and the Company is a
Ford Authorized Remanufacturer ("Ford FAR") in five of the seven Canadian
provinces. Global purchasing has further enhanced the Company's continuous
improvement efforts. The Company is utilizing its international ventures to
develop new, lower cost sources of materials and is consolidating its vendor
base to fewer, more competitive suppliers.
Acquisition of Ballantrae
Pursuant to the Ballantrae Acquisition Agreement, the Company will acquire
all of the capital stock of Ballantrae in a merger of Ballantrae and a
subsidiary of the Company in which Ballantrae will be the surviving corporation.
The aggregate cost will be $49.2 million, subject to a working capital
adjustment and including assumed debt. Ballantrae operates through two
subsidiaries: Tractech, a leading producer of traction control systems for heavy
duty OEMs and the aftermarket; and Kraftube, Inc., a tubing assembly business
which sells products to compressor manufacturers for commercial air conditioners
and refrigeration equipment. In fiscal year 1997, Tractech accounted for 70% of
Ballantrae's $37.6 million of net sales. The Company will exchange shares of its
Common Stock with a value (at the initial public offering price in the Equity
Offering) of approximately $19 million for the equity of Ballantrae and will
repay approximately $30 million of Ballantrae's debt. The Common Stock of the
Company received by Ballantrae's existing stockholders in the merger will be
subject to resale restrictions under applicable securities laws. The merger is
expected to be completed at or prior to the consummation of the Offerings. The
Company will pay up to an aggregate of $ in respect of any dissenters'
rights exercised by existing stockholders of Ballantrae. Any damages which the
Company may suffer which result from a breach of the Ballantrae Acquisition
Agreement will be subject to a $10 million cap and the
40
<PAGE>
Company will only be able to recover approximately % and % of its damages
from CVC and James R. Gerrity, respectively (in each case including their
affiliates). The Company's acquisition of Ballantrae strengthens the Company's
overall market position by (i) adding traction control systems to the Company's
range of drivetrain products, (ii) increasing sales to existing heavy duty OEM
customers and (iii) expanding the Company's customer base. The acquisition is
expected to be completed at or prior to the consummation of the Offerings. See
"Risk Factors--Acquisition of Ballantrae; Conflicts of Interest," "Company
History" and "Certain Transactions."
Industry Overview
In general, the Company's business is influenced by the underlying trends
of the automotive industry. The Company's focus on expanding its remanufacturing
capabilities, however, heightens the importance of the aftermarket.
Aftermarket. The aftermarket consists of the production and sale of both
new and remanufactured parts used in the maintenance and repair of automobiles,
trucks and other vehicles. Remanufacturing is a process through which used
components ("cores") are disassembled into their subcomponents, cleaned,
inspected, tested, combined with new subcomponents and reassembled into finished
products. A remanufactured product can be produced at lower cost than a
comparable individually repaired unit due to effective salvage technology
methods, high volume precision manufacturing techniques and rigorous inspection
and testing procedures. The ability to procure cores is critical to the
remanufacturing process. See "Business--Manufacturing and Facilities."
Aftermarket parts are supplied principally through three distribution
channels: (i) car and truck dealers that obtain parts either through an OEM
parts organization (e.g., GM SPO, Ford Parts & Service, Chrysler Mopar,
Navistar, etc.) or directly from an OEM-authorized remanufacturer; (ii) retail
automotive parts chains and mass merchandisers; and (iii) wholesale distributors
and jobbers who supply independent service stations, specialty and general
repair shops, farm equipment dealers, car dealers and small retailers.
The Company believes that the aftermarket has been and will continue to be
impacted by the following trends: (i) the increasing number and average age of
vehicles in use and the number of miles driven annually; (ii) the increasing
demands of customers that their aftermarket suppliers meet high quality
standards; (iii) the increasing use of remanufactured parts for OEM warranty and
extended service programs; (iv) the growth and consolidation of large retail
automotive parts chains; and (v) particularly with respect to many of the
Company's products, the increasing engine output and durability demands related
to the high temperatures at which engines operate.
According to R. L. Polk, as of 1996, there were approximately 198 million
cars and light trucks registered in the United States, as compared with 162
million cars and light trucks in 1986. The average age for cars and light trucks
in 1996 was 8.5 years, as compared with an average car age of 7.9 years in 1986.
The use of remanufactured components for warranty and extended service
repairs has increased in recent years as OEMs have offered extended warranty and
extended service coverage and dealers have begun to provide extended service
plans and warranties on used vehicles. OEMs have sought to reduce warranty and
extended service costs by using remanufactured components, which generally offer
the same degree of quality and reliability as OEM products at a lower cost. This
trend has resulted in aftermarket customers requiring higher quality standards
for remanufactured products.
Recently, large retail automotive parts chains offering a broad range of
new and remanufactured products have experienced rapid growth at the expense of
small, independent retail stores. The Company has significantly grown its sales
to this channel and believes that further increasing its sales to retail chains
offers a significant opportunity for growth. Retail chains generally prefer to
deal with large, national suppliers capable of meeting their cost, quality,
volume and service requirements. See "Business--Growth Strategy."
OEM Market. The OEM market consists of the production and sale of new
component parts for use in the manufacture of new vehicles. The OEM market
includes two major classes of customers: (i) automobile and light truck
manufacturers; and (ii) medium and heavy duty truck and engine manufacturers and
other heavy duty vehicle manufacturers.
The OEM market has been impacted by recent fundamental changes in the OEMs'
sourcing strategies. OEMs are consolidating their supplier base, demanding that
their suppliers provide technologically advanced product
41
<PAGE>
lines, greater systems engineering support and management capabilities, just-in-
time sequenced delivery and lower system costs. As a result, each OEM has
selected its own preferred suppliers. OEMs are increasingly requiring that their
preferred suppliers establish global production capabilities to meet their needs
as they expand internationally and increase platform standardization across
multiple markets.
OEMs continue to outsource component manufacturing of non-strategic parts.
Outsourcing has taken place in response to competitive pressures on OEMs to
improve quality and reduce capital outlays, production costs, overhead and
inventory levels. In addition, OEMs are increasingly purchasing integrated
systems from suppliers who provide the design, engineering, manufacturing and
project management support for a complete package of integrated products. By
purchasing complete systems, OEMs are able to shift design, engineering and
product management to fewer and more capable suppliers. Integrated systems
suppliers are generally able to design, manufacture and deliver components at a
lower cost than the OEMs due to (i) their lower labor costs and other
manufacturing efficiencies, (ii) their ability to spread research and
development and engineering costs over products provided to multiple OEMs and
(iii) other economies of scale inherent in high volume manufacturing such as the
ability to automate and leverage global purchasing capabilities.
Products
Aftermarket. The Company's aftermarket product line includes a diverse
array of remanufactured and new products sold as replacement parts under the
"Delco Remy" brand name or under a private-label brand name specified by the OEM
or the automotive parts retailer. The Company remanufactures parts for both
domestic and imported vehicles.
Products remanufactured by the Company include starters, alternators,
engines, fuel injectors, injection pumps and turbo chargers (fuel systems),
transmissions, torque converters, water pumps, rack and pinions, power steering
pumps and gears and clutches. The Company also remanufactures subcomponents,
such as automotive armatures, rotors and solenoids, as well as component parts
shipped in bulk ("kits") for future assembly. These subcomponents are either
used internally in the remanufacturing process by the Company or sold to outside
customers.
OEM. The Company's starters are used in all cars and trucks manufactured by
GM in North America (except Saturn and Geo). The Company manufactures two types
of starters: straight drive starters and gear reduction starters. Since the
beginning of 1994, the Company has been transitioning its production line from
straight drive starters to more technologically advanced gear reduction
starters. For the 1997 model year, the Company's gear reduction starters were
used on 44% of GM's North American automotive platforms (other than Saturn and
Geo). The balance of GM North American automotive platforms (other than Saturn
and Geo) will be converted to the Company's gear reduction starters by the end
of the 1998 model year, at which time the Company expects to discontinue OEM
production of straight drive starters. The Company's gear reduction starters are
globally competitive and offer greater output at lower weight than comparable
straight drive designs. For example, the Company's principal PG-260 gear
reduction starter offers the highest power to mass ratio in the industry,
producing the same power at 7.7 pounds as a comparable straight drive design
weighing 13.6 pounds. The Company has begun development of a small gear
reduction starter that will enable the Company to offer its OEM customers an
application on their world car platforms. Reduced component weight is important
to OEMs, as total vehicle weight is a critical factor in each OEM's ability to
achieve federal Corporate Average Fuel Economy standards (CAFEs).
The Company manufactures a full line of heavy duty starters and alternators
for use primarily with large diesel engines. The Company's starters and
alternators are specified as part of the standard electrical system by most
North American heavy duty truck and engine manufacturers. The Company's starters
cover a broad range of torque and speed requirements. The Company manufactures a
full line of alternators, some of which utilize premium design features that
yield increased durability and a longer service life. Certain of the Company's
automotive starters are also currently being produced under technology licenses
by manufacturers in China and India, and by the Company's joint ventures in
Mexico and Korea.
The Company has recently developed several new products for heavy duty
applications, including a high output, premium heavy duty brushless alternator
for high vibration applications; a new large frame alternator designed to meet
the increasing demands in the upper power ranges of new heavy duty vehicles; and
a small heavy duty alternator for use in low output, high durability and severe
environmental applications, which the Company
42
<PAGE>
expects will be used principally for agricultural and construction vehicles. The
Company's OEM customers and major truck fleet operators designate it as an
electrical system supplier that provides value-added systems such as the "Road
Gang." The Road Gang system includes a premium starter and brushless alternator
produced by the Company and premium batteries produced by GM and offered by the
Company under a long-term agreement with GM. Engineered as a package, these
products provide increased performance, reliability and durability.
Ballantrae's Tractech subsidiary produces traction control systems for use
in construction, industrial and agricultural equipment and in medium duty
trucks. The traction control systems business combines valuable product
engineering skills with strong machining and fabrication capabilities to
manufacture products with custom designed applications.
Quality Standards. The Company is required to meet numerous quality
standards in order to qualify as a supplier to major OEMs and their dealer
networks, as well as certain automotive parts retailers. The Company has
achieved significant recognition by its customers for its continuous commitment
to quality. In July 1997, the Company received the prestigious Supplier of the
Year award from GM, an award given to fewer than 1% of all GM suppliers. The
Company's aftermarket operations that produce products for Ford have received
the Q-1 rating, which is Ford's highest quality rating. Moreover, the Company is
a Ford FAR in five of the seven Canadian provinces. The Company also has been
awarded Navistar's highest quality rating for its engine remanufacturing
operations. In addition, the Company has received quality awards from certain of
its other customers, including Caterpillar, Cummins, OshKosh and Teledyne.
Ford, Chrysler and GM have initiated quality standards (QS9000) applicable
to suppliers such as the Company. International and domestic automobile and
truck manufacturers developed the QS9000 standards to ensure that their
suppliers meet consistent quality standards that can be independently audited.
These quality standards, which are required by customers to be in place by
December 1997, impose processes and procedures in addition to those in effect
prior to December 1997. Management also believes that these standards may have
the effect of accelerating consolidation in the remanufacturing industry, as
smaller remanufacturers may be unable to meet or afford the cost of complying
with these new quality standards. The Company has received QS9000 certification
at nine of its manufacturing and remanufacturing facilities, and expects the
balance to be certified by the end of fiscal 1998.
Ballantrae's traction control systems unit has received several quality
awards, has been designated a Caterpillar "Certified Supplier" in every year
since 1985 and holds an ISO9002 certification.
Engineering and Development. The Company's engineering staff works
independently and with OEMs to design new products, improve performance and
technical features of existing products and develop methods to lower
manufacturing costs. The Company's engineering staff includes application
engineers, manufacturing engineers and advanced engineers. Application engineers
are assigned to various platforms or geographic regions to work directly with
customers on product design changes and corrective actions. Manufacturing
engineers are responsible for the planning, layout, design, equipment selection
and global implementation of production capacity for the Company's domestic and
foreign manufacturing facilities. Advanced engineers work in conjunction with
the customer's forward planning or advanced powertrain engineers on product
design and development for products with a five to ten year planning horizon.
In support of its engineering efforts, the Company has formed technical
alliances with a select number of engineering and technology firms to identify
long-term engineering advances and opportunities. In January 1996, the Company
entered into a joint development agreement with SatCon Technology Corporation
with the goal of developing an alternator with substantially higher power output
than the current generation of alternators. The Company has also formed
technical alliances with EcoAir Corp. and Arthur D. Little to support the
Company's advanced research and development of starters and alternators.
Customers
Aftermarket. The Company's principal aftermarket customers include OEM
dealer networks of GM, Navistar, Ford, Freightliner, Caterpillar and PACCAR and
leading automotive parts retain chains such as Auto Zone, Western Auto, Pep
Boys, Advance Auto, O'Reilly Automotive and Discount Auto. The Company's
products are also used for warranty replacement under procedures established by
certain of the Company's OEM customers.
43
<PAGE>
In connection with the GM Acquisition, the Company entered into a long-term
agreement pursuant to which it designated GM, through GM SPO, as its exclusive
distributor of "Delco Remy" brand remanufactured automotive and heavy duty
starters and alternators within North America to specified customers, including
certain GM dealers, direct GM accounts, certain warehouse distributors and, with
respect to automotive products, certain retail chains. In consideration of its
being granted the foregoing exclusive distribution rights, GM agreed to purchase
from the Company 100% of its requirements for automotive starters and heavy duty
starters and alternators for sale in the aftermarket and has further agreed not
to sell any competitive products in the aftermarket channels specified above
during the term of the distribution agreement. Sales to GM SPO under the
distribution agreement accounted for approximately 24.2% of the Company's
aftermarket 1997 pro forma net sales. With respect to heavy duty starters and
alternators, the term of the current agreement will end on July 31, 1998. As to
automotive starters, the agreement terminates on July 31, 2009. The agreement,
with respect to either heavy duty or automotive products, may be terminated
prior to the end of the applicable term (i) by mutual agreement of the parties,
(ii) by either party upon a material breach by the other party, (iii) by the
Company if GM fails to achieve certain goals and objectives for reasons other
than a general decline in the economy and (iv) by GM to the extent the Company
fails to meet certain quality standards. See "Risk Factors--Dependence on
General Motors."
Ballantrae's traction control systems are offered on an aftermarket basis
for sport utility vehicles ("SUV") through independent wholesale distributors
for installation by the end user after the original vehicle purchase.
Aftermarket sales represent approximately 25% of Tractech's total sales.
OEM. The Company's principal customers in its OEM automotive business are
GM's North American Operations and various GM International affiliates, who
collectively accounted for substantially all of the Company's OEM 1997 pro forma
automotive starter sales, approximately 54.7% of total OEM 1997 pro forma net
sales and approximately 29.7% of total 1997 pro forma net sales. The GM
International affiliates to which the Company sells products include GM Brazil,
GM Holden (Australia), GM Mexico and Isuzu. Beginning with the 2001 model year,
the Company will also sell products to GM Europe. Remy Korea, a joint venture in
which the Company has a 50% interest, sells automotive starters using the
Company's technology to Daewoo Motors, Kia Motors, Asia Motors and Ssangyong
Motors. The Company will also sell automotive starters to Opel in Europe and,
through its licensee, to Daewoo Motors in India.
Principal customers of the Company's heavy duty OEM business include
Navistar, Freightliner, Cummins, Caterpillar, PACCAR, Detroit Diesel, GM, Ford,
Mack and Volvo Trucks, with the top ten customers accounting for approximately
59% of heavy duty pro forma net sales in 1997. The Company has long-term
agreements, with terms typically ranging from three to five years, to supply
starters and alternators to GM, Navistar, Freightliner, PACCAR, Cummins, Volvo
Trucks and Mack. In addition, the Company is the specified supplier of heavy
duty starters and alternators for trucks manufactured for several major North
American truck fleet operators, including Penske Truck Leasing, Ryder System,
Inc., Yellow Freight System and J.B. Hunt Transport.
Pursuant to long-term supply agreements, GM has agreed to purchase from the
Company 100% of its North American automotive starter requirements (other than
Saturn and Geo) and 100% of its U.S. and Canadian requirements for heavy duty
starters and alternators, in each case with respect to the Company's existing
product line as of August 1994. GM's commitments to purchase such products from
the Company in the future are subject, however, to the Company remaining
competitive as to technology, design and price. Nonetheless, GM may not
terminate the automotive starter supply agreement for failure of the Company to
be price, technology or design competitive prior to July 31, 2001. GM's
obligations to purchase automotive starters and heavy duty starters and
alternators from the Company terminate on July 31, 2004 and 2000, respectively,
except for automotive products released in 1996 and 1997, for which GM's
obligation will terminate on July 31, 2006 and 2007, respectively. GM may cancel
either agreement in the event that 35% of the Company's voting shares become
owned, directly or indirectly, by another manufacturer of passenger cars or
light trucks. During the term of the relevant supply agreement, GM has granted
the Company the right to bid on starter and alternator supply contracts for GM's
operations worldwide. See "Risk Factors--Dependence on GM."
Ballantrae's principal customers for traction control systems include OEMs
of construction, industrial and agricultural equipment and medium duty trucks.
Ballantrae's principal traction control systems customers include Caterpillar,
John Deere, Eaton, Dana, Rockwell and Clark Hurth.
44
<PAGE>
The Company employs its own direct sales force, which develops and
maintains sales relationships with major North American truck fleet operators as
well as its OEM customers worldwide. These sales efforts are supplemented by a
network of field service engineers and product service engineers.
Manufacturing and Facilities
Aftermarket. The Company's aftermarket business has operations located
principally in 33 production facilities and seven warehouses in the United
States and Canada.
In its remanufacturing operations, the Company obtains used starters,
alternators, engines and related components, commonly known as cores, which are
sorted by make and model and either placed into immediate production or stored
until needed. During remanufacturing, the cores are completely disassembled into
their component parts. Components which can be incorporated into the
remanufactured product are thoroughly cleaned, tested and refinished. All
components subject to major wear as well as those which cannot be remanufactured
are replaced by new components. The unit is then reassembled into a finished
product. Inspection and testing are conducted at various stages of the
remanufacturing process, and each finished product is inspected and tested on
equipment designed to simulate performance under operating conditions.
The majority of the cores remanufactured by the Company are obtained from
customers in exchange for remanufactured units and are credited against the
purchase prices of these units. When the Company has an insufficient number of
components from salvageable cores, the Company's remanufacturing operations may
purchase new parts from the Company's OEM operations. Core prices fluctuate on
the basis of several economic factors, including market availability and demand
and core prices then being paid by other remanufacturers and brokers.
OEM. The Company's OEM business has seven principal manufacturing
operations, two in Meridian, Mississippi and five in Anderson, Indiana. The
Company has announced its intention to close its two facilities in Meridian,
Mississippi by the end of the 1998 fiscal year, including one facility leased
from GM at the time of the GM Acquisition. The balance of the Company's OEM
facilities are located in Anderson, Indiana. Two of the Anderson facilities are
leased from GM and will be vacated by the end of 1999. The Company is operating
three new focus factories and intends to have a total of five in operation by
the end of 1999. This restructuring will provide a reduction of over 70% in
square footage from the Company's existing plants to the focus factories due to
streamlining of manufacturing processes, phasing out of certain manufacturing
equipment and elimination of excess unutilized floor space or floor space used
by GM in each of the existing facilities. The restructuring reserve does not
include the startup costs the Company expects, based on its three prior focus
factory startups, to incur in connection with the two new focus factories.
The manufacturing process of the focus plants varies significantly from the
traditional process flow of existing plants. The Company utilizes a flexible
cell-based manufacturing approach to the production of all new and/or
re-engineered product lines within the focus plants as contrasted with the
existing vertically integrated, primarily synchronous process used in
traditional factories. The cell-based manufacturing system provides flexibility
by allowing efficient changes to the number of operations each operator performs
and is capable of both low- and high-volume production runs. When compared to
the more traditional, less flexible assembly line process, cell manufacturing
allows the Company to match its production output better to customers'
requirements while reducing required inventory levels and improving quality.
The Company's focus plants generally produce one product line in a plant
design based on cell-based, semi-automated manufacturing utilizing kaizen
techniques. The focus plant process creates a team-based environment of involved
workers who better understand and control the manufacturing process. In
addition, the Company has worked with the Company's unions to reduce the number
of job classifications so that workers can be shifted among various work areas
as production demands dictate. The Company is presently expanding lean
manufacturing techniques to its aftermarket facilities.
Ballantrae's traction control systems manufacturing facilities are located
in the Detroit suburb of Warren, Michigan, and in Sligo, Ireland. These
facilities have used cellular manufacturing for more than seven years.
The Company utilizes frequent communication meetings at all levels of
manufacturing to provide training and instruction as well as to assure a
cohesive, focused effort toward common goals. The Company encourages
45
<PAGE>
employee involvement in all production activity and views such involvement as a
key element toward the success of the Company.
Competition
Aftermarket. The aftermarket is highly fragmented and competitive.
Competition is based primarily on quality of products, service, delivery,
technical support and price. The Company's principal aftermarket competitors
include Arrow, Automotive Parts Exchange (APE), Champion, Genuine Parts
(Rayloc), Motorcar Parts & Accessories (MPA), Prestolite and Unit Parts.
OEM. The automotive parts market is highly competitive. Competition is
based primarily on quality of products, service, delivery, technical support and
price. Most OEMs source parts from one or two suppliers. The Company competes
with a number of companies who supply automobile manufacturers throughout the
world. In the North American automotive market, the Company's principal
competitors include Nippondenso, Valeo, Mitsubishi and Bosch. GM purchases
automotive starters from the Company pursuant to its long-term supply agreement
with the Company. See "Business--Customers." Chrysler has eliminated production
of its own starters and currently purchases starters from independent suppliers.
Ford continues to produce certain parts for the majority of its domestic and
international applications and purchases the remainder from independent
suppliers.
The heavy duty parts market is characterized by one or two dominant
suppliers in each major geographic region of the world. No competitor has a
substantial share in all regions. In the North American heavy duty market, where
the Company is the largest manufacturer, the Company's principal competitors
include Prestolite, Nippondenso and Bosch.
Employees
As of July 31, 1997, the Company employed 4,949 people, 848 of whom were in
management, engineering, supervision and administration and 4,101 of whom were
hourly employees. Of the Company's hourly employees, 1,969 are represented by
unions. In the United States, 1,485 of the Company's hourly workers are
represented by the UAW under an agreement between the Company and the UAW, the
applicable provisions of which were assumed by the Company in connection with
the GM Acquisition. The Company and the UAW agreed to a new master agreement in
March 1997 when the agreement that had been assumed by the Company expired. Wage
and benefit increases under the new contract generally follow the same pattern
of the prior agreement and continue to track the wages and benefits paid by GM
and, as a result, the Company will experience higher labor costs in the future.
In addition, grow-in provisions under the new agreement will require the Company
to move lower wage and benefit employees to higher wage and benefit levels.
There can be no assurance that the Company will be able to effect cost
reductions or productivity improvements to offset such increased wage and
benefit levels or that the Company's labor costs will not increase
significantly, in which case the Company's competitive position and results of
operations would be adversely affected. The agreement between the UAW and the
Company expires on September 14, 2000 which will require negotiation of new
agreements.
As of July 31, 1997, 141 of the Company's 459 Canadian employees were
represented by the Canadian Auto Workers and 97 were represented by the
Metallurgists Unis d'Amerique. The agreements with these unions expire on
November 8, 1999 and September 30, 1998, respectively, which will require
negotiation of new agreements.
As of July 31, 1997, approximately 246 of Autovill's 366 employees were
affiliated with the Hungarian Steel Industry Workers Union. The agreement was
signed July 17, 1996 and is perpetual, subject to termination upon three months'
notice from either party.
The Company's other facilities are primarily non-union. The Company is
unaware of any current efforts to organize. There can be no assurance that there
will not be any labor union efforts to organize employees at facilities that are
not currently unionized.
Since the GM Acquisition, the Company has not experienced any organized
work stoppages. There can be no assurance, however, that any actions taken by
the Company, including the current restructurings, will not adversely affect the
Company's relations with its employees. At the present time, the Company
believes that its relations with its employees are good. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General."
46
<PAGE>
Patents, Trademarks and Licenses
Pursuant to a Trademark Agreement between the Company and GM, GM has
granted the Company an exclusive license to use the "Delco Remy" trademark on
and in connection with automotive starters and heavy duty starters and
alternators until July 31, 2004, extendible indefinitely at the Company's option
upon payment of a fixed $100,000 annual licensing fee to GM. The Company has
also been granted a perpetual, royalty-free license to use the "Remy" trademark.
The "Delco Remy" and "Remy" trademarks are registered in the United States,
Canada and Mexico and in most major markets worldwide. GM has agreed with the
Company that, upon the Company's request, GM will register the trademarks in any
jurisdiction where they are not currently registered.
The Company has also been granted an exclusive license to use the "Delco
Remy" name as a tradename and corporate name worldwide until July 31, 2004
pursuant to a Tradename License Agreement between the Company and GM. In
addition, GM has granted the Company a perpetual license to use the "Remy" name
as a tradename and corporate name worldwide.
The Company owns and has obtained licenses to various domestic and foreign
patents and patent applications related to its products and processes. The
patents expire at various times over the next 16 years. While these patents and
patent applications in the aggregate are important to the Company's competitive
position, no single patent or patent application is material to the Company.
Raw Materials
Principal raw materials for the Company's business include bare copper
strap, insulated copper, aluminum castings, forgings, outer frames, nomex paper,
steel coils, steel bars, copper tube, copper wire, flat steel, coil steel, bar
steel, gray iron castings, ductile iron castings, copper cross-section coils,
magnets, steel shafts, steel cores, steel wire and molding material. All
materials are readily available from a number of suppliers, and management does
not foresee any difficulty in obtaining adequate inventory supplies. The Company
and GM have entered into a long-term worldwide purchasing support agreement that
allows the Company to purchase copper wire and steel, which are used in the
manufacture of starters sold to GM, at prices that the Company believes
generally to be lower than those that would otherwise be obtainable by the
Company. This agreement expires on July 31, 2004, or earlier, upon termination
of the automotive and heavy duty supply OEM agreements between the Company and
GM. The Company generally follows the North American industry practice of
passing on to its customers the costs or benefits of fluctuation in copper and
aluminum prices on an annual or semi-annual basis. See "Business--Customers."
Backlog
The majority of the Company's products are not on a backlog status. They
are produced from readily available materials and have a relatively short
manufacturing cycle. For products supplied by outside suppliers, the Company
generally purchases products from more than one source. The Company expects to
be capable of handling the anticipated 1998 sales volumes.
Properties
The world headquarters of the Company are located at 2902 Enterprise Drive,
Anderson, Indiana 46013. The Company leases its headquarters.
The following table sets forth certain information regarding manufacturing
and certain other facilities operated by the Company as of August 31, 1997. The
designation "F" indicates a focus plant. See "Business--Manufacturing and
Facilities."
<TABLE>
<CAPTION>
OEM or Approx. Owned/Lease
Location Aftermarket Use Sq. Ft. Expiration
-------- ----------- --- --------- ------------
<S> <C> <C> <C> <C>
Anderson, IN Headquarters Office 70,000 2000
Anderson, IN OEM Manufacturing 597,000 2004
Anderson, IN OEM Manufacturing 430,000 2004
Anderson, IN OEM(F) Manufacturing 117,000 2001
Anderson, IN OEM(F) Manufacturing 51,000 2001
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
OEM or Approx. Owned/Lease
Location Aftermarket Use Sq. Ft. Expiration
-------- ----------- --- --------- ------------
<S> <C> <C> <C> <C>
Anderson, IN OEM(F) Manufacturing 36,695 2006
Anderson, IN OEM Manufacturing 33,500 2007
Anderson, IN OEM/Aftermarket Testing 15,000 2001
Anderson, IN Aftermarket Warehouse 20,220 2000
Anderson, IN Aftermarket Warehouse 50,220 2000
Bay Springs, MS Aftermarket Manufacturing 73,000 2003
Budapest, Hungary Aftermarket Leased to 3rd Party 55,709 Owned
Chantilly, VA Aftermarket Manufacturing 120,000 2014
Edmonton, Canada Aftermarket Manufacturing 141,300 Owned
Etobicoke, Canada Aftermarket Manufacturing 114,120 2002
Findlay, OH Aftermarket Manufacturing 6,400 Owned
Franklin, IN Aftermarket Manufacturing 48,400 Owned
Franklin, IN Aftermarket Manufacturing 16,625 Owned
Franklin, IN Aftermarket Manufacturing 15,580 Owned
Gallatin, TN Aftermarket Manufacturing 20,000 Owned
Gallatin, TN Aftermarket Manufacturing 20,000 *
Heidelberg, MS Aftermarket Manufacturing 45,000 2003
Heidelberg, MS Aftermarket Manufacturing 5,000 2003
Indianapolis, IN Aftermarket Manufacturing 5,500 1999
Kaleva, MI Aftermarket Manufacturing 82,000 2000
Mansfield, TX Aftermarket Manufacturing 43,000 2000
Marion, MI Aftermarket Manufacturing 59,400 2000
Memphis, TN Aftermarket Warehouse 7,500 2002
Meridian, MS Aftermarket Office 2,400 2003
Meridian, MS Aftermarket Manufacturing 15,000 1998
Meridian, MS OEM Manufacturing 319,000 2004
Meridian, MS OEM(F) Manufacturing 68,000 2000
Meridian, MS Aftermarket Manufacturing 12,000 2003
Mezokovesd, Hungary Aftermarket Manufacturing 175,598 Owned
Mezokovesd, Hungary Aftermarket Warehouse 8,612 Owned
Peru, IN Aftermarket Manufacturing 30,000 2003
Peru, IN Aftermarket Manufacturing 14,111 2003
Raleigh, MS Aftermarket Manufacturing 43,000 2003
Raleigh, MS Aftermarket Manufacturing 75,000 2003
Raleigh, MS Aftermarket Manufacturing 8,000 Own
Reed City, MI Aftermarket Manufacturing 92,000 2000
Reed City, MI Aftermarket Manufacturing 34,000 2000
Reed City, MI Aftermarket Manufacturing 26,000 2000
Reed City, MI Aftermarket Warehouse 7,350 1999
Reed City, MI OEM/Aftermarket Manufacturing 90,000 Owned**
and Office
San Luis Potosi, Mexico OEM Manufacturing 37,000 2001
Sligo, Ireland OEM/Aftermarket Manufacturing 53,400 2018**
St. Laurent, Canada Aftermarket Warehouse 17,000 1997
Sylvarena, MS Aftermarket Manufacturing 1,300 *
Taylorsville, MS Aftermarket Manufacturing 27,000 2003
Toledo, OH Aftermarket Manufacturing 4,500 2000
Toronto, Canada Aftermarket Manufacturing 36,778 1997
Warren, MI OEM/Aftermarket Manufacturing 100,049 Owned**
and Office
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
OEM or Approx. Owned/Lease
Location Aftermarket Use Sq. Ft. Expiration
-------- ----------- --- --------- ------------
<S> <C> <C> <C> <C>
Winchester, VA Aftermarket Warehouse 55,000 2000
Winchester, VA Aftermarket Office/Whse 55,000 2000
Winnepeg, Canada Aftermarket Manufacturing 38,000 Owned
</TABLE>
- ------------------
* Leased on a month-to-month basis.
** Ballantrae facilities.
Legal Proceedings
From time to time, the Company is party to various legal actions in the
normal course of its business. The Company believes it is not currently party to
any litigation that, if adversely determined, would have a material adverse
effect on the Company's business, financial condition and results of operations.
Regulatory Matters
The Company's facilities and operations are subject to a wide variety of
federal, state, local and foreign environmental laws, regulations and
ordinances, including those related to air emissions, wastewater discharges and
chemical and hazardous waste management and disposal ("Environmental Laws"). The
Company's operations also are governed by laws relating to workplace safety and
worker health, primarily the Occupational Safety and Health Act, and foreign
counterparts to such laws ("Employee Safety Laws"). The Company believes that
its operations are in compliance in all material respects with current
requirements under Environmental Laws and Employee Safety Laws, with the
exception of certain matters of which the Company is aware, including: (i)
failure to submit certain filings pursuant to the New Jersey Industrial Site
Recovery Act ("ISRA") in connection with the closure of the Company's former
Edison, New Jersey plant; (ii) air permits or registration requirements at
certain facilities; and (iii) one isolated instance of noncompliance with import
requirements of the Hazardous Materials Transportation Act (relating to shipment
of lead-acid batteries) now under review by the United States Department of
Transportation. The Company believes that any costs it may incur to resolve such
matters will not be material. The nature of the Company's operations, however,
exposes it to the risk of liabilities or claims with respect to environmental
and worker health and safety matters. There can be no assurance that material
costs will not be incurred in connection with such liabilities or claims.
Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws, regulations and
ordinances (or liability for known environmental claims) will not have a
material adverse effect on the Company's business, financial condition or
results of operations. However, future events, such as changes in existing laws
and regulations or their interpretation, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the Company's
business, financial condition or results of operations. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
may require additional expenditures by the Company that may be material.
Certain Environmental Laws hold current owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products ("Hazardous
Substances"). Because of its operations, the long history of industrial uses at
some of its facilities, the operations of predecessor owners or operators of
certain of the businesses, and the use, production and release of Hazardous
Substances at these sites, the Company is affected by such liability provisions
of Environmental Laws. Various of the Company's facilities have experienced some
level of regulatory scrutiny in the past and are or may be subject to further
regulatory inspections, future requests for investigation or liability for past
disposal practices.
During the environmental due diligence performed in connection with the GM
Acquisition, GM and the Company identified certain on-site pre-closing
environmental conditions including the presence of certain Hazardous Substances
in the soil at the Company's Meridian, Mississippi property and in the soil and
groundwater at the Company's Anderson, Indiana property. GM has reported the
presence of these substances in the groundwater to the United States
Environmental Protection Agency ("EPA") and the Indiana Department of
49
<PAGE>
Environmental Management ("IDEM") and has notified residents who live
downgradient of the affected GM properties. GM conducted further investigation,
which included the sampling of the residents' water wells and the installation
of an additional well offsite, and is working with EPA to resolve this issue.
Based on the Company's experience to date, the terms of the indemnification in
the GM Acquisition agreement and GM's continuing performance in responding to
these conditions, the Company does not believe that it will expend material
costs in responding to these on-site environmental conditions.
In connection with its acquisition of facilities and businesses from GM,
Nabco, A&B Group, Autovill, Power Investments, and World Wide, the Company
obtained various indemnities for certain claims related to on-site and off-site
environmental conditions and violations of Environmental Laws which arose prior
to such acquisitions. The environmental indemnities are subject to certain
deductibles, caps, cost sharing and time limitations depending on the nature and
timing of the environmental claim.
The Comprehensive Environmental Response, Compensation, and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"), provides for responses to and joint and several liability for
releases of certain Hazardous Substances into the environment. The Company has
received requests for information or notifications of potential liability from
EPA under CERCLA for certain off-site locations. The Company has not incurred
any significant costs relating to these matters, and based on the existence of
certain indemnification agreements from its predecessors and their assumption of
liabilities to date and other legal defenses, believes that it will not incur
material costs in the future in responding to conditions at these sites.
The Company's Meridian, Mississippi facility has been designated by EPA as
requiring no further action under CERCLA and has since been "delisted" from the
Comprehensive Environmental Response, Compensation, and Liability Information
System ("CERCLIS") (a list of sites which may require investigation or
remediation under CERCLA). Although this does not assure that expenditures would
not be required under other federal and/or state programs, as a result of the
indemnifications in the GM Acquisition agreement, the Company does not believe
that it will expend material costs for this site under the CERCLA program or for
any other environmental conditions at this site.
The Resource Conservation and Recovery Act ("RCRA") and the regulations
thereunder and similar state counterparts to this law regulate hazardous wastes.
The Company's Anderson, Indiana facilities were once part of a larger industrial
complex owned and operated by GM (the "GM Complex"). Since 1990 (when owned by
GM), the GM Complex has been undergoing corrective action under RCRA. In
connection with the RCRA corrective action requirements, GM is required to
investigate various solid waste management units ("SWMUs") and areas of concern
("AOCs") identified in the federal and state RCRA permits. Some of these SWMUs
and AOCs are located on portions of the Anderson, Indiana properties leased by
the Company from GM and certain SWMUs are used by the Company. The costs of
responding to releases, if any, from those SWMUs used by the Company would
presumptively be borne by the Company. To date, no claims for any such liability
have been made, and GM continues to respond to EPA and IDEM with respect to the
investigation of these AOCs and SWMUs. Subject to the terms and conditions of
GM's environmental indemnity provided in connection with the GM Acquisition, GM
is indemnifying the Company with respect to certain of these areas.
One of the Company's facilities in Franklin, Indiana is undergoing a RCRA
site investigation and clean-up of volatile organic compounds ("VOCs") in the
soil and groundwater pursuant to an EPA Administrative Order on Consent ("EPA
Order") issued to both Franklin Power Products, one of the subsidiaries of the
Company, and Amphenol Corporation, a prior owner of the property. Pursuant to
the EPA Order, Franklin Power Products and Amphenol Corporation have jointly
submitted corrective measures studies which have been approved by EPA, and the
parties expect to enter into a new EPA Administrator Order on Consent in the
near future setting forth the selected remedy (including further investigation).
Amphenol indemnified Franklin Power Products for certain liabilities associated
with the EPA Order and Amphenol has satisfied and continues to satisfy the
requirements of the EPA Order. Based on the Company's experience to date and the
indemnities from Amphenol and the sellers of Franklin Power Products to the
Company, the Company believes that future costs associated with this site will
not have a material adverse effect on the Company's results of operations,
business or financial condition.
The Company's Marion, Michigan facility was listed on Michigan's state list
of sites pursuant to the Michigan version of CERCLA (the "Michigan SCL") in 1993
because of suspected releases of Hazardous Substances, primarily volatile
organic compounds (mineral spirits), to the soils and groundwater at the
facility. An
50
<PAGE>
investigation conducted by Nabco prior to its acquisition by the Company
determined that the levels of volatile organic compounds in the soils and
groundwater are below the applicable state clean-up levels. Although the Company
proposed no further action at this facility, the Michigan environmental
authorities are requiring further investigation. Even if the Michigan
environmental authorities were to require remedial action with respect to this
site, the Company does not believe that it will expend material costs in
connection with the conditions giving rise to this Michigan SCL.
51
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position of each of the
directors and senior officers of the Company. Each director of the Company will
hold office until the next annual meeting of stockholders of the Company or
until his successor has been elected and qualified. Officers of the Company and
its subsidiaries serve at the discretion of their respective Boards of
Directors.
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Harold K. Sperlich (1)........... 67 Chairman of the Board of Directors
Thomas J. Snyder (2)............. 53 President, Chief Operating Officer and Director
David L. Harbert................. 55 Executive Vice President and Chief Financial Officer
Susan E. Goldy................... 43 Vice President and General Counsel
Joseph P. Felicelli.............. 51 Group Vice President, Aftermarket
M. Lawrence Parker............... 49 Senior Vice President, Quality & Heavy Duty Systems, Delco Remy
America
Richard L. Stanley............... 41 Senior Vice President, Automotive Systems Division, Delco Remy
America
Roderick English................. 45 Senior Vice President, Human Resources and Communications,
Delco Remy America
Thomas R. Jennett................ 45 Senior Vice President and General Manager, Aftermarket Division
Patrick Mobouck.................. 43 Vice President-Managing Director, Europe
John M. Mayfield................. 43 President of A&B Group
Nicholas J. Bozich............... 53 President of Nabco
J. Michael Jarvis................ 53 President of Power Investments
Richard L. Keister............... 51 President of World Wide
Ralph E. McGee................... 59 President of Tractech
E.H. Billig (1).................. 70 Vice Chairman of the Board of Directors
Richard M. Cashin, Jr. (2)....... 44 Director
James R. Gerrity (2)............. 56 Director
Michael A. Delaney (1)........... 43 Director
Robert J. Schultz................ 67 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Harold K. Sperlich, Chairman of the Board of Directors. Mr. Sperlich has
been Chairman of the Board of Directors since the Company's inception in 1994.
Since retiring from Chrysler Corporation in 1988, having served as its
President, Mr. Sperlich has served as a consultant to the automotive industry.
Before joining Chrysler in 1977, Mr. Sperlich held several senior administrative
and operating posts with Ford Motor Company.
52
<PAGE>
Thomas J. Snyder, President, Chief Operating Officer and Director. Mr.
Snyder has been President and Chief Operating Officer since the Company's
inception in 1994. From 1962 to 1994, Mr. Snyder held several aftermarket and
OEM executive positions with the Delco Remy Division of GM, most recently as
Product Manager, Heavy Duty Systems. He is a member of the board of St. John's
Health Systems and a Director of CLARK Material Handling Company.
David L. Harbert, Executive Vice President and Chief Financial Officer. Mr.
Harbert has been the Executive Vice President and Chief Financial Officer of the
Company since October 1994. Before joining the Company, Mr. Harbert was Senior
Vice President and Chief Financial Officer of Applied Power Inc. since 1992 and,
prior to that, served as Vice President and Chief Financial Officer of System
Software, Inc. since 1990.
Susan E. Goldy, Esquire, Vice President and General Counsel. Ms. Goldy has
been Vice President and General Counsel since February 1997. Before joining the
Company, she was an associate, and since 1993, was a partner in the law firm of
Dechert Price & Rhoads.
Joseph P. Felicelli, Group Vice President, Aftermarket. Mr. Felicelli has
been Group Vice President since September 1997. Prior to joining the Company,
Mr. Felicelli served in various management positions for Cooper Industries.
M. Lawrence Parker, Sr. Vice President, Quality and Heavy Duty Systems,
Delco Remy America. Mr. Parker has been the Senior Vice President, Quality and
Heavy Duty Systems since June 1995 and, prior to that, was Senior Vice
President, Quality and Customer Satisfaction beginning with the Company's
inception in 1994. Before joining the Company, Mr. Parker served in a number of
executive positions at Ford Motor Company since 1967 and at Chrysler Corporation
since 1984, most recently as Director, Corporate Quality Programs since 1991.
Richard L. Stanley, Sr. Vice President, Automotive Systems Division, Delco
Remy America. Mr. Stanley has been Senior Vice President, Automotive Systems
since the Company's inception in 1994. Mr. Stanley joined the Delco Remy
Division of GM in 1978, serving most recently as Director of Customer Programs
since 1992 and as European Chief Engineer since 1988.
Roderick English, Sr. Vice President, Human Resources and Communications,
Delco Remy America. Mr. English has been Senior Vice President of Human
Resources and Communications since the Company's inception in 1994. Mr. English
joined the Delco Remy Division of GM in 1976 and became Plant Manager of plant
17 in 1993. Prior to that, Mr. English served as Divisional Manager of Labor
Relations since 1989.
John M. Mayfield, President of A&B Group. Mr. Mayfield has been President
of A&B Group since its acquisition by the Company in March 1995. Mr. Mayfield
joined A&B Group in 1988 as Controller and became its Operations Director in
1991.
Nicholas J. Bozich, President, Nabco. Mr. Bozich has been President of
Nabco since March, 1997. Before joining the Company, Mr. Bozich was with General
Motors for 34 years in various managerial positions, most recently with the
Saturn Division.
J. Michael Jarvis, President, Power Investments. Mr. Jarvis has been
President of Power Investments since its formation in 1983.
Richard L. Keister, President, World Wide. Mr. Keister has been President
of World Wide since its formation in 1976.
Ralph F. McGee, President, Tractech. Mr. McGee started as Sales and
Marketing Manager of TracTech in 1968. He was appointed President in 1980, a
position he has held since then except for two years when he served in corporate
level development positions for Titan Wheel, Inc.
Thomas R. Jennett, Senior Vice President and General Manager, Aftermarket
Division. Mr. Jennett joined the Company in October 1996. Prior to such time he
held various management positions with Prestolite Electric Inc. since 1974,
including President of the Aftermarket Division and the Leece-Neville Heavy Duty
Division.
Patrick Mobouck, Vice President-Managing Director-Europe and Vice
President. Mr. Mobouck has been Vice President and General Manager Europe since
August 1997. He has also been Chairman of Autovill since August
53
<PAGE>
1997. Before joining the Company, Mr. Mobouck was with Monroe Auto Equipment
since 1988, most recently as Managing Director-Europe, Middle East and Africa.
E.H. Billig, Vice Chairman of the Board of Directors. Mr. Billig has been
Vice Chairman of the Board of Directors since the Company's inception in 1994.
He was former President and Chief Operating Officer of MascoTech Automotive
Systems Group, Inc., where he continues to serve as Vice Chairman. He is also a
director of Emco Limited, Titan Wheel International, Inc. and OEA, Inc.
Richard M. Cashin, Jr., Director. Mr. Cashin has been a director since the
Company's inception in 1994. Mr. Cashin has been President since 1994, and a
Managing Director for more than the past five years, of CVC. In addition, Mr.
Cashin serves as a director of Levitz Furniture Incorporated and Titan Wheel
International Inc.
James R. Gerrity, Director. Mr. Gerrity has been a director since the
Company's inception in 1994. From 1986 to 1993, Mr. Gerrity was President and a
director of Dyneer Corporation. Mr. Gerrity currently is a director of Palomar
Technologies Corporation, Wescor Graphics, Inc. and Ballantrae Corporation.
Michael A. Delaney, Director. Mr. Delaney has been a director since the
Company's inception in 1994. Mr. Delaney has been a Vice President of CVC since
1989. From 1986 through 1989, he was Vice President of Citicorp Mergers and
Acquisitions. Mr. Delaney is also a director of Sybron Chemicals, Inc., CVC
Holdings, JAC Holdings, CORT Business Services, Inc., Palomar Technologies,
Inc., Enterprise Media Inc., FF Holdings Corporation, SC Processing, Inc.,
Triumph Holdings, Inc. and AmeriSource Health Corporation.
Robert J. Schultz, Director. Mr. Schultz became a director in 1997. Mr.
Schultz retired as Vice Chairman and a member of the Board of Directors of GM in
1993. Mr. Schultz joined GM in 1955 and served as Group Executive of
Chevrolet-Pontiac-GM of Canada and General Manager of GM's Delco Electronic's
Division. Mr. Schultz is also a member of the Board of Trustees of California
Institute of Technology and a director of OEA, Inc. and Texco Communications.
Director Compensation and Arrangements*
Any outside director of the Company is paid an annual fee of $ for
service as a director of the Company, plus an additional fee of $ for
attendance at each meeting of the Board of Directors in excess of annually
and $ per telephonic meeting of the board of directors. [There are no
fees paid for attendance at committee meetings.] Certain outside directors of
the Company may also be entitled to receive stock options for Class A Common
Stock pursuant to the stock option plan the Company intends to adopt prior to
the consummation of the Offerings. See "Management--Stock Option Plan." CVC,
certain members of management and other Existing Stockholders have entered into
a Stockholders' Agreement whereby they have agreed to vote their shares in such
a manner so as to elect the entire Board of Directors of the Company. See
"Principal Stockholders--Stockholders' Agreement."
54
- ---------------
*To be completed by amendment
<PAGE>
Executive Compensation*
The following table sets forth, for the fiscal year ending July 31, 1997,
certain information regarding the cash compensation paid by the Company, as well
as certain other compensation paid or accrued for such year, to each of the
executive officers of the Company named below, in all capacities in which they
served:
<TABLE>
<CAPTION>
Other Annual All Other
Name and Principal Position Salary Bonus Compensation Compensation
<S> <C> <C> <C> <C>
Harold K. Sperlich $ $ $
Chairman of the Board
Thomas J. Snyder $ $ $
President and
Chief Operating Officer
$ $ $
$ $ $
$ $ $
</TABLE>
- ---------------------
* Table to be completed by amendment.
Stock Option Plan. The Company expects to adopt a stock option plan
immediately prior to the consummation of the Offerings.
401(k) Plan. The Company established the Salaried 401(k) Savings Plan (the
"401(k) Plan") to allow eligible employees to help meet their long-term savings
needs. Except for eligible employees who transferred to DRA directly from GM and
began immediate participation, generally all employees who are compensated on a
salaried basis are eligible to participate in the 401(k) Plan after completing
six months of continuous employment. The 401(k) Plan is a defined contribution,
tax-qualified plan under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), with employer and employee pre-tax contributions
deductible by the Company for income tax purposes for the year contributed, and
such contributions and earnings thereon are not taxable to employees until paid
to them.
An employee in the 401(k) Plan may elect to have from 1% to 15% of base
salary contributed from pay to the 401(k) Plan on a pre-tax, after-tax, or
combination of pre-tax and after-tax, basis, and receive a 25% matching
contribution on the sum of the employee's pre-tax and after-tax contributions up
to 6% of base salary. Except for certain GM employees who transferred employment
to DRA, employees also receive a 1% of base salary contribution for their
retiree medical care account under the 401(k) Plan. Under the Code, the total
contributions allocated to an employee's accounts for a plan year cannot exceed
the lesser of $30,000 or 25% of the employee's compensation, and the employee's
pre-tax contributions are limited in a calendar year to $9,500 (subject to cost
of living increases under the Code).
Employees are immediately 100% vested in their 401(k) Plan benefits except
for the matching and retiree medical care contributions, which vest after the
earliest of five years of service, death, attaining age 65, or attaining an
early retirement date under the Retirement Plan. Any forfeitures which may
result under the 401(k) Plan are used to reduce future contributions of the
companies. Employees generally may withdraw their vested benefits from the
401(k) Plan on termination of employment, retirement, or death, and may also
under certain circumstances withdraw benefits while still employed (including
certain financial hardship, plan loan and pre- and post-age 59 1/2,
withdrawals). Until fully withdrawn, employees may direct the investment of
their 401(k) Plan benefits among a broad range of investment funds.
Retirement Plan. The Company established the Retirement Plan primarily to
provide eligible employees with a monthly pension benefit after retirement for
life. Except for eligible employees who transferred to DRA directly from GM and
began immediate participation, generally all employees of the Company who are
compensated on a salaried basis are eligible to participate in the Retirement
Plan after completing one year of service and attaining
55
<PAGE>
age 21. The Retirement Plan is a defined benefit, tax-qualified plan under
section 401(a) of the Code, and contributions to the Plan generally are
deductible by the companies for income tax purposes for the year contributed,
and benefits are not taxable to employees until paid.
The standard retirement benefit under the Retirement Plan is a monthly,
single life annuity starting at age 65, equal to 1.25% of an employee's average
monthly pay multiplied by the employee's years of service with the companies.
Average monthly pay is generally based on the employee's 60-consecutive month
highest average base pay during the ten-year period before retirement. The
benefit for certain long-service GM employees who transferred to DRA, however,
is not less than $60 times their years of service with the Company. Under the
Code the annual benefit provided by the Retirement Plan cannot exceed the lesser
of $125,000 or 100% of compensation (subject to certain further limitations
under the Retirement Plan and Code). Eligible employees generally may retire on
or after age 55 with 10 years of service, with their monthly Retirement Plan
benefit actuarially reduced if payment actually starts prior to age 62.
Employees who terminate with less than five years of service forfeit any
benefits which they may have accrued, and such forfeitures are used to offset
future contributions otherwise required to fund the Plan. Certain death and
disability benefits also may be paid under the Retirement Plan.
Supplemental Executive Retirement Plan. The Company established and
maintains the Supplemental Executive Retirement Plan ("SERP") to provide
additional retirement benefits to a select group of management who experience
reductions in their 401(k) Plan and Retirement Plan benefits due to limitations
imposed by the Code. The SERP is a non-qualified deferred compensation "top hat"
plan with a defined benefit formula, is generally exempt from most of the
federal pension laws applicable to tax-qualified deferred compensation plans,
and SERP benefits are unsecured and paid from the general assets of the
companies when due. The Delco Remy International, Inc. Executive Benefit
Committee selects the group of eligible management employees and the date as of
which each individual may participate.
The benefit under the SERP is 2% of the employee's final plan compensation
multiplied by the employee's years of service with the companies, with such
benefit not less than 25% nor more than 50% of such final plan compensation,
payable in quarterly installments over five years. The employee's final plan
compensation for this purpose generally is the employee's base compensation
(subject to certain adjustments and limitations) which is in excess of the
applicable compensation limit in effect under Code Section 401(a)(17) (currently
$160,000). The SERP benefit generally is payable when a participant terminates
employment after completing five years of service or dies. However, the SERP
benefit may be forfeited under certain circumstances, including termination for
cause or engaging in prohibited competition.
The following table sets forth the estimated annual benefits payable upon
retirement:*
Remuneration Years of Service
- ------------------------------- ---------------------------------------------
Executive Incentive Plan. The Company's executives participate in an
Executive Incentive Plan by which they are entitled to receive certain
percentages of their base compensation as a bonus if a designated target or
objective is met. Designated targets related to earnings and/or cash flow are
set at the beginning of each year, based on the
- --------------------------------
* To be completed by amendment.
56
<PAGE>
prior year's results. The Executive Incentive Plan provides that if a target is
exceeded, then any bonus payable under the plan is commensurately increased,
subject to a cap. The Company expects to continue the Executive Incentive Plan
and has established a Compensation Committee made up of non-management directors
who will fix the target objectives for each executive for each year.
Insurance and Indemnification
The Company has obtained customary directors' and officers' insurance
against certain liabilities such persons may incur on behalf of the Company. For
a discussion of the limitations on liability of the Company's directors and the
indemnification by the Company of such directors set forth in the Company's
Restated Certificate of Incorporation, see "Description of Capital
Stock--Limitation on Liability and Indemnification."
Employment Agreements
The Company has entered into an Employment Agreement with Thomas J. Snyder
which provides for his employment until 1999. Mr. Snyder receives an annual base
salary of $ * . The agreement provides that the executive may not
engage in any business competitive with the Company while employed by the
Company and for a period of one year thereafter.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors during fiscal year
1997 was composed of Messrs. Delaney, Sperlich and Billig. Upon completion of
the Offerings, the Compensation Committee will be composed of the same
individuals.
- ------------------
*To be completed by amendment
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of October 1, 1997 with
respect to shares of each class of Common Stock beneficially owned by (i) each
person or group that is known to the Company to be the beneficial owner of more
than 5% of each class of outstanding Common Stock, (ii) each director and senior
officer of the Company and (iii) all directors and senior officers of the
Company as a group. Unless otherwise specified, all shares are directly held.
Each share of Class A Common Stock is convertible into one share of Class B
Common Stock, and each share of Class B Common Stock is convertible into one
share of Class A Common Stock. See "Description of Capital Stock."
Class A Common Stock
<TABLE>
<CAPTION>
Percent of
Class Before Percent of Class
Amount of Offerings and After Offerings
Beneficial Owner Ownership(1)(2) Transactions(1) and Transactions(1)
---------------- --------------- --------------- -------------------
<S> <C> <C> <C>
Citicorp Venture Capital Ltd.(3).................. 19.8%
399 Park Avenue
New York, NY 10043
MascoTech Automotive Systems Group, Inc........... 30.7
275 Rex Boulevard
Auburn Hills, MI 48326
World Equity Partners, L.P........................ 17.0
399 Park Avenue
New York, NY 10043
Harold K. Sperlich(5)............................. 10.2
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
Thomas J. Snyder.................................. 5.1
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
James R. Gerrity(6)............................... 3.1
E.H. Billig(7).................................... 3.1
Richard M. Cashin, Jr.(8)......................... 2.2
Michael A. Delaney................................ *
Robert J. Schultz................................. *
All directors and senior officers as a group 36.2
(19 persons)......................................
</TABLE>
* Represents less than 1%.
(1) After giving effect to the Stock Split to be effected in connection with
the Transactions; does not include shares of Class B Common Stock
convertible into Class A Common Stock.
(2) Includes shares issuable upon exercise of the Warrants which are
exercisable within 60 days of the stated date.
(3) CVC owns beneficially approximately 47.5% of the shares of Common Stock
outstanding.
(4) Represents Warrants to acquire Class A Common Stock.
58
<PAGE>
(5) Held as trustee under agreement dated February 4, 1985, as amended, with
Harold K. Sperlich, as Settlor.
(6) Held as trustee under Living Trust dated March 16, 1990.
(7) Held by The Billig Family Limited Partnership.
(8) Does not include shares beneficially held by CVC or World Equity Partners,
L.P., which may be deemed to be beneficially owned by Messrs. Delaney and
Cashin. Messrs. Delaney and Cashin disclaim beneficial ownership of shares
held by CVC or World Equity Partners, L.P.
Class B Common Stock
<TABLE>
<CAPTION>
Amount of Percent of
Beneficial Owner Ownership(1) Class(1)
---------------- ------------ ----------
<S> <C> <C>
Citicorp Venture Capital Ltd.(2).......................................... 86.5%
399 Park Avenue
New York, NY 10043
CCT Partners I, L.P....................................................... 10.0
399 Park Avenue
New York, NY 10043
Michael A. Delaney(3)..................................................... *
Richard M. Cashin, Jr.(3)................................................. *
All directors and senior officers as a group *
(19 persons)(2)...........................................................
</TABLE>
- -----------------
* Represents less than 1%.
(1) After giving effect to the Stock Split to be effected in connection with
the Transactions; does not include shares of Class A Common Stock
convertible into Class B Common Stock.
(2) CVC owns beneficially approximately 47.5% of the shares of Common Stock
outstanding.
(3) Does not include shares held by CVC and CCT Partners I, L.P. which may be
deemed to be beneficially owned by Messrs. Delaney and Cashin. Messrs.
Delaney and Cashin disclaim beneficial ownership of such shares.
Stockholders' Agreement
In connection with the GM Acquisition, certain stockholders of the Company,
including CVC, World Equity Partners, L.P. ("WEP"), MascoTech Automotive Systems
Group, Inc. ("MascoTech"), Harold K. Sperlich, James R. Gerrity and the
individuals named therein as management investors (the "Management Investors")
(collectively the "Investors"), entered into a Securities Purchase and Holders
Agreement (the "Stockholders' Agreement") for a ten-year term containing certain
agreements among such stockholders with respect to the capital stock and
corporate governance of the Company. The following is a summary description of
the principal terms of the Stockholders' Agreement and is subject to and
qualified in its entirety by reference to the Stockholders' Agreement, which has
been filed as an exhibit to the Registration Statement which includes this
Prospectus.
Pursuant to the Stockholders' Agreement, the Investors agreed to vote their
shares in favor of the Board of Directors of the Company being composed of six
to nine directors as follows: Harold K. Sperlich (so long as he continues to
serve as chairman of the Board of Directors); one individual designated by
MascoTech; two individuals designated by CVC; James R. Gerrity (so long as he
continues to serve as an officer or a consultant to the Company); and Thomas J.
Snyder (so long as he continues to serve as President of the Company and, when
he ceases to serve in such office, his successor in such office). CVC also has
the right to nominate up to 3 independent directors.
If CVC elects not to nominate any such nominees, no other persons will be
nominated or elected to such independent director positions. So long as CVC or
its affiliates own at least 5% of the outstanding shares of the Company's Common
Stock, CVC also has the right pursuant to the Stockholders' Agreement to
designate two observers to attend meetings of the Company's Board of Directors
and committees thereof. The Investors have
59
<PAGE>
agreed to vote their shares in favor of any proposal by CVC or MascoTech (a) to
remove directors nominated by CVC or MascoTech or (b) to fill directorships
vacated by directors nominated by CVC or MascoTech.
Following the Equity Offering, the Investors will beneficially own over 50%
of the outstanding shares of Class A Common Stock and, pursuant to the foregoing
described provisions, will be able to elect the entire Board of Directors of the
Company. The Stockholders' Agreement contains similar provisions regarding the
control by the Investors of DRA and its Board of Directors.
Each Investor has agreed in the Stockholders' Agreement not to vote in
favor of any amendment or other modification to the Company's Restated
Certificate of Incorporation or By-laws unless CVC votes in favor of such
amendment or modification. CVC has agreed not to vote in favor of any such
amendment that adversely affects MascoTech's right to designate one individual
to the Company's Board of Directors.
The Stockholders' Agreement contains certain provisions which restrict,
with certain exceptions, the ability of the Investors from transferring any
shares of Common Stock or warrants to purchase Common Stock unless such transfer
is approved by Investors holding at least 40% of the outstanding Common Stock
and otherwise complies with the terms of the Stockholders' Agreement. If the
Board of Directors of the Company and holders of more than 50% of the shares of
Common Stock then outstanding approve the sale of the Company (an "Approved
Sale"), each Investor has agreed to consent to such sale and, if such sale
includes the sale of stock, each Investor has agreed to sell all of such
Investor's Common Stock on the terms and conditions approved by the Board of
Directors and holders of a majority of the shares of Common Stock then
outstanding. If the holders of at least 66% of the shares of Common Stock then
outstanding approve the sale of the Company (a "Required Sale"), each Investor
has agreed to consent to such sale and, if the sale is structured as a sale of
stock, each Investor has agreed to sell all of such Investor's Common Stock on
the terms and conditions approved by the holders of at least 66% of the shares
of Common Stock then outstanding. CVC holds a right of first refusal to purchase
MascoTech's shares in the event that MascoTech receives a bona fide offer to
sell its shares. If CVC elects to purchase less than all of MascoTech's shares
under CVC's right of first refusal, then the Company may be obligated to
purchase the remainder of MascoTech's shares.
The Stockholders' Agreement also provides for certain additional
restrictions on transfer by Management Investors, including, subject to certain
exemptions, the right of the Company to repurchase shares held by Management
Investors upon termination of employment prior to July 31, 1999, at a formula
price, and the grant of a right of first refusal in favor of the Company in the
event a Management Investor elects to transfer such Management Investor's shares
of Common Stock.
Registration Rights Agreement
In connection with the GM Acquisition, the Company entered into a
Registration Rights Agreement with the Investors covering all of the
shares of Common Stock held by the Investors ("Registration Rights Agreement").
The following description of the Registration Rights Agreement is subject to and
qualified in its entirety by reference to the Registration Rights Agreement,
which has been filed as an exhibit to the Registration Statement which includes
this Prospectus. CVC and, upon consummation of the Equity Offering, WEP and
WEP's permitted transferees have been granted the right one or more times to
require the Company to file one or more registration statements with the
Securities and Exchange Commission (the "Commission") registering the shares
held by them. The Investors have been granted the right, subject to certain
restrictions, to require the Company to include shares held by the Investors in
any registration statements filed by the Company with the Commission subject to
certain limited exceptions. The Company has agreed to pay certain expenses
relating to any registration of shares effected pursuant to the Registration
Rights Agreement and to indemnify the Investors against certain liabilities in
connection with any such registration.
Lock-Up Agreements
In connection with the Equity Offering, the Investors and certain other
stockholders have agreed, subject to certain exceptions, not to register for
sale or offer, sell or transfer any shares of Common Stock for a period of 180
days after the date of the Equity Offering, without the prior written consent of
Morgan Stanley & Co. Incorporated. This agreement covers all of the shares
of Common Stock held by the Investors and approximately shares
of Common Stock held by other stockholders. See "Underwriters."
60
<PAGE>
CERTAIN TRANSACTIONS
CVC and James R. Gerrity, each of whom is an existing stockholder of the
Company, beneficially own approximately 71.9% and 15.0% of Ballantrae's issued
and outstanding common stock, on a fully-diluted basis, respectively, and 74.7%
and 10.4% of Ballantrae's issued and outstanding preferred stock, respectively.
The Ballantrae Acquisition Agreement provides that CVC and Mr. Gerrity and their
affiliates will receive in connection with the acquisition of Ballantrae and
additional shares of the Company's Common Stock, respectively, based on an
assumed offering price in the Equity Offering of $ per share of Class A Common
Stock (the "Merger Consideration"); however such stock will be subject to
certain restrictions against transfer under applicable securities laws. The
Company believes that the Ballantrae Acquisition Agreement and in particular the
Merger Consideration to be received by CVC and Mr. Gerrity and their affiliates
are commercially reasonable. The Company's Board of Directors has received a
fairness opinion from Salomon Brothers Inc. Messrs. Delaney, Gerrity and Cashin,
directors of the Company, have served as directors of Ballantrae since its
formation in 1996. See "Company History," "Risk Factors--Acquisition of
Ballantrae; Conflicts of Interest" and "Business--Acquisition of Ballantrae."
The Company currently leases eight properties in Mississippi from entities
controlled by family members of John M. Mayfield, President of A&B Group. These
leases were entered into in connection with the acquisition of A&B Group by the
Company in March 1995. All leases are triple net leases, five of which expire on
March 31, 2003 and three of which expire on March 31, 2000, each subject to
renewal. Aggregate annual rent payments for these leases for fiscal year 1997,
not including tax and maintenance expenses constituting additional rent, equaled
approximately $646,200.
Mr. Richard L. Keister, President of World Wide, borrowed $90,000 from the
Company to purchase 10,000 shares of Class A Common Stock from the Company in
May 1997. Interest on the loan accrues at a rate of % and the loan is due
.
In 1997, Mr. Nicholas J. Bozich, President of Nabco, borrowed $15,000 and
$80,000 from the Company to purchase 1,500 shares of Class A Common Stock and to
purchase a home, respectively. Interest on the loans accrues at a rate of %
and %, respectively, and the loans are due in and ,
respectively.
The Company will exchange the Junior Subordinated Notes for shares
of the Company's Class A Common Stock. The Junior Subordinated Notes were issued
in an aggregate principal amount of $18.2 million to CVC, certain employees and
former employees of CVC and MascoTech in connection with the GM Acquisition. The
exchange ratio will be based upon the initial public offering price of the Class
A Common Stock of the Company for the Equity Offering less underwriting
discounts and commissions.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is subject to
and qualified in its entirety by reference to the Company's Restated Certificate
of Incorporation, which has been filed as an exhibit to the Registration
Statement which includes this Prospectus.
The Company may issue ,000,000 shares of Common Stock, divided into two
classes consisting of ,000,000 shares of Class A Common Stock, par value $.01
per share, and ,000,000 shares of Class B Common Stock, par value $.01 per
share.
As of July 31, 1997, giving effect to the Transactions, there were
shares of Class A Common Stock outstanding, held of record by holders, and
shares of Class B Common Stock outstanding. In addition, Warrants
to purchase shares of Class A Common Stock were issued and outstanding
and shares of Class A Common Stock were available to be issued pursuant
to the stock option plan which the Company expects to adopt prior to the
consummation of the Offerings.
Class A Common Stock
Holders of Class A Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders and have
no cumulative voting rights. Holders of Class A Common Stock do not have
preemptive rights pursuant to the Restated Certificate of Incorporation. Holders
of Class A Common
61
<PAGE>
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Company's Board of Directors out of legally available
funds therefor; provided, however, that if dividends are declared that are
payable in shares of Class A Common Stock or Class B Common Stock, dividends
must be declared which are payable at the same rate on each class of Common
Stock and the dividends payable in shares of Class A Common Stock must be paid
to holders of Class A Common Stock and the dividends payable in shares of Class
B Common Stock must be paid to holders of Class B Common Stock. All outstanding
shares of Class A Common Stock are fully-paid and nonassessable. Shares of Class
A Common Stock are convertible at any time at the election of the holder thereof
into shares of Class B Common Stock on a one-for-one basis.
Upon liquidation, dissolution or winding up of the Company, holders of
Class A Common Stock, together with holders of Class B Common Stock, are
entitled to a pro rata share of the distribution of assets remaining after the
payment of debts and expenses and after payment of the liquidation preference
accorded to the holders of any preferred stock of the Company which may be
issued in the future. Each share of Class A Common Stock has the same rights,
privileges and preferences as every other share of Class A Common Stock.
Class B Common Stock
The rights of holders of Class B Common Stock and holders of Class A Common
Stock are identical and entitle the holders thereof to the same rights,
privileges, benefits and notices, except as otherwise described herein. Holders
of Class B Common Stock generally do not possess the right to vote on any
matters to be voted upon by the stockholders of the Company, except as provided
by law. Under Section 242(b)(2) of the Delaware General Corporation Law
("DGCL"), the holders of the Class B Common Stock shall be entitled to vote as a
class upon any proposed amendment to the Company's Restated Certificate of
Incorporation, if such amendment would increase or decrease the number of shares
or the par value of the shares of such class, or alter or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely. Holders of Class B Common Stock may elect at any time to convert any
and all of such shares into Class A Common Stock, on a share-for-share basis, to
the extent the holder thereof is permitted pursuant to applicable law to hold
the total number of shares of voting securities such holder would hold after
giving effect to such conversion.
Warrants
On July 31, 1994, the Company issued to WEP warrants to purchase from the
Company shares of the Company's Class A Common Stock for an exercise price
of $. per share (the "Warrants"). The Warrants can be exercised in whole or in
part at any time prior to July 31, 2004. The exercise price and the number of
shares of Common Stock issuable upon exercise are subject to adjustment upon the
occurrence of certain events.
Dividends
The holders of the Company's Class A Common Stock and Class B Common Stock
are entitled to share ratably in dividends declared by the Board of Directors of
the Company out of funds legally available therefor. The Company's ability to
pay dividends is dependent on the ability of the Company's subsidiaries,
including DRA, to pay dividends to the Company. The ability of the Company's
subsidiaries to pay dividends and make other payments are subject to certain
statutory, contractual and other restrictions. The terms of the Company's
indebtedness, including the Senior Credit Facility, will restrict the payment of
dividends by the Company. The Company does not expect to declare or pay cash
dividends to holders of its Class A Common Stock or Class B Common Stock in the
foreseeable future.
Delaware Anti-Takeover Law
Section 203 of the DGCL provides, with certain exceptions, that a Delaware
corporation may not engage in certain business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date such person became an interested stockholder
unless: (i) the transaction resulting in the acquiring person's becoming an
interested stockholders, or the business combination, is approved by the board
of directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (a) by persons who are directors and also officers and (b) employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
62
<PAGE>
tendered in a tender or exchange offer; or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66-2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholders. An "interested
stockholder" is defined as any person that is (x) the owner of 15% or more of
the outstanding voting stock of the corporation or (y) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock at any time within the three-year period immediately prior to the date on
which it is sought to be determined whether such person is an interested
stockholder. As permitted by the DGCL, the Company has elected not to be
governed by Section 203.
Limitation of Liability and Indemnification
As permitted by the DGCL, the Company's Restated Certificate of
Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, relating to prohibited
dividends or distributions or the repurchase or redemption of stock or (iv) for
any transaction from which the director derives an improper personal benefit. In
addition, the Company's bylaws provide for indemnification of the Company's
officers and directors to the fullest extent permitted under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act, may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Agency.
DESCRIPTION OF INDEBTEDNESS
The following is a summary of the material debt instruments of the Company
and its subsidiaries which will remain outstanding following completion of the
Offerings and the application of the net proceeds thereof. See "Use of
Proceeds." To the extent such summary contains descriptions of credit documents,
such descriptions do not purport to be complete and are subject to and qualified
in their entirety by reference to such documents, which are filed as exhibits to
the Registration Statement which includes this Prospectus.
Senior Credit Facility
General. The Company intends to enter into an amended and restated credit
agreement with a syndicate of lenders led by Bank One, Indianapolis, N.A. ("Bank
One") concurrently with the consummation of the Offerings, providing for up to
$180 million of revolving credit availability (the "Senior Credit Facility").
Each of the Company's domestic operating subsidiaries (the "Senior Credit
Obligors") will be parties to the Senior Credit Facility. The obligations under
the Senior Credit Facility of each Senior Credit Obligor (the "Obligations")
will be unconditionally guaranteed by each other Senior Credit Obligor and each
of the Company and its domestic subsidiaries which are holding companies (the
"Senior Credit Guaranties"). The Obligations will be secured by a first lien on
substantially all the assets of the Company and its domestic subsidiaries,
including a pledge of the stock of such subsidiaries. The Obligations and the
Senior Credit Guaranties will rank pari passu with the Notes and will rank
senior to all other indebtedness of the Company.
Initially, the amount available to the Company for borrowing under the
Senior Credit Facility (the "Commitment Amount") will be $180 million, which
will be available for general corporate purposes (including acquisitions).
Beginning with the thirteenth quarter following the date of the Senior Credit
Facility, the Commitment Amount will decrease by $11.25 million at the end of
each quarter until July 2003, at which time the Senior Credit Facility
terminates. There is a sub-limit for letters of credit equal to the lesser of
the Commitment Amount at the time of the issuance of a letter of credit and $30
million.
63
<PAGE>
Interest Rates. Interest on outstanding borrowings under the Senior Credit
Facility will be payable monthly and will accrue at an annual rate equal to
either (i) the Prime Rate (as defined in the Senior Credit Facility) or (ii) the
London Interbank Offered Rate plus the Applicable Spread (a "LIBOR-based Rate"),
at the option of the Company. The Applicable Spread will be based upon the
Company's trailing four quarter Ratio of Total Funded Debt to EBITDA (as defined
in the Senior Credit Facility) as follows:
<TABLE>
<CAPTION>
Ratio of Total Funded Debt to EBITDA Over LIBOR
--------------------------------------------------------- -------------------
<S> <C>
4.00x or above........................................ 200 basis points
3.50-3.99............................................. 175 basis points
3.00-3.49............................................. 150 basis points
2.50-2.99............................................. 125 basis points
</TABLE>
Maturity and Optional Prepayments. All borrowings under the Senior Credit
Facility will mature on July 1, 2003, except that the aggregate principal amount
outstanding may not exceed the Commitment Amount at any time. Borrowings under
the Senior Credit Facility will be prepayable at any time without premium or
penalty, except that any prepayment of a LIBOR-based Rate loan that is made
prior to the end of the applicable interest period will be subject to
reimbursement of breakage costs.
Covenants. The Senior Credit Facility will contain certain customary
covenants, including reporting and other affirmative covenants; financial
covenants, including ratio of senior funded debt to EBITDA, ratio of funded debt
to EBITDA, ratio of EBIT to cash interest, fixed charge coverage ratio, minimum
current ratio and minimum net income excluding extraordinary items (each as
defined in and calculated pursuant to the Senior Credit Facility); and negative
covenants, including restrictions on incurrence of other indebtedness, payment
of cash dividends and other distributions to stockholders, liens in favor of
parties other than the lenders under the Senior Credit Facility, certain
guaranties of obligations of or advances to others, sales of material assets not
in the ordinary course of business, certain acquisitions of assets, making of
certain investments and capital expenditures.
Events of Default. The Senior Credit Facility will contain customary events
of default including non-payment of principal, interest or fees; violation of
covenants; inaccuracy of representations or warranties; cross-default to certain
other indebtedness including the Notes; bankruptcy; a change of control of the
Company or certain domestic subsidiaries; and any failure to apply proceeds of
an underwritten public offering of equity securities of the Company as required
by the Senior Credit Facility.
Fees. The Company will pay, on a quarterly basis, a per annum fee on the
unused Commitment Amount ranging from 3/20% to 1/2% based on certain financial
ratios of the Company.
Senior Notes
The Notes to be offered in the Notes Offering will be in an aggregate
principal amount of $130 million, will accrue interest at the rate of % per
annum and are due , 2007. Interest on the Notes is payable in cash
semi-annually. The Notes are fully and unconditionally guaranteed on a senior
basis by each of the Company's Domestic Restricted Subsidiaries (as defined).
The indenture governing the Notes contains certain covenants by the Company in
favor of the holders of the Notes ("Senior Note Holders"), including but not
limited to certain restrictions on the ability of the Company and certain of its
subsidiaries to: (i) incur indebtedness, except for permitted indebtedness; (ii)
pay dividends or purchase or redeem their stock or repay before maturity any
obligation subordinate to the Notes; (iii) incur future restrictions on their
ability to pay dividends and transfer assets; (iv) sell assets and capital stock
of their subsidiaries; (v) engage in transactions with their affiliates; (vi)
incur or permit to exist liens on their assets, except for permitted liens; and
(vii) engage in mergers, consolidations or transfers of all or substantially all
their assets. The Notes are effectively subordinate in right of payment to all
senior secured indebtedness of the Company, including the Senior Credit
Facility. The Notes are redeemable in whole or in part at the option of the
Company at any time on or after , 2002, at a price beginning at % of the
aggregate principal amount to be redeemed, declining ratably to 100% on and
after , 2005, and up to 40% of the original principal amount of the Notes
may be redeemed by the Company at any time prior to , 2000, with the
proceeds of certain public equity offerings, at a price equal to % of such
principal amount provided that at least 50% of the original principal amount of
the Notes remains outstanding. Upon the occurrence of certain changes in control
of the Company, each Senior Note Holder has the
64
<PAGE>
right to require the Company to purchase all or a portion of such Senior Note
Holder's notes at a price equal to 101% of the aggregate principal amount
thereof. The failure of the Company and certain of its subsidiaries to pay
certain indebtedness when due constitutes, among other things, an event of
default under the Notes and can lead to the acceleration of the payment of the
Notes.
GM Contingent Purchase Price Note
In connection with the GM Acquisition, DRA issued to GM a Contingent
Purchase Price Note. The principal amount of the Contingent Purchase Price Note
(the "Contingent Payment") is calculated by (A) multiplying five by (i) the
three-year average EBIT (as defined) of the Company for the years ending
December 31, 2001, 2002 and 2003 minus (ii) the average three-year Imputed
Return (as defined) on Additional Investments (as defined) made after July 31,
1994 and on the Company's balance sheet at December 31, 2001, 2002 and 2003, (B)
subtracting therefrom the Senior Obligations (as defined) outstanding on
December 31, 2003 and (C) multiplying the result by the percentage obtained by
dividing 100,000 (as adjusted for stock splits, reverse splits and stock
dividends) by the total number of shares of all classes of Common Stock
outstanding on a fully diluted basis as of the date of determination, excluding
any shares issued subsequent to July 31, 1994 to the extent the proceeds
therefrom have been accounted for as an Additional Investment. The Contingent
Payment, if any, shall be paid in five equal consecutive annual installments
commencing on July 31, 2004. No interest accrues on the Contingent Payment. The
GM Contingent Purchase Price Note is subordinated in right of payment to the
Senior Credit Facility pursuant to the terms of a Subordination Agreement by and
among DRA and the lenders under the Senior Credit Facility (the "GM
Subordination Agreement"). Pursuant to the terms of the GM Subordination
Agreement, DRA may make payments of interest and principal on the GM Acquisition
Note when due unless a representative of the lenders under the Senior Credit
Facility gives a notice to GM that an event of default has occurred under the
Senior Credit Facility (a "Suspension Notice"). GM may not receive any payments
or take any legal action for the collection of the GM Contingent Purchase Note
during the 179-day period following the receipt of a Suspension Notice (or such
shorter period if such event of default under the Senior Credit Facility shall
have been waived or cured).
Senior Subordinated Notes
In 1996, the Company issued to Salomon Brothers Inc and Smith Barney Inc.
as initial purchasers an aggregate of $140 million aggregate principal amount of
10 5/8% Senior Subordinated Notes Due August 1, 2006 (the "Senior Subordinated
Notes"). Interest on the Senior Subordinated Notes is payable in cash
semi-annually. The Senior Subordinated Notes are fully and unconditionally
guaranteed on a senior subordinated basis by each of the Company's Domestic
Restricted Subsidiaries. The indenture governing the Senior Subordinated Notes
contains certain covenants by the Company in favor of the holders of the Senior
Subordinated Notes ("Senior Subordinated Note Holders"), including but not
limited to certain restrictions on the ability of the Company and certain of its
subsidiaries to: (i) incur indebtedness, except for permitted indebtedness; (ii)
pay dividends or purchase or redeem their stock or repay before maturity any
obligation subordinate to the Senior Subordinated Notes; (iii) incur future
restrictions on their ability to pay dividends and transfer assets; (iv) sell
assets and capital stock of their subsidiaries; (v) engage in transactions with
their affiliates; (vi) incur or permit to exist liens on their assets, except
for permitted liens; and (vii) engage in mergers, consolidations or transfers of
all or substantially all their assets. The Senior Subordinated Notes are
subordinate in right of payment to all senior indebtedness of the Company,
including the Senior Credit Facility and the Notes being sold as part of the
Notes Offering. The Senior Subordinated Notes are redeemable in whole or in part
at the option of the Company at any time on or after August 1, 2001, at a price
beginning at 105.313% of the aggregate principal amount to be redeemed,
declining ratably to 100% on and after August 1, 2004, and up to 35% of the
original principal amount of the Senior Subordinated Notes may be redeemed by
the Company at any time prior to August 1, 1999, with the proceeds of certain
public equity offerings, at a price equal to 110% of such principal amount
provided that at least 50% of the original principal amount of the Senior
Subordinated Notes remains outstanding. Upon the occurrence of certain changes
in control of the Company, each Senior Subordinated Note Holder has the right to
require the Company to purchase all or a portion of such Senior Subordinated
Note Holder's notes at a price equal to 101% of the aggregate principal amount
thereof. The failure of the Company and certain of its subsidiaries to pay
certain indebtedness when due constitutes, among other things, an event of
default under the Senior Subordinated Notes and can lead to the acceleration of
the payment of the Senior Subordinated Notes. In connection with the initial
placement of the Senior Subordinated Notes, the Company agreed, for the benefit
of the Senior Subordinated Note Holders and at
65
<PAGE>
the Company's expense, to file and cause to become effective an exchange offer
or resale shelf registration statement with the Commission. If neither such
registration statement is filed or declared effective by certain dates or
certain other conditions are not satisfied, additional interest will accrue on
the Senior Subordinated Notes. See Note 7 to the Consolidated Financial
Statements included elsewhere in this Prospectus.
8% Subordinated Debenture of DRA
In connection with the Offerings, DRA will issue to GM an 8% Subordinated
Debenture in the principal amount of $17.9 million (the "8% Subordinated
Debenture") in exchange for Series A 8% Preferred Stock of DRA held by GM. The
8% Subordinated Debenture will be due July 31, 2004 and will bear interest,
payable in cash, at the rate of 8% per year. DRA will be able to prepay the 8%
Subordinated Debenture at any time in whole or in part without premium or
penalty. The 8% Subordinated Debenture will be subordinate in right of payment
to the Senior Credit Facility, the Notes and the Senior Subordinated Notes. The
8% Subordinated Debenture will contain default provisions in the event that DRA
fails to pay principal or interest on the 8% Subordinated Debenture when due or
upon the occurrence of certain bankruptcy events.
Ballantrae Subordinated Debt
In 1996, Tractech issued a note in the original principal amount of $10
million in favor of Dyneer Corporation ("Dyneer") that matures on October 31,
2006 (the "Ballantrae Subordinated Debt"). The Ballantrae Subordinated Debt
bears interest at a rate of 11% per annum. Tractech may prepay the Ballantrae
Subordinated Debt at any time in whole or in part without premium or penalty.
Tractech has the right to set-off $750,000 against the outstanding amount of the
Ballantrae Subordinated Debt within thirty days of the entry of a final
non-appealable order by a court of competent jurisdiction in certain patent
litigation, if such order fails to grant Tractech the unfettered and exclusive
right to make, manufacture, have made, market and sell the E-Z Locker line of
differentials without geographic or other restrictions and without cash
payments. The Company expects that Tractech will prepay with proceeds of the
Offerings all of the outstanding principal amount of the Ballantrae Subordinated
Debt except for $750,000. Tractech's obligations under the Ballantrae
Subordinated Debt are guaranteed by Ballantrae, and the Ballantrae Subordinated
Debt is subject to the Subordination Agreement dated as of October 24, 1996
among Tractech, Dyneer, Ballantrae and Bank One.
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Class A
Common Stock. No predictions can be made with respect to the effect, if any,
that public sales of shares of the Class A Common Stock or the availability of
shares for sale will have on the market price of the Class A Common Stock after
this Offering. Sales of substantial amounts of the Class A Common Stock in the
public market following this Offering, or the perception that sales may occur,
could adversely affect the market price of the Class A Common Stock or the
ability of the Company to raise capital through a sale of its equity securities.
Upon completion of the Transactions, shares of the Company's Class A
Common Stock will be outstanding (assuming no conversion of the Class B Common
Stock). The shares of Class A Common Stock sold in the Offering ( shares
if the Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
unless acquired by an "affiliate" of the Company (an "affiliate" is defined in
Rule 144 promulgated by the Commission under the Securities Act ("Rule 144"),
generally as a person who by equity ownership or otherwise controls, or is
controlled by, or is under common control with the Company). The remaining
outstanding shares of Class A Common Stock of the Company will be "restricted
securities" as defined in Rule 144 and may not be sold unless registered under
the Securities Act or sold in accordance with an applicable exemption therefrom,
such as Rule 144. In addition, up to shares of Class A Common Stock are
issuable upon exercise of the Warrants and up to shares are expected to be
issuable upon exercise of employee stock options. All such shares will also be
restricted securities.
In general, Rule 144 will permit an affiliate or a person who has held
restricted shares for more than one year to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of Class A Common Stock or the average weekly trading volume of such
stock during the four calendar weeks preceding such sale, provided that the
Company has either filed certain periodic reports with the Commission or made
publicly available certain information concerning itself and provided that such
sales are made in normal "brokers' transaction" or in transactions directly with
a "market maker" without the solicitation of buy orders by the brokers or such
affiliates. A person who is deemed not to be an affiliate of the Company at any
time during the three months preceding a sale and who has held restricted shares
for more than two years may sell such shares under Rule 144 without regard to
the volume limitations described above. Of the shares of Class A Common Stock
not being sold in this Offering, shares have been owned by holders thereof
for more than two years.
Application has been made to list the Class A Common Stock on the New York
Stock Exchange under the symbol "RMY." Sales of substantial amounts of Class A
Common Stock in the public market under Rule 144 could have a depressing effect
on the price of the Class A Common Stock. See "Principal Stockholders--
Registration Rights Agreement" and "--Underwriters."
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal tax
consequences of the acquisition, ownership, and disposition of the Class A
Common Stock by an initial purchaser that, for United States federal income tax
purposes, is not a "United States person" (a "Non-United States Holder"). This
discussion is based upon currently existing provisions of the Code, existing and
proposed regulations promulgated thereunder and administrative and judicial
interpretations thereof, all of which are subject to change, possibly
retroactively. For purposes of this discussion, a "United States person" means a
citizen or resident of the United States, a corporation or other entity taxable
as a corporation created or organized in the United States or under the laws of
the United States or of any political subdivision thereof, an estate or trust
whose income is includible in gross income for United States federal income tax
purposes regardless of its source or a person or entity otherwise subject to
United States federal income tax on income from sources outside the United
States. This discussion does not consider any specific facts or circumstances
that may apply to a particular Non-United States Holder. Prospective investors
are urged to consult their tax advisors regarding the United States federal tax
consequences of acquiring, holding, and disposing of Class A Common Stock, as
well as any tax consequences that may arise under the laws of any foreign,
state, local, or other taxing jurisdiction.
67
<PAGE>
Dividends
Dividends on Class A Common Stock paid to a Non-United States Holder
generally will be subject to withholding of United States federal income tax at
the rate of 30%, unless the withholding rate is reduced under an applicable
income tax treaty between the United States and the country of tax residence of
the Non-United States Holder. The 30% withholding tax will not apply if the
dividend is effectively connected with a trade or business conducted with the
United States by the Non-United States Holder (or, alternatively, where an
income tax treaty applies, if the dividend is effectively connected with a
permanent establishment maintained within the United States by the Non-United
States Holder), but, instead, the dividend will be subject to the United States
federal income tax on net income that applies to United States persons (and,
with respect to corporate holders, also may be subject to the branch profits
tax). A Non-United States Holder may be required to satisfy certain
certification requirements in order to claim treaty benefits or to otherwise
claim a reduction of or exemption from withholding under the foregoing rules. A
Non-United States Holders that is eligible for a reduced rate of U.S.
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the United
States Internal Revenue Service.
Gain on Disposition
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption, or other
disposition of Class A Common Stock unless (i) the gain is effectively connected
with the conduct of a trade or business within the United States by the
Non-United States Holder, or (ii) in the case of a Non-United States Holder who
is a nonresident alien individual and holds the Class A Common Stock as a
capital asset, such holder is present in the United States for 183 or more days
in the taxable year and certain other requirements are met.
Also, special rules apply to Non-United States Holders if the Company is or
becomes a "United States real property holding corporation" for United States
federal income tax purposes. In general, gain on the disposition by a Non-United
States Holder of interests in a United States real property holding corporation
is subject to United States federal income tax. A corporation is generally a
United States real property holding corporation if the fair market value of its
United States real property interests equals or exceeds 50 percent of the sum of
the fair market value of its worldwide real property interests plus its other
assets used or held for use in a trade of business. The Company believes it is
not currently, and is not likely to become, a United States real property
holding corporation for United States federal income tax purposes.
Federal Estate Taxes
Class A Common Stock owned or treated as owned by an individual who is not
a citizen or resident (as specifically defined for United States federal estate
tax purposes) of the United States at the date of death, or Class A Common Stock
subject to certain lifetime transfers made by such an individual, will be
included in such individual's estate for United States federal estate tax
purposes and may be subject to United States federal estate tax, unless an
applicable estate tax treaty provides otherwise. Estates of nonresident aliens
are generally allowed a credit that is equivalent to an exclusion of $60,000 of
assets from the estate for United States federal estate tax purposes.
Information Reporting and Backup Withholding
The Company must report to the holders of the Class A Common Stock and to
the Internal Revenue Service the amount of any dividends paid on Class A Common
Stock in each calendar year and the amounts of tax withheld, if any, with
respect to such payments. That information may also be made available to the tax
authorities of the country in which a Non-United States Holder resides.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to dividends paid on the Class A Common Stock to a Non-United States
Holder. Payments by a United States office of a broker of the proceeds of a sale
of the Class A Common Stock is subject to both backup withholding at a rate of
31% and information reporting unless the holder certifies its Non-United States
Holder status under penalties of perjury or otherwise establishes an exemption.
Information reporting requirements (but not backup withholding) will also apply
to payments of the proceeds of sales of the Class A Common Stock by foreign
offices of United States brokers, or foreign brokers with certain types of
68
<PAGE>
relationships to the United States, unless the broker has documentary evidence
in its records that the holder is a Non-United States Holder and certain other
conditions are met, or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
These information reporting and backup withholding rules are under review
by the United States Treasury and their application to the Class A Common Stock
could be changed by future regulations. On April 22, 1996, the IRS issued
proposed Treasury Regulations concerning the withholding of tax and reporting
for certain amounts paid to non-resident individuals and foreign corporations.
The proposed Treasury Regulations, if adopted in their present form, would
generally be effective for payments made after December 31, 1997. Prospective
investors should consult their tax advisors concerning the potential adoption of
such proposed Treasury Regulations and the potential effect on their ownership
of the Class A Common Stock.
THE FOREGOING IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL INCOME TAX
ASPECTS OF HOLDING CLASS A COMMON STOCK AND IS NOT A SUBSTITUTE FOR CAREFUL TAX
PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF THE HOLDER.
UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, Credit Suisse First
Boston Corporation and Salomon Brothers Inc are acting as Representatives (the
"Representatives"), have severally agreed to purchase, and the Company has
agreed to sell to them, severally, the respective number of shares of Class A
Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
Number of
Name Shares
- ---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated........................
Credit Suisse First Boston Corporation...................
Salomon Brothers Inc.....................................
----------------
Total...........................................
================
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A 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 Class A Common Stock offered hereby (other
than those covered by the over-allotment option described below) if any such
shares are taken.
Each Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of the Class A Common Stock being sold
in this Offering, 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 such 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 Underwriter has further
agreed to send to any dealer who purchases from it any of such 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 such
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
69
<PAGE>
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.
The Underwriters initially propose to offer part of the shares of Class A
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 $ per share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers. After the
initial offering of the shares of Class A Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at the public offering price set forth
on the cover page hereof, less underwriting discounts and commissions. The
Underwriters may exercise such option to purchase solely for the purpose of
covering over-allotments, if any. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to the total
number of shares of Class A Common Stock set forth next to the names of all
Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
Application has been made to list the Class A Common Stock on the New York
Stock Exchange under the symbol "RMY."
The Company and each of the Company's current stockholders, directors,
senior officers and warrantholders have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, they
will not, during the period ending 180 days after the date of this Prospectus,
(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 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 agreement
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 Common Stock or such
other securities, in cash or otherwise. The restrictions described in this
paragraph do not apply to (a) the shares of Class A Common Stock offered hereby,
(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, (c) any options granted or shares of Common Stock issued pursuant to
existing benefit plans of the Company or (d) transactions by any person other
than the Company in shares of Common Stock or other securities acquired in open
market transactions after completion of the offering of the Class A Common
Stock.
In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters may
over-allot in connection with this Offering, creating a short position in the
Class A Common Stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Class A Common Stock
in this Offering, if the syndicate repurchases previously distributed Class A
Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Class A 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.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
The Representatives are also the underwriters in connection with the Notes
Offering. Salomon Brothers Inc was the lead initial purchaser in connection with
the Company's offering in 1996 of its Senior Subordinated Notes
70
<PAGE>
and is providing certain financial advisory services to the Company in
connection with the acquisition of Ballantrae, in each case for which Salomon
Brothers Inc has received or will receive customary compensation.
Pricing of this Offering
Prior to this Offering, there has been no public market for the Class A
Common Stock. The initial public offering price has been determined by
negotiations among the Company and the Representatives of the Underwriters.
Among the factors considered in determining the initial public offering price
were the future prospects of the Company and its industry in general, sales,
earnings and certain other financial and operating information of the Company 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. There can, however, be no
assurance that the prices at which the Class A Common Stock will sell in the
public market after this Offering will not be lower than the price at which it
is sold by the Underwriters.
LEGAL MATTERS
The validity of the issuance of the shares of Class A Common Stock offered
hereby will be passed upon for the Company by Dechert Price & Rhoads,
Philadelphia, Pennsylvania. Certain matters in connection with this Offering
will be passed upon for the Underwriters by Cravath, Swaine & Moore, New York,
New York.
EXPERTS
The consolidated financial statements of Delco Remy International, Inc. as
of July 31, 1997 and 1996, and for each of the three years in the period ended
July 31, 1997, appearing in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any agreement or other document referred to herein are not
necessarily complete, and reference is made to the copy of such agreement or
other document filed as an exhibit or schedule to the Registration Statement and
each such statement shall be deemed qualified in its entirety by such reference.
For further information, reference is made to the Registration Statement and to
the exhibits and schedules filed therewith, which are available for inspection
without charge at the public reference facilities maintained by the Commission
in Room 1024, 450 Fifth Street, N.W, Washington, D.C. 20549. Copies of the
material containing this information may be obtained from the Commission upon
payment of the prescribed fees.
After consummation of this Offering, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, in accordance therewith, will be required
to file proxy statements, reports and other information with the Commission. The
Registration Statement, as well as any such report, proxy statement and other
information filed by the Company with the Commission, may be inspected and
copied at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish to its stockholders annual reports
containing consolidated financial statements audited by an independent public
accounting firm accompanied by an opinion expressed by such independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing
71
<PAGE>
unaudited consolidated financial information in each case prepared in accordance
with generally accepted accounting principles.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................................... F-2
Consolidated Statements of Operations for the years ended July 31, 1995, 1996 and 1997............... F-3
Consolidated Balance Sheets as of July 31, 1996 and 1997............................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended July 31, 1995,
1996 and 1997........................................................................................ F-6
Consolidated Statements of Cash Flows for the years ended July 31, 1995, 1996 and 1997............... F-7
Notes to Consolidated Financial Statements........................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Delco Remy International, Inc.
We have audited the accompanying consolidated balance sheets of Delco Remy
International, Inc. as of July 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended July 31, 1997. These financial
statements are the responsibility of the Company's management. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Delco Remy International, Inc. at July 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended July 31, 1997, in conformity with generally accepted accounting
principles.
Indianapolis, Indiana
September 5, 1997, except for "Share and
Per Share Information" in Note 16, as to
which the date is October ___, 1997
The foregoing report is in the form that will be signed upon the determination
of the Stock Split as described in Note 16 to the consolidated financial
statements.
ERNST & YOUNG LLP
F-2
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended July 31
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales....................................................... $ 573,423 $ 636,852 $ 689,787
Cost of goods sold.............................................. 475,216 510,078 540,234
------------- ------------- -------------
Gross profit.................................................... 98,207 126,774 149,553
Selling, engineering, and administrative expenses............... 61,206 77,994 89,098
Restructuring charges........................................... -- 8,101 34,500
------------- ------------- -------------
Operating income................................................ 37,001 40,679 25,955
Other income (expense):
Gain on sale of building................................... -- -- 2,082
Interest expense........................................... (18,432) (27,367) (38,774)
------------- ------------- -------------
Income (loss) from continuing operations before income taxes
(benefit), preferred dividend requirement of subsidiary and
minority interest.......................................... 18,569 13,312 (10,737)
Minority interest in income of subsidiaries..................... -- 259 892
Income taxes (benefit).......................................... 7,846 5,741 (3,014)
Preferred dividend requirement of subsidiary.................... 1,397 1,516 1,648
------------- ------------- -------------
Income (loss) from continuing operations........................ 9,326 5,796 (10,263)
Discontinued operations:
Loss from operations of discontinued businesses (less
applicable income tax benefit of $1,582, $1,042 and $395,
respectively)........................................... 2,363 1,573 808
Loss on disposal of businesses (less applicable income tax
benefit of $6,043 and $426)............................. -- 9,064 874
Extraordinary item:
Write-off of debt issuance costs (less applicable income
tax benefit of $1,147).................................. -- -- 2,351
------------- ------------- -------------
Net income (loss)............................................... $ 6,963 $ (4,841) $ (14,296)
============= ============= =============
<CAPTION>
1997 Pro Forma Loss Per Share
-----------------------------------------------
From Before
Continuing Extraordinary Net
Operations Item Loss
------------- ------------- -------------
<S> <C> <C> <C>
Primary......................................................... $ $ $
Supplemental....................................................
</TABLE>
See Accompanying Notes
F-3
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 31
------------------------------------
1996 1997
---------------- ---------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents................................... $ 3,406 $ 10,050
Trade accounts receivable (less allowance for doubtful
accounts of $1,209 and $2,935, respectively)............ 94,992 110,184
Other receivables........................................... 10,585 10,487
Recoverable income taxes.................................... 8,674 2,889
Inventories................................................. 123,583 164,417
Deferred income taxes....................................... 15,462 21,474
Other current assets........................................ 1,213 4,643
---------------- ---------------
Total current assets............................................. 257,915 324,144
Property and equipment........................................... 170,391 147,222
Less accumulated depreciation.................................... 29,235 26,858
---------------- ---------------
141,156 120,364
Deferred financing costs......................................... 6,497 8,803
Goodwill (less accumulated amortization of $4,758 and $7,289,
respectively)............................................... 66,570 86,612
Net assets held for disposal..................................... -- 25,279
Investment in affiliate.......................................... -- 3,119
Other assets..................................................... 2,944 2,248
---------------- ---------------
Total assets..................................................... $ 475,082 $ 570,569
================ ===============
</TABLE>
See Accompanying Notes
F-4
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 31
--------------- -- ---------------
1996 1997
--------------- ---------------
Liabilities and stockholders' equity (deficit):
<S> <C> <C>
Current liabilities:
Accounts payable................................................ $ 81,207 $ 88,578
Accrued interest payable........................................ 4,026 3,107
Accrued restructuring charges................................... 5,541 37,377
Liabilities related to discontinued operations.................. 11,005 3,324
Other liabilities and accrued expenses.......................... 32,683 35,949
Current portion of long-term debt............................... 9,652 507
--------------- ---------------
Total current liabilities............................................ 144,114 168,842
Deferred income taxes................................................ 6,795 1,556
Long-term debt, less current portion................................. 289,144 363,261
Post-retirement benefits other than pensions......................... 8,186 12,677
Accrued pension benefit.............................................. 950 4,542
Other non-current liabilities........................................ 5,427 4,124
Minority interest in subsidiary...................................... 4,457 8,032
Redeemable exchangeable preferred stock of subsidiary................ 14,420 16,071
Stockholders' equity (deficit):
Common stock:
Class A Shares (par value $.01; authorized 1,000,000;
issued 517,727 in 1996 and 525,477 in 1997).......... 5 5
Class B Shares (par value $.01; authorized 1,000,000;
issued 385,523 in 1996 and 1997)..................... 4 4
Paid-in capital................................................. 1,798 10,194
Retained earnings (deficit)..................................... 2,122 (12,174)
Cumulative translation adjustment............................... (2,161) (1,752)
Stock purchase plan............................................. (179) (4,813)
--------------- ---------------
Total stockholders' equity (deficit)................................. 1,589 (8,536)
--------------- ---------------
Total liabilities and stockholders' equity (deficit)................. $ 475,082 $ 570,569
=============== ===============
</TABLE>
See Accompanying Notes
F-5
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Class A Class B Retained Cumulative Stock
Common Common Paid-In Earnings Translation Purchase
Stock Stock Capital (Deficit) Adjustment Plan Total
------------ ---------- --------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization at
August 1, 1994............... $ 5 $ 4 $ 1,572 $ -- $ -- $ (50) $ 1,531
Issuance of common stock..... -- -- 241 -- -- (124) 117
Net income................... -- -- -- 6,963 -- -- 6,963
Foreign currency translation
adjustment................... -- -- -- -- (181) -- (181)
------------ ---------- --------- ----------- ----------- ------------ -----------
Balance at July 31, 1995..... 5 4 1,813 6,963 (181) (174) 8,430
Repurchase of common stock... -- -- (15) -- -- (5) (20)
Net loss..................... -- -- -- (4,841) -- -- (4,841)
Foreign currency translation
adjustment................... -- -- -- -- (1,980) -- (1,980)
------------ ---------- --------- ----------- ----------- ------------ -----------
Balance at July 31, 1996..... 5 4 1,798 2,122 (2,161) (179) 1,589
Issuance of common stock..... -- -- 8,419 -- -- (4,653) 3,766
Repurchase of common stock... -- -- (23) -- -- 19 (4)
Net loss..................... -- -- -- (14,296) -- -- (14,296)
Foreign currency translation
adjustment................... -- -- -- -- 409 -- 409
------------------------------------------------------------------------------------------
Balance at July 31, 1997..... $ 5 $ 4 $ 10,194 $ (12,174) $ (1,752) $ (4,813) $ (8,536)
=========== ========= ========== =========== =========== ============ ===========
</TABLE>
See Accompanying Notes
F-6
<PAGE>
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended July 31
------------ -- ------------ -- ------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................................ $ 6,963 $ (4,841) $ (14,296)
Extraordinary item........................................... -- -- 3,498
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 14,533 19,555 22,323
Gain on sale of building................................ -- -- (2,082)
Deferred income taxes................................... (3,580) (2,947) (9,578)
Post-retirement benefits other than pensions............ 4,434 3,752 4,491
Accrued pension benefits................................ 4,459 (3,509) 3,592
Non-cash interest expense............................... 8,069 7,867 7,949
Preferred dividend requirement of subsidiary............ 1,397 1,516 1,648
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................. (49,320) (24,458) (3,341)
Inventories......................................... (8,035) (25,720) (10,245)
Accounts payable.................................... 49,613 8,634 (11,036)
Other current assets and liabilities................ (6,657) 18,229 (4,538)
Accrued restructuring............................... -- 5,541 31,836
Other non-current assets and liabilities, net....... 45 (4,303) 2,316
------------ ------------ ------------
Net cash provided by (used in) operating activities.......... 21,921 (684) 22,537
Investing activities:
Acquisitions, net of cash acquired........................... (62,010) (46,320) (42,442)
Purchase of property and equipment........................... (11,241) (32,741) (31,888)
Investment in affiliates..................................... -- -- (3,119)
Proceeds from sale of building............................... -- -- 3,362
------------ ------------ ------------
Net cash used in investing activities........................ (73,251) (79,061) (74,087)
Financing activities:
Proceeds from issuances of long-term debt.................... 31,918 89,652 180,000
Payments on long-term debt................................... (4,917) (8,842) (126,200)
Other financing activities................................... 118 (20) 3,986
------------ ------------ ------------
Net cash provided by financing activities.................... 27,119 80,790 57,786
------------ ------------ ------------
Effect of exchange rate changes on cash...................... -- 883 408
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents......... (24,211) 1,928 6,644
Cash and cash equivalents at beginning of year............... 25,689 1,478 3,406
------------ ------------ ------------
Cash and cash equivalents at end of year..................... $ 1,478 $ 3,406 $ 10,050
============ ============ ============
</TABLE>
See Accompanying Notes
F-7
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997
(dollars in thousands)
1. ORGANIZATION AND ACQUISITIONS
Delco Remy America Acquisition
On August 1, 1994, Delco Remy International, Inc. (the Company or DRI)
through a wholly-owned subsidiary, Delco Remy America, Inc. (DRA), purchased
substantially all of the assets, other than facilities, and assumed certain
liabilities of specific business activities of the Delco Remy Division of
General Motors Corporation (the GM Acquisition). The specific business
activities purchased are engaged in the design, manufacture, remanufacture and
sale of heavy duty starter motors and generators, automotive starter motors, and
related components.
The aggregate purchase price of the GM Acquisition of $155,665 (including
fees and expenses) was accounted for as a purchase. The Company issued (i)
common stock of $1,531, (ii) preferred stock of $11,507 and (iii) debt of
$158,200 to fund the purchase and provide capital for general corporate
purposes. The GM Acquisition resulted in the recording of approximately $17,600
of goodwill which is being amortized over 15 years. While the GM Acquisition was
recorded based on the best estimates available, certain purchase price
adjustments as of the August 1, 1994 purchase date have not been determined or
agreed to by General Motors Corporation (GM) and DRI. The resolution of these
items could result in a charge or credit to operations when finalized. The
accompanying consolidated financial statements reflect the consolidated results
of operations and cash flows for the Company subsequent to the GM Acquisition.
The Company had no operations prior to August 1, 1994.
GM is entitled to receive an additional contingent purchase payment which
will be paid beginning in 2004 and will be based upon a percentage of average
earnings of the Company in the three year period ending December 31, 2003 in
excess of certain imputed earnings. Since the additional contingent purchase
price, if any, is based upon future operations of the Company which cannot be
determined at this time, no provision for such payment has been made in the
accompanying consolidated financial statements.
Concurrent with the GM Acquisition, the Company entered into certain supply
agreements with GM whereby the Company will be the sole-source supplier to GM
for component parts manufactured by the Company at the date of the GM
Acquisition. The supply agreement for automotive starter motors has an initial
term of ten years, while the supply agreement for heavy duty starter motors and
generators has an initial term of six years.
1997 Acquisition
On May 8, 1997, the Company, through a wholly-owned subsidiary, acquired
82.5% of the outstanding common stock of World Wide Automotive, Inc. (World
Wide). World Wide is primarily an aftermarket supplier of light duty import
starters and alternators, although it also has a small amount of heavy duty
remanufacturing sales and domestic aftermarket sales. The remaining 17.5%
interest in World Wide is owned by current management of World Wide.
The aggregate purchase price was $40,842, including cash payments of
$38,692 and the issuance of Class A Common Stock valued at $2,150. The World
Wide acquisition was treated as a purchase for accounting purposes and is
included in the consolidated financial statements of the Company beginning with
the acquisition date. The World Wide acquisition resulted in goodwill of $21,301
which is being amortized over 35 years.
1996 Acquisition
On February 6, 1996 the Company, through a wholly-owned subsidiary,
acquired 82.5% of the outstanding common stock of Power Investments, Inc. and
related companies (Power), a remanufacturer of diesel and gasoline engines, fuel
systems, transmissions, alternators and starters for medium, heavy duty, and
automotive applications. Power also remanufactures and distributes brakes, water
pumps, power steering pumps and various other remanufactured truck parts and
assemblies. Power has fifteen facilities located in the United States and
Canada. The remaining 17.5% interest in Power is owned by current management of
Power.
F-8
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The aggregate purchase price was $48,422 including cash payments of $23,385
and the issuance of $24,300 of 9.86% Power Investments Seller Notes. The Power
acquisition was treated as a purchase for accounting purposes and is included in
the consolidated financial statements of the Company beginning with the
acquisition date. The Power acquisition resulted in goodwill of $16,267 which is
being amortized over 35 years.
1995 Acquisitions
In 1995, the Company made the following three acquisitions which were
treated as purchases for accounting purposes and are included in the
consolidated financial statements beginning with the respective acquisition
date. Each respective purchase price was allocated to the assets acquired and
liabilities assumed at their estimated fair values. The three acquisitions
resulted in goodwill of $38,864 which is being amortized over 35 years.
On January 6, 1995, the Company purchased all the stock of two
related companies (collectively referred to as Nabco) for an aggregate
cash purchase price of $27,600 and the issuance of 28,750 shares of DRI
Class A Common Stock. Nabco remanufactures automotive starters and
alternators.
On March 31, 1995, the Company, through a newly formed subsidiary,
purchased the shares of six related corporations (collectively referred
to as A&B). The aggregate purchase price of $33,400 included cash
payments of $29,900 and the issuance of $3,500 in 10% subordinated
notes. The A&B acquisition was financed through additional borrowings
under the Company's revolving loan and a new acquisition term loan of
$15,000. A&B remanufactures heavy duty starters and alternators and
related sub-components and parts.
On April 13, 1995, the Company acquired, through a series of stock
purchase transactions, approximately 97% interest in a Hungarian
company (Autovill), a manufacturer of heavy duty starter motors and
generators. The total purchase price was approximately $7,500 which
included the assumption of certain Autovill liabilities of $4,100.
Unaudited Pro Forma Results of Operations
The unaudited pro forma consolidated results of operations, assuming the
1995, 1996 and 1997 acquisitions had been consummated as of the beginning of the
preceding year, are as follows:
<TABLE>
<CAPTION>
For the Year Ended July 31
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues......................... $ 666,604 $ 733,257 $ 738,802
Operating income................. 49,464 47,644 28,115
Income (loss) from continuing
operations....................... 13,929 5,445 (10,632)
Net income (loss)................ 11,566 (5,192) (14,665)
</TABLE>
The pro forma consolidated financial information does not purport to
present what the Company's consolidated results of operations would actually
have been if the operations were combined during the periods presented and is
not intended to project future results or trends of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Business Segment
The consolidated financial statements include the accounts of DRI and its
subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation. The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and engine-related components for automobiles,
light and heavy duty trucks and other heavy duty vehicles. The Company's
products include starter motors, alternators, engines, transmissions and fuel
systems for the aftermarket and the original equipment manufacturer market,
principally in North America but also in Europe, Latin America and Asia-Pacific.
F-9
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Use of Estimates
Preparation of the consolidated financial statements requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments held primarily in repurchase agreements collateralized by U.S.
Government securities with a maturity of ninety days or less when purchased. The
carrying amount of cash equivalents approximates fair value.
Concentrations of Credit Risk and Other Risks
Substantially all of the Company's accounts receivable are due from
customers in the original equipment and aftermarket automotive industries, both
in the U.S. and internationally. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses are provided for in the financial statements and have
been consistently within management's expectations. The Company invests its
temporary cash in high credit quality financial institutions and investment
grade short-term investments and limits the amount of credit exposure to any one
entity.
The percentage of the Company's labor force covered by a collective
bargaining agreement (CBA) and covered by a CBA that will expire within one year
is 48.0% and 2.4%, respectively.
Inventories
Inventories are carried at lower of cost or market determined on the
first-in, first-out (FIFO) method. Raw materials also include supplies and
repair parts which consist of material consumed in the manufacturing process but
not directly incorporated into the finished products. Inventories at July 31,
1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
July 31
-----------------------------------
1996 1997
---------------- -----------------
<S> <C> <C>
Raw material....................... $ 57,481 $ 84,583
Work in-process.................... 32,790 20,168
Finished goods..................... 33,312 59,666
---------------- -----------------
$ 123,583 $ 164,417
================ =================
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
primarily using the straight-line method over the estimated useful lives of the
related assets (15 years for buildings and 3 to 15 years for machinery and
equipment).
Foreign Currency Translation
Financial statements of foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and at the average exchange rate for each year for revenue and
expenses. Translation adjustments are recorded as a separate component of
stockholders' equity.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to hedge certain foreign
transactions. These contracts reduce currency risk from exchange rate movements.
Gains and losses are deferred and accounted for as part of the underlying
transactions. The contractual amount and related deferred gains and losses from
these contracts are immaterial.
Goodwill
Goodwill represents the excess of purchase price over fair value of the net
assets acquired and is being amortized by the straight-line method over 15 to 35
years.
F-10
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The carrying amount of goodwill is regularly reviewed for indicators of
impairment in value, which in the view of management are other than temporary,
including unexpected or adverse changes in the following: (i) the economic or
competitive environments in which the Company operates; (ii) profitability
analyses and (iii) cash flow analyses. If facts and circumstances suggest that a
subsidiary's net assets are impaired, the Company assesses the fair value of the
underlying business and reduces goodwill to an amount that results in the book
value of the subsidiary approximating fair value.
Investment in Affiliate
Investment in affiliate represents the Company's equity investment in its
Korean joint venture. This investment is accounted for using the equity method.
Recognition of Revenue
Substantially all of the Company's revenue is recognized at the time the
product is shipped. The Company's remanufacturing operations obtain used diesel
and gasoline engines, fuel systems, transmissions, starter motors and
generators, commonly known as cores, from its customers as trade-ins. Net sales
and cost of goods sold are reduced by $58,800, $70,000 and $113,100 for 1995,
1996 and 1997, respectively, to reflect the cost of cores returned for credit.
Fair Value of Financial Instruments
The Company's financial instruments generally consist of cash and cash
equivalents, trade and other receivables, accounts payable, long-term debt and
redeemable convertible preferred stock of subsidiary. The fair value of the
Company's fixed rate debt was estimated using discounted cash flow analyses
based upon the Company's current incremental borrowing rates. With the exception
of the Senior Subordinated Notes, the carrying amounts of these financial
instruments approximated their fair value at July 31, 1996 and 1997. At July 31,
1997, the Senior Subordinated Notes have a face value of $140.0 million and a
fair value of $148.4 million.
Reclassification
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of warrants to purchase common stock will be excluded. The
impact is expected to result in an increase in historical primary earnings
(loss) per share for the years ended July 31, 1995, 1996 and 1997, of $ ,
$ and $ per share, respectively. The impact of Statement No. 128 on
the calculation of fully diluted earnings per share for these years is not
expected to be material.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which is effective for years beginning after December 15, 1997, and will
be adopted by the Company in 1998. The Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Statement will not have any impact
on the results of operations or the financial position of the Company.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Statement changes the way public
companies are required to report segment information in annual financial
statements and in interim financial reports to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Statement is effective for financial statements for
fiscal years beginning after December 15, 1997, and the Company anticipates
adopting the Statement in 1999. The Company is evaluating the impact that this
Statement will have on its financial reporting.
F-11
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
3. DISCONTINUED OPERATIONS
Marine Corporation of America, Marine Drive Systems, and Powrbilt Products
In July 1997, the Company adopted plans for the sale of the marine products
business segment consisting of three non-core businesses. The Company plans to
sell the net assets of Marine Corporation of America, Marine Drive Systems and
Powrbilt Products (the 1997 Discontinued Businesses). These non-core businesses
were acquired in February 1996 in conjunction with the acquisition of Power.
A charge of $874 net of a tax benefit of $426 for operating losses expected
during the disposal period was recorded. The Company does not anticipate a loss
on the disposal of the net assets of the discontinued businesses. It is expected
that the net assets of the businesses will be sold during fiscal 1998.
Summary operating results of the 1997 Discontinued Businesses since their
acquisition are as follows:
<TABLE>
<CAPTION>
For the Year Ended July 31
------------------------------
1996 1997
------------ -------------
<S> <C> <C>
Net sales............................ $ 5,624 $ 10,935
Net loss............................. (328) (808)
</TABLE>
The net assets of the 1997 Discontinued Businesses included in the
consolidated balance sheet are summarized as follows:
<TABLE>
<CAPTION>
July 31,
1997
-----------
<S> <C>
Current assets..................................... $ 6,525
Property and equipment, net........................ 650
Current liabilities................................ (1,848)
-----------
Net assets......................................... $ 5,327
===========
</TABLE>
Powder Metal Forge
In December 1995, the Company adopted plans for sale of its non-core powder
metal forge business segment (PMF) and recorded an initial loss on disposal. A
sale agreement was signed in December 1996 to transfer ownership of net assets
of PMF. Terms of the sale agreement require the Company to continue PMF
operations through a transition period in which the buyer will begin production
at its facility. The Company expects the transition period to be completed by
November 1997. The agreement requires the buyer to reimburse the Company for all
losses incurred from operating the business after December 1997 if the
transition has not been completed. PMF produces various engine components,
primarily for GM, through a forging process.
The Company recorded a charge of $9,064, net of tax benefit of $6,043, for
losses on disposal of the business, operating losses expected during the
transition period, and allocated interest expense. During the fiscal year ended
July 31, 1997, the Company utilized $8,981 of the reserves for discontinued
operations including a loss from operations of $2,171. At July 31, 1997, $2,024
of discontinued operations reserves remained on the balance sheet related to
PMF.
Summary operating results of the discontinued operation, excluding the loss
on disposal are as follows for the years ended:
<TABLE>
<CAPTION>
For the Year Ended July 31
-----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Net sales.............................. $ 6,505 $ 4,228
Net loss............................... (2,363) (1,245)
</TABLE>
Interest expense of $1,014 and $496 in 1995 and 1996, respectively, was
allocated to discontinued operations of PMF based on the ratio of net assets
discontinued to total net assets and debt of the Company. In addition, interest
expense of $986 was allocated for the disposal period and is included in the
1996 loss on disposal of PMF. In 1997, $335 of interest expense was charged
against the reserve.
F-12
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The net assets of PMF included in the consolidated balance sheet are
summarized as follows:
<TABLE>
<CAPTION>
July 31
1997
------------
<S> <C>
Current assets.................................. $ 3,917
Current liabilities............................. (610)
------------
Net assets...................................... $ 3,307
============
</TABLE>
4. RESTRUCTURING CHARGES
In May 1997, the Company decided to restructure the manufacturing
operations of DRA to utilize focus factory manufacturing concepts and to close
the Company's operations in the old vertically-integrated factories that were
leased from GM. These decisions resulted in the impairment of certain production
assets with a carrying amount of $30,321 ($25,279 of which is property and
equipment and $5,042 of which is related tooling and other supplies) which the
Company plans to sell or otherwise dispose. The Company has estimated the loss
on disposal including related costs at $26,260. In addition, the Company has
estimated a cost of $8,240 for reducing its workforce through several transition
programs. The results of operations for the products which will be discontinued
are not separately identifiable. The restructuring reserve is expected to be
utilized throughout 1998 and 1999.
In December 1995, the Company decided to eliminate the production of
certain parts and certain straight-drive starter motors for the original
equipment market. In addition, the Company purchased new, more efficient
equipment for use in the production of certain heavy duty alternators. These
decisions resulted in the impairment of certain production equipment with a
carrying amount of approximately $5,242, which the Company plans to sell or
otherwise dispose. The Company has estimated the loss on disposal, including
related costs, at $4,385. The results of operations for the parts and straight-
drive starter motors for which production will be discontinued are not
separately identifiable.
In October 1995, the Company offered to certain eligible salaried employees
a voluntary retirement transition program in conjunction with a similar plan
offered by GM to its employees which allowed such employees special additional
benefits not typically provided upon retirement. These additional benefits
include salaried payments for six months and future supplemental payments under
the salaried retirement plan. As a result, $3,716 was charged to operations in
1996.
The following table summarizes the provisions and reserves for
restructuring and non-recurring charges:
<TABLE>
<CAPTION>
Termination Exit/Impairment
Benefits Costs Total
----------------- ------------------ ------------------
<S> <C> <C> <C>
Provision in 1996...................................... $ 3,716 $ 4,385 $ 8,101
Payments and charges in 1996........................... (1,665) (895) (2,560)
----------------- ------------------ ------------------
Reserve at July 31, 1996............................... 2,051 3,490 5,541
Provision in 1997...................................... 8,240 26,260 34,500
Change in estimate..................................... (1,230) -- (1,230)
Payments and charges in 1997........................... (821) (613) (1,434)
----------------- ------------------ ------------------
Reserve at July 31, 1997............................... $ 8,240 $ 29,137 $ 37,377
================= ================== ==================
</TABLE>
F-13
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
For the Year Ended July 31
---------------------------------------------------------
1995 1996 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Balance at beginning of period.............................. $ -- $ 162 $ 1,209
Additions charged to costs and expenses..................... 119 1,091 3,774
Acquisition of certain businesses........................... 102 308 324
Uncollectible accounts written off, net of recoveries....... (59) (352) (2,372)
---------------- ----------------- ----------------
$ 162 $ 1,209 $ 2,935
================ ================= ================
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
July 31
--------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Land and buildings....................... $ 12,213 $ 5,895
Buildings under capital leases........... 13,931 21,434
Machinery and equipment.................. 144,247 119,893
-------------- --------------
$ 170,391 $ 147,222
============== ==============
</TABLE>
7. LONG-TERM DEBT
Borrowings under long-term debt arrangements consists of the following:
<TABLE>
<CAPTION>
July 31
--------------------------------------
1996 1997
----------------- -----------------
<S> <C> <C>
Senior credit facility:
Revolving loans.............................. $ 48,530 $ --
Term loans................................... 54,235 --
Revolving acquisition loans.................. -- 34,963
Power seller notes............................... 24,300 8,300
World note....................................... 75,000 75,000
Senior subordinated notes........................ -- 140,000
GM acquisition note.............................. 55,224 59,155
A & B seller notes............................... 3,500 3,500
Junior subordinated notes........................ 22,619 25,211
Hungarian bank loans............................. 1,141 --
Other, including capital lease obligations....... 14,247 17,639
----------------- -----------------
298,796 363,768
Less current portion............................. 9,652 507
----------------- -----------------
$289,144 $ 363,261
================= =================
</TABLE>
Senior Credit Facility
Pursuant to the senior credit facility, revolving credit loans of $150,000
are available for general purposes, of which up to $85,000 is available for
acquisitions. The senior credit facility provides for quarterly payments of
$9,400 beginning in the year 1999. The Company has the option of paying an
interest rate of one bank's prime or a LIBOR-based rate. The weighted average
interest on amounts outstanding at July 31, 1997 was 8.02%.
The senior credit facility contains various covenants which include, among
other things: (i) limitations on additional borrowings and encumbrances; (ii)
the maintenance of certain financial ratios and compliance with certain
financial tests and limitations; (iii) limitations on cash dividends paid; (iv)
limitations on investments and capital expenditures; and (v) limitations on
leases and sales of assets.
F-14
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The senior credit facility is collateralized by a lien on substantially all
assets of the Company and its domestic subsidiaries and by all the capital stock
of such subsidiaries held by the Company or any such other subsidiary.
Power Seller Notes
The Power Seller Notes are due February 6, 2001. Interest, at a rate of
9.86% per annum, is payable monthly for the current month. The notes may be
prepaid without premium or penalty after August 6, 1997. The Power Seller Notes
are secured by letters of credit issued under the senior credit facility.
World Note
The World Note, due on July 31, 2003, is payable to an affiliate of a
stockholder and bears interest at a rate of 10.5% per annum, payable
semiannually.
On any three interest payment dates, the Company may elect to pay up to 50%
of the unpaid accrued interest by issuing additional notes to the holder of the
World Note. At the option of the Company, prepayment of the loan balance may be
made at repayment amounts ranging from 103% in 1997 to 100% of principal after
August 1, 2000. Upon a change in control, certain asset sales, casualty events
or a public offering (all as defined in the debt agreement), the holders have
the right, but not the obligation, to require mandatory redemption of the debt,
without premium or penalty.
The World Note agreement contains certain covenants which are similar to
the provisions of the senior credit facility. The World noteholder has agreed to
subordinate its right to receive payments to the senior credit facility lenders.
DRI and its domestic subsidiaries have guaranteed the payment of principal and
interest on the World Note.
Senior Subordinated Notes
On August 2, 1996, the Company issued $140 million of 10 5/8% Senior
Subordinated Notes due August 1, 2006 (the Senior Subordinated Notes). The
proceeds from the Senior Subordinated Notes were $135.8 million (net of issuance
costs). The proceeds were used as follows: (i) to repay all outstanding
indebtedness under the Senior Credit Facility, plus accrued and unpaid interest
thereon, (ii) $16,000 was used to prepay one of the Power Seller Notes, plus
accrued and unpaid interest thereon, and (iii) the remaining net proceeds were
invested temporarily in short-term interest bearing obligations. The Company
recorded an extraordinary loss in 1997 of $2,351, net of tax benefit of $1,147,
related to deferred financing costs associated with the payoff of the Senior
Credit Facility.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and are subordinated in right of payment to the prior payment in
full of all existing and future senior indebtedness, pari passu with all present
and future senior subordinated indebtedness and senior to all present and future
subordinated indebtedness of the Company or the relevant subsidiary guarantors,
as defined in the indenture. The Senior Subordinated Notes will also be
effectively subordinated to any secured indebtedness to the extent of the value
of the assets securing such indebtedness.
The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, after August 1, 2001, at the redemption prices set forth in
the note agreement plus accrued and unpaid interest, if any, to the redemption
date. In addition, at any time prior to August 1, 1999, the Company may redeem,
at its option, up to an aggregate amount of 35% of the original principal amount
of the Senior Subordinated Notes with the proceeds of one or more public equity
offerings at a redemption price of 110% of the principal amount thereof plus
accrued and unpaid interest, if any, to the redemption date, provided that at
least 50% of the original aggregate principal amount of the notes remains
outstanding after each such redemption.
Upon the occurrence of a change of control (as defined), each holder of the
Senior Subordinated Notes will have the right to require the Company to purchase
all or a portion of such holder's notes at a price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase.
The indenture pursuant to which the Senior Subordinated Notes were issued
contains certain covenants that, among other things, limit the ability of the
Company and its restricted subsidiaries to (i) incur additional indebtedness,
(ii) pay dividends or make other distributions with respect to capital stock (as
defined) of the Company and its restricted subsidiaries, (iii) sell assets of
the Company or its restricted subsidiaries, (iv) issue or sell restricted
subsidiary stock, (v) enter into certain transactions with affiliates, (vi)
create certain liens, (vii) enter
F-15
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
into certain mergers and consolidations and (viii) incur indebtedness which is
subordinate to senior indebtedness and senior to the Senior Subordinated Notes.
Pursuant to a registration agreement among the Company and the initial
purchasers, the Company will commence an exchange offer pursuant to an effective
registration statement or cause the Notes to be registered under the Securities
Act pursuant to a resale shelf registration statement. If an exchange offer
registration statement is not (i) filed by October 31, 1997 or (ii) declared
effective by December 31, 1997, or (iii) if an exchange offer is not consummated
or a resale shelf registration statement is not declared effective by January
31, 1998, special interest will accrue initially at the rate of .25% per annum
increasing to a maximum rate of 1% per annum, payable semi-annually until such
time as an exchange offer is consummated or a resale shelf registration is
declared effective.
GM Acquisition Note
In connection with the GM Acquisition, DRA issued to GM a subordinated note
in the principal amount of $45,000 due 2004. Interest accrues semiannually at a
rate of 11.5% per annum and is added to the unpaid principal balance in amounts
ranging from 60% of the accruing interest in 1997 to 20% in 1999.
Beginning in 2000, interest is payable semiannually in cash.
A&B Seller Notes
In connection with the A&B acquisition, a subsidiary of DRI issued
subordinated notes in the principal amount of $3,500 due 2002. Interest is
payable semiannually at 10% per annum. The notes are subordinated to the senior
credit facility, senior subordinated debt, and the World Note. The notes may be
prepaid at any time without penalty.
Junior Subordinated Notes
DRI issued $18,200 in an initial principal amount of Junior Subordinated
Notes to two investors, who are also holders of the Company's common stock.
Interest on the junior subordinated notes accrues semiannually at 11% and is
payable entirely in additional principal, through 2004, when the entire balance
is due and payable.
Capital Lease Obligations
In 1996 the Company entered into an aggregate of $13,931 of new capital
leases with respect to three manufacturing facilities and its world headquarters
building. The leases have 15 year terms with options to renew for additional
periods. These leases have been capitalized using interest rates ranging from
12.5% to 14.2%. The carrying value of assets under capital leases was $15,870 at
July 31, 1997.
Other
Total cash interest paid for 1995, 1996 and 1997 was $7,738, $19,895 and
$31,744, respectively.
The following is the required principal payments of long-term debt and
capitalized leases:
<TABLE>
<S> <C>
1998............................. $ 507
1999............................. 721
2000............................. 817
2001............................. 9,366
2002............................. 844
Thereafter....................... 351,513
----------------
$ 363,768
================
</TABLE>
8. EMPLOYEE BENEFIT PLANS
Agreements with GM
In connection with the GM Acquisition, the Company and GM agreed to
allocate the responsibility for employee pension benefits and post-retirement
health care and life insurance on a pro-rata basis between DRA and GM. The
allocation is primarily determined upon years of service with DRA and aggregate
years of service with DRA and GM. In addition, GM has agreed to retain complete
responsibility for all pension and post-retirement
F-16
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
benefit costs for salaried and hourly employees who retired from DRA before
August 1, 1996 and October 1, 1996, respectively. Effective August 1, 1994, DRA
established hourly and salaried pension and post-retirement health care and life
insurance plans which are similar to the respective GM plans.
Pension Plans
DRA has defined benefit pension plans covering substantially all employees.
The plan covering salaried employees provides benefits that are based upon years
of service and final estimated average compensation. Benefits for hourly
employees are based on stated amounts for each year of service. DRA's funding
policy is to contribute amounts to provide the plans with sufficient assets to
meet future benefit payment requirements consistent with actuarial
determinations of the funding requirements of federal laws. DRA made
contributions of $6,454 and $1,085 to the plans in 1996 and 1997, respectively.
No contributions were made in 1995. Plan assets are primarily invested in mutual
funds which invest in both debt and equity instruments.
The components of net periodic pension cost for the plans are as follows:
<TABLE>
<CAPTION>
For the Year Ended July 31
----------------------------------------------------------
1995 1996 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
Service cost - benefits earned during the period......... $ 4,435 $ 2,935 $ 3,163
Interest costs on projected benefit obligation........... 2 293 544
Actual (gain) loss on assets............................. -- 51 (2,180)
Net amortization and deferral............................ 22 (316) 1,512
Special charge for early retirement...................... -- -- 1,633
---------------- ---------------- -----------------
Net periodic pension cost................................ $ 4,459 $ 2,963 $ 4,672
================ ================ =================
</TABLE>
In 1997, the Company offered retirement incentives to salaried employees.
The program liability of $1,633 was included with the restructuring charge.
The following table sets forth the funded status for DRA's defined benefit
pension plans.
[OBJECT OMITTED]
<TABLE>
<CAPTION>
July 31
----------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
Actuarial present value of accumulated pension benefit obligation:
Vested........................................................ $ 5,988 $ 11,375
Nonvested..................................................... 489 1,318
--------------- ---------------
Accumulated benefit obligation..................................... $ 6,477 $ 12,693
=============== ===============
Projected benefit obligation....................................... $ 7,021 $ 13,540
Plan assets at fair value.......................................... (6,406) (9,664)
--------------- ---------------
Projected benefit obligation in excess of fair value of
plan assets................................................... 615 3,876
Prior service cost not yet recognized.............................. (37) (911)
Unrecognized net gain.............................................. 372 1,577
--------------- ---------------
Pension liability recognized in the balance sheet.................. $ 950 $ 4,542
=============== ===============
</TABLE>
The measurement of the July 31, 1996 and 1997 projected benefit obligation
was based upon a discount rate of 7.75%. The expected compensation growth rate
is 5% for salaried employees. The expected rate of return on plan assets is 10%.
Defined Contribution Plans
Various subsidiaries of the Company sponsor voluntary savings plans for
eligible salaried and hourly employees. These plans allow participants to make
contributions pursuant to section 401(k) of the Internal Revenue
F-17
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Code. Certain of these plans have Company matching contribution provisions.
Charges to operations were $452, $686 and $532 for 1995, 1996 and
1997,respectively.
Profit Sharing Plans
DRA sponsors profit sharing plans covering substantially all of its
employees. Distributions are determined based upon formulas established by
management and are made annually. Profit sharing expense for 1995, 1996 and 1997
was $1,700, $1,300 and $1,400, respectively.
Post-Retirement Health Care and Life Insurance Plans
DRA maintains hourly and salaried benefit plans that provide
post-retirement health care and life insurance to retirees and eligible
dependents. The benefits are payable for life, although DRA retains the right to
modify or terminate the plans providing these benefits. The salaried plan is
contributory, with additional cost sharing features such as deductibles and
co-payments. Salaried employees who were not GM employees prior to 1992 are not
eligible for the above described post-retirement benefits. It is DRA's policy to
fund these benefits as claims are incurred.
The following table sets forth the status of DRA's post-retirement benefit
plans.
<TABLE>
<CAPTION>
July 31
-------------------------------------
1996 1997
---------------- -----------------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Fully eligible active participants...................... $ 148 $ 160
Active participants not yet fully eligible.............. 6,960 11,459
---------------- -----------------
7,108 11,619
Unrecognized net gain................................... 1,078 1,058
---------------- -----------------
Post-retirement benefit liability....................... $ 8,186 $ 12,677
================ =================
</TABLE>
The components of post-retirement benefit expense are as follows:
<TABLE>
<CAPTION>
For the Year Ended July 31
-----------------------------------------------------------
1995 1996 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Service Cost.......................................... $ 4,114 $ 3,557 $ 3,959
Interest Cost......................................... 320 254 551
Amortization of gain.................................. - (59) (19)
----------------- ----------------- ----------------
$ 4,434 $ 3,752 $ 4,491
================= ================= ================
</TABLE>
Measurement of the accumulated post-retirement benefit obligation was based
on an 8.3% annual rate of increase in the cost of covered health care benefits.
The rate was assumed to decrease ratably to 5.5% through 2002 and remain level
at that rate thereafter. The discount rate used in determining the accumulated
post-retirement benefit obligation was 7.75%. An increase of 1% in assumed
health care cost trend rates would increase the accumulated post-retirement
benefit obligation as of July 31, 1997 by 25.8% and the net periodic cost for
1997 would be increased by 28.6%.
9. STOCKHOLDERS' EQUITY AND REDEEMABLE EXCHANGEABLE PREFERRED STOCK OF DRA
All shares of Class A Common Stock and Class B Common Stock are identical
and will entitle the holders thereof to the same rights and privileges, provided
that except as otherwise required by law, the holders of Class B common stock
shall have no voting rights. Each share of Class A stock is convertible into one
share of Class B stock and each share of Class B stock is convertible into one
share of Class A stock. Pursuant to a Stockholders Agreement dated July 29,
1994, the Company issued 470,590 shares of Class A Common Stock and 319,410
shares of Class B Common Stock for an aggregate of $1,581. In addition, 28,750
shares of Class A common stock were issued in connection with the Nabco
acquisition. On October 21, 1994, the Company approved a private placement
memorandum whereby the Company is authorized to offer for sale to certain
members of management of DRA up to 95,000 shares of Class A Common Stock. As of
July 31, 1997, 90,000 shares were outstanding
F-18
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
pursuant to the private placement at a price approximating book value. Shares
issued pursuant to this plan generally vest over three years. During 1997,
26,750 shares were sold for $6,079 less than the deemed fair market value. As a
result, compensation expense of $1,616 was recorded during the current year and
the balance of the unearned compensation of $4,463 will be amortized over the
remaining vesting period
The stockholder notes receivable of $179 and $350 at July 31, 1996 and
1997, respectively, were issued in connection with the sale of Class A Common
Stock and are payable in 1999 through 2002 together with interest at 9.25%
accrued interest per annum. The members of DRA management who are stockholders
of the Company are subject to agreements that impose certain restrictions and
grant rights on their ownership and transfer of Company stock. During the first
three years after issuance, stockholders are generally prohibited from
transferring shares of common stock of the Company owned by them. The Company
further has the right to repurchase such stock at amounts described in the
respective agreements when the management investor is no longer employed by DRA.
Warrants
In connection with the issuance of the Junior Subordinated Notes, DRI
issued warrants to purchase 100,000 shares of DRI Class A Common Stock at a
price of $.02 per share. The warrants can be exercised, in whole or in part, at
any time through June 31, 2004.
Redeemable Exchangeable Preferred Stock of DRA
In connection with the GM Acquisition, DRA issued 15,000 shares of Class A
Preferred Stock (par value $.01 per share and liquidation preference $1,000 per
share) to GM (DRA Preferred Stock). The provisions of the preferred stock call
for a cumulative cash dividend equal to $80 per share (8%). For financial
statement purposes the preferred stock has been discounted to approximately
$11,500 to reflect fair value at the issuance date based upon an 11.5% dividend
rate. The excess of the preference amount over the carrying value of the DRA
Preferred Stock is being accreted through August 1, 2004, at which time the DRA
Preferred Stock must be redeemed by DRA at $1,000 per share plus accrued and
unpaid dividends. At the option of DRA, the DRA Preferred Stock may be redeemed
at a price per share equal to $1,000 plus accrued and unpaid dividends. In
addition, the DRA Preferred Stock may be exchanged, at the option of DRA, in
whole or in part, for 8% subordinated debentures to be issued by DRA at $1,000
per share plus accrued and unpaid dividends. Dividends which accrue but remain
unpaid for one year accrue additional dividends at the rate of 8%. The carrying
value of the DRA Preferred Stock includes unpaid and accrued dividends of $3,896
as of July 31, 1997.
10. INCOME TAXES
The following is a summary of the components of the provision for income
taxes (benefit) of continuing operations:
<TABLE>
<CAPTION>
For the Year Ended July 31
----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal................................. $ 9,529 $ 5,969 $ 3,220
State and Local......................... 1,927 916 2,019
Foreign................................. 61 131 977
--------------- --------------- ---------------
11,517 7,016 6,216
Deferred:
Federal................................. (3,021) (1,240) (8,615)
State and Local......................... (650) (35) (960)
Foreign................................. -- -- 345
--------------- --------------- ---------------
$ 7,846 $ 5,741 $ (3,014)
=============== =============== ===============
</TABLE>
F-19
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Income (loss) from continuing operations before income taxes (benefit),
preferred dividend requirement of subsidiary and minority interest was taxed in
the following jurisdictions:
<TABLE>
<CAPTION>
For the Year Ended July 31
----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Domestic................................... $ 18,198 $ 10,104 $ (15,640)
Foreign.................................... 371 3,208 4,903
--------------- --------------- ---------------
$ 18,569 $ 13,312 $ (10,737)
=============== =============== ===============
</TABLE>
A reconciliation of income taxes at the United States federal statutory
rate to the effective income tax rate follows:
<TABLE>
<CAPTION>
For the Year Ended July 31
-------------------------------------------------------
1995 1996 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Federal statutory income tax rate.......................... 35.0% 35.0% 35.0%
State and local income taxes- net of federal tax benefit... 4.5 4.3 (7.7)
Compensation expense....................................... -- -- 6.0
Other items................................................ 2.7 3.8 6.8
--------------- ---------------- ----------------
Effective income tax rate.................................. 42.2% 43.1% 28.1%
=============== ================ ================
</TABLE>
State and local income taxes include provisions for Indiana and Michigan
which do not provide proportional benefit in loss years.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
July 31
----------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Restructuring..................................... $ -- $ 4,424
Employee benefits................................. 7,385 7,157
Inventories....................................... 2,165 7,196
Warranty.......................................... 2,665 3,207
Asset impairment.................................. 1,380 8,480
Discontinued operations........................... 4,352 774
Non-compete agreements............................ -- 789
Alternative minimum tax credits................... 1,244 1,488
Other............................................. 3,054 2,835
--------------- ---------------
22,245 36,350
Deferred tax liabilities:
Depreciation...................................... (11,275) (13,475)
Discount on exchangeable securities............... (1,381) (1,336)
Other............................................. (922) (1,621)
--------------- ---------------
(13,578) (16,432)
--------------- ---------------
Net deferred tax asset................................. $ 8,667 $ 19,918
=============== ===============
</TABLE>
The Company's alternative minimum tax credit may be carried forward
indefinitely. Income tax payments, including state taxes, for 1995, 1996 and
1997 were $8,900, $14,000 and $5,600, respectively.
No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign subsidiaries ($9,336 at July 31, 1997) because it is expected that
F-20
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
such earnings will be reinvested in these foreign operations indefinitely. It is
not practical to estimate the amount of taxes that might be payable on the
eventual remittances of such earnings.
11. TRANSACTIONS WITH GM
The Company and GM have entered into several transactions and agreements
related to their respective businesses. In addition to the transactions
disclosed elsewhere in the accompanying consolidated financial statements and
related notes, the Company entered into the following transactions with GM:
<TABLE>
<CAPTION>
For the Year Ended July 31
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Sales....................................... $ 338,356 $ 298,084 $ 301,328
Material purchases and costs for services... 205,874 112,372 97,934
</TABLE>
In addition, the Company had the following balances with GM:
<TABLE>
<CAPTION>
July 31
------------------------------
1996 1997
------------- -------------
<S> <C> <C>
Trade accounts receivable............................. $ 27,391 $ 30,286
Other receivables..................................... 9,807 4,886
Accounts payable...................................... 10,752 7,644
</TABLE>
12. LEASE COMMITMENTS
The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $959, $3,208 and $4,004 for 1995, 1996 and 1997,
respectively. Rental commitments at July 31, 1997 for long-term non-cancelable
operating leases were as follows for the year ending:
<TABLE>
<S> <C>
1998.......................................... $ 4,581
1999.......................................... 3,855
2000.......................................... 2,649
2001.......................................... 1,449
2002.......................................... 1,387
Thereafter.................................... 1,784
=============
$ 15,705
=============
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business. The Company believes that the disposition of these matters will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
F-21
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
14. GEOGRAPHICAL INFORMATION
The Company operates predominantly in a single industry as a designer,
manufacturer, remanufacturer, and distributor of electrical and other engine
related components, including starter motors and alternators for automobiles,
trucks, and other heavy duty vehicles. The Company is a multi-national
corporation with operations in many countries including the United States,
Canada, Mexico, Hungary, Germany, Korea and the Netherlands. Sales, operating
profits and identifiable assets of Canadian, European and other foreign
locations are those sales, operating profits and assets related to the
operations in those locations. Geographical information is shown below:
<TABLE>
<CAPTION>
For the Year Ended July 31
---------------------------------------------------
1995 1996 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Net sales:
United States........................................ $ 584,859 $ 657,782 $ 684,790
Canada............................................... -- 26,815 47,240
Europe............................................... 5,090 15,975 14,487
Other foreign........................................ -- -- 7,052
Eliminate intercompany sales......................... (16,526) (63,720) (63,782)
-------------- --------------- ---------------
Total net sales...................................... $ 573,423 $ 636,852 $ 689,787
============== =============== ===============
Operating income:
United States........................................ $ 36,544 $ 36,751 $ 23,196
Canada............................................... -- 2,319 2,341
Europe............................................... 457 1,609 784
Other foreign........................................ -- -- (366)
-------------- --------------- ---------------
Total operating income............................... $ 37,001 $ 40,679 $ 25,955
============== =============== ===============
Identifiable assets:
United States........................................ $ 310,292 $ 427,847 $ 474,991
Canada............................................... -- 29,959 31,197
Europe............................................... 11,523 10,138 13,105
Other foreign........................................ -- -- 16,303
-------------- --------------- ---------------
Total identifiable assets............................ 321,815 467,944 535,596
Corporate assets..................................... 65,096 119,339 192,458
Elimination.......................................... (64,384) (112,201) (157,485)
============== =============== ===============
Total assets..................................... $ 322,527 $ 475,082 $ 570,569
============== =============== ===============
</TABLE>
15. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through
subsidiaries. The Senior Notes referred to in Note 16 below are unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the Subsidiary Guarantors). Certain of the Company's subsidiaries do not
guarantee the Senior Notes (the Non-Guarantor Subsidiaries). The claims of
creditors of Non-Guarantor Subsidiaries have priority over the rights of the
Company to receive dividends or distributions from such subsidiaries.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at July
31, 1997 and 1996 and for the years ended July 31, 1997, 1996 and 1995.
The equity method has been used by the Company with respect to investments
in subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented based on management's
determination that they do not provide additional information that is material
to investors.
F-22
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:
<TABLE>
<CAPTION>
Guarantor Subsidiaries Non-Guarantor Subsidiaries
- ------------------------------------------- -----------------------------------------------
<S> <C>
Delco Remy America, Inc. Autovill RT Ltd.
Remy International, Inc. Power Investments Canada Ltd.
Reman Holdings, Inc. Remy UK Limited
Nabco, Inc. Delco Remy International (Europe) GmbH
The A&B Group, Inc. Remy India Holdings, Inc.
A&B Enterprises, Inc. Remy Mauritius Ltd.
Dalex, Inc. Remy Korea Holdings, Inc.
A&B Cores, Inc. 681287 Alberta Ltd.
R&L Tool Company, Inc. Publitech, Inc.
MCA, Inc. of Mississippi World Wide Automotive Distributors, Inc.
Power Investments, Inc. Autovill Holdings, Inc.
Franklin Power Products, Inc.
International Fuel Systems, Inc.
Marine Drive Systems, Inc.
Marine Corporation of America
Powrbilt Products, Inc.
World Wide Automotive, Inc.
</TABLE>
F-23
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheet
July 31, 1997
-----------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents........ $ -- $ 1,504 $ 8,546 $ -- $ 10,050
Trade accounts receivable........ -- 99,745 10,439 -- 110,184
Affiliate accounts
receivable, net............... -- 33,409 2 (33,411)(a) --
Other receivables................ -- 9,605 882 -- 10,487
Recoverable income taxes......... -- 2,889 -- -- 2,889
Inventories...................... -- 145,035 19,382 -- 164,417
Deferred income taxes............ 4,315 17,159 -- -- 21,474
Other current assets............. -- 4,163 480 -- 4,643
-------------- -------------- -------------- -------------- --------------
Total current assets.................. 4,315 313,509 39,731 (33,411) 324,144
Property and equipment................ 20 133,769 13,433 -- 147,222
Less accumulated depreciation......... 13 22,353 4,492 -- 26,858
-------------- -------------- -------------- -------------- --------------
7 111,416 8,941 -- 120,364
Deferred financing costs.............. 5,148 3,655 -- -- 8,803
Goodwill, net......................... -- 76,437 10,175 -- 86,612
Net assets held for disposal.......... -- 25,279 -- -- 25,279
Investment in affiliates.............. 171,614 -- -- (168,495)(b)(c) 3,119
Other assets.......................... 1,953 (1,463) 1,758 -- 2,248
-------------- -------------- -------------- -------------- --------------
Total assets.......................... $ 183,037 $ 528,833 $ 60,605 $(201,906) $ 570,569
============== ============== ============== ============== ==============
</TABLE>
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
F-24
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheet
July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Liabilities and stockholders' equity
(deficit):
Current liabilities:
Accounts payable................. $ 195 $ 82,585 $ 5,798 $ -- $ 88,578
Affiliate accounts payable....... 15,684 6,152 11,575 (33,411)(a) --
Accrued interest payable......... -- 3,107 -- -- 3,107
Accrued restructuring charges.... -- 37,377 -- -- 37,377
Liabilities related to
discontinued operations.......... -- 3,324 -- -- 3,324
Other liabilities and accrued
expenses......................... (11,076) 41,034 5,991 -- 35,949
Current portion of long-term
debt............................. -- 506 1 -- 507
-------------- -------------- -------------- -------------- --------------
Total current liabilities............. 4,803 174,085 23,365 (33,411) 168,842
Deferred income taxes................. 10,631 (9,114) 39 -- 1,556
Long-term debt, less current portion.. 173,511 189,669 81 -- 363,261
Post-retirement benefits other than
pensions......................... -- 12,677 -- -- 12,677
Accrued pension benefit............... -- 4,542 -- -- 4,542
Other non-current liabilities......... 876 3,231 17 -- 4,124
Minority interest in subsidiary....... -- 6,504 1,528 -- 8,032
Redeemable exchangeable preferred
stock of subsidiary.............. -- 16,071 -- -- 16,071
Stockholders' equity (deficit):
Common stock:
Class A Shares.............. 5 -- -- -- 5
Class B Shares.............. 4 -- -- -- 4
Paid-in capital.................. 10,194 -- -- -- 10,194
Subsidiary investment............ -- 127,665 31,970 (159,635)(b) --
Retained earnings (deficit)...... (12,174) 3,503 5,357 (8,860)(c) (12,174)
Cumulative translation
adjustment....................... -- -- (1,752) -- (1,752)
Stock purchase plan.............. (4,813) -- -- -- (4,813)
------------ -------------- -------------- -------------- --------------
Total stockholders' equity
(deficit)........................ (6,784) 131,168 35,575 (168,495) (8,536)
------------ -------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity (deficit)................. $ 183,037 $ 528,833 $ 60,605 $ (201,906) $ 570,569
============== ============== ============== ==============================
</TABLE>
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
F-25
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Operations
For the Year Ended July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............................. -- $ 684,790 $ 68,779 $(63,782)(a) $ 689,787
Cost of goods sold.................... -- 548,875 55,141 (63,782)(a) 540,234
-------------- -------------- -------------- -------------- --------------
Gross profit.......................... -- 135,915 13,638 -- 149,553
Selling, engineering, and
administrative expenses.......... 6,325 71,933 10,840 -- 89,098
Restructuring charges................. -- 34,500 -- -- 34,500
-------------- -------------- -------------- -------------- --------------
Operating (loss) income............... (6,325) 29,482 2,798 -- 25,955
Other income (expense):
Gain on sale of building......... -- -- 2,082 -- 2,082
Interest expense................. (18,815) (19,997) 38 -- (38,774)
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations before income tax
(benefit), preferred dividend
requirement of subsidiary, and
minority interest................ (25,140) 9,485 4,918 -- (10,737)
Minority interest in income of
subsidiaries..................... -- 921 (29) -- 892
Equity in earnings of subsidiaries.... 1,821 -- -- (1,821)(b) --
Income taxes (benefit)................ (9,023) 4,042 1,967 -- (3,014)
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,648(c) 1,648
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations....................... (14,296) 4,522 2,980 (3,469) (10,263)
Discontinued operations:
Loss from operations of
discontinued businesses (less
applicable income tax benefit)... -- 808 -- -- 808
Loss on disposal of businesses
(less applicable income tax
benefit)......................... -- 874 -- -- 874
Extraordinary item:
Write-off of debt issuance costs
(less applicable income tax
benefit)......................... -- 2,351 -- -- 2,351
-------------- -------------- -------------- -------------- --------------
Net (loss) income..................... $ (14,296) $ 489 $ 2,980 $ (3,469) $ (14,296)
============== ============== ============== ============== ==============
</TABLE>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
F-26
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net (loss) income..................... $ (14,296) $ 489 $ 2,980 $(3,469)(a) $ (14,296)
Extraordinary item.................... 375 3,123 -- -- 3,498
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... 1,629 19,942 752 -- 22,323
Gain on sale of building......... -- -- (2,082) -- (2,082)
Equity in earnings of subsidiary. (1,821) -- -- 1,821(a) --
Deferred income taxes............ 7,864 (17,481) 39 -- (9,578)
Post-retirement benefits other
than pensions.................... -- 4,491 -- -- 4,491
Accrued pension benefits......... -- 3,592 -- -- 3,592
Non-cash interest expense........ 3,337 4,612 -- -- 7,949
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,648(b) 1,648
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.......... -- (1,715) (1,626) -- (3,341)
Inventories.................. -- (4,950) (5,295) -- (10,245)
Accounts payable............. (67) (10,970) 1 -- (11,036)
Intercompany accounts........ (74,450) 65,730 8,720 -- --
Other current assets and
liabilities.................. (8,727) 995 3,194 -- (4,538)
Accrued restructuring........ -- 31,836 -- -- 31,836
Other non-current assets and
liabilities, net............. (12,209) 16,180 (1,655) -- 2,316
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
operating activities............. (98,365) 115,874 5,028 -- 22,537
Investing activities:
Acquisition, net of cash acquired..... (45,284) 135 2,707 -- (42,442)
Purchase of property and equipment.... -- (27,025) (4,863) -- (31,888)
Investment in affiliates.............. (3,119) -- -- -- (3,119)
Proceeds from sale of building........ -- -- 3,362 -- 3,362
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
investing activities............. (48,403) (26,890) 1,206 -- (74,087)
Financing activities:
Proceeds from issuances of long-term
debt............................. 162,700 17,300 -- -- 180,000
Payments on long-term debt............ (16,000) (110,200) -- -- (126,200)
Other financing activities............ -- 3,986 -- -- 3,986
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities............. 146,700 (88,914) -- -- 57,786
Effect of exchange rate changes on cash -- -- 408 -- 408
-------------- -------------- -------------- -------------- --------------
Net (decrease) increase in cash and
cash equivalents................. (68) 70 6,642 -- 6,644
Cash and cash equivalents at beginning
of year.......................... 68 1,434 1,904 -- 3,406
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
year............................. $ -- $ 1,504 $ 8,546 $ -- $ 10,050
============== ============== ============== ============== ==============
</TABLE>
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.
F-27
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
July 31, 1996
--------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents........ $ 68 $ 1,434 $ 1,904 $ -- $ 3,406
Trade accounts receivable, net... -- 87,161 7,831 -- 94,992
Affiliate accounts receivable.... -- 80,650 -- (80,650)(a) --
Other receivables................ -- 10,265 320 -- 10,585
Recoverable income taxes......... 825 7,013 836 -- 8,674
Inventories...................... -- 111,631 11,952 -- 123,583
Deferred income taxes............ 1,548 13,914 -- -- 15,462
Other current assets............. -- 790 423 -- 1,213
-------------- -------------- -------------- ----------------- --------------
Total current assets.................. 2,441 312,858 23,266 (80,650) 257,915
Property and equipment................ 20 162,963 7,408 -- 170,391
Less accumulated depreciation......... -- 28,207 1,028 -- 29,235
-------------- -------------- -------------- ----------------- --------------
20 134,756 6,380 -- 141,156
Deferred financing costs.............. 481 6,016 -- -- 6,497
Goodwill, net......................... -- 58,174 8,396 -- 66,570
Investment in affiliate............... 119,240 -- -- (119,240)(b)(c) --
Other assets.......................... 544 345 2,055 -- 2,944
-------------- -------------- -------------- ----------------- --------------
Total assets.......................... $ 122,726 $ 512,149 $ 40,097 $(199,890) $ 475,082
============== ============== ============== ================= ==============
</TABLE>
F-28
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
July 31, 1996
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Liabilities and stockholders' equity
(deficit):
Current liabilities:
Accounts payable................. $ 262 $ 75,509 $ 5,436 $ -- $ 81,207
Affiliate accounts payable....... 73,322 4,968 2,360 (80,650)(a) --
Accrued interest payable......... -- 4,026 -- -- 4,026
Accrued restructuring charges.... -- 5,541 -- -- 5,541
Liabilities related to
discontinued operations.......... -- 11,005 -- -- 11,005
Other liabilities and accrued
expenses......................... (1,524) 31,151 3,056 -- 32,683
Current portion of long-term
debt............................. -- 8,511 1,141 -- 9,652
-------------- -------------- -------------- -------------- --------------
Total current liabilities........ 72,060 140,711 11,993 (80,650) 144,114
Deferred income taxes................. -- 6,795 -- -- 6,795
Long-term debt, less current portion.. 46,919 242,225 -- -- 289,144
Post-retirement benefits other than
pensions......................... -- 8,186 -- -- 8,186
Accrued pension benefit............... -- 950 -- -- 950
Other non-current liabilities......... (3) 2,582 2,848 -- 5,427
Minority interest in subsidiary....... -- 4,457 -- -- 4,457
Redeemable exchangeable preferred
stock of subsidiary.............. -- 14,420 -- -- 14,420
Stockholders' equity (deficit):
Common stock:
Class A Shares.............. 5 -- -- -- 5
Class B Shares.............. 4 -- -- -- 4
Paid-in capital.................. 1,798 -- -- -- 1,798
Subsidiary investment............ -- 87,161 25,040 (112,201)(b) --
Retained earnings (deficit)...... 2,122 4,662 2,377 (7,039)(c) 2,122
Cumulative translation
adjustment....................... -- -- (2,161) -- (2,161)
Notes receivable from
stockholders..................... (179) -- -- -- (179)
-------------- -------------- -------------- -------------- --------------
Total stockholders' equity
(deficit)........................ 3,750 91,823 25,256 (119,240) 1,589
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity (deficit)................. $ 122,726 $ 512,149 $ 40,097 $(199,890) $ 475,082
============== ============== ============== ============== ==============
</TABLE>
(a) Elimination of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
F-29
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended July 31, 1996
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $ -- $ 657,782 $ 42,790 $(63,720)(a) $ 636,852
Cost of goods sold.................... -- 541,363 32,435 (63,720)(a) 510,078
-------------- -------------- -------------- -------------- --------------
Gross profit.......................... -- 116,419 10,355 -- 126,774
Selling, engineering, and
administrative expenses.......... 1,923 69,644 6,427 -- 77,994
Restructuring charges................. -- 8,101 -- -- 8,101
-------------- -------------- -------------- -------------- --------------
Operating (loss) income............... (1,923) 38,674 3,928 -- 40,679
Interest expense...................... (4,503) (22,477) (387) -- (27,367)
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations before income taxes
(benefit), preferred dividend
requirement of subsidiary and
minority interest................ (6,426) 16,197 3,541 -- 13,312
Minority interest in income of
subsidiary....................... -- -- 259 -- 259
Equity in earnings of subsidiary...... (1,904) -- -- 1,904(b) --
Income taxes (benefit)................ (3,489) 8,014 1,216 -- 5,741
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,516(c) 1,516
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations....................... (4,841) 8,183 2,066 388 5,796
Discontinued operations:
Loss from operations of
discontinued businesses (less
applicable income tax benefit)... -- 1,573 -- -- 1,573
Loss on disposal of businesses
(less applicable income tax
benefit)......................... -- 9,064 -- -- 9,064
-------------- -------------- -------------- -------------- --------------
Net (loss) income..................... $ (4,841) $ (2,454) $ 2,066 $ 388 $ (4,841)
============== ============== ============== ============== ==============
</TABLE>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
F-30
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended July 31, 1996
------------------------------------------------------------------------------
Delco Remy Non-
International Subsidiary Guarantor
Inc. Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net (loss) income..................... $ (4,841) $ (2,454) $ 2,066 $ 388 $ (4,841)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... -- 18,569 986 -- 19,555
Equity in earnings of subsidiary. 1,904 -- -- (1,904)(a) --
Deferred income taxes............ (620) (3,328) 1,001 -- (2,947)
Post-retirement benefits other
than pensions.................... -- 3,752 -- -- 3,752
Accrued pension benefits......... -- (3,509) -- -- (3,509)
Non-cash interest expense........ 2,333 5,534 -- -- 7,867
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,516(b) 1,516
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.......... -- (24,724) 266 -- (24,458)
Inventories.................. -- (27,048) 1,328 -- (25,720)
Accounts payable............. 262 7,339 1,033 -- 8,634
Intercompany accounts........ 27,650 (29,070) 1,420 -- --
Other current assets and
liabilities.................. (2,679) 21,702 (794) -- 18,229
Accrued restructuring........ -- 5,541 -- -- 5,541
Other non-current assets and
liabilities, net............. (1,148) 1,248 (4,403) -- (4,303)
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities............. 22,861 (26,448) 2,903 -- (684)
Investing activities:
Acquisition, net of cash acquired..... (47,685) 1,365 -- -- (46,320)
Purchase of property and equipment.... (1) (32,740) -- -- (32,741)
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities. (47,686) (31,375) -- -- (79,061)
Financing activities:
Proceeds from issuances of long-term
debt............................. 24,300 65,352 -- -- 89,652
Payments on long-term debt............ -- (6,466) (2,376) -- (8,842)
Other financing activities............ -- (20) -- -- (20)
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities............. 24,300 58,866 (2,376) -- 80,790
Effect of exchange rate changes
on cash.......................... -- -- 883 -- 883
-------------- -------------- -------------- -------------- --------------
Net (decrease) increase in cash and
cash equivalents................. (525) 1,043 1,410 -- 1,928
Cash and cash equivalents at beginning
of year.......................... 593 391 494 -- 1,478
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
year............................. $ 68 $ 1,434 $ 1,904 $ -- $ 3,406
============== ============== ============== ============== ==============
</TABLE>
(a) Elimination of investment in affiliates earnings.
(b) Elimination of preferred dividend requirement of subsidiary.
F-31
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended July 31, 1995
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $ -- $ 584,859 $ 5,090 $(16,526)(a) $ 573,423
Cost of goods sold.................... -- 488,406 3,336 (16,526)(a) 475,216
-------------- -------------- -------------- -------------- --------------
Gross profit.......................... -- 96,453 1,754 -- 98,207
Selling, engineering, and
administrative expenses.......... 825 59,084 1,297 -- 61,206
-------------- -------------- -------------- -------------- --------------
Operating (loss) income............... (825) 37,369 457 -- 37,001
Interest expense...................... (2,083) (16,263) (86) -- (18,432)
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations before income taxes
(benefit), preferred dividend
requirement of subsidiary, and
minority interest................ (2,908) 21,106 371 -- 18,569
Equity in earnings of subsidiary...... 8,943 -- -- (8,943)(b) --
Income taxes (benefit)................ (928) 8,713 61 -- 7,846
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,397(c) 1,397
-------------- -------------- -------------- -------------- --------------
Income (loss) from continuing
operations....................... 6,963 12,393 310 (10,340) 9,326
Discontinued operations:
Loss from operations of
discontinued businesses (less
applicable income tax benefit)... -- 2,363 -- -- 2,363
-------------- -------------- -------------- -------------- --------------
Net income (loss)..................... $ 6,963 $ 10,030 $ 310 $(10,340) $ 6,963
============== ============== ============== ============== ==============
</TABLE>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
F-32
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1995
------------------------------------------------------------------------------
Delco Remy Non-
International Subsidiary Guarantor
Inc. Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)..................... $ 6,963 $ 10,030 $ 310 $ (10,340)(a)(b) $ 6,963
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... -- 14,491 42 -- 14,533
Equity in earnings of subsidiary. (8,943) -- -- 8,943(a) --
Deferred income taxes............ (927) (2,653) -- -- (3,580)
Post-retirement benefits other
than pensions.................... -- 4,434 -- -- 4,434
Accrued pension benefits......... -- 4,459 -- -- 4,459
Non-cash interest expense........ 2,086 5,983 -- -- 8,069
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,397(b) 1,397
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.......... -- (49,270) (50) -- (49,320)
Inventories.................. -- (7,212) (823) -- (8,035)
Accounts payable............. -- 48,862 751 -- 49,613
Intercompany accounts........ 62,733 (63,674) 941 -- --
Other current assets and
liabilities.................. 330 (6,450) (537) -- (6,657)
Other non-current assets and
liabilities, net............. 3,578 (3,797) 264 -- 45
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities............. 65,820 (44,797) 898 -- 21,921
Investing activities:
Acquisitions, net of cash acquired.... (64,429) 1,824 595 -- (62,010)
Purchase of property and equipment.... (19) (11,129) (93) -- (11,241)
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
investing activities............. (64,448) (9,305) 502 -- (73,251)
Financing activities:
Proceeds from issuances of long-term
debt............................. -- 31,918 -- -- 31,918
Payments on long-term debt............ (848) (3,163) (906) -- (4,917)
Other financing activities............ -- 118 -- -- 118
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
financing activities............. (848) 28,873 (906) -- 27,119
-------------- -------------- -------------- -------------- --------------
Net increase (decrease) in cash and
cash equivalents................. 524 (25,229) 494 -- (24,211)
Cash and cash equivalents at beginning
of year.......................... 69 25,620 -- -- 25,689
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
year............................. $ 593 $ 391 $ 494 $ -- $ 1,478
============== ============== ============== ============== ==============
</TABLE>
(a) Elimination of investment in affiliate earnings.
(b) Recording of preferred dividend requirement of subsidiary.
F-33
<PAGE>
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
16. SUBSEQUENT EVENTS
Offerings
In October 1997, the Company filed Registration Statements to offer
approximately $60,000 of Class A Common Stock ($69,000 if the Underwriters'
over-allotment option is exercised in full) and $130,000 of % Senior Notes Due
2007 (the Senior Notes). Net proceeds to the Company from such Offerings, after
deduction of associated expenses, are expected to be approximately $181,000.
Planned Acquisition
On October , 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire all of the capital stock of Ballantrae (the Planned
Acquisition) for $49,200 (including assumed debt). Ballantrae operates through
two subsidiaries: Tractech, a leading producer of traction control systems for
heavy duty original equipment manufacturers and the aftermarket; and Kraftube,
Inc., a tubing assembly business which sells products to compressor
manufacturers for commercial air conditioners and refrigeration equipment. In
fiscal year 1997, Tractech accounted for approximately % of Ballantrae's
$37,600 of net sales. The Company will exchange shares of its Common Stock with
a value (at the initial public offering price in the Equity Offering) of
approximately $19,000 for the equity of Ballantrae and will repay approximately
$30,000 of Ballantrae's debt. The acquisition is expected to be completed at or
prior to the consummation of the Offerings.
Recapitalization
In connection with the above-mentioned Offerings and Planned Acquisition,
the Company plans to complete several transactions pursuant to which the
Company's outstanding debt and preferred stock will be restructured (the
Recapitalization). Significant components of the Recapitalization, together with
the applicable accounting effects, will be as follows:
The payment in full of the World Note.
The early extinguishment of the World Note will result in a write-off of
the unamortized debt issue costs of $1,350, net of income taxes, which will
be accounted for as an extraordinary loss on this transaction.
The payment in full of the GM Acquisition Note.
The exchange of the Junior Subordinated Notes for shares of Class A
Common Stock.
The exchange of the outstanding shares of 8% preferred stock of DRA to an
8% subordinated debenture of DRA.
The payment in full of $11,800 principal amount of subordinated notes
payable to certain former stockholders of A&B Group and Power.
The amendment of the senior credit facility in connection with the
consummation of the Offerings.
Payment of Ballantrae debt assumed in the Planned Acquisition.
Share and Per Share Information
On October , 1997, the Company authorized a -to-one stock split. All share
and per share amounts have been adjusted to reflect this split. The primary loss
per share is based on the weighted average number of shares of common stock and
common stock equivalents outstanding during the year, adjusted to reflect all
common stock issued within one year prior to the initial public offering of
common stock as if those shares issued had been outstanding for the entire year.
The supplemental loss per share is based on the weighted average number of
shares of common stock and common stock equivalents used in the primary loss per
share calculation, retroactively adjusted to reflect the assumed exchange of the
Junior Subordinated Notes, the issuance of the Common Stock and Senior Notes in
the Offerings and the repayment of certain debt with the proceeds of the
Offerings. Historical earnings (loss) per share for 1995, 1996 and 1997 are
$ , $( ) and $( ), respectively.
F-34
<PAGE>
[LOGO OF DELCO REMY INTERNATIONAL APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
SEC Registration Fee....................................... $20,910
NASD Filing Fee............................................ 7,400
NYSE Filing Fee............................................ *
Blue Sky Fees and Expenses................................. *
Legal Fees and Expenses.................................... *
Accounting Fees and Expenses............................... *
Registrar and Transfer Agent Fees.......................... *
Printing and Engraving Expenses............................ *
Miscellaneous.............................................. *
--------
Total...................................................... *
========
</TABLE>
* To be completed by amendment.
Each amount set forth above, except the SEC registration fee, the NASD
filing fee and NYSE filing fee, is estimated.
Item 14. Indemnification of Directors and Officers.
As permitted by the Delaware Law, the Company's Certificate of
Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts of
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, relating to prohibited dividends or distributions or the repurchase or
redemption of stock, or (iv) for any transaction from which the director derives
an improper personal benefit. In addition, the Company's By-laws provide for
indemnification of the Company's officers and directors to the fullest extent
permitted under Delaware law. Section 145 of the Delaware Law provides that a
corporation may indemnify any persons, including officers and directors, who
were or are, or are threatened to be made, parties to any threatened, pending or
completed legal 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 was an officer, director,
employee or agent of such corporation or is or was serving at the request of
such corporation as an officer, director, employee or agent of another
corporation, partnership, joint venture, trust or other 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, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses that such officer or
director actually and reasonably incurred. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The Underwriting Agreement provides for indemnification by the Underwriters
of the registrant and its directors, officers and controlling persons for
certain liabilities, including liabilities arising under the Securities Act of
1933, as amended.
II-1
<PAGE>
The directors and officers of the registrant are insured against certain
liabilities under the registrant's directors' and officers' liability insurance.
Item 15. Recent Sales of Unregistered Securities.
1. Securities Sold. 10 5/8% Senior Subordinated Notes due 2006 (the "Senior
Subordinated Notes")
(a) Underwriters and Other Purchasers. No underwriters were involved in the
offering of the Senior Subordinated Notes. The Initial Purchasers were
Salomon Brothers Inc and Smith Barney Inc.
(b) Consideration. The Initial Purchasers paid the Company $135,800,000 for
the Senior Subordinated Notes.
(c) Exemption from Registration Claimed. The Senior Subordinated Notes were
sold pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
2. Securities Sold. Class A Common Stock, par value $.01 per share.
(a) Underwriters and Other Purchasers. No underwriters were involved in the
offering of the Class A Common Stock. The Class A Common Stock was sold
to 45 employees of the Company and its subsidiaries ("Management
Investors") over the past three years.
(b) Consideration. The Management Investors paid an aggregate of $203,054
in cash and notes in an aggregate principal amount of $580,602.
(c) Exemption from Registration Claimed. The Class A Common Stock was sold
pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1.1* Underwriting Agreement
3.1* Certificate of Incorporation of the Company, as amended
3.2* By-laws of the Company
4.1* Specimen Class A Common Stock Certificate
5.1* Opinion of Dechert Price & Rhoads, counsel to the Company
10.1 Light Duty Starter Motor Supply Agreement, dated July 31, 1994, by and
between Delco Remy America, Inc. ("DRA") and General Motors Corporation
("GM")
10.2 Heavy Duty Component Supply Agreement, dated July 31, 1994, by and
between DRA and GM
10.3 Distribution and Supply Agreement, dated July 31, 1994, by and between
DRA and GM
10.4 Trademark License, dated July 31, 1994, by and among DRA, DR
International, Inc. and GM
10.5 Tradename License Agreement, dated July 31, 1994, by and among DRA, DR
International, Inc. and GM
10.6 Partnership Agreement of Delco Remy Mexico S. de R.L. de C.V., dated
April 17, 1997
10.7* Joint Venture Agreement, dated , by and between Remy Korea Holdings,
Inc. and S.C. Kim
10.8 Securities Purchase and Holders Agreement, dated July 29, 1994, by and
among the Company, CVC, WEP, MascoTech, Harold K. Sperlich, James R.
Gerrity and the individuals named therein as Management Investors
10.9 Registration Rights Agreement, dated July 29, 1994, by and among the
Company, CVC, WEP, MascoTech, Harold K. Sperlich, James R. Gerrity and
the individuals named therein as Management Investors
10.10* Employment Agreement, dated July 31, 1994, by and between Delco Remy
International, Inc. and Thomas J. Snyder
10.11* Fourth Amended and Restated Financing Agreement, dated as of , 1997,
among the Company, certain of the Company's subsidiaries signatories
thereto and Bank One, Indianapolis, National Association
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.12 Indenture, dated as of August 1, 1996, among the Company, certain of
the Company's subsidiaries signatories thereto and National City Bank
of Indiana, as trustee
10.13* 8% Subordinated Debenture of DRA, due July 31, 2004 in favor of GM
10.14 Contingent Purchase Price Note of DRA, in favor of GM, dated July 31,
1994
10.15* Agreement and Plan of Merger, dated October , 1997, among the
Company, Ballantrae, a subsidiary of the Company and the Stockholders
of Ballantrae
11.1* Statement re Computation of Earnings per Share
12.1 Statement re Computation of Ratios
21.1* Subsidiaries of Registrant
23.1 Consent of Ernst & Young (see page II-4)
23.2 Consent of Dechert Price & Rhoads included in Exhibit 5.1
24.1 Power of Attorney included on Signature Page
</TABLE>
- -----------------------
* To be filed by amendment.
(b) Financial Statement Schedules: None
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission 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 payment 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.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining the liability under the Securities Act
of 1933, 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.
(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-3
<PAGE>
Consent of Independent Accountants
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Historical Financial Data" and to the use of our reports
dated September 5, 1997 (except for "Share and Per Share Information" in Note 16
as to which the date is October , 1997), in the Registration Statement on Form
S-1 and related Prospectus of Delco Remy International, Inc. for the
registration of its Common Stock.
October , 1997
The foregoing consent is in the form that will be signed upon the
determination of the stock split as described in Note 16 to the consolidated
financial statements.
ERNST & YOUNG LLP
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
DELCO REMY INTERNATIONAL, INC.
By: HAROLD K. SPERLICH
-----------------------------
HAROLD K. SPERLICH
Chairman
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
HAROLD K. SPERLICH Chairman (principal executive officer) October 9, 1997
- ----------------------------------------- and Director
Harold K. Sperlich
DAVID L. HARBERT Executive Vice President and Chief October 9, 1997
- ----------------------------------------- Financial Officer (principal financial
David L. Harbert and principal accounting officer)
Director
- -----------------------------------------
E. H. Billig
RICHARD M. CASHIN, JR. Director October 9, 1997
- -----------------------------------------
Richard M. Cashin, Jr.
MICHAEL A. DELANEY Director October 9, 1997
- -----------------------------------------
Michael A. Delaney
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
ROBERT J. SCHULTZ Director October 9, 1997
- -----------------------------------------
Robert J. Schultz
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
</TABLE>
II-5
<PAGE>
Exhibit 10.1
LIGHT DUTY STARTER MOTORS*
COMPONENT SUPPLY AGREEMENT
--------------------------
THIS COMPONENT SUPPLY AGREEMENT ("Agreement") is entered into July 31, 1994, by
DRA, Inc. ("DRA"), a company organized under the laws of the State of Delaware,
and General Motors Corporation, a company organized under the laws of the State
of Delaware ("GM").
INTRODUCTION
This Agreement is entered with reference to the following facts:
A. DRA, DR International, Inc. ("DRI") and GM have entered into the Asset
Purchase Agreement dated July 13, 1994, (the "Asset Purchase Agreement"),
pursuant to which DRA will purchase from GM certain of the assets, and will
assume certain of the liabilities, of the Delco Remy Heavy Duty Starter Motors
and Generators business ("HDO"), the Delco Remy Powder Metal Forge business
("PMF"), the Delco Remy Light Duty Starter Motors business ("LDO"), the Delco
Remy Light Duty Starter Motors Remanufacturing business ("LDO Reman") and the
Delco Remy Heavy Duty Starter Motors and Generators Remanufacturing business
("HDO Reman" and collectively with HDO, LDO, PMF and LDO Reman, the
"Businesses") of the Delco Remy Division of GM (together with any successor unit
of GM, the "Delco Remy Division").
B. In connection with the transactions contemplated by the Asset Purchase
Agreement, GM and DRA desire to establish a mutually beneficial and efficient
long-term arrangement for the purchase and sale of certain motor vehicle
components and to cooperate with each other to achieve certain commercial
objectives. Accordingly, DRA desires to sell to GM, and GM desires to purchase
from DRA, certain motor vehicle components upon the terms and conditions stated
herein.
* Portions of this Exhibit 10.1 were omitted and filed separately with the
Secretary of the Securities and Exchange Commission (the "Commission") pursuant
to an application for confidential treatment filed with the Commission pursuant
to Rule 406 under the Securities Act of 1933. Such portions are marked by the
word "Redacted."
<PAGE>
C. DRI has formed DRA to own and operate the Businesses. The investors in
DRI and GM intend that DRA will be a supplier of GM for an extended period,
subject to DRA's competitive performance in technology, quality, service and
price as set forth herein. DRA acknowledges GM's normal expectation that
component suppliers will deliver a minimum net cost reduction of three percent
(3%) each year. GM acknowledges that DRA will need several years to achieve
satisfactory financial performance. Both GM and DRA acknowledge that the best
way to achieve their goals is by establishing a cooperative, ongoing
relationship.
D. DRA understands that components sold under this Agreement must be
competitive with regard to components available to GM from other suppliers to
GM, and as set forth herein, that GM intends to continue to seek information
regarding products of other suppliers, including information regarding quality,
technology, service, and price.
NOW, THEREFORE, in consideration of the mutual promises contained herein and
intending to be legally bound, DRA and GM hereby agree as follows:
ARTICLE 1 - PURCHASE AND SUPPLY COMMITMENTS
- -------------------------------------------
1.1(a) Commitment for GM Requirements: For the term of this Agreement, subject
------------------------------
to paragraph 1 .2(d)(iii) of this Agreement, DRA agrees to sell and GM agrees to
purchase one hundred percent (100%) of GM's production and current production
model service requirements for Components in the United States and Canada,
except for GEO and Saturn production requirements as of the date hereof. This
Agreement also applies to GM's requirements for those production and current
production model service Components presently produced by DRA's Mexican
licensee, GCI, or any successor to GCI. Additionally, DRA agrees, and commits
through its purchase offer, to capacitize its operations to the full extent of
GM's requirements for such Components; and shall not rebill GM for the cost of
any tooling or equipment transferred pursuant to the Asset Purchase Agreement or
otherwise related to the PG-260 program, other than those expenditures
2
<PAGE>
specifically designated on Annex C as eligible for rebill. The parties
acknowledge and agree with respect to such rebills, however, that a material
change by GM in either the volume or the timing of the PG-260 program's
scheduled capacitization from that as of the Closing may require the
modification of the above rebill provision, by mutual agreement of the parties.
To the extent that GM purchases any Components indirectly (e.g., incorporated
into a subassembly purchased from a sub-assembler for use as original
equipment), GM shall require such sub-assembler to comply with this Article 1.1.
For purposes of this Agreement, the term "Components" shall mean any one or more
of the motor vehicle light duty starter motors listed and specifically
designated as Category A - Straight Drive Models or Category B - Planetary Gear
Models, in the Supply Schedule attached hereto as Annex "A", plus any subsequent
light duty starter motors specifically designated as "replacements" for those
models listed in Annex "A", which are required by GM for use as original
equipment or service parts between the effective date of this Agreement and July
31, 2004, provided, however, that "Components" shall not include (i)
remanufactured motor vehicle light duty starter motors and parts and sub-
assemblies, and (ii) motor vehicle light duty starter motors and parts and
assemblies for past model service.
1.1(b) Issuance of Purchase Orders: GM will place all orders hereunder in
----------- ---------------
accordance with GM's customary practices, as the same may be revised from time
to time.
1.2 Prices and Adjustments
----------------------
(a) Initial Prices: The unit prices for the Components as of the effective
--------------
date of this Agreement are stated in the Supply Schedule (Annex "A"). GM and DRA
understand the current prices listed in Annex A are market competitive as of
Fall 1993. In addition, the parties agree that GM's standard non-ferrous metals
price adjustment policies will apply throughout the term of this Agreement.
3
<PAGE>
(b) Cost Reduction Programs:
-----------------------
(i) DRA and GM shall use their best efforts to identify and implement
productivity and other improvements to reduce DRA's cost of producing the
Components. Beginning in the second model year after DRA's transition out of GM
(i.e. beginning August 1, 1995) (the "Second Model Year") with regard to
"Category A" Components and the third model year after such transition (i.e.
beginning August 1, 1996) (the "Third Model Year") with regard to "Category B"
Components, and each model year thereafter during the term of this Agreement,
DRA shall retain fifty percent (50%) of the amount of the "Cost Savings" (as
such term is defined below) achieved in the most recent model year ended and
fifty percent (50%) of the Cost Savings shall be passed on to GM by means of
additional price reductions on Components; provided, however, that DRA shall
retain 100% of the Cost Savings resulting from the "right sizing" (the related
reduction of hourly personnel and elimination of all associated employee benefit
costs as described in Section 7.13 of the Asset Purchase Agreement) of DRA's
business as contemplated in DRA's business plan for the LDO business. All
calculations pursuant to this Paragraph 1.2(b)(i) shall be done at a plant
level for each Component. For purposes of this Agreement, the term "Cost
Savings" shall mean the net reduction, if any, in the full manufacturing cost to
produce one unit of a Component (taking into account all labor, material and
plant burden (including depreciation and amortization)) at the end of a model
year from the full manufacturing cost to produce one unit of a Component at the
beginning of a model year, calculated utilizing a consistent accounting
procedure agreed upon by the parties whereby all of DRA's costs are allocated on
a part number basis which reflects the true full manufacturing cost to produce
one unit of the Component. The parties shall agree upon a mutually acceptable
measuring device for calculating the cost savings no later than six (6) months
prior to the commencement of the second model year taking into account DRA's
need to protect the confidentiality of the cost information and GM's need to
verify the information.
(ii) In addition, GM will make available to DRA, and DRA will
participate in good faith in, all productivity improvement programs generally
available to suppliers to
4
<PAGE>
GM, including but not limited to PICOS workshops and creativity teams. Each
party will bear its respective costs arising from participation in such
activities.
(c) Prices and Adjustments for Prior Model Service Parts: Pricing with
----------------------------------------------------
regard to prior model service parts which have not yet become prior model as of
the Closing Date and which are not otherwise listed on Exhibit B to the
Distribution and Supply Agreement between GM and DRA of even date herewith (the
"Distribution and Supply Agreement") will be determined on an initial basis by
the pricing of such Component pursuant to this Agreement immediately before that
Component becomes prior model. Thereafter, adjustments to pricing for prior
model service parts will be determined by adjustments to the price at which GM's
Service Parts Operations Division provides such Component to its customers, in
the manner provided for in the Distribution and Supply Agreement.
(d) Global Sourcing:
---------------
(i) GM may periodically undertake global sourcing studies with regard to
the Components at any time during the term of this Agreement. GM agrees to
solicit such information from qualified suppliers only, and in the context of
both substantive volume (e.g., 1 million units) and an extended time frame, in
order to assure that the information received represents achievable benchmarks.
GM agrees to inform DRA on a timely basis of its issuance of any such requests.
(ii) If GM informs DRA prior to July 31, 2001 that the unit price of a
Component is not competitive with the market-based price determined by such a
global sourcing study, GM and DRA will cooperate in good faith to determine why
DRA's price is not competitive . Promptly thereafter, DRA will prepare a plan
including specific interim goals and target dates for reducing DRA's price to
the market-based competitive price. With the assistance of GM, DRA will use its
best efforts to achieve maximum productivity and cost reduction improvements,
including but not limited to changing types of suppliers of materials and
incurring reasonable developmental expenses and capital investments, and
beginning in the
5
<PAGE>
Second Model Year for "Category A" Components and the Third Model Year for
"Category B" Components, fifty percent (50%) of resulting cost reductions, if
any, will reduce prices pursuant to paragraph 1.2(b) of this Agreement. However,
prior to July 31, 2001, GM shall not purchase Components from other suppliers
because of price.
(iii) After July 31, 2001 the Components must be competitive in terms of
price, technology and design with similar products which may be available to GM.
Should GM receive a quotation which meets the criteria of (i) above, and which,
in the case of quotations received from current GM suppliers, is comparable to
current prices being charged GM by such suppliers, GM, to the maximum extent and
detail possible without breaching any legal or contractual obligations to such
third party, shall advise DRA in writing of the area(s) (i.e. price, technology
and/or design) in which the other product(s) offered in such quotation are more
competitive. DRA shall have sixty (60) days within which to notify GM that it
shall sell the affected Component(s) at the competitive price, with
substantially comparable technology and/or design as the case may be. It is
agreed by the parties that the effective date(s) for such price reduction(s)
and/or improvement(s) in technology and/or design shall be the date(s) at which
the other supplier is able to supply the competing component(s). It is further
agreed by the parties that should DRA elect to meet the competing offer, its
price reduction(s) and/or improvement(s) in technology and/or design shall not
be limited to only the quantities set forth in the competing offer but rather to
all affected Components being supplied by DRA hereunder.
(iv) Should DRA fail to notify GM within the sixty (60) day time period
set forth in (iii) above, or should DRA notify GM that it will not meet the
competing offer, GM may terminate its purchase(s) of the affected Component(s)
hereunder and thereafter purchase the Component(s) from the other source.
1.3 Service Manuals and Technical Support: During the term of this Agreement,
-------------------------------------
DRA shall provide to GM at no additional cost all necessary service and
technical support information and materials related to the Components
(regardless of format, i.e. text,
6
<PAGE>
graphics, audio, video, etc.) including but not limited to service manuals,
service bulletins, training materials, product bulletins and product information
booklets; provided however, that such services and support shall be reasonably
----------------
consistent with that supplied by the Delco Remy Division prior to the Closing
Date.
ARTICLE 2 - PURCHASE ORDER TERMS AND CONDITIONS
- -----------------------------------------------
2.1 Purchase Orders: Attached hereto as Annex "B" is the standard form of
---------------
purchase order customarily utilized by GM with its suppliers as of the date of
this Agreement. All purchase orders issued by GM and accepted by DRA pursuant to
this Agreement shall utilize such standard form purchase order and shall be
governed by its terms and conditions; provided, however, that Paragraphs 11, 12,
13, 15, 22, 23, 31 and the last sentence of Paragraph 14 therein shall be
deleted and may not be invoked or exercised by either party with respect to any
purchase orders issued and accepted under this Agreement; provided further that
notwithstanding the provisions contained in Paragraph 2 of the form of purchase
order, the payment terms to DRA for all Components sold hereunder shall be net
10th, 25th Prox., F.O.B. DRA - Anderson, Indiana or F.O.B. DRA - Meridian,
Mississippi, as the case may be. Additionally, the parties agree with regard to
Paragraph 14 of the form of purchase order that the word "reconstruct" in sub-
paragraph (c) therein shall not be interpreted to mean remanufacture.
2.2 Order of Precedence: The terms and conditions of such purchase orders
-------------------
shall be construed as cumulative and supplemental to those set forth herein;
provided, however, that to the extent of any conflicts between the provisions of
any purchase order and those of this Agreement, the terms of this Agreement
shall govern.
7
<PAGE>
ARTICLE 3 - TERM OF AGREEMENT AND GROUNDS FOR EARLIER TERMINATION
- -----------------------------------------------------------------
3.1 Term of Agreement: The term of this Agreement shall be through July 31,
------------------
2004, unless terminated earlier pursuant to Article 3.2.
3.2 Grounds for Termination: Either party may terminate this Agreement in any
------------------------
of the following events: (i) the other party materially breaches this Agreement;
(ii) the other party becomes insolvent or enters bankruptcy, receivership,
liquidation, debtor initiated composition of creditors, dissolution, or similar
proceeding; or (iii) a significant portion of the assets of the other party
necessary for the performance of this Agreement becomes subject to attachment,
embargo, or expropriation. Additionally, this Agreement may be terminated by GM
in the event thirty-five percent (35%) of the voting shares of DRI or DRA become
owned or controlled, directly or indirectly, by a manufacturer of fully
assembled passenger cars and/or light duty trucks.
For purposes of this Section, the percentage ownership in DRI or DRA voting
shares which is deemed to be owned or controlled directly or indirectly by an
entity (the "Parent") owning voting shares in an entity other than DRI or DRA
(as the case may be) (the "Affiliate"), shall be determined by multiplying the
Parent's percentage ownership of voting shares in the Affiliate by the
percentage ownership or control, direct or indirect, that the Affiliate has in
either DRI or DRA. Similarly, the foregoing shall also apply to any additional
levels of either the Parent's or the Affiliate's subsidiaries or affiliates. In
all cases, however, ownership or control, directly or indirectly, of more than
-------
fifty percent (50%) of the voting shares of an entity will be deemed to be
direct or indirect ownership or control of one hundred percent (100%) of the
voting shares of that entity.
3.3 Termination Procedure: A party intending to terminate this Agreement shall
----------------------
first notify the other party of the grounds for the intended termination. In the
event the other party fails to remedy such grounds for termination within thirty
(30) days after the date of
8
<PAGE>
such notice, then the terminating party may terminate this Agreement effective
immediately upon notice to the other party without the need for any judicial
action.
3.4 Reservation of Rights: The provisions of this Article are without prejudice
----------------------
to any other rights or remedies either party may have by reason of the default
of the other party.
ARTICLE 4- TECHNOLOGY, DESIGN AND QUALITY
- -----------------------------------------
4.1 Quality Control: DRA will institute and maintain a quality control and
----------------
inspection system which incorporates A.I.A.G. Standards, General Quality
Standards, Targets for Excellence, and other GM policies generally applicable to
suppliers.
4.2 Technology and Design, Through July 31, 2001, DRA will use its best efforts
---------------------
to provide Components which are equivalent in terms of technology and design to
similar parts available at a substantially equivalent price. If GM informs DRA
that, in the reasonable opinion of GM, the technology or design of a Component
is not equivalent (giving additional relevant information as available for
disclosure by GM) to another available product, DRA will submit within one
hundred twenty (120) days a comprehensive business plan as to how it will
attempt to provide Components with equivalent or superior technology or design.
4.3 Quality / Warranty Provisions
-----------------------------
(a) Warranty on Components: Components supplied hereunder shall conform to
----------------------
the warranty set forth in Paragraph 9 ("Warranty") of GM's purchase order terms
and conditions. Should Components fail to conform to such Warranty, DRA (with
assistance from GM as appropriate) shall immediately develop a comprehensive
corrective action plan. However, should DRA fail to implement the corrective
action plan, or should DRA fail to remedy or cure the default/breach within one
hundred eighty (180) days, GM, at its option, may immediately terminate its
purchase of the affected Component(s). This right of
9
<PAGE>
termination shall be cumulative and additional to those set forth in Section
3.2. Notwithstanding the foregoing, during the term of this Agreement, DRA shall
not have any financial responsibility whatsoever to GM for vehicle warranty,
except to the extent, if any, and subject to Section 4.3(b) below, that such
financial responsibility derives from any service fix, recall or campaign
(safety or otherwise).
(b) Service Fix. Recall and Safety Campaigns: DRA will promptly notify GM
----------------------------------------
of any defects, when such defects come to the attention of DRA, which might be
the basis of a recall, service fix or campaign (safety or otherwise) for which
GM might be responsible. Notwithstanding the last sentence of paragraph (a)
above: (i) GM will pay 100% of the cost of any service fix, recall or campaign
(safety or otherwise) that is undertaken for all Components actually
manufactured by GM through the date of this Agreement, and (ii) for a period of
four (4) years from the date of this Agreement, GM shall also pay 100% of the
cost of any service fix, recall or campaign (safety or otherwise) involving
Components manufactured after the date of this Agreement for which the Component
design, engineering or manufacturing process in use as of the date of this
Agreement is a contributing cause, or for which a GM prescribed application,
design, engineering or manufacturing process is a contributing cause.
(c) Inventory: If either party becomes aware of or discovers the existence
---------
of any defect or nonconformity in any Components that are enroute to or in the
parts inventory of GM (other than parts inventory that was enroute to or in the
parts inventory of GM as of the Closing Date), it shall notify the other. In
such event, DRA shall, as the case may be, either absorb or reimburse GM for all
direct costs and expenses incurred on the repair, modification or replacement of
such items.
4.4 GM Use of Technical Information: Upon the request of GM, and solely for the
--------------------------------
purpose of quality, reliability and durability testing/evaluation of the
Components, DRA will deliver to GM all information relating to the development
and manufacture of any and all Components in sufficient detail to permit
evaluation of the Components by GM or its
10
<PAGE>
designated supplier of testing service(s), provided that such supplier is not a
direct competitor of DRA. Such information may include drawings; parts lists;
process and material specifications; product software and mask works; purchasing
specifications; tool and labor routings; inspection processes; assurance and
reliability projections; process capability studies; test reports; and failure
mode and analysis studies. Such information will be updated by DRA to show
changes in any Components or their manufacture. GM will use such information
exclusively for evaluation of the Components. It is agreed by the parties,
however, that "Component Interface Materials" (as such items are described in
Section 3.2.10 of the Asset Purchase Agreement) are or shall be the property of
GM and consequently not subject to the restrictions set forth in this Agreement
or in any others between the parties.
ARTICLE 5 - GENERAL PROVISIONS
- ------------------------------
5.1 No Agency: This Agreement does not constitute either party the agent or
----------
legal representative of the other party. Neither party is authorized to create
any obligation on behalf of the other party.
5.2 Advertising: DRA will not, without first obtaining the written consent of
------------
GM, in any manner advertise or publish the fact that DRA has contracted to
furnish the Components to GM, or use any trademarks or tradenames of GM in DRA's
or DRI's advertising or promotional materials; provided, however, that the
foregoing restriction shall not apply to advertisements or publications (i)
reasonably necessary under applicable securities laws or regulations in the
event of a public offering of DRI or of DRA securities; (ii) necessary for
obtaining financing by DRA or DRI; or (iii) permitted under the Asset Purchase
Agreement, the Tradename License Agreement or the Trademark License Agreement.
11
<PAGE>
5.3 Notices: Any notice under this Agreement shall be in writing (letter,
--------
telex, facsimile, or telegram) and shall be effective when received by the
addressee at its address indicated below.
(a) Notices sent to DRA shall be addressed as follows:
Delco Remy America, Inc.
2405 Columbus Avenue
Anderson, Indiana 46018
Attn: Chief Financial Officer
(b) Notices sent to GM shall be addressed as follows:
AC Delco Systems Division GM Worldwide Purchasing
4800 S. Saginaw Street NAO Headquarters
Flint, MI 48501 Building 1-8
Attn: Finance Director 30400 Mound Road
Warren, MI 48090-9015
Attn: Executive Director - Electrical
(c) The parties by notice hereunder may designate other addresses to which
notices shall be sent.
5.4 Amendments: No amendment to this Agreement shall be binding upon either
-----------
party unless it is in writing and is signed by the other party.
5.5 Successors and Assignment. This Agreement shall be binding upon and inure
-------------------------
to the benefit of GM and DRA and their respective successors and assigns. No
party to this Agreement may assign this Agreement or any of its rights,
interests or obligations hereunder without the prior written consent of the
other party; provided, however, that DRA may (a) without the prior written
-------- -------
consent of GM assign this Agreement and any or all of its rights, interests and
obligations hereunder to one or more of its Affiliates (as defined in the Asset
Purchase Agreement), provided that, notwithstanding such assignment DRA shall
remain liable for all of its obligations hereunder and (b) upon receipt of GM's
consent (which will not be unreasonably withheld), assign this Agreement and its
rights, interests and obligations hereunder to (i) a transferee of all or
substantially all of the assets of any or all of the
12
<PAGE>
Businesses, or (ii) any successor to any or all of the Businesses, in each case,
insofar as such rights, interests and obligations relate to or affect the assets
or Businesses so transferred or as to which such assignee has become a
successor, provided that GM shall take into consideration in granting its
consent the following: (A) that such transferee or successor is not less
creditworthy than DRA as of the Closing Date, (B) such transferee or successor
executes a written acknowledgement of its assumption of DRA's obligations to GM
under this Agreement, (C) that such transferee or successor is not an original
equipment manufacturer of fully assembled passenger cars and/or light duty
trucks, (D) if such transferee or successor is a then current supplier to GM,
such transferee or successor shall be in good standing and have demonstrated
manufacturing expertise, (E) if such transferee or successor is a manufacturer
but is not then a current supplier to GM, such transferee or successor shall not
have been terminated as a supplier by GM for reasons other than failure to be
price competitive and shall have a reputation for large-scale, quality
manufacturing and reliable performance of contracts.
5.6 Law and Jurisdiction: This Agreement shall be governed by the laws of
---------------------
the State of New York without regard to the principles of conflict of laws
thereof. Each party consents, for purposes of enforcing this Agreement, to
personal jurisdiction, service of process, and venue in any state or federal
court within the State of New York having jurisdiction over the subject matter.
5.7 Entire Agreement: This Agreement constitutes the entire agreement of the
-----------------
parties hereto regarding the subject matter hereof, and supersedes any and all
prior or contemporaneous oral and written agreements between the parties
relating to the subject matter of this Agreement.
13
<PAGE>
IN WITNESS WHEREOF, GM and DRA have caused this Agreement to be executed by
their duly authorized representatives on the day and year first written above.
DRA, INC. GENERAL MOTORS CORPORATION
By: /s/ James R. Gerrity By: /s/ Charles A. Cotten
---------------------- ---------------------
Title: Executive V.P. Title: Attorney in fact
---------------------- ---------------------
14
<PAGE>
ANNEX A
-------
UNIT PRICES AS OF EFFECTIVE DATE
--------------------------------
[Redacted]
<PAGE>
ANNEX B
-------
[ ]
- ------------------------------- --------------------------------
D Purchase Order No.
- ------------------------------- A
T DRD
[LOGO OF DELCO REMY APPEARS HERE] E
Division of General Motors Corporation --------------------------------
Anderson, Indiana 46018 [ ]
[ ]
--------------------------------
S Delco Remy
H
I
P
T
- ------------------------------- O
V --------------------------------
E [] AUTOMOTIVE COMPONENTS GROUP
N [] DELCO REMY DIVISION
D [] DISBURSEMENT ANALYSIS DEPT.
O [] P.O. BOX [ ]
R [] PONTIAC, MI [ ]
- ------------------------------- --------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] QUANTITY [ ] [ ]. [ ] ARTICLES AND DESCRIPTION [ ] PRICE [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
[ ]
- ------------------------------------------------------------------------------------------------------------------------------------
[ ]
- ------------------------------------------------------------------------------------------------------------------------------------
[ ]
- ------------------------------------------------------------------------------------------------------------------------------------
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
</TABLE>
BUYER PHONE PURCHASING MANAGER
PLEASE ADDRESS ALL CORRESPONDENCE TO
THE ATTENTION OF THE BUYER [ ]
Light Duty Starter Motors Component Supply Agreement
Annex B
Page 1 of 5 Pages
[COPY IN BRACKETS ILLEGIBLE ON ORIGINAL]
<PAGE>
PURCHASE ORDER TERMS AND CONDITIONS
1. ACCEPTANCE: Seller has read and understands this order and agrees that
Sellers written acceptance or commencement of any work or service under this
order shall constitute Seller,s acceptance of these terms and conditions only.
All terms and conditions proposed by Seller which are different from or in
addition to this order are unacceptable to Buyer, are expressly rejected by
Buyer and shall not become a part of this order. Any modifications to this order
shall be made in accordance with Paragraph 31.
2. SHIPPING. BILLING AND FLSA CERTIFICATION: Seller agrees: (a) to properly
pack, mark and ship goods in accordance with the requirements of Buyer and
in [ ] carriers in a manner to secure lowest transportation cost; (b) to
route shipments in accordance with instructions from Buyer's Traffic Department;
(c) to make no charge for handling, packaging, storage, transportation or [ ]
of goods unless otherwise stated, in this order; (d) to provide with each
shipment packing slips with Buyers order number marked thereon; (e) to properly
mark each package with this order number, the factory, [ ], and [ ] number,
and where multiple packages comprise a single shipment to consecutively number
each package; and (f) to promptly forward the original bill of lading or other
shipping receipt for each shipment in accordance with Buyer's instructions.
Seller will include bills of lading or other shipping receipts correct
classification identification of the goods shipped in accordance with Buyer's
instructions and carrier's requirements. The marks on each package and
identification of the goods on packing slips, bills of lading and invoices shall
be sufficient to enable Buyer to easily identify the goods purchased. Seller
further agrees: (a) to promptly render, after delivery of goods or performance
of services, correct and complete invoices to Buyer; and (b) to accept payment
by check or at Buyer's discretion, other cash equivalent (including electronic
transfer of funds). Seller's invoice must include a certification that all goods
were produced in compliance with the applicable requirements of section 6, 7 and
12 of the Fair Labor Standards Act, as amended and of regulations and orders of
the United States Department of Labor issued in connection therewith. The
payment date is set forth on the face side of this order, or if not stated,
shall be on the 25th day of the month following Buyer's receipt of a proper
invoice (except as may otherwise be agreed upon by Buyer and Seller in
connection with a program providing for electronic funds transfer). Time for
payment shall not begin until correct and complete invoices are received, and
Seller's cash discount privileges to Buyer shall be extended until such time as
payment is due. Buyer may withhold payment pending receipt of evidence, if such
form and detail as Buyer may direct, of the absence of any liens, encumbrances
and claims on the goods or services under this order.
3. DELIVERY SCHEDULES: Deliveries shall be made both in quantities and at times
specified in Buyer's schedules. Buyer shall not be required to make payment for
goods delivered to Buyer which are in excess of quantities specified in Buyer's
delivery schedules. Buyer may change the rate of scheduled shipments or direct
temporary suspension of scheduled shipments, neither of which shall entitle
Seller to a modification of the price for goods or services covered by this
order. For orders of goods where quantities and/or delivery schedules are not
specified, Seller shall deliver goods in such quantities and times as Buyer may
direct in subsequent releases.
4. PREMIUM SHIPMENTS: If Seller's acts or omissions result in Seller's failure
to meet Buyer's delivery requirements and Buyer requires a more expeditious
method of transportation for the goods than the transportation method originally
specified by Buyer, Seller shall, at Buyer's action: (i) promptly reimburse
Buyer the difference in cost between the more expeditious method and the
original method; (ii) allow Buyer to reduce its payment of Seller's invoices by
such difference, or (iii) ship the goods as expeditiously as possible at
Seller's expense and invoice Buyer for the amount which Buyer would have paid
for normal shipment.
5. CHANGES: Buyer reserves the right at any time to direct changes, or cause
Seller to make changes, to drawings and specifications of the goods or to
otherwise change the scope of the work covered by this order, including work
with respect to such matters as inspection, testing or quality control, and
Seller agrees to promptly make such changes: any difference in price or time for
performance resulting from such changes shall be equitably adjusted by Buyer
after receipt of [ ] in such form and detail as Buyer may
direct. Any changes to this order shall be made in accordance with Paragraph 31.
6. INSPECTION: Seller agrees that Buyer shall have the right to enter Seller's
facility at reasonable times to inspect the facility, goods, materials and any
property of Buyer covered by this order. Buyer's inspection of the goods,
whether during manufacture prior to delivery or within a reasonable time after
delivery, shall not constitute acceptance of any work-in-process or finished
goods.
7. NONCONFORMING GOODS: To the extent Buyer rejects goods as nonconforming, the
quantities under this order will automatically be reduced unless Buyer otherwise
notifies Seller. Seller will not replace quantities so reduced without a new
order or schedule from Buyer. Nonconforming goods will be held by Buyer for
disposition in accordance with Seller's instructions at Seller's risk. Seller's
failure to provide written instructions within ten (10) days, or such shorter
period as may be commercially reasonable under the circumstances, after notice
or nonconformity shall entitle Buyer, at Buyer's option, to charge Seller for
storage and handling, or to dispose of the goods without liability to Seller.
Payment for nonconforming goods shall not constitute an acceptance thereof,
limit or impair Buyer's right to assert any legal or equitable remedy, or
relieve Seller's responsibility for Patent defects.
8. FORCE MAJEURE: Any delay or failure of either party to perform its
obligations hereunder shall be excused if, and to the extent that it is caused
by an event or occurrence beyond the reasonable control of the party and without
its fault or negligence, such as, by way of example and not by way of
limitation, acts of God, actions by any governmental authority (whether valid or
invalid), fires, floods, windstorms, explosions, riots, natural disasters, wars,
sabotage, labor problems (including lockouts, strikes and slowdowns), inability
to obtain power, material, labor, equipment or transportation, or court
injunction or order; provided that written notice of such delay (including the
anticipated duration of the delay) shall be given by the affected party to the
other party within ten (10) days. During the period of such delay or failure to
perform by Seller, Buyer, at its option, may purchase goods from other sources
and reduce its schedules to Seller by such quantities, without liability to
Seller, or have Seller provide the goods from other sources in quantities and at
times requested by Buyer and at the price set forth in this order. If requested
by the Buyer, Seller shall, within ten (10) days of such request, provide
adequate assurances that the delay shall not exceed thirty (30) days, if the
delay lasts more than thirty (30) days or Seller does not provide adequate
assurance that the delay will cease within thirty (30) days. Buyer may
immediately cancel the order without liability.
[COPY IN BRACKETS ILLEGIBLE ON ORIGINAL]
<PAGE>
9. WARRANTY: Seller expressly warrants that all goods or services covered by
this order will conform to the specifications, drawings, samples, or
descriptions furnished to or by Buyer and will be merchantable of good material
and workmanship and free from defect. In addition, Seller acknowledges that
Seller knows of Buyers intended use and expressly warrants that all goods
covered by this order which have been selected, designed, manufactured, or
assembled by Seller, based upon Buyers stated use will be fit and sufficient for
the particular purpose intended by Buyer.
10. INGREDIENTS DISCLOSURE AND SPECIAL WARNINGS AND INSTRUCTIONS: Requested by
Buyer, Seller shall promptly furnish to Buyer in such form and detail as Buyer
may direct: (a) a list of all ingredients in the goods purchased hereunder: (b)
the amount of one or more ingredients, and (c) information concerning any
changes in or additions to such ingredients. Prior to and with the shipment of
the goods purchased hereunder, Seller agrees to furnish to Buyer sufficient
warning and notice in writing (including appropriate labels on goods, containers
and packing) of any hazardous material which is an ingredient or a part of any
of the goods, together with such special handling instructions as may be
necessary to advise carriers. Buyer, and their respective employees [ ] to
exercise [ ] [ ] of care and precaution which will best prevent bodily
injury or property damage in the handling, transportation, processing, use, or
disposal of the goods, containers and packing shipped to Buyer.
11. INSOLVENCY: Buyer may immediately cancel this order without liability to
Seller in the event of the happening of any of the following or any comparable
event: (a) insolvency of the Seller: (b) filing of a voluntary petition in
bankruptcy by the Seller: (c) filing of any involuntary petition in bankruptcy
against Seller: (d) appointment of a receiver or trustee for Seller: (e) or
execution of an assignment for the benefit of creditors by Seller, provided that
such petition appointment or assignment is not vacated or nullified within
fifteen (15) days of such event.
12. CANCELLATION FOR BREACH: Buyer reserves the right to cancel all or any part
of this order, without liability to Seller, if Seller: (a) repudiates or
breaches any of the terms of this order, including Seller's warranties: (b)
fails to perform services or deliver goods as specified by Buyer; or (c) fails
to make progress so as to endanger timely and proper completion of services or
delivery of goods; and does not correct such failure or breach within ten (10)
days (or such shorter period of time if commercially reasonable under the
circumstances) after receipt of written notice from Buyer specifying such
failure or breach.
13. TERMINATION: In addition to any other rights of Buyer to cancel or terminate
this order. Buyer may at its option immediately terminate all or any part of
this order, at any time and for any reason, by giving written notice to Seller.
Upon such termination, Buyer shall pay to Seller the following amounts without
duplication; (a) the order price for all goods ar services which have been
completed in accordance with this order and not previously paid for; and (b) the
actual costs of work-in-process and raw materials incurred by Seller in
furnishing the goods or services under this order to the extent such costs are
reasonable in amount and are properly allocable or apportionable under generally
accepted accounting principals to the terminated portion of this order; less,
however, the reasonable value or cost (whichever is higher) of any goods or
materials used or sold by Seller with Buyer's written consent, and the cost of
damage or destroyed goods or material. Buyer will make no payments for finished
goods, work-in-process or raw materials fabricated or procured by Seller in
amounts in excess of those authorized in delivery releases nor for any
undelivered goods which are in Seller's standard stock or which are readily
marketable. Payments made under this Paragraph shall not exceed the aggregate
price payable by Buyer for furnished goods which would be produced by
Seller under delivery or release schedules outstanding at the date of
termination. Except as provided in this Paragraph, Buyer shall not be liable for
and shall not be required to make payments to Seller, directly or on account of
claims by Seller's subcontractors, for loss or anticipated profit, unabsorbed
overhead, interest on claims, product development and engineering costs,
facilities and equipment rearrangement costs or rental, unamortized depreciation
costs, and general and administrative burden charges from termination of this
order. Within sixty (60) days from the effective date of termination, Seller
shall submit a comprehensive termination claim to Buyer, with sufficient
supporting data to permit Buyer's audit, and shall thereafter promptly furnish
such supplemental and supporting information as Buyer shall request. Buyer or
its agents, shall have the right to audit and examine all books, records,
facilities, work, material, inventories, and other items relating to any
termination claim of Seller.
14. INTELLECTUAL PROPERTY: Seller agrees; (a) to defend, xxx harmless and
indemnify Buyer, its successors and customers against all claims, demands,
losses, suits, damages, liability and expenses (including reasonable attorney
fees) arising out of any suit, xxxx or action for actual or alleged direct or
contributory infringement of, or inducement to infringe, any United States or
foreign patent, trademark, copyright or mask work right by reason of the
manufacture, use or sale of the goods or services ordered, including
infringement arising out of compliance with specifications furnished by Buyer,
or for actual or alleged misuse or misappropriation of a trade secret resulting
directly or indirectly from Seller's actions; (b) to waive any claim against
Buyer under the Uniform Commerical Code or otherwise, including any hold
harmless or similar claim, in any way related to a claim asserted against Seller
or Buyer for patent, trademark, copyright or mask work right infringement or the
like, including claims arising out of compliance with specifications furnished
by Buyer; and (c) to grant Buyer a worldwide, nonexclusive, [ ],
irrevocable license to repair and have repaired, to reconstruct and have
reconstructed the goods ordered hereunder. Seller assigns to Buyer all right,
title and interest in and to all trademarks, copyrights and mask work rights in
any material created for Buyer under this order.
================================================================================
[COPY IN BRACKETS ILLEGIBLE ON ORIGINAL]
<PAGE>
15. TECHNICAL INFORMATION DISCLOSED TO BUYER: Seller agrees not to assert any
claim (other than a claim for patent infringement) with respect to any technical
information which Seller shall have disclosed or may hereafter disclose to Buyer
in connection with the goods or services covered by this order.
16. INDEMNIFICATION: Seller performs any work on Buyer's premises or utilizes
the property of Buyer, whether on or off Buyer's premises. Seller shall
indemnify and hold Buyer harmless from and against any liability claims, demands
or expenses (including reasonable attorney fees) for damages to the property of
or injuries (including death) to Buyer, its employees or any other person
arising from or in connection with Seller's performance of work or use of
Buyer's property except for such liability claim or demand arising out of the
sole negligence of Buyer.
17. INSURANCE: Seller shall maintain insurance coverage in amounts not less
than the following: (a) Workers Compensation Statutory Limits for the state or
states [ ] is to be performed for evidence [ ] authority to
self-insure); (b) Employer's Liability -- $250,000: (c) Comprehensive General
Liability (including Products Completed Operations and Blanket Contractual
Liability) -- $1,000,000 per person. $1,000,000 per occurrence Personal Injury
and $1,000,000 per occurrence Property Damage or $1,000,000 per occurrence
Personal Injury and Property Damage combined single limit and (d) Automobile
Liability (including owned, non-owned and hired vehicles) -- $1,000,000 per
person. $1,000,000 per occurrence Personal Injury and $1,000,000 per occurrence
Property Damage, or $1,000,000 per occurrence Personal Injury and Property
Damage combined single limit. At Buyer's request, Seller shall furnish to Buyer
certificates of insurance setting forth the amount(s) of coverage, policy
number(s) and date(s) of expiration for insurance maintained by Seller and if
further requested by Buyer, such certificates will provide that Buyer shall
receive thirty (30) days prior written notification from the insurer of any
termination or reduction in the amount or scope of coverages. Seller's purchase
of appropriate insurance coverage or the furnishing of certificates of insurance
shall not release Seller of its obligations or liabilities under this order. In
the event of Seller's breach of this provision, Buyer shall have the right to
cancel the undelivered portion of any goods or services covered by this order
and shall not be required to make further payments except for conforming goods
delivered or services rendered prior to cancellation.
18. TOOLS: Unless otherwise agreed to by Buyer, Seller at its own expense shall
furnish, keep in good condition, and replace when necessary all tools, jigs,
dies, gauges, fixtures, molds and patterns ("Tools") necessary for the
production of the goods. The cost or changes to the Tools necessary to make
design and specification changes authorized by Buyer shall be paid for by Buyer.
Seller shall insure the Tools with full fire and extended coverage insurance for
the replacement value thereof. Seller grants Buyer an irrevocable option to take
possession c; and title to the Tools that are special for the production of the
goods upon payment to Seller of the book value thereof less any amounts which
Buyer has previously paid to Seller for the cost of such Tools; provided,
however, that this option shall not apply if such Tools are used to produce
goods that are the standard stock of Seller or if a substantial quantity of like
goods are being sold by Seller to others.
19. BAILED PROPERTY: All supplies, materials, tools, jigs, dies, gauges,
fixtures, molds, patterns, equipment and other items furnished by Buyer either
directly or indirectly, to Seller to perform this order, or for which Seller has
been reimbursed by Buyer shall be and remain the property of Buyer. Seller shall
bear the risk of loss of and damage to Buyer's property, Buyer's property shall
at all times be properly housed and maintained by Seller; shall not be used by
Seller for any purpose other than the performance of this order; shall be deemed
to be personalty; shall be conspicuously marked "Property of General Motors
Corporation" by Seller; shall not be commingled with the property of Seller or
with that of a third person; and shall not be moved form Seller's premises
without Buyer's prior written approval. Upon the request of Buyer, such property
shall be immediately released to Buyer or delivered to Buyer by Seller, either
(i) F.O.B. transport equipment at Seller's plant, properly packed and marked in
accordance with the requirements of the carrier selected by Buyer to transport
such property, or (ii) to any location designated by Buyer, in which event Buyer
shall pay to Seller the reasonable cost of delivering such property to such
location. Buyer shall have the right to enter onto Seller's premises at all
reasonable times to inspect such property and Seller's records with respect
thereto.
20. REMEDIES: The rights and remedies reserved to Buyer in this order shall be
cumulative, and additional to all other or further remedies provided in law or
equity.
21. DUTY DRAWBACK RIGHTS: This order includes all related customs, duty and
import drawback rights, if any, (including rights developed by substitution and
rights which may be acquired from Seller's suppliers) which Seller can transfer
to Buyer. Seller agrees to inform Buyer of the existence of any such rights and
upon request to supply such documents as may be required to obtain such
drawback.
================================================================================
[COPY IN BRACKETS ILLEGIBLE ON ORIGINALS]
<PAGE>
SETOFF: In addition to any [ ] provided by [ ] amounts due Seller
shall be considered [ ] Indebtedness of Seller to General Motors
Corporation and its subsidiaries; and General Motors Corporation may deduct any
amounts due or to become due from Seller to General Motors Corporation and its
subsidiaries from any sums due to or to become due from General Motors
Corporation to Seller.
ADVERTISING: Seller shall not without first obtaining the written consent of
Buyer, in any manner, advertise or publish the fact that Seller has contracted
to furnish Buyer the goods or service herein ordered. [ ] any trademarks or
tradenames of Buyer in Seller's advertising or promotional materials, in the
event of Buyer's breach of this provision. Buyer shall have the right to cancel
the undelivered portion of any goods or [ ] covered by this order and shall
not be required to make further payments except for conforming goods [ ] or
services rendered prior to cancellation.
GOVERNMENT COMPLIANCE. Seller agrees to comply with a federal, state and local
laws. Executive [ ], rules, regulations and ordinances which may be applicable
to Seller's performance or its obligations under this order.
EQUAL OPPORTUNITY AND AFFIRMATIVE ACTION: This order incorporates by reference:
(a) all provisions of 41 C.F.R. 60-1.4, as amended, pertaining to the equal
opportunity clause in government contracts. [ ] provisions of 41 C.F.R. 60-250,
as amended, pertaining to affirmative action for disabled veterans of [ ]
Vietnam Era: and (c) all provisions of 41 C.F.R. 60-741, as amended, pertaining
to affirmative action for handicapped workers. Seller certifies that it is in
compliance with all applicable provisions of 41 C.F.R. 60-1, including but not
limited to: (a) developing and presently having in full force and effect a
written affirmative action compliance program for each of its establishments as
required by 41 C.F.R. 60-1.40, as amended: (b) [ ] EEO-1 Reports as required by
41 C.F.R. 60-1.7, as amended, and (c) neither maintaining segregated [ ] nor
permitting its employes to perform services at segregated facilities as
prohibited by 41 C.F.R. [ ], as amended. Buyer requests that Seller adopt and
implement a policy to extend employment opportunities to qualified applicants
and employees on a equal basis regardless of an individual's age, race, color,
religion or national origin.
NO IMPLIED WAIVER: The failure of either party at any time to require
performance by the other party by provision of this order shall in no way affect
the right to require such performance at any time [ ] nor shall the waiver of
either party of a breach of any provision of this order constitute a waiver of
any proceeding breach of the same or any other provision.
NON-ASSIGNMENT: Seller may not assign or delegate its obligations under this
order without Buyer's written consent.
RELATIONSHIP OF PARTIES: Seller and Buyer are independent contracting parties
and nothing in this order shall make either party the agent or legal
representatives of the other for any purpose whatsoever, nor [ ] it grant either
party any authority to assume or to create any obligation on behalf of or in the
name of the [ ].
GOVERNING LAW: This order is to be construed according to the laws of the state
from which this order [ ] as shown by the address of Buyer on the face side of
this order.
SEVERABILITY: If any term of this order is invalid or unenforceable under any
statute, regulation, ordinance, executive order or other rule of law, such term
shall be deemed reformed and deleted, but only to the extent necessary to comply
with such statute, regulation, ordinance, order of rule, and the remaining
provisions of this order shall remain in full force and effect.
ENTIRE AGREEMENT: This order together with the attachments, exhibits, or
supplements, specifically referenced in this order, constitutes the entire
agreement between Seller and Buyer with respect to the matter pertained herein
and supersedes all prior oral or written representations and agreements. This
order may only be modified by a purchase order amendment alteration issued by
Buyer.
[COPY IN BRACKETS ILLEGIBLE ON ORIGINAL]
<PAGE>
Exhibit 10.2
HEAVY DUTY*
COMPONENT SUPPLY AGREEMENT
--------------------------
THIS COMPONENT SUPPLY AGREEMENT ("Agreement") is entered into July 31, 1994, by
DRA, Inc. ("DRA"), a company organized under the laws of the State of Delaware,
and General Motors Corporation, a company organized under the laws of the State
of Delaware ("GM").
INTRODUCTION
This Agreement is entered with reference to the following facts:
A. DRA, DR International, Inc. ("DRI") and GM have entered into the Asset
Purchase Agreement dated July 13, 1994, (the "Asset Purchase Agreement"),
pursuant to which DRA will purchase from GM certain of the assets, and will
assume certain of the liabilities, of the Delco Remy Heavy Duty Starter
Motors and Generators business ("HDO"), the Delco Remy Light Duty Starter
Motors business ("LDO"), the Delco Remy Powder Metal Forge Business
("PMF"), the Delco Remy Heavy Duty Starter Motors and Generators
Remanufacturing Business ("HDO Reman") and the Delco Remy Light Duty
Starter Motors Remanufacturing business ("LDO Reman" and collectively with
HDO, LDO, PMF, and HDO Reman, the "Businesses") of the Delco Remy Division
of GM (together with any successor unit of GM, the "Delco Remy Division").
B. In connection with the transactions contemplated by the Asset Purchase
Agreement, GM and DRA desire to establish a mutually beneficial and
efficient long-term arrangement for the purchase and sale of certain motor
vehicle components and to cooperate with each other to achieve certain
commercial objectives. Accordingly, DRA desires to sell to GM, and GM
desires to purchase from DRA, certain motor vehicle components upon the
terms and conditions stated herein.
*Portions of this Exhibit 10.2 were omitted and filed separately with the
Secretary of the Securities and Exchange Commission (the "Commission") pursuant
to an application for confidential treatment filed with the Commission pursuant
to Rule 406 under the Securities Act of 1933. Such portions are marked by the
word "Redacted."
<PAGE>
C. DRI has formed DRA to own and operate the Businesses. The investors in DRI
and GM intend that DRA will be a supplier of GM for an extended period,
subject to DRA's competitive performance in technology, quality, service
and price as set forth herein. DRA acknowledges GM's normal expectation
that component suppliers will deliver a minimum net cost reduction of three
percent (3%) each year. GM acknowledges that DRA will need several years to
achieve satisfactory financial performance. Both GM and DRA acknowledge
that the best way to achieve their goals is by establishing a cooperative,
ongoing relationship.
D. DRA understands that components sold under this Agreement must be
competitive with regard to components available to GM from other suppliers
to GM, and as set forth herein, that GM intends to continue to seek
information regarding products of other suppliers, including information
regarding quality, technology, service, and price.
NOW, THEREFORE, in consideration of the mutual promises contained herein and
intending to be legally bound, DRA and GM hereby agree as follows:
ARTICLE 1 - PURCHASE AND SUPPLY COMMITMENTS
- -------------------------------------------
1.1 (a) Commitment for GM Requirements: For the term of this Agreement,
------------------------------
subject to paragraphs 1.2(d)(iii) and 1.2(e) of this Agreement, DRA
agrees to sell and GM agrees to purchase one hundred percent (100%)
of GM's production and current production model service requirements
for Components in the United States and Canada. Additionally, DRA
agrees, and commits through its purchase offer, to capacitize its
operations to the full extent of GM's requirements for such
Components; and shall not rebill GM for the cost of any tooling or
equipment transferred pursuant to the Asset Purchase Agreement.
Separate provisions will be negotiated for service parts currently
distributed by AC Delco and/or GM Service Parts Operations. To the
extent that GM purchases any Components indirectly (e.g.,
incorporated into a sub-assembly
2
<PAGE>
purchased from a sub-assembler for use as original equipment), GM
shall require such sub-assembler to comply with this Article 1.1 For
purposes of this Agreement, the term "Components" shall mean any one
or more of the motor vehicle components listed in the Supply
Schedule attached hereto as Annex "A", plus any other new or
replacement component which is required by GM for use as original
equipment or service parts between the effective date of this
Agreement and July 31, 1997, provided, however, that "Components"
shall not include (i) remanufactured motor vehicle heavy duty starter
motors and parts and sub-assemblies, and (ii) motor vehicle heavy
duty starter motors and parts and assemblies for past model service.
(b) Issuance of Purchase Orders: GM will place all orders hereunder in
---------------------------
accordance with GM's customary practices, as the same may be revised
from time to time.
1.2 Price and Adjustments
---------------------
(a) Initial Prices: The unit prices for the Components as of the
--------------
effective date of this Agreement are stated in the Supply Schedule
(Annex "A"). GM and DRA understand the current prices listed in
Annex A are market competitive as of Fall 1993. In addition, the
parties agree that GM's standard non-ferrous metals price adjustment
policies will apply throughout the term of this Agreement.
(b) Cost Reduction Programs:
-----------------------
(i) DRA and GM shall use their best efforts to identify and
implement productivity and other improvements to reduce DRA's
cost of producing the Components. Beginning in the second model
year after DRA's transition out of GM (i.e. beginning August 1,
1995) (the "Second Model Year"), and each
3
<PAGE>
model year thereafter during the term of this Agreement, DRA shall
retain fifty percent (50%) of the amount of the "Cost Savings" (as
such term is defined below) achieved in the most recent model year
ended and fifty percent (50%) of the Cost Savings shall be passed on
to GM by means of additional price reductions on Components;
provided, however, that DRA shall retain 100% of the Cost Savings
resulting from the "right sizing" (the related reduction of hourly
personnel and elimination of all associated employee benefit cost as
described in Section 7.13 of the Asset Purchase Agreement) of DRA's
business as contemplated in DRA's business plan for the HDO business.
All calculations pursuant to this Paragraph 1.2(b)(i) shall be done
at a plant level or each Component. For purposes of this Agreement,
the term "Cost Savings" shall mean the net reduction, if any, in the
full manufacturing cost to produce one unit of a Component (taking
into account all labor, material and plant burden (including
depreciation and amortization)) at the end of a model year from the
full manufacturing cost to produce one unit of a Component at the
beginning of a model year, calculated utilizing a consistent
accounting procedure agreed upon by the parties whereby all of DRA's
costs are allocated on a part number basis which reflects the true
full manufacturing cost to produce one unit of the Component. The
parties shall agree upon a mutually acceptable measuring device for
calculating the cost savings no later than six (6) months prior to
the commencement of the second year taking into account DRA's need to
protect the confidentiality of the cost information and GM's need to
verify the information.
(ii) In addition, GM will make available to DRA, and DRA will
participate in good faith in, all productivity improvement programs
generally available to suppliers to GM, including but not limited to
PICOS workshops and creativity teams. Each party will bear its
respective costs arising from participation in such activities.
4
<PAGE>
(c) Prices and Adjustments for Prior Model Service Parts: Pricing with
----------------------------------------------------
regard to prior model service parts which have not yet become prior model
as of the Closing Date and which are not otherwise listed on Exhibit B to
---------
the Distribution and Supply Agreement between GM and DRA of even date
herewith (the "Distribution and Supply Agreement") will be determined on an
initial basis by the pricing of such Component pursuant to this Agreement
immediately before that Component becomes prior model. Thereafter,
adjustments to pricing for prior model service parts will be determined by
adjustments to the price at which GM's Service Parts Operations Division
provides such Component to its customers, in the manner provided for in the
Distribution and Supply Agreement.
(d) Global Sourcing:
---------------
(i) GM may periodically undertake global sourcing studies with regard to
the Components at any time during the term of this Agreement. GM agrees to
solicit such information from qualified suppliers only, and in the context
of both substantive volume and an extended time frame, in order to assure
that the information received represents achievable benchmarks. GM agrees
to inform DRA on a timely basis of its issuance of any such requests.
(ii) If GM informs DRA prior to July 31, 1997, that the unit price of a
Component is not competitive with the market-based price determined by such
a global sourcing study, GM and DRA will cooperate in good faith to
determine why DRA's price is not competitive. Promptly thereafter, DRA will
prepare a plan including specific interim goals and target dates for
reducing DRA's price to the market-based competitive price. With the
assistance of GM, DRA will use its best efforts to achieve maximum
productivity and cost reduction improvements, including but not limited to
changing types of suppliers of materials and incurring reasonable
developmental expenses and
5
<PAGE>
capital investments, and beginning in the Second Model Year, fifty percent (50%)
of any resulting cost reductions, if any, will reduce prices pursuant to
paragraph 1.2(b) of this Agreement. However, prior to July 31, 1997, GM shall
not purchase Components from other suppliers because of price.
(iii) After July 31, 1997, the Components must competitive in terms of price,
technology and design with similar products which may be available to GM. Should
GM receive a quotation which meets the criteria of (i) above, and which, in the
case of quotations received from current GM suppliers, is comparable to current
prices being charged GM by such suppliers, GM, to the maximum extent and detail
possible without breaching any legal or contractual obligations to such third
party, shall advise DRA in writing of the area(s) (i.e., price, technology
and/or design) in which the other product(s) offered in such quotation are more
competitive. DRA shall have sixty (60) days within which to notify GM that it
shall sell the affected Components(s) at the competitive price, with
substantially comparable technology and/or design as the case may be. It is
agreed by the parties that the effective date(s) for such price reductions(s)
and/or improvement(s) in technology and/or design shall be the date(s) at which
the other supplier is able to supply the competing component(s). It is further
agreed by the parties that should DRA elect to meet the competing offer, its
price reduction(s) and/or improvement(s) in technology and/or design shall not
be limited to only the quantities set forth in the competing offer but rather to
all affected Components being supplied by DRA hereunder.
(iv) Should DRA fail to notify GM within the sixty (60) day time period set
forth in (iii) above, or should DRA notify GM that it will not meet the
competing offer, GM may terminate its purchase(s) of the affected Component(s)
hereunder and thereafter purchase the Component(s) from the other source.
6
<PAGE>
(e) GM and DRA agree that within 120 days of the closing of the
transactions contemplated by the Asset Purchase Agreement, GM will
globally source the 28MT Component to establish the market competitive
price for such component. DRA will have the right of last refusal to
continue supplying GM's production and service requirements for the
28MT Component at the newly established market competitive price. Any
required price adjustment hereunder will be effective immediately.
1.3 Service Manuals and Technical Support: During the term of this Agreement,
-------------------------------------
DRA shall provide to GM at no additional cost all necessary service and
technical support information and materials related to the Components
(regardless of format, i.e. text, graphics, audio, video, etc.) including
but not limited to service manuals, service bulletins, training materials,
product bulletins and product information booklets; provided however, that
-------- -------
such services and support shall be reasonably consistent with that supplied
by the Delco Remy Division prior to the Closing Date.
ARTICLE 2 - PURCHASE ORDER TERMS AND CONDITIONS:
- -----------------------------------------------
2.1 Purchase Orders: Attached hereto as Annex "B" is the standard form of
---------------
purchase order customarily offered by GM to its suppliers as of the date of
this Agreement. All purchase orders issued by GM and accepted by DRA
pursuant to this Agreement shall utilize such standard form purchase order
and shall be governed by its terms and conditions, provided, however, that
Paragraphs 11, 12, 13, 15, 22, 23, 31 and the last sentence of Paragraph 14
therein shall be deleted and may not be invoked or exercised by either
party with respect to any purchase orders issued and accepted under this
Agreement; and provided further that notwithstanding the provisions
contained in Paragraph 2 of the form of purchase order, the payment terms
to DRA for all Components sold hereunder shall be net 10th, 25th Prox,
F.O.B. DRA - Anderson, Indiana. Additionally, the parties agree with regard
to Paragraph 14 of the form of
<PAGE>
purchase order that the word "reconstruct" in sub-paragraph (c) therein
shall not be interpreted to mean remanufacture.
2.2 Order of Precedence: The terms and conditions of such purchase orders
-------------------
shall be construed as cumulative and supplemental to those set forth
herein; provided, however, that to the extent of any conflicts between
the provisions of any purchase order and those of this Agreement, the
terms of this Agreement shall govern.
ARTICLE 3 - TERM OF AGREEMENT AND GROUNDS FOR EARLIER TERMINATION
- -----------------------------------------------------------------
3.1 Term of Agreement: The term of this Agreement shall be through July 31,
-----------------
2000 unless terminated earlier pursuant to Article 3.2 or 3.3.
3.2 General Grounds for Termination: Either party may terminate this
-------------------------------
Agreement in any of the following events: (i) the other party materially
breaches this Agreement; (ii) the other party becomes insolvent or
enters bankruptcy, receivership, liquidation, debtor initiated
composition of creditors, dissolution, or similar proceeding; or (iii) a
significant portion of the assets of the other party necessary for the
performance of this Agreement becomes subject to attachment, embargo, or
expropriation.
3.3 Special Grounds for Termination: In addition to its rights under the
-------------------------------
preceding paragraph, GM may terminate this Agreement in the event that
thirty-five percent (35%) of the voting shares of DRI or DRA become
owned or controlled, directly or indirectly, by a manufacturer of fully
assembled passenger cars and/or light duty trucks. For purposes of this
Section, the percentage ownership in DRI or DRA voting shares which is
deemed to be owned or controlled directly or indirectly by an entity
(the "Parent") owning voting shares in an entity other than DRI or DRA
(as the case may be) (the "Affiliate"), shall be determined by
multiplying the Parent's percentage ownership of voting shares in the
Affiliate by the percentage ownership or control, direct or indirect,
that the Affiliate has in either DRI or DRA. Similarly, the
8
<PAGE>
foregoing shall also apply to any additional levels of either the
Parent's or the Affiliate's subsidiaries or affiliates. In all cases,
however, ownership or control, directly or indirectly, of more than
-------
fifty percent (50%) of the voting shares of any entity will be deemed to
be direct or indirect ownership or control of one hundred percent (100%)
of the voting shares of that entity.
3.4 Termination Procedure: A party intending to terminate this Agreement
---------------------
shall first notify the other party of the grounds for the intended
termination. In the event the other party fails to remedy such grounds
for termination within thirty (30) days after the date of such notice,
then the terminating party may terminate this Agreement effective
immediately upon notice to the other party without the need for any
judicial action.
3.5 Reservation of Rights: The provisions of this Article are without
---------------------
prejudice to any other rights or remedies either party may have be
reason of the default of the other party.
ARTICLE 4 - TECHNOLOGY, DESIGN AND QUALITY
- ------------------------------------------
4.1 Quality Control: DRA will institute and maintain a quality control and
---------------
inspection system which incorporates A.I.A.G. Standards, General Quality
Standards, Targets for Excellence, and other GM policies generally
applicable to suppliers.
4.2 Technology and Design: Through July 31, 1997, DRA will use its best
---------------------
efforts to provide Components which are equivalent in terms of
technology and design to similar parts available at a substantially
equivalent price. If GM informs DRA that, in the reasonable opinion of
GM, the technology or design of a Component is not equivalent (giving
additional relevant information as available for disclosure by GM) to
another available product, DRA will submit within one hundred (120) days
of comprehensive
9
<PAGE>
business plan as to how it will attempt to provide Components with
equivalent or superior technology or design.
4.3 Quality/Warranty Provisions:
---------------------------
(a) Warranty on Components: Components supplied hereunder shall confirm
----------------------
to the warranty set forth in Paragraph 9 ("Warranty") of GM's purchase
order terms and conditions. Should Components fail to conform to such
Warranty, DRA (with assistance from GM as appropriate) shall
immediately develop a comprehensive corrective action plan. However,
should DRA fail to implement the corrective action plan or should DRA
fail to remedy or cure the default/breach within one hundred (180)
days, GM, at its option, may immediately terminate its purchase of the
affected Component(s). This right of termination shall be cumulative
and additional to those set forth in Sections 3.2 and 3.3.
Notwithstanding the foregoing, during the term of this Agreement, DRA
shall not have any financial responsibility whatsoever to GM for
vehicle warranty, except to the extent, if any, and subject to Section
4.3(b) below, that such financial responsibility derives from any
recall, service fix, or campaign (safety and otherwise)
b. Service Fix, Recall and Safety Campaigns: DRA will promptly notify GM
----------------------------------------
of any defects, when such defects come to the attention of DRA, which
might be the basis of a recall, service fix or campaign (safety or
otherwise) for which GM might be responsible. Notwithstanding the last
sentence of paragraph (a) above: (i) GM will pay 100% of the cost of
any service fix, recall or campaign (safety or otherwise) that is
undertaken for all Components actually manufactured by GM through the
date of this Agreement, and (ii) for a period of four (4) years from
the date of this Agreement GM shall also pay 100% of the cost of any
service fix, recall or campaign (safety or otherwise) involving
Components manufactured after the date of this Agreement for
10
<PAGE>
which the Component design, engineering or manufacturing process in
use as of the date of this Agreement is a contributing cause, or for
which a GM prescribed application, design, engineering or
manufacturing process is a contributing cause.
(c) Inventory: If either party becomes aware of or discovers the existence
---------
of any defect or nonconformity in any Components that are enroute to
or in the parts inventory of GM (other than parts inventory that was
enroute to or in the parts inventory of GM as of the Closing Date), it
shall notify the other. In such event, DRA shall, as the case may be,
either absorb or reimburse GM for all direct costs and expenses
incurred on the repair, modification or replacement of such items.
4.4 GM Use of Technical Information: Upon the request of GM, and solely for the
-------------------------------
purpose of quality, reliability, and durability testing/evaluation of the
Components, DRA will deliver to GM all information relating to the
development and manufacture of any and all Components in sufficient detail
to permit evaluation of the Components by GM or its designated supplier of
testing service(s), provided that such supplier is not a direct competitor
of DRA. Such information may include drawings; parts lists; process and
material specifications; product software and mask works; purchasing
specifications; tool and labor routings; inspection processes; assurance
and reliability projections; process capability studies; test reports; and
failure mode and analysis studies. Such information will be updated by DRA
to show changes in any Components or their manufacture. GM will use such
information exclusively for evaluation of the Components. It is agreed by
the parties, however, that "Component Interface Materials" (as such items
are described in Section 3.2.10 of the Asset Purchase Agreement) are or
shall be the property of GM and consequently not subject to the
restrictions set forth in this Agreement or in any other between the
parties.
11
<PAGE>
ARTICLE 5 - GENERAL PROVISIONS
- ------------------------------
5.1 No Agency: This Agreement does not constitute either party the agent or
---------
legal representative of other party. Neither party is authorized to create
any obligation on behalf of the other party.
5.2 Advertising: DRA will not, without first obtaining the written consent of
-----------
GM, if any manner advertise or publish the fact that DRA has contracted to
furnish the Components to GM, or use any trademarks or tradenames of GM in
DRA's or DRI's advertising or promotional materials; provided, however,
that the foregoing restriction shall not apply to advertisements or
publications (i) reasonably necessary under applicable securities laws or
regulations in the event of a public offering of DRI or of DRA securities;
(ii) necessary for obtaining financing by DRA or DRI; or (iii) permitted
under the Asset Purchase Agreement, the Tradename License Agreement or the
Trademark License Agreement.
5.3 Notices: Any notice under this Agreement shall be in writing (letter,
-------
telex, facsimile, or telegram) and shall be effective when received by the
addressee at its address indicated below.
(a) Notice sent to DRA shall be addressed as follows:
Delco Remy America, Inc.
2405 Columbus Avenue
Anderson, Indiana 46018
Attn: Chief Financial Officer
(b) Notice sent to GM shall be addressed as follows:
AC Delco Systems Division GM Worldwide Purchasing
4800 S. Saginaw Street NAO Headquarters
Flint, MI 48501 Building 1-8
Attn: Finance Director 30400 Mound Road
Warren, MI 48090-9015
Attn: Executive Director - Electrical
12
<PAGE>
(c) The parties by notice hereunder may designate other addresses to
which notices shall be sent.
5.4 Amendments: No amendment to this Agreement shall be binding upon either
----------
party unless it is in writing and is signed by the other party.
5.5 Assignment: This Agreement shall be binding upon and inure to the benefit
----------
of GM and DRA and their respective successors and assigns. No party to
this Agreement may assign this Agreement or any of its rights, interests
or obligations hereunder without the prior written consent of the other
party; provided, however, that DRA may (a) without the prior written
-------- -------
consent of GM assign this Agreement and any or all of its rights,
interests and obligations hereunder to one or more of its Affiliates (as
defined in the Asset Purchase Agreement), provided that, notwithstanding
such assignment DRA shall remain liable for all of its obligations
hereunder and (b) upon receipt of GM's consent (which will not be
unreasonably withheld), assign this Agreement and its rights, interests
and obligations hereunder to (i) a transferee of all or substantially all
of the assets of any or all of the Businesses, or (ii) any successor to
any or all of the Businesses, in each case, insofar as such rights,
interests and obligations relate to or affect the assets or Businesses so
transfered or as to which such assignee has become a successor, provided
that GM shall take into consideration in granting its consent the
following: (A) that such transferee or successor is not less creditworthy
than DRA as of the Closing Date, (B) such transferee or successor executes
a written acknowledgement of its assumption of DRA's obligations to GM
under this Agreement, (C) that such transferee or successor is not an
original equipment manufacturer of fully assembled passenger cars and/or
light duty trucks, (D) if such transferee or successor is a then current
supplier to GM, such transferee or successor shall be in good standing and
have demonstrated manufacturing expertise, (E) if such transferee or
successor is a manufacturer but is not then a current supplier to GM, such
transferee or successor shall have not been terminated as a supplier by
13
<PAGE>
GM for reasons other than failure to be price competitive and shall have
a reputation of large-scale, quality manufacturing and reliable
performance of contracts.
5.6 Law and Jurisdiction: This Agreement shall be governed by the laws of
--------------------
the State of New York without regard to the principles of conflict of
laws thereof. Each party consents, for purposes of enforcing this
Agreement, to personal jurisdiction, service of process, and venue in
any state or federal court within the State of New York having
jurisdiction over the subject matter.
5.7 Entire Agreement: This Agreement constitutes the entire agreement of the
----------------
parties hereto regarding the subject matter hereof, and supersedes any
and all prior or contemporaneous oral and written agreements between the
parties relating to the subject matter of this Agreement.
IN WITNESS WHEREOF, GM and DRA have caused this Agreement to be executed by
their duly authorized representatives on the day and year first written above.
DRA, INC. GENERAL MOTORS CORPORATION
By: /s/ James R. Gerrity By: /s/ Charles A. Cotten
--------------------------- ------------------------
Title: Executive V.P. Title: Attorney in fact
------------------------ ---------------------
14
<PAGE>
ANNEX A
-------
UNIT PRICES AS OF EFFECTIVE DATE
--------------------------------
[Redacted]
<PAGE>
ANNEX B
-------
[ ]
- ------------------------------- --------------------------------
D Purchase Order No.
- ------------------------------- A
T DRD
[LOGO OF DELCO REMY APPEARS HERE] E
Division of General Motors Corporation --------------------------------
Anderson, Indiana 46018 [ ]
[ ]
--------------------------------
S Delco Remy
H
I
P
T
- ------------------------------- O
V --------------------------------
E [ AUTOMOTIVE COMPONENTS GROUP
N DELCO REMY DIVISION
D DISBURSEMENT ANALYSIS DEPT.
O P.O. BOX [ ]
R ] PONTIAC, MI [ - ]
- ------------------------------- --------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] QUANTITY [ ] OR [ . ] ARTICLES AND DESCRIPTION [ ] PRICE [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
[ ]
- ------------------------------------------------------------------------------------------------------------------------------------
[ ]
- ------------------------------------------------------------------------------------------------------------------------------------
[ ]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
BUYER PHONE PURCHASING MANAGER
PLEASE ADDRESS ALL CORRESPONDENCE TO
THE ATTENTION OF THE BUYER [ ]
Light Duty Starter Motors Component Supply Agreement
Annex B
Page 1 of 5 Pages
[COPY IN BRACKETS ILLEGIBLE ON ORIGINAL]
<PAGE>
PURCHASE ORDER TERMS AND CONDITIONS
1. ACCEPTANCE: Seller has read and understands this order and agrees that
Sellers written acceptance or commencement of any work or service under this
order shall constitute Seller,s acceptance of these terms and conditions only.
All terms and conditions proposed by Seller which are different from or in
addition to this order are unacceptable to Buyer, are expressly rejected by
Buyer and shall not become a part of this order. Any modifications to this order
shall be made in accordance with Paragraph 31.
2. SHIPPING. BILLING AND FLSA CERTIFICATION: Seller agrees: (a) to properly
pack, mark and ship goods in accordance with the requirements of Buyer and
in [ ] carriers in a manner to secure lowest transportation cost; (b) to
route shipments in accordance with instructions from Buyer's Traffic Department;
(c) to make no charge for handling, packaging, storage, transportation or [ ]
of goods unless otherwise stated, in this order; (d) to provide with each
shipment packing slips with Buyers order number marked thereon; (e) to properly
mark each package with this order number, the factory, [ ], and [ ] number,
and where multiple packages comprise a single shipment to consecutively number
each package; and (f) to promptly forward the original bill of lading or other
shipping receipt for each shipment in accordance with Buyer's instructions.
Seller will include bills of lading or other shipping receipts correct
classification identification of the goods shipped in accordance with Buyer's
instructions and carrier's requirements. The marks on each package and
identification of the goods on packing slips, bills of lading and invoices shall
be sufficient to enable Buyer to easily identify the goods purchased. Seller
further agrees: (a) to promptly render, after delivery of goods or performance
of services, correct and complete invoices to Buyer; and (b) to accept payment
by check or at Buyer's discretion, other cash equivalent (including electronic
transfer of funds). Seller's invoice must include a certification that all goods
were produced in compliance with the applicable requirements of section 6, 7 and
12 of the Fair Labor Standards Act, as amended and of regulations and orders of
the United States Department of Labor issued in connection therewith. The
payment date is set forth on the face side of this order, or if not stated,
shall be on the 25th day of the month following Buyer's receipt of a proper
invoice (except as may otherwise be agreed upon by Buyer and Seller in
connection with a program providing for electronic funds transfer). Time for
payment shall not begin until correct and complete invoices are received, and
Seller's cash discount privileges to Buyer shall be extended until such time as
payment is due. Buyer may withhold payment pending receipt of evidence, if such
form and detail as Buyer may direct, of the absence of any liens, encumbrances
and claims on the goods or services under this order.
3. DELIVERY SCHEDULES: Deliveries shall be made both in quantities and at times
specified in Buyer's schedules. Buyer shall not be required to make payment for
goods delivered to Buyer which are in excess of quantities specified in Buyer's
delivery schedules. Buyer may change the rate of scheduled shipments or direct
temporary suspension of scheduled shipments, neither of which shall entitle
Seller to a modification of the price for goods or services covered by this
order. For orders of goods where quantities and/or delivery schedules are not
specified, Seller shall deliver goods in such quantities and times as Buyer may
direct in subsequent releases.
4. PREMIUM SHIPMENTS: If Seller's acts or omissions result in Seller's failure
to meet Buyer's delivery requirements and Buyer requires a more expeditious
method of transportation for the goods than the transportation method originally
specified by Buyer, Seller shall, at Buyer's action: (i) promptly reimburse
Buyer the difference in cost between the more expeditious method and the
original method; (ii) allow Buyer to reduce its payment of Seller's invoices by
such difference, or (iii) ship the goods as expeditiously as possible at
Seller's expense and invoice Buyer for the amount which Buyer would have paid
for normal shipment.
5. CHANGES: Buyer reserves the right at any time to direct changes, or cause
Seller to make changes, to drawings and specifications of the goods or to
otherwise change the scope of the work covered by this order, including work
with respect to such matters as inspection, testing or quality control, and
Seller agrees to promptly make such changes: any difference in price or time for
performance resulting from such changes shall be equitably adjusted by Buyer
after receipt of [ ] in such form and detail as Buyer may
direct. Any changes to this order shall be made in accordance with Paragraph 31.
6. INSPECTION: Seller agrees that Buyer shall have the right to enter Seller's
facility at reasonable times to inspect the facility, goods, materials and any
property of Buyer covered by this order. Buyer's inspection of the goods,
whether during manufacture prior to delivery or within a reasonable time after
delivery, shall not constitute acceptance of any work-in-process or finished
goods.
7. NONCONFORMING GOODS: To the extent Buyer rejects goods as nonconforming, the
quantities under this order will automatically be reduced unless Buyer otherwise
notifies Seller. Seller will not replace quantities so reduced without a new
order or schedule from Buyer. Nonconforming goods will be held by Buyer for
disposition in accordance with Seller's instructions at Seller's risk. Seller's
failure to provide written instructions within ten (10) days, or such shorter
period as may be commercially reasonable under the circumstances, after notice
or nonconformity shall entitle Buyer, at Buyer's option, to charge Seller for
storage and handling, or to dispose of the goods without liability to Seller.
Payment for nonconforming goods shall not constitute an acceptance thereof,
limit or impair Buyer's right to assert any legal or equitable remedy, or
relieve Seller's responsibility for Patent defects.
8. FORCE MAJEURE: Any delay or failure of either party to perform its
obligations hereunder shall be excused if, and to the extent that it is caused
by an event or occurrence beyond the reasonable control of the party and without
its fault or negligence, such as, by way of example and not by way of
limitation, acts of God, actions by any governmental authority (whether valid or
invalid), fires, floods, windstorms, explosions, riots, natural disasters, wars,
sabotage, labor problems (including lockouts, strikes and slowdowns), inability
to obtain power, material, labor, equipment or transportation, or court
injunction or order; provided that written notice of such delay (including the
anticipated duration of the delay) shall be given by the affected party to the
other party within ten (10) days. During the period of such delay or failure to
perform by Seller, Buyer, at its option, may purchase goods from other sources
and reduce its schedules to Seller by such quantities, without liability to
Seller, or have Seller provide the goods from other sources in quantities and at
times requested by Buyer and at the price set forth in this order. If requested
by the Buyer, Seller shall, within ten (10) days of such request, provide
adequate assurances that the delay shall not exceed thirty (30) days, if the
delay lasts more than thirty (30) days or Seller does not provide adequate
assurance that the delay will cease within thirty (30) days. Buyer may
immediately cancel the order without liability.
[COPY IN BRACKETS ILLEGIBLE ON ORIGINAL]
<PAGE>
9. WARRANTY: Seller expressly warrants that all goods or services covered by
this order will conform to the specifications, drawings, samples, or
descriptions furnished to or by Buyer and will be merchantable of good material
and workmanship and free from defect. In addition, Seller acknowledges that
Seller knows of Buyers intended use and expressly warrants that all goods
covered by this order which have been selected, designed, manufactured, or
assembled by Seller, based upon Buyers stated use will be fit and sufficient for
the particular purpose intended by Buyer.
10. INGREDIENTS DISCLOSURE AND SPECIAL WARNINGS AND INSTRUCTIONS: Requested by
Buyer, Seller shall promptly furnish to Buyer in such form and detail as Buyer
may direct: (a) a list of all ingredients in the goods purchased hereunder: (b)
the amount of one or more ingredients, and (c) information concerning any
changes in or additions to such ingredients. Prior to and with the shipment of
the goods purchased hereunder, Seller agrees to furnish to Buyer sufficient
warning and notice in writing (including appropriate labels on goods, containers
and packing) of any hazardous material which is an ingredient or a part of any
of the goods, together with such special handling instructions as may be
necessary to advise carriers. Buyer, and their respective employees [ ] to
exercise [ ] [ ] of care and precaution which will best prevent bodily
injury or property damage in the handling, transportation, processing, use, or
disposal of the goods, containers and packing shipped to Buyer.
11. INSOLVENCY: Buyer may immediately cancel this order without liability to
Seller in the event of the happening of any of the following or any comparable
event: (a) insolvency of the Seller: (b) filing of a voluntary petition in
bankruptcy by the Seller: (c) filing of any involuntary petition in bankruptcy
against Seller: (d) appointment of a receiver or trustee for Seller: (e) or
execution of an assignment for the benefit of creditors by Seller, provided that
such petition appointment or assignment is not vacated or nullified within
fifteen (15) days of such event.
12. CANCELLATION FOR BREACH: Buyer reserves the right to cancel all or any part
of this order, without liability to Seller, if Seller: (a) repudiates or
breaches any of the terms of this order, including Seller's warranties: (b)
fails to perform services or deliver goods as specified by Buyer; or (c) fails
to make progress so as to endanger timely and proper completion of services or
delivery of goods; and does not correct such failure or breach within ten (10)
days (or such shorter period of time if commercially reasonable under the
circumstances) after receipt of written notice from Buyer specifying such
failure or breach.
13. TERMINATION: In addition to any other rights of Buyer to cancel or terminate
this order. Buyer may at its option immediately terminate all or any part of
this order, at any time and for any reason, by giving written notice to Seller.
Upon such termination, Buyer shall pay to Seller the following amounts without
duplication; (a) the order price for all goods ar services which have been
completed in accordance with this order and not previously paid for; and (b) the
actual costs of work-in-process and raw materials incurred by Seller in
furnishing the goods or services under this order to the extent such costs are
reasonable in amount and are properly allocable or apportionable under generally
accepted accounting principals to the terminated portion of this order; less,
however, the reasonable value or cost (whichever is higher) of any goods or
materials used or sold by Seller with Buyer's written consent, and the cost of
damage or destroyed goods or material. Buyer will make no payments for finished
goods, work-in-process or raw materials fabricated or procured by Seller in
amounts in excess of those authorized in delivery releases nor for any
undelivered goods which are in Seller's standard stock or which are readily
marketable. Payments made under this Paragraph shall not exceed the aggregate
price payable by Buyer for furnished goods which would be produced by
Seller under delivery or release schedules outstanding at the date of
termination. Except as provided in this Paragraph, Buyer shall not be liable for
and shall not be required to make payments to Seller, directly or on account of
claims by Seller's subcontractors, for loss or anticipated profit, unabsorbed
overhead, interest on claims, product development and engineering costs,
facilities and equipment rearrangement costs or rental, unamortized depreciation
costs, and general and administrative burden charges from termination of this
order. Within sixty (60) days from the effective date of termination, Seller
shall submit a comprehensive termination claim to Buyer, with sufficient
supporting data to permit Buyer's audit, and shall thereafter promptly furnish
such supplemental and supporting information as Buyer shall request. Buyer or
its agents, shall have the right to audit and examine all books, records,
facilities, work, material, inventories, and other items relating to any
termination claim of Seller.
14. INTELLECTUAL PROPERTY: Seller agrees; (a) to defend, xxx harmless and
indemnify Buyer, its successors and customers against all claims, demands,
losses, suits, damages, liability and expenses (including reasonable attorney
fees) arising out of any suit, xxxx or action for actual or alleged direct or
contributory infringement of, or inducement to infringe, any United States or
foreign patent, trademark, copyright or mask work right by reason of the
manufacture, use or sale of the goods or services ordered, including
infringement arising out of compliance with specifications furnished by Buyer,
or for actual or alleged misuse or misappropriation of a trade secret resulting
directly or indirectly from Seller's actions; (b) to waive any claim against
Buyer under the Uniform Commerical Code or otherwise, including any hold
harmless or similar claim, in any way related to a claim asserted against Seller
or Buyer for patent, trademark, copyright or mask work right infringement or the
like, including claims arising out of compliance with specifications furnished
by Buyer; and (c) to grant Buyer a worldwide, nonexclusive, [ ] [ ],
irrevocable license to repair and have repaired, to reconstruct and have
reconstructed the goods ordered hereunder. Seller assigns to Buyer all right,
title and interest in and to all trademarks, copyrights and mask work rights in
any material created for Buyer under this order.
================================================================================
[COPY IN BRACKETS ILLEGIBLE ON ORIGINAL]
<PAGE>
15. TECHNICAL INFORMATION DISCLOSED TO BUYER: Seller agrees not to assert any
claim (other than a claim for patent infringement) with respect to any technical
information which Seller shall have disclosed or may hereafter disclose to Buyer
in connection with the goods or services covered by this order.
16. INDEMNIFICATION: Seller performs any work on Buyer's premises or utilizes
the property of Buyer, whether on or off Buyer's premises. Seller shall
indemnify and hold Buyer harmless from and against any liability claims, demands
or expenses (including reasonable attorney fees) for damages to the property of
or injuries (including death) to Buyer, its employees or any other person
arising from or in connection with Seller's performance of work or use of
Buyer's property except for such liability claim or demand arising out of the
sole negligence of Buyer.
17. INSURANCE: Seller shall maintain insurance coverage in amounts not less
than the following: (a) Workers Compensation Statutory Limits for the state or
states [ ] is to be performed for evidence [ ] authority to
self-insure); (b) Employer's Liability -- $250,000: (c) Comprehensive General
Liability (including Products Completed Operations and Blanket Contractual
Liability) -- $1,000,000 per person. $1,000,000 per occurrence Personal Injury
and $1,000,000 per occurrence Property Damage or $1,000,000 per occurrence
Personal Injury and Property Damage combined single limit and (d) Automobile
Liability (including owned, non-owned and hired vehicles) -- $1,000,000 per
person. $1,000,000 per occurrence Personal Injury and $1,000,000 per occurrence
Property Damage, or $1,000,000 per occurrence Personal Injury and Property
Damage combined single limit. At Buyer's request, Seller shall furnish to Buyer
certificates of insurance setting forth the amount(s) of coverage, policy
number(s) and date(s) of expiration for insurance maintained by Seller and if
further requested by Buyer, such certificates will provide that Buyer shall
receive thirty (30) days prior written notification from the insurer of any
termination or reduction in the amount or scope of coverages. Seller's purchase
of appropriate insurance coverage or the furnishing of certificates of insurance
shall not release Seller of its obligations or liabilities under this order. In
the event of Seller's breach of this provision, Buyer shall have the right to
cancel the undelivered portion of any goods or services covered by this order
and shall not be required to make further payments except for conforming goods
delivered or services rendered prior to cancellation.
18. TOOLS: Unless otherwise agreed to by Buyer, Seller at its own expense shall
furnish, keep in good condition, and replace when necessary all tools, jigs,
dies, gauges, fixtures, molds and patterns ("Tools") necessary for the
production of the goods. The cost or changes to the Tools necessary to make
design and specification changes authorized by Buyer shall be paid for by Buyer.
Seller shall insure the Tools with full fire and extended coverage insurance for
the replacement value thereof. Seller grants Buyer an irrevocable option to take
possession c; and title to the Tools that are special for the production of the
goods upon payment to Seller of the book value thereof less any amounts which
Buyer has previously paid to Seller for the cost of such Tools; provided,
however, that this option shall not apply if such Tools are used to produce
goods that are the standard stock of Seller or if a substantial quantity of like
goods are being sold by Seller to others.
19. BAILED PROPERTY: All supplies, materials, tools, jigs, dies, gauges,
fixtures, molds, patterns, equipment and other items furnished by Buyer either
directly or indirectly, to Seller to perform this order, or for which Seller has
been reimbursed by Buyer shall be and remain the property of Buyer. Seller shall
bear the risk of loss of and damage to Buyer's property, Buyer's property shall
at all times be properly housed and maintained by Seller; shall not be used by
Seller for any purpose other than the performance of this order; shall be deemed
to be personalty; shall be conspicuously marked "Property of General Motors
Corporation" by Seller; shall not be commingled with the property of Seller or
with that of a third person; and shall not be moved form Seller's premises
without Buyer's prior written approval. Upon the request of Buyer, such property
shall be immediately released to Buyer or delivered to Buyer by Seller, either
(i) F.O.B. transport equipment at Seller's plant, properly packed and marked in
accordance with the requirements of the carrier selected by Buyer to transport
such property, or (ii) to any location designated by Buyer, in which event Buyer
shall pay to Seller the reasonable cost of delivering such property to such
location. Buyer shall have the right to enter onto Seller's premises at all
reasonable times to inspect such property and Seller's records with respect
thereto.
20. REMEDIES: The rights and remedies reserved to Buyer in this order shall be
cumulative, and additional to all other or further remedies provided in law or
equity.
21. DUTY DRAWBACK RIGHTS: This order includes all related customs, duty and
import drawback rights, if any, (including rights developed by substitution and
rights which may be acquired from Seller's suppliers) which Seller can transfer
to Buyer. Seller agrees to inform Buyer of the existence of any such rights and
upon request to supply such documents as may be required to obtain such
drawback.
================================================================================
[COPY IN BRACKETS ILLEGIBLE ON ORIGINAL]
<PAGE>
SETOFF: In addition to any [ ] provided by [ ] amounts due Seller
shall be considered [ ] Indebtedness of Seller to General Motors
Corporation and its subsidiaries; and General Motors Corporation may deduct any
amounts due or to become due from Seller to General Motors Corporation and its
subsidiaries from any sums due to or to become due from General Motors
Corporation to Seller.
ADVERTISING: Seller shall not without first obtaining the written consent of
Buyer, in any manner, advertise or publish the fact that Seller has contracted
to furnish Buyer the goods or service herein ordered. [ ] any trademarks or
tradenames of Buyer in Seller's advertising or promotional materials, in the
event of Buyer's breach of this provision. Buyer shall have the right to cancel
the undelivered portion of any goods or [ ] covered by this order and shall
not be required to make further payments except for conforming goods [ ] or
services rendered prior to cancellation.
GOVERNMENT COMPLIANCE. Seller agrees to comply with a federal, state and local
laws. Executive [ ], rules, regulations and ordinances which may be applicable
to Seller's performance or its obligations under this order.
EQUAL OPPORTUNITY AND AFFIRMATIVE ACTION: This order incorporates by reference:
(a) all provisions of 41 C.F.R. 60-1.4, as amended, pertaining to the equal
opportunity clause in government contracts. [ ] provisions of 41 C.F.R. 60-250,
as amended, pertaining to affirmative action for disabled veterans of [ ]
Vietnam Era: and (c) all provisions of 41 C.F.R. 60-741, as amended, pertaining
to affirmative action for handicapped workers. Seller certifies that it is in
compliance with all applicable provisions of 41 C.F.R. 60-1, including but not
limited to: (a) developing and presently having in full force and effect a
written affirmative action compliance program for each of its establishments as
required by 41 C.F.R. 60-1.40, as amended: (b) [ ] EEO-1 Reports as required by
41 C.F.R. 60-1.7, as amended, and (c) neither maintaining segregated [ ] nor
permitting its employes to perform services at segregated facilities as
prohibited by 41 C.F.R. [ ], as amended. Buyer requests that Seller adopt and
implement a policy to extend employment opportunities to qualified applicants
and employees on a equal basis regardless of an individual's age, race, color,
religion or national origin.
NO IMPLIED WAIVER: The failure of either party at any time to require
performance by the other party by provision of this order shall in no way affect
the right to require such performance at any time [ ] nor shall the waiver of
either party of a breach of any provision of this order constitute a waiver of
any proceeding breach of the same or any other provision.
NON-ASSIGNMENT: Seller may not assign or delegate its obligations under this
order without Buyer's written consent.
RELATIONSHIP OF PARTIES: Seller and Buyer are independent contracting parties
and nothing in this order shall make either party the agent or legal
representatives of the other for any purpose whatsoever, nor [ ] it grant either
party any authority to assume or to create any obligation on behalf of or in the
name of the [ ].
GOVERNING LAW: This order is to be construed according to the laws of the state
from which this order [ ] as shown by the address of Buyer on the face side of
this order.
SEVERABILITY: If any term of this order is invalid or unenforceable under any
statute, regulation, ordinance, executive order or other rule of law, such term
shall be deemed reformed and deleted, but only to the extent necessary to comply
with such statute, regulation, ordinance, order of rule, and the remaining
provisions of this order shall remain in full force and effect.
ENTIRE AGREEMENT: This order together with the attachments, exhibits, or
supplements, specifically referenced in this order, constitutes the entire
agreement between Seller and Buyer with respect to the matter pertained herein
and supersedes all prior oral or written representations and agreements. This
order may only be modified by a purchase order amendment alteration issued by
Buyer.
[COPY IN BRACKETS ILLIGIBLE ON ORIGINAL]
<PAGE>
Exhibit 10.3
DISTRIBUTION AND SUPPLY AGREEMENT*
DRA, INC.
This Agreement is entered into July 31, 1994, by DRA, Inc., a company organized
under the laws of the State of Delaware ("DRA"), and General Motors Corporation,
a company organized under the laws of the State of Delaware ("GM"), through its
Service Parts Operations ("SPO").
INTRODUCTION
This Agreement is entered into with reference to the following facts:
A. DR International, Inc. ("DRI"), DRA and GM have entered into the Asset
Purchase Agreement dated July 13, 1994, ("Asset Purchase Agreement"),
pursuant to which DRA will purchase from GM certain of the assets, and will
assume certain of the liabilities, of the Delco Remy Heavy Duty Starter
Motors and Generators business ("HDO"), the Delco Remy Heavy Duty Starter
Motors and Generators Remanufacturing business ("HDO Reman"), the Delco
Remy Light Duty Starter Motors business ("LDO"), the Delco Remy Light Duty
Starter Motors Remanufacturing business ("LD Reman") and the Powder Metal
Forge business ("PMF" and collectively with HDO, HDO Reman, LD Reman and
LDO, the "Businesses") of the Delco Remy Division of GM (together with any
successor unit of GM, the "Delco Remy Division").
B. Following Closing under the Asset Purchase Agreement, DRA will own and
operate that portion of the operations of Delco Remy Division which
supplied heavy duty starter motors and generators, and light duty starter
motors to SPO for distribution in the United States and Canada. The purpose
of this Agreement is to set forth the terms and conditions under which DRA
will supply such products to SPO (including to SPO through Delco Remy
Division or another GM operation). Capitalized terms used but
* Portions of this Exhibit 10.3 were omitted and filed separately with the
Secretary of the Securities and Exchange Commission (the"Commission") pursuant
to an application for confidential treatment filed with the Commission
pursuant to Rule 406 under the Securities Act of 1933. Such portions are
marked by the word "Redacted."
<PAGE>
not otherwise defined herein shall have the meanings ascribed to them in
the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein and
intending to be legally bound, DRA and GM hereby agree as follows:
I. GRANT
1.1 Exclusive Distributor For LDO Branded Products. DRA hereby appoints GM
----------------------------------------------
to be DRA's exclusive distributor of LDO Branded Products, as hereinafter
defined, within the Territory, as hereinafter defined (the "LDO Branded
Territory"). Subject to the terms of this Agreement, including Section 1.5
hereof, for so long as this Agreement remains in effect DRA shall not, and shall
not authorize any other party to, offer or sell LDO Branded Products within the
Territory.
1.2 Exclusive Distributor for LDO Unbranded Products. DRA hereby appoints
------------------------------------------------
GM to be DRA's exclusive distributor of LDO Unbranded Products, as hereinafter
defined, within the Territory only to those customers specified on Exhibit A
---------
attached hereto (the "LDO Unbranded Territory"). Subject to the terms of this
Agreement, including Section 1.5 hereof, for so long as this Agreement remains
in effect DRA shall not, and shall not authorize any other party to, offer or
sell LDO Unbranded Products within the LDO Unbranded Territory.
1.3 Exclusive Distributor For HDO Branded and HDO Unbranded Products To
-------------------------------------------------------------------
SPO Customers. DRA hereby appoints GM to be DRA's exclusive distributor of HDO
- -------------
Branded Products and HDO Unbranded Products, each as hereinafter defined, within
the Territory to those GM authorized dealers and wholesale distributors ("WDs")
as are being serviced by SPO as of the Closing Date under the Asset Purchase
Agreement and such additional dealers and WDs as may be requested by GM from
time to time and consented to by DRA, which consent shall not be unreasonably
withheld (the "HDO Territory"). Subject
2
<PAGE>
to the terms of this Agreement, including Section 1.5 hereof, for so long as
this Agreement remains in effect DRA shall not, and shall not authorize any
other party to, offer or sell HDO Products to those GM authorized dealers or WDs
as are being serviced by SPO as of the Closing Date under the Asset Purchase
Agreement.
1.4 Products Defined. For purposes of this Agreement: (i) "LDO Branded
----------------
Products" shall mean those light duty starter motors that carry the trademark
"Delco Remy" or other trademark owned and specified by GM (other than "Remy")
and their associated service parts, components and assemblies and any
replacements therefor, (ii) "LDO Unbranded Products" shall mean those light duty
starter motors and their associated service parts, components and assemblies and
any replacements therefor other than those which are branded "Delco Remy" or
other trademark owned and specified by GM (other than "Remy"); (iii) "HDO
Branded Products" shall mean those heavy duty starter motors and generators that
carry the trademark "Delco Remy" or other trademark owned and specified by GM
(other than "Remy"), and their associated service parts, components and
assemblies and any replacements therefor described in Exhibit B; and (iv) "HDO
---------
Unbranded Products" shall mean those heavy duty starter motors and generators
and their associated service parts, components and assemblies and any
replacements therefor other than those which are branded "Delco Remy" or other
trademark owned and specified by GM (other than "Remy"); provided, however, that
the terms defined in clauses (i), (ii), (iii), and (iv) respectively, shall not
include such products (a) supplied as original equipment to original equipment
manufacturers ("OEMs") or (b) distributed by DRA and/or such OEMs other than GM
to service the aftermarket for such other OEMs. LDO Branded Products and LDO
Unbranded Products are sometimes referred to herein together as "LDO Products."
Similarly, HDO Branded Products and HDO Unbranded Products are sometimes
referred to herein together as "HDO Products".
1.5 Other Distribution. GM presently solicits sales from, and distributes
------------------
LDO Branded Products and HDO Branded Products to GM dealers, WDs, and other
accounts, and it is the intent of the parties hereunder that such LDO Branded
Products distribution and HDO
3
<PAGE>
Branded Products distribution will conform to separate templates to be promptly
agreed upon by the parties. Prior to Closing under the Asset Purchase Agreement,
GM's Delco Remy Division had responsibility for distribution of HDO Branded
Products to other than GM dealers, WDs, and other types of accounts currently
served by SPO, and it is the intent of the parties hereunder that such
distribution will be continued by DRA consistent with past practice. Except as
expressly set forth in this Agreement, nothing herein shall prohibit DRA's
solicitations of sales and distribution of LDO Branded Products, LDO Unbranded
Products, HDO Branded Products or HDO Unbranded Products.
1.6 Territory Defined. For purposes of this Agreement, the term
-----------------
"Territory" shall mean the 50 United States plus the District of Columbia, and
Canada. Notwithstanding the foregoing, GM shall have the nonexclusive right to
sell HDO and LDO Products purchased from DRA pursuant to this Agreement to GM
authorized dealers and wholesale distributors located outside the Territory who
are being serviced by SPO.
II. DUTIES OF DRA AND GM
2.1 Best Efforts; Good Name. GM shall use its best effort to aggressively
-----------------------
market the LDO Products and HDO Branded Products within the applicable Territory
in accordance with the terms of this Agreement and as DRA may direct from time
to time. In the process of pursuing these efforts, GM shall, and shall instruct
its employees and other representatives to, conduct itself and themselves in a
manner consistent with professional and accepted business standards and
practices consistent with the good name of GM, Delco Remy and DRA.
2.2 Staff and Personnel. GM shall employ and maintain sufficient qualified
-------------------
staff and sales personnel to meet its obligations hereunder.
4
<PAGE>
2.3 Qualification To Do Business. GM shall make such filings and take
----------------------------
such action as may be required to qualify to do business under all applicable
state and local laws in order to perform the services contemplated by this
Agreement.
2.4 Price and Terms of Sales: Warranty: Royalties.
---------------------------------------------
(a) GM shall have the absolute right to establish the prices, charges,
terms and conditions governing the sale of LDO Branded Products, LDO Unbranded
Products sold to the customers listed on Exhibit A and HDO Products under this
Agreement, within each applicable Territory but agrees to consult with and
reasonably consider the advice of DRA regarding such prices, charges, terms and
conditions. In each case, GM shall give DRA prompt written notice of its prices
to its customers consistent with the provisions of Section 3.2 of this
Agreement. Included within GM's responsibility under this paragraph and at GM's
sole cost and expense shall be the scope and application of any warranty
accompanying GM's resale of LDO Products and HDO Branded Products, and the
administration of such warranties and any other liabilities associated with such
warranty.
(b) Direct Sales of Certain LDO Unbranded Products by DRA. DRA shall
-----------------------------------------------------
have the absolute right to establish the prices, charges, terms and conditions
governing the sale of LDO Unbranded Products sold by DRA and DRA shall give
prompt written notice to GM prior to DRA's notice to such customers, but in no
event less than thirty (30) days prior to such prices becoming effective. To the
extent DRA sells LDO Unbranded Products to customers in the Territory excluding
GM or its Affiliates, DRA shall pay to GM a royalty equal to 3% of the Net Sales
Price for all sales of LDO Unbranded Products to such customers. For purposes of
this Agreement, "Affiliate" shall mean any other company or partnership in which
GM owns, directly or indirectly, more than fifty percent (50%) of the
outstanding capital stock or other equity interest. The "Net Sales Price" shall
be the gross sales price as reflected on DRA's invoice before adding thereto
transportation, insurance and similar charges and any sales, use, gross receipts
or similar taxes charged to the customer on the invoice, but after deducting
incentive, quantity or distribution channel discounts reflected on the invoice
(but not after deducting any cash or early payment discounts). The aggregate
5
<PAGE>
royalty due GM for all sales in the immediately preceding calendar month shall
be paid net 30 days.
(c) Mutual Cooperation. DRA shall provide to GM documentation
------------------
sufficient to support the calculation of royalties due GM pursuant to Section
2.4(b) above. Should such documentation prove to be unsatisfactory, in GM's
reasonable discretion, the parties shall mutually cooperate in a review of DRA's
books and records to confirm the amount of such royalties; provided, however,
that the review of such books and records shall be strictly limited only to
those necessary to confirm the royalty amount.
2.5 Advertising. During the term of this Agreement GM will pay and be
-----------
solely responsible for advertising and promotion of LDO Branded Products and HDO
Branded Products in the applicable Territory in a manner and to a level
reasonably consistent with past practice.
2.6 Customer Inquiries. GM shall handle to appropriate conclusion all
------------------
customer inquiries regarding LDO Products and HDO Branded Products sold by GM;
however, DRA will provide assistance with such customer inquiries as reasonably
appropriate.
2.7 Expenses. All expenses incurred by GM in connection with this
--------
Agreement and the performance of GM duties and responsibilities hereunder shall
be the responsibility of GM.
2.8 Product Engineering. DRA shall provide product engineering and
-------------------
production control support for LDO Products and HDO Branded Products at DRA's
expense.
2.9 Cooperation. GM and DRA will cooperate to monitor and assess
-----------
activities hereunder in a common effort to increase efficiencies and
effectiveness in the distribution and supply of LDO Products and HDO Branded
Products pursuant to this Agreement.
6
<PAGE>
III. SUPPLY ARRANGEMENTS BETWEEN THE PARTIES
3.1 Purchase and Supply Commitment. The provisions of Section 1.1 and
------------------------------
Article II of each of the Light Duty Starter Motors Component Supply Agreement,
and the Heavy Duty Component Supply Agreement (which are Ancillary Agreements
under the Asset Purchase Agreement) are incorporated herein by this reference
and apply to SPO's respective purchases of LDO Products and service parts and
HDO Branded Products from DRA as though each of the LDO Products and HDO Branded
Products were called "Components" under such Light Duty Starter Motors Component
Supply Agreement and Heavy Duty Component Supply Agreement; provided, however,
that (i) to the extent of any conflict between the sections of such supply
agreements incorporated herein and this Agreement, the provisions of this
Agreement shall govern, and (ii) the price provisions governing the purchase of
products hereunder by GM shall be as set forth in Section 3.2 below.
3.2 Purchase Price of LDO and HDO Branded Products. The initial prices for
----------------------------------------------
LDO Products and HDO Branded Products to be sold to GM hereunder shall be those
set forth on Exhibit B attached hereto which Exhibit also sets forth the current
sales prices charged by GM to its customers for such products. From and after
the date hereof and during the term of this Agreement, the prices at which DRA
shall sell LDO Products or HDO Branded Products, as applicable, to GM shall be
increased proportionately (based on the percentage increase in price) to the
extent GM increases its selling prices to its customers of LDO Products or HDO
Branded Products, as applicable. In the event of a price increase by GM, GM
shall give DRA prompt written notice of such increase prior to GM's notifying
its customers of such increase, but in no event less than ninety (90) days prior
to such increase taking effect, unless otherwise mutually agreed by the parties.
The increase in DRA's selling price shall be effective simultaneously with GM's
price increase.
In the event GM determines to decrease its selling price to its
customers of LDO Products or HDO Products, during the first seven (7) years of
this Agreement, GM shall notify DRA of such intended decrease on a timely basis,
but in all cases prior to GM's notice
7
<PAGE>
to its customers. In the event the GM proposed price decrease (or series of
related price decreases) affects or includes 50% or more of the annual dollar
sales volume (as determined by the prior year's actual sales volume) of any one
or more of the Product Families (as defined below), DRA will determine and shall
notify GM, within 15 days of receipt of notice of such decrease, whether or not
it will decrease its prices on the affected Products to GM proportionately
(based on the percentage decrease in price) to GM's decrease in prices to its
customers. To the extent DRA agrees to a price decrease, such decrease shall be
effective simultaneously with the effective date of GM's price decrease. If DRA
elects not to decrease its prices to GM (a "Price Decrease Deferral"), then DRA
shall not subsequently be permitted to increase its prices to GM pursuant to
this Section 3.2 unless and until the Deferred Amount (as defined below) equals
zero. Similarly, should a Deferred Amount still exist at the end of the first
seven (7) years of this Agreement, such amount shall carryover to future years
as a prohibition on DRA's ability to increase its prices to GM pursuant to
Section 3.2 above, until the Deferred Amount is reduced to zero. Notwithstanding
the foregoing, DRA will decrease its prices to GM proportionately (based on the
percentage decrease in price) with GM's decrease in prices to its customers at
the time during the term of this Agreement, with respect to any single
production model or part number, any GM proposed price decrease (or series of
related price decreases) that does not affect or include 50% or more of the
annual dollar sales volume (as determined by the prior year's actual sales
volume) of any Product Family, or any GM proposed price decrease whatsoever
during the term of this Agreement which has an effective date subsequent to the
seventh anniversary of this Agreement.
"Product Family" means the individual groupings of products as
designated by the product codes described on Exhibit C hereto.
---------
"Deferred Amount" shall mean, at any time, (i) the cumulative
aggregate dollar amount of Price Decrease Deferrals multiplied by 1.25, less
(ii) the cumulative aggregate dollar amount of price increases which DRA would
have otherwise been entitled to based on GM price increases had a Deferred
Amount balance not existed, in each instance, since the last date (a "Reset
Date") the Deferred Amount was zero (that is, it is understood that the
8
<PAGE>
Deferred Amount shall never be reduced to a negative number and following any
Reset Date, the accumulation of Price Decrease Deferrals and such price
increases pursuant to (i) and (ii) above shall be started over when another
Price Decrease Deferral occurs).
Except as may otherwise be mutually agreed, the foregoing pricing
provisions shall also apply to all service parts, including past model service
parts products, and remanufactured products sold hereunder; provided that the
--------
initial prices for service parts (as well as past model service parts and
remanufactured products) shall be such prices as established on Exhibit B.
Prices for LDO Unbranded Products sold within the LDO Unbranded
Territory and billed by GM or its Affiliates directly to customers shall be no
higher than the lowest Net Sales Price (adjusted where applicable for any
changes in terms and conditions of sale and applicable "meet competition" market
differentials) at which DRA is then selling such Unbranded LDO Products to its
customers in the applicable territory, less three percent (3%).
Pricing outside the applicable territories for LDO Unbranded Products and
HDO Unbranded Products, related to North American Product Programs and billed by
GM or its Affiliates directly to customers shall be no higher than the lowest
Net Sales Price (adjusted where applicable for any changes in terms and
conditions of sale and applicable market differentials) at which DRA is then
selling such Products to its customers in the same country, less three percent
(3%).
IV. TERM; TERMINATION; NON-COMPETE
4.1 Term, Termination. As to HDO Branded Products and HDO Unbranded
-----------------
Products, this Agreement shall remain in effect for three (3) years from the
date hereof and shall be automatically extended for up to twelve (12) additional
successive one-year terms without further action by GM or DRA unless DRA shall
have given GM written notice of DRA's decision not to renew this Agreement as to
HDO Branded Products beyond the then
9
<PAGE>
current one-year term, which notice shall be delivered to GM at least 12 months
prior to the initial three (3) year term or the then current termination date.
As to LDO Products, this Agreement shall remain in effect for fifteen (15) years
from the date hereof; provided, however, that this Agreement may be terminated
as to HDO Branded Products, or as to LDO Products, prior to the completion of
the applicable term in any of the following events:
(i) By mutual agreement of the parties.
(ii) Either party may terminate this Agreement if the other party
materially breaches it.
(iii) By DRA as to HDO Branded Products or LDO Products, as
applicable, if DRA gives written notice to GM within 30 days following each
anniversary date of this Agreement if GM substantially fails to achieve the
goals and objectives set forth in the HDO Product and LDO Product templates for
reasons other than a general decline in the economy. Any termination under this
provision, however, shall be effective as of the next anniversary date of this
Agreement, following receipt of such notice.
(iv) By GM to the extent DRA fails to meet the quality parameters set
forth below: (a) for O.E.M and service parts (non-remanufactured) components
which are subject to either the Light Duty Starter Motors Component Supply
Agreement or the Heavy Duty Component Supply Agreement between GM and DRA, the
quality standards set forth therein; (b) for past model service parts (non-
remanufactured) components which are not subject to either the Light Duty
Starter Motors Component Supply Agreement or the Heavy Duty Component Supply
Agreement, the quality standards established with regard to such Components
before they became past model; and (3) for remanufactured components, the
quality standards currently in place by GM at the execution of this Agreement
with respect to such remanufactured components.
10
<PAGE>
4.2 Termination Procedure. A party intending to terminate this Agreement
---------------------
under Section 4.1 (ii) or (iv) above shall first notify the other party in
writing of the grounds for the intended termination. In the event the other
party fails to remedy such grounds for termination within ninety (90) days after
the date of receipt of such notice, then the terminating party may terminate
this Agreement effective immediately upon written notice to the other party
without the need for any judicial action.
4.3 Reservation of Rights. The provisions of this Article are without
---------------------
prejudice to any other rights or remedies either party may have by reason of the
default of the other party.
4.4 Effect of Termination. Notwithstanding anything to the contrary
--------- -----------
contained in Section 12.11 of the Asset Purchase Agreement, in the event this
Agreement or a specified portion thereof is terminated
(i) by GM pursuant to Section 4.1(ii) or Section 4.1 (iv) above,
then GM shall be permitted to purchase comparable substitute products from other
sources and may distribute such substitute products within the applicable
Territory but only to the extent such specific products are not being
sufficiently supplied by DRA; or
(ii) by DRA pursuant to Section 4.1 (iii) above with respect to HDO
Branded Products or LDO Products, as the case may be, then GM shall be permitted
to purchase comparable substitute HDO products (if this Agreement is terminated
as to HDO Products) or LDO products (if this Agreement is terminated by LDO
Products) from other sources and may distribute such substitute HDO or LDO
products within the applicable Territory but only to the extent such specific
products are not being sufficiently supplied by DRA; or
(iii) due to DRA's election to not renew or extend the term of this
Agreement with respect to HDO Branded Products pursuant to Section 4.1 above,
then GM
11
<PAGE>
shall be permitted to purchase comparable substitute HDO products from other
sources and may distribute such substitute HDO products within the HDO Branded
Territory.
Upon the occurrence of any of the foregoing, GM shall be permitted to
distribute the applicable products described above under any GM trademark which
is not otherwise licensed to DRA, and GM shall have, for a period of two (2)
years following such termination, the absolute right to acquire from DRA (under
the same terms and conditions provided by this Agreement had there been no
termination) LDO Branded Products and HDO Branded Products for distribution to
GM authorized dealers and wholesale distributors.
4.5 Non-Compete. Except as provided in Section 4.4 to this Agreement
-----------
above, for the term of this Agreement, GM shall not offer or sell any goods
which are competitive with, the same as, or similar to any of the LDO Products
or HDO Products, or promote or advertise any such goods within the Territory
without DRA's prior written consent; provided, however, that in any case where a
supplier other than DRA is the O.E.M. supplier to GM of LDO Products, HDO
Products or other comparable substitute products, then GM shall be permitted to
purchase and distribute service parts for such LDO Products, HDO Products or
other comparable or substitute products from such other suppliers, without
limitation.
V. QUARTERLY REVIEW
SPO and DRA shall schedule on a quarterly basis a meeting of appropriate SPO and
DRA personnel to review the performance and expectations hereunder and relevant
product plans.
12
<PAGE>
VI. GENERAL PROVISIONS
6.1 No Agency. This Agreement does not constitute either party the agent
---------
or legal representative of the other party. Neither party is authorized to
create any obligation on behalf of the other party.
6.2 Notices. Any notice under this Agreement shall be in writing (letter,
-------
telex, facsimile, or telegram) and shall be effective when received by the
addressee at its address indicated below.
(a) Notice sent to DRA shall be addressed as follows:
Delco Remy America, Inc.
2405 Columbus Ave.
Anderson, Indiana 46018
Attention: Chief Financial Officer
(b) Notice sent to GM shall be addressed as follows:
AC Delco Systems Division GM Service Parts Operation
4800 S. Saginaw Street 6060 West Bristol Road
Flint, Michigan 48501 Flint, Michigan 48554
Attn: Finance Director Attn: General Director of Finance
(c) Either party by written notice to the other party may designate
other addresses to which notices shall be sent.
6.3 Amendments. No amendment to this Agreement shall be binding upon
----------
either party unless it is in writing and is signed by the other party.
6.4 Successors and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of GM and DRA and their respective successors and assigns.
No party to this Agreement may assign this Agreement or any of its rights,
interests or obligations hereunder without the prior written consent of the
other party; provided, however, that DRA may (a) without the prior written
--------- -------
consent of GM assign this Agreement and any or all of its
13
<PAGE>
rights, interests and obligations hereunder to one or more of its Affiliates (as
defined in the Asset Purchase Agreement), provided that, notwithstanding such
assignment DRA shall remain liable for all of its obligations hereunder, and (b)
upon receipt of GM's consent (which will not be unreasonably withheld), assign
this Agreement and its rights, interests and obligations hereunder to (i) a
transferee of all or substantially all of the assets of any or all of the
Businesses, in each case, insofar as such rights, interests and obligations
relate to or affect the assets or Businesses so transferred or as to which such
assignee has become a successor, provided that GM shall take into consideration
in granting its consent the following: (A) that such transferee or successor is
not less creditworthy than DRA as of the Closing Date, (B) such transferee or
successor executes a written acknowledgement of its assumption of DRA's
obligations to GM under this Agreement, (C) that such transferee or successor is
not an original equipment manufacturer of fully assembled passenger cars and/or
light duty trucks, (D) if such transferee or successor is a then current
supplier to GM, such transferee or successor shall be in good standing and have
demonstrated manufacturing expertise, (E) if such transferee or successor is a
manufacturer but is not then a current supplier to GM, such transferee or
successor shall not have been terminated as a supplier by GM for reasons other
than failure to be price competitive and shall have a reputation for large-
scale, quality manufacturing and reliable performance of contracts.
6.5 Law and Jurisdiction. This Agreement shall be governed by the laws of
--------------------
the State of New York without regard to the principles of conflict or laws
thereof. Each party consents, for purposes of enforcing this Agreement, to
personal jurisdiction, service of process, and venue in any state or federal
court within the State of New York having jurisdiction over the subject matter.
6.6 Counterparts. This Agreement may be executed in counterparts, and each
------------
counterpart will be deemed to be an original instrument, provided that all such
counterparts together will constitute only one agreement.
14
<PAGE>
6.7 Headings. The headings preceding the text of the sections and
--------
subsections hereof are inserted solely for convenience of reference, and will
not constitute a part of this Agreement, nor will they affect its meaning,
construction or effect.
6.8 Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties hereto regarding the subject matter hereof, and supersedes any and
all prior or contemporaneous oral or written agreements between the parties
relating to the subject matter of this Agreement.
IN WITNESS WHEREOF, GM and DRA have caused this Agreement to be executed by
their duly authorized representatives on the day and year first written above.
DRA, Inc. General Motors Corporation
By: /s/ James R. Gerrity By: /s/ Charles A. Cotten
-------------------------------- ---------------------------------
Executive V.P.
15
<PAGE>
EXHIBIT A
---------
CUSTOMER LIST OF LDO UNBRANDED PRODUCTS
---------------------------------------
GM Dealers
Direct Accounts
(AC-Delco Wholesale Distributors and Mass Merchandiser Distributors)
Trak
Auto Zone
Western Auto
Carquest
Auto Value
AAAD
Mass Merchandiser Distributor (MMD)
- -----------------------------------
A Mass Merchandiser Distributor is an entity whose primary function is
selling automotive replacement parts and accessories of the general type
marketed by AC-Delco to mass merchandiser retailers. The mass merchandiser
distributor warehouses, distributes and provides pre-sale services, including
seeding, pre-ticketing, inventory control, detailing, product display
arrangement, and advertisement assistance to mass merchandisers.
Mass Merchandiser Distributors (MMD) are to be distinguished from Mass
Merchandisers (MM) which are defined below.
Mass Merchandiser (MM)
- ----------------------
A Mass Merchandiser is an entity (regional, national or international in
scope), whose primary function is the wholesale purchase and retail sale of
commodities. Merchandise is generally sold through retail outlets (owned or
--------------
franchised) direct to the customer. Mass Merchandisers are retailers in one of
the following categories:
- Traditional and discount department stores
- Specialty discount automotive chains
- Supermarkets and discount drug stores
- Home and auto stores
- Hardware stores
- Catalog outlets and other large retailers.
Distribution and Supply Agreement
Exhibit A
<PAGE>
EXHIBIT B
---------
LDO PRODUCTS AND HDO BRANDED PRODUCTS
AND INITIAL PRICES
[Redacted]
Distribution and Supply Agreement
Exhibit B
<PAGE>
Exhibit 10.4
TRADEMARK LICENSE AGREEMENT
---------------------------
This TRADEMARK LICENSE AGREEMENT ("License") is made and entered into July
31, 1994, by and among DRA, Inc., a company organized under the laws of the
State of Delaware ("DRA"), DR International, Inc., a company organized under the
laws of the State of Delaware ("DRI" and, together with DRA, the "Licensee"),
and General Motors Corporation, through its Delco Remy Division, a corporation
organized under the laws of the State of Delaware ("GM").
WITNESSETH
WHEREAS, GM, DRI and DRA have entered into the Asset Purchase Agreement
dated July 13, 1994 (the "Asset Purchase Agreement") under which DRA has
acquired (the "Acquisition") certain assets and assumed certain liabilities of
the Delco Remy Division.
WHEREAS, DRI and DRA desire to acquire, and GM is willing to grant, a
license to use certain trademarks and tradenames of Delco Remy Division world-
wide.
NOW THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, for themselves and their successors and
assigns, agree as follows:
1. DEFINITIONS
-----------
The following terms have the meaning ascribed to them herein:
Businesses. The term "Businesses" shall mean the production,
----------
distribution, sale and servicing of heavy duty starter motors and
generators ("Heavy Duty Starter Motors Business"), remanufactured
heavy duty starter motors and generators ("HD Reman Business"), light
duty starter motors ("Light Duty
<PAGE>
Starter Motor Business"), remanufactured light duty starter motors ("LD Reman
Business"), and powder metal forge ("PMF Business").
Closing. The term "Closing" has the meaning ascribed to it in the Asset Purchase
- -------
Agreement.
Component Supply Agreements. The term "Component Supply Agreements" means the
- ---------------------------
Heavy Duty Component Supply Agreement, Light Duty Component Supply Agreement,
Powder Metal Forge Component Supply Agreement and Distribution and Supply
Agreement between DRA and GM included among the Ancillary Agreements to the
Asset Purchase Agreement.
Delco Remy Trademarks. "Delco Remy Trademarks" means "DELCO REMY", "DELCO REMY
- ---------------------
AMERICA", "DELCOTRON" (with regard to heavy duty generators only), the "DELCO
REMY AMERICA logo" as set forth in Exhibit A, and such other logotypes
containing "Delco Remy" as DRA or DRI may adopt (subject to GM's written consent
not to be unreasonably delayed or withheld) and use during the term of this
license as provided herein.
Delco Remy Tradenames. The term "Delco Remy Tradenames" shall mean "Delco Remy
- ---------------------
America" and/or "Delco Remy International".
Effective Date. The term "Effective Date" means the date of this Agreement.
- --------------
Product Liability Insurance. The term "Product Liability Insurance" means
- ---------------------------
insurance maintained by Licensee in accordance with Paragraph 5 hereof.
2
<PAGE>
Products. The term "Products" means the products manufactured by the Businesses
- --------
as of the date of the signing of this License and any replacements and
extensions thereof.
Quality Standards. The term "Quality Standards" has the meaning described in
- -----------------
Paragraph 6(a) herein.
Remy Trademarks. "Remy Trademarks" means "REMY", "REMY AMERICA", "REMY
- ---------------
INTERNATIONAL", and such logotypes as Licensee may adopt containing "REMY",
"REMY AMERICA" or "REMY INTERNATIONAL".
Remy Tradenames. "Remy Tradenames" means "REMY AMERICA" and "REMY
- ---------------
INTERNATIONAL."
Territory. GM and Licensee have agreed that Licensee shall be entitled to use
- ---------
the Delco Remy Trademarks world-wide. However, the term "Territory" shall mean
initially the United States (its territories and possessions including, without
limitation, Puerto Rico and the U.S. Virgin Islands), Mexico, Canada, and such
other countries set forth on Exhibit B, as may be expanded as provided in
Paragraph 4(e) herein.
Trademarks. "Trademarks" means the "Delco Remy Trademarks", the "Remy
- ----------
Trademarks," and any other term that GM authorizes as provided herein for use as
a trademark.
Tradenames. The term "Tradenames" shall mean the Delco Remy Tradenames and the
- ----------
Remy Tradenames.
3
<PAGE>
Tradename License Agreement. The term "Tradename License Agreement"
---------------------------
shall mean the Tradename License Agreement among GM, DRA and DRI.
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Asset Purchase Agreement.
2. GRANT OF LICENSE
----------------
(a) Authorization For Products. Subject to the terms and conditions of
--------------------------
this License, GM hereby grants to Licensee and Licensee hereby
accepts, an exclusive, royalty free license to use (i) the Trademarks
on and in connection with existing Products finished goods inventory
as of the Closing, (ii) the Trademarks in the form and manner
specified by GM and/or approved by GM under this Agreement on and in
connection with new and replacement Products made by or for Licensee
developed for supply to GM pursuant to the Component Supply
Agreements; (iii) the Trademarks on and in connection with Products
and replacement and extension Products made by or for Licensee not
supplied to GM, and (iv) the Remy Trademarks on and in connection with
other products.
(b) The grant shall include the manufacture (including the right to have
made), advertising, promotion, distribution, service and sale of such
Products in the Territory by or for Licensee as provided herein.
(c) Term and Royalty. The initial term ("Initial Term") of the license of
----------------
the Delco Remy Trademarks hereby granted shall commence on the
Effective Date, and shall continue for ten (10) years unless otherwise
terminated as provided herein. Upon expiration of the Initial Term,
this Agreement shall continue indefinitely on the same terms except
that Licensee agrees to pay an annual license fee of one hundred
thousand dollars ($100,000) payable upon the date of continuation and
each anniversary date thereof. The license of the Remy Trademarks
hereby granted shall commence on the Effective Date, shall
4
<PAGE>
be perpetual, fully-paid, and royalty-free, and may be freely assigned,
mortgaged, sublicensed or encumbered, subject, however, to the covenants in
Paragraph 2(f) of this Agreement.
(d) Limitations to Licensee's Rights. Except as provided in the Manufacturers
--------------------------------
Representative Agreement, Licensee shall not use the Delco Remy Trademarks
directly or indirectly on or in connection with, or in relation to, any
product except Products. Licensee shall not combine the Trademarks with any
other trademark without the express written authorization of GM, provided,
however, that Licensee may use the Trademarks together with other
trademarks, service marks, and tradenames including without limitation
"ROAD GANG" and other marks for specific products. Licensee shall not make
trademark use of the Trademarks or any confusingly similar forms of,
variation on, or alternative spelling of the term "DELCO", "GM", "GENERAL
MOTORS", or "DELCO REMY DIVISION", except as provided in this Agreement or
pursuant to Paragraph 8 of this Agreement. No other right or license is
granted hereby by implication or otherwise under any other mark, trademark,
service mark or trade name of GM. Nothing in this Paragraph (d) shall be
interpreted to limit or expand upon the rights granted Licensee to use the
Tradenames under the Tradename License Agreement.
(e) GM shall not use, and will not directly or indirectly authorize or permit
any third party to use the Trademarks or logotypes created by Licensee (or
any confusingly similar form of variation on, or alternative spelling
thereof), directly or indirectly on or in connection with or in relation to
Products.
(f) Notwithstanding the other provisions of this Agreement, neither Licensee
nor its sublicensees, assigns, or affiliates may use the Remy Trademarks
directly or indirectly on or in connection with or in relation to (i)
batteries at any time after the Closing Date or (ii) for 10 years after the
Closing Date for any other product manufactured by the Delco Remy Division
on the Closing Date and not acquired by DRA.
5
<PAGE>
3. GOODWILL
--------
Licensee recognizes the value of the goodwill associated with the
Trademarks and acknowledges that, except for assignments pursuant to
Paragraph 8 of this Agreement, the Trademarks, and all rights therein and
the goodwill pertaining thereto, belong exclusively to GM and that the
Trademarks have acquired secondary meaning in the mind of the public in
association with GM. Notwithstanding anything to the contrary expressed in
this License, Licensee shall not acquire, be deemed to have acquired and
shall not claim any rights to the Trademarks other than the rights granted
by GM under this License or pursuant to Paragraph 8 of this Agreement.
4. GM'S TITLE AND PROTECTION OF GM'S RIGHTS
----------------------------------------
(a) GM's Representations. GM represents and warrants that in the
--------------------
Territory: (i) it is the sole and exclusive owner of all right, title
and interest in and to the Trademarks and various U.S. and foreign
registrations for use on and in connection with Products; (ii) it has
the power to grant the rights and licenses granted to Licensee herein
and has not granted rights and licenses to the Trademarks to any
person other than Licensee hereunder with respect to Products; (iii)
it has not abandoned the Trademarks; (iv) the aforementioned
registrations have not been adjudged or declared invalid by any court
in any jurisdiction; (v) such trademark registrations are not, as of
the date of this License, the subject of any claim, litigation or U.S.
Patent and Trademark Office proceeding; (vi) it is not aware of any
rights of any third party which would be infringed by Licensee's use
of the Trademarks as authorized herein; and (vi) it is not aware of
any rights of any third party which would be infringed by Licensee's
use of the Trademarks on or in connection with Products outside the
initial Territory.
(b) Conduct of Licensee. Licensee agrees that it will not knowingly do or
-------------------
suffer to be done during the Term or any renewal period of this
License any act or
6
<PAGE>
thing that will materially impair the rights of GM in and to the Trademarks
then licensed hereunder. GM hereby agrees to indemnify and defend Licensee
and undertakes to hold it harmless against any claims or suits to the
extent that such claim or suit arises out of the exploitation and use by
Licensee of the Trademarks as authorized in this License with respect to
Products, provided that the claim or suit arises in the Territory and
prompt notice is given to GM of any such claim or suit and provided further
that GM shall have the option to undertake and conduct, at GM's expense,
the defense of any suit brought and that no settlement of any such claim or
suit is made without prior written consent of GM (which consent shall not
be unreasonably delayed or withheld). Licensee shall participate in such
defense, at its own expense, to protect its interests. GM shall keep
Licensee informed on all material developments throughout the progress of
any such defense, and GM shall not, without Licensee's prior approval,
which approval shall not be unreasonably withheld, enter into any consent,
settlement, or other agreement which materially diminishes or restricts
Licensee's rights under this License or places any material restrictions or
conditions upon Licensee's use of the Trademarks with respect to Products.
(c) Assistance. Licensee agrees to assist GM to the extent reasonably necessary
----------
in the procurement of any protection or to protect any of GM's rights in
and to the Trademarks for Products. To this end, GM may commence or
prosecute, at GM's expense, any claims or suits in its own name, in the
name of Licensee or may join Licensee as a party thereto provided that GM
indemnifies and defends and holds Licensee harmless from any claims, suits
or counterclaims resulting therefrom. Each party shall promptly notify the
other in writing of any material infringement or imitation by others of the
Trademarks on goods the same as or similar to the Products covered by this
License which may come to such party's attention. The parties shall
promptly consult with each other and use their best efforts to agree upon a
course of action to be taken with respect to such infringement, provided,
however, that,
7
<PAGE>
GM shall have the sole right to determine whether or not it takes any
action on account of any such infringement or imitation. If GM decides not
to take action, Licensee may then take action in its own name and at its
expense and discretion and may join GM as a party to the extent necessary,
provided that Licensee indemnifies and defends and holds GM harmless from
any claims, suits, or counterclaims resulting therefrom.
(d) No Registration. Except as otherwise provided in this Agreement, Licensee
---------------
shall not attempt to register the Trademarks, the term "DELCO", or any
formative thereof, alone or as part of its own trademark, nor shall
Licensee use or attempt to register any marks which are likely to be
confusingly similar to or constitute a colorable imitation of the
Trademarks.
(e) Registration and Registered User. GM shall seek and maintain in GM's name
--------------------------------
registrations of the Trademarks in the Territory for those Products which
Licensee sells or intends to sell in the Territory. GM shall pay the
initial cost for registration of the Delco Remy Trademarks in the Territory
and for the recordal or registration of this License, any related
agreements and of Licensee as a registered user. In addition, Licensee may
request that GM register and maintain the Remy Trademarks for such products
in such countries as Licensee deems necessary or desirable, for which
Licensee will reimburse GM for its out-of-pocket costs. In the event that
Licensee desires to market Products bearing Delco Remy Trademarks in any
country not then included in the Territory, Licensee shall first promptly
notify GM so appropriate trademark applications can be filed by GM before
any marketing of such products shall commence; provided that GM shall
instruct the filing of any application within thirty (30) days after
receipt of the notice to GM. Licensee agrees to cooperate with GM in
having Licensee recorded as a registered user where GM in its sole
discretion deems that such recordal is necessary. Licensee agrees to pay
the out-of-pocket costs incurred by GM for the registration and recordal in
any country which Licensee has requested to add to the Territory, and for
the maintenance and renewal of other registrations and recordals, provided
that
8
<PAGE>
GM gives Licensee 6 months prior notice of the deadlines for such
maintenance and renewal and in countries where there is no actual or
contemplated use the option of declining to maintain or renew such
registrations or recordals. Each party shall furnish the other with
all reasonably requested information and documentation (including the
execution and delivery of any appropriate and accurate affidavits,
declarations, oaths and other documentation) to assist the other in
obtaining or maintaining trademark registrations or other forms of
intellectual property protection and registrations and in any
litigation or administrative proceeding related thereto.
(f) No Assignment. It is agreed that nothing contained in this License
-------------
shall be construed as an assignment or grant to Licensee of any right,
title or interest in or to the Trademarks, it being understood that
all rights relating thereto are reserved by GM, except for (i) the
License to Licensee of the right to use and utilize the Trademarks
only as specifically and expressly provided in this License and (2)
the assignment to Licensee of the trademarks and tradenames under the
Asset Purchase Agreement and pursuant to Paragraph 8 of this
Agreement.
5. INDEMNIFICATION BY LICENSEE AND PRODUCT LIABILITY INSURANCE
-----------------------------------------------------------
Licensee agrees that it will obtain as of the Closing, at its own expense,
Product Liability Insurance from a recognized insurance company which is
qualified to do business in the State of Indiana, providing adequate
protection (in the minimum amount of five million dollars ($5,000,000) per
occurrence) for GM (as well as Licensee) against any product liability
claims related to the Products. As proof of such insurance, a certificate
of Product Liability Insurance, naming GM as an additional insured party
(and setting forth the amount of insurance, the policy number, the date of
expiration and including a provision requiring that GM be given thirty (30)
days written notice prior to termination, reduction or modification of such
insurance
9
<PAGE>
coverage) shall be submitted to GM by Licensee within thirty (30) days
after the execution of this License. Upon modification thereof, Licensee
shall furnish promptly to GM a copy of the modified certificate of Product
Liability Insurance. Licensee's procurement of Product Liability Insurance
or furnishing to GM a certificate therefor shall not relieve Licensee of
its obligation or liabilities under this License.
6. QUALITY CONTROL
---------------
(a) Quality Standards. GM acknowledges that the Products currently
-----------------
manufactured by its Delco Remy Division meets its high standards for
quality. Licensee acknowledges that if the Products it manufactures
after the Closing were to be of inferior quality in design, material
or workmanship, the substantial goodwill that GM has built up and now
possesses in the Trademarks would be impaired. Accordingly, it is an
essential condition of this License, and Licensee hereby covenants and
agrees: (i) that the overall quality of the Products covered by this
License, and any use or depiction of the Delco Remy Trademarks in
connection therewith, shall continue to meet or exceed the overall
standard and quality as those manufactured by or for the Delco Remy
Division as of the Closing; and (ii) that products bearing the Delco
Remy Trademarks or Remy Trademarks will be manufactured, imported,
promoted, sold, distributed and exploited in all material respects in
accordance with all applicable and material federal, state and local
laws and regulations. In addition, if any Product sold by Licensee to
GM under the Component Supply Agreements is resourced by GM because of
Licensee's breach of the quality requirements of such agreement, then
Licensee will not thereafter use the Delco Remy Trademarks to promote
that particular Product for sale in the same application as original
equipment or new service parts. All products sold bearing the Remy
Trademarks under this License will be of merchantable quality as
defined in the Uniform Commercial Code.
10
<PAGE>
(b) Reporting and Inspection. In order to verify that Licensee is
------------------------
continuing to maintain the Quality Standards as required under this
License, at GM's reasonable request Licensee shall deliver to GM or
its designee sample Products bearing the Delco Remy Trademarks and
products bearing the Remy Trademarks, together with information
relating to the design, specification, manufacture and reliability of
products including but not limited to those supplied to GM pursuant to
the Component Supply Agreements. This requirement shall survive the
termination of such Component Supply Agreements.
(c) Advertising. Licensee shall provide GM at any time, at GM's reasonable
-----------
request but not more than three times per year, a representative
sampling of all current or proposed tags, labels, identification
plates, packaging, advertising copy, brochures, catalogs, marketing
and promotional materials, bearing the Delco Remy Trademarks not
previously provided pursuant to this provision (individually or
collectively, the "Material") for GM's review of: (i) the manner in
which the Delco Remy Trademarks are used and depicted; (ii) conformity
to the Quality Standards; and (iii) the notices required in Paragraph
7 below. GM shall use its best efforts to respond with any reasonable
objections thereto in writing within fourteen (14) days, and the
parties will use their best efforts to resolve in good faith such
objections. If GM shall fail, however, to object in writing within
thirty (30) days after receipt of the Material, it shall be deemed to
have consented to Licensee's use of the Material. Such consent by GM
shall not constitute a waiver of Licensee's other duties under this
License.
7. TRADEMARK AND LICENSE NOTICES
-----------------------------
Licensee agrees that, on or before six (6) months after the Effective Date
and throughout the Term of this License, it will cause to appear where
practical or appropriate when a Delco Remy Trademark is used (a) on all
advertising, promotional
11
<PAGE>
and point-of-sale materials (including, without limitation, brochures and
catalogs) used by Licensee in connection with the Products; and (b) within
the bulk shipment of any large quantity of Products shipped in bulk to an
end user, a notice that the term "DELCO REMY" is a registered trademark of
GM ("Trademark Notice") and a notice that the Delco Remy Trademarks are
being used by Licensee pursuant to this License from GM ("License Notice"),
unless other notice is authorized by GM or is necessary or desirable under
the law or practice of the country. The Trademark Notice shall consist
substantially of the following: "DELCO REMY is a registered trademark of
General Motors Corporation used under license." All advertising and
promotional materials bearing a Delco Remy Trademark used by Licensee in
connection with the Products shall contain the foregoing notice, unless
other notice is authorized by GM or is necessary or desirable under the law
or practice of the country.
8. RIGHT TO ACQUIRE REMY TRADEMARKS
--------------------------------
GM will, within 30 days after Licensee's written request, transfer and
assign, or cause to be transferred and assigned, to a Licensee or its
designee the right, title and interest to the Remy Trademarks in such
country or countries as Licensee may designate, to the extent that such
transfer and assignment is permissible under applicable law, together with
all assignments and other documents necessary to effect such transfer and
all records relating to the registration of such marks. Licensee's use of
the Remy Trademarks after any such transfer will remain subject to
Licensee's covenants under Paragraph 2(f) of this Agreement. Licensee will
bear the expense of preparing and recording such documents and assignments
as well as all out-of-pocket legal costs, taxes, and fees related thereto.
Licensee may exercise its right to cause GM to transfer the Remy Trademarks
from time to time in such countries as its chooses until it has acquired
all right, title and interest to the Remy Trademarks in all countries. To
the extent necessary, the parties will enter into such consent agreement as
is appropriate under the laws of each such country to ensure the protection
of the Remy Trademarks as to Licensee and the Delco Remy Trademarks as to
GM.
12
<PAGE>
Contemporaneous with each such transfer and assignment, GM will, to the
extent requested by Licensee in writing, voluntarily partially cancel,
abandon, relinquish or limit any of its or its affiliates' rights to and
registrations of Delco Remy Trademarks in such country or countries with
respect to Products, provided, however, that Licensee will not thereafter
sell Products in such country or countries under the Delco Remy Trademarks
if registration with respect to Products would be required there. Nothing
herein will limit GM's ability to use, license, register, or maintain
registrations for the Delco Remy Trademarks on or in connection with, or in
relation to, any product or service of the Delco Remy Division as of the
Closing Date other than the Products. With respect to each country in which
Licensee has been assigned the Remy Trademarks, as of the effective date of
any such assignment the Remy Trademarks will no longer be subject to this
License in such country, the definition of the term "Trademarks" in this
Agreement will exclude the Remy Trademarks as to such country, and
Licensee's covenants and acknowledgements in Paragraphs 2(d), 3 and 4 with
respect to the Delco Remy Trademarks will not be interpreted to limit or
restrict Licensee's use of or rights to the Remy Tradenames as to such
country, provided, however, that such changes will not alter Licensee's
covenants under Paragraph 2(f) of this Agreement.
9. TERMINATION
-----------
(a) Bankruptcy. If Licensee: (i) files a voluntary petition for an order
----------
of relief in bankruptcy; (ii) is adjudicated a bankrupt; (iii) has an
involuntary petition in bankruptcy filed against it which remains
unstayed or undismissed for sixty (60) days following the filing
thereof; (iv) makes an assignment for the benefit of its creditors or
pursuant to any bankruptcy law; or (v) has a liquidating receiver
appointed for it or for its business, the License hereby granted shall
automatically terminate without any notice being necessary.
(b) Breach. If either party shall commit a material breach of any of its
------
obligations under this License, the non-breaching party shall have the
right to terminate
13
<PAGE>
this License upon ninety (90) days prior written notice ("Notice Of
Termination"), and such Notice Of Termination shall become effective
unless the breaching party shall have substantially remedied the
breach within the ninety (90) day period, which may be extended an
additional ninety (90) days if requested in writing by the breaching
party and the breaching party is working in good faith to fully remedy
such breach.
10. DISPOSAL OF STOCK UPON EXPIRATION OR TERMINATION
------------------------------------------------
After expiration or termination of this License under the provisions of
Paragraph 9, Licensee may dispose of Products bearing Trademarks which were
manufactured prior to the time of expiration or termination. Licensee shall
in no event manufacture, promote, assemble, sell, exploit or dispose of any
Product bearing Trademarks after termination of this License, where such
termination was based on the material departure by Licensee from the
Quality Standards required by Paragraph 6(a) of this License.
11. EFFECT OF EXPIRATION OR TERMINATION
-----------------------------------
Upon and after the expiration or termination of this License, the license
granted to Licensee hereunder shall forthwith revert to GM, except as
provided in Paragraph 10, and Licensee shall execute any instruments
reasonably requested by GM, at GM's expense, to accomplish or confirm the
foregoing, provided, however, that such expiration or termination shall not
in any way diminish, limit, revoke, or cause any reversion of, Licensee's
rights to the trademarks and tradenames transferred and assigned under the
Asset Purchase Agreement or pursuant to Paragraph 8 of this Agreement.
14
<PAGE>
12. REMEDIES
--------
(a) No Waiver. The resort by either party to any remedies referred to
---------
herein shall not be construed as a waiver of any other rights or
remedies to which such party is entitled under this License or
otherwise.
(b) Remedies Cumulative. All rights and remedies of a party hereto whether
-------------------
evidenced hereby or arising as a result of any other contract,
agreement, instrument or law shall be cumulative and may be exercised
singularly or concurrently.
13. NOTICES
-------
All communications, notices and exchanges of information contemplated
herein, or required or permitted to be given under this License, must be in
writing and will be deemed effective when delivered in person or on the
third business day after the day on which such notice is mailed by the
highest class of regular mail to the following addresses:
If to GM: AC Delco Systems Division
4800 S. Saginaw Street
Flint, Michigan 48501
Attention: Finance Director
Fax: (810) 257-5526
with a copy to: General Motors Corporation
Office of General Counsel
3031 West Grand Boulevard
P. O. Box 33122
Detroit, Michigan 48232-5122
Attention: Trademark Counsel
If to Licensee: Delco Remy America, Inc.
2405 Columbus Avenue
Anderson, Indiana 46018
Attention: Chief Financial Officer
Fax: (317) 646-3531
15
<PAGE>
DR International, Inc.
275 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Harold K. Sperlich
Fax: (810) 852-7286
with a copy to: Dechert Price & Rhoads
4000 Bell Atlantic Rower
1717 Arch Street
Philadelphia, Pennsylvania 19103
Attention: G. Daniel O'Donnell, Esquire
Fax: (215) 994-2222
14. RELATIONSHIP BETWEEN GM AND LICENSEE
------------------------------------
Nothing in this License shall be construed to place the parties in a
relationship whereby either shall be considered to be the agent of the
other for any purpose whatsoever. Neither party is authorized to bind the
other party or to enter into any contract or assume any obligation for the
other. Any such unauthorized act will be null and void as to the party for
which such obligations were assumed. Nothing in this License shall be
construed to establish a relationship of partners or joint venturers
between GM and Licensee. Each party is individually responsible only for
its own obligations, duties and promises as set out in this License.
15. ASSIGNMENT OR SUBLICENSE
------------------------
With the exception of the license of the Remy Trademarks and Licensee's
rights under Paragraph 8, this License and each part hereof and all rights
and duties hereunder are personal to Licensee and shall not, without the
prior written consent of GM, be assigned, mortgaged, sublicensed or
otherwise encumbered by Licensee or by operation of law. If Licensee
determines that it needs to enter into a sublicense or joint license with
respect to the Delco Remy Trademarks, it should make such request in
writing to GM. Such request should state the name and address of the
company for which the sublicense or joint license is sought, a description
of such company and
16
<PAGE>
sufficient financial information with respect to such company which will
enable GM to satisfy itself as to financial health and standing of such
company. Licensee must also set forth the Products for which a sublicense
or joint license is sought, the intended customers and why it believes a
sublicense or joint license is necessary and what steps will be taken to
protect the trademarks and assure the quality of the Products involved.
Notwithstanding the foregoing, GM may assign this License without first
obtaining Licensee's written consent to any wholly owned subsidiary company
of GM, and Licensee may assign this License as part of an internal
reorganization or to the successor of all or substantially all of its
business.
16. NO WAIVER, ENTIRE AGREEMENT
---------------------------
None of the terms of this License can be waived or modified except by an
express agreement in writing signed by all of the parties. There are no
representations, promises, warranties, covenants or undertakings other than
those contained in this License and Exhibits hereto, and the Asset Purchase
Agreement, which represent the entire understanding of the parties hereto
relating to the subject matter thereof. The failure of either party hereto
to enforce, or the delay by either party in enforcing, any of its rights
under this License shall not be deemed a continuing waiver or a
modification thereof, and either party may, within the time provided by
applicable law, commence appropriate legal proceedings to enforce any or
all of such rights. No person, firm, group or corporation other than
Licensee and GM shall be deemed to have acquired any rights by reason of
anything contained in this License.
17. MISCELLANEOUS
-------------
(a) Controlling Law. This License shall be considered as having been
---------------
entered into in the State of New York, without giving effect to the
principles of conflict of laws, and shall be construed and interpreted
in accordance with the laws of that State.
17
<PAGE>
(b) Service of Process. Service of process shall be effective if mailed
------------------
pursuant to Paragraph 13 hereof.
(c) Singular Shall Include Plural. Whenever required by the context, the
-----------------------------
singular shall include the plural, and the plural the singular, and
the masculine shall include the feminine and neuter.
(d) Severability. The provisions of this License shall be severable, and
------------
if any provision of this License shall be held or declared to be
illegal, invalid, or unenforceable in any jurisdiction, such
illegality, invalidity or unenforceability shall not affect any other
provision hereof or the interpretation and effect of this License as
to any other jurisdiction, and the remainder of this License,
disregarding such illegal, invalid or unenforceable provision shall
continue in full force and effect as though such illegal, invalid, or
unenforceable provision had not been contained herein.
(e) Headings. Headings or titles to Paragraphs or subparagraphs in this
--------
License are for the convenience of reference only and shall not affect
the meaning or interpretation of this License or any part hereof.
(f) No Modifications. This License may not be released, discharged,
----------------
abandoned, changed or modified in any manner except in an instrument
signed by each of the parties hereto.
(g) No Strict Construction. The language used in this License shall be
----------------------
deemed to be language chosen by all parties hereto to express their
mutual intent, and no rule of strict construction against either party
shall apply to any term or condition of this License.
18
<PAGE>
(h) Signature Representation. Each person who signs this License on
------------------------
behalf of a party hereto represents and warrants that he has the proper
authority to execute this License on such party's behalf.
IN WITNESS WHEREOF, GM and DRA have caused this Agreement to be executed by
their duly authorized representatives on the day and year first written above.
GENERAL MOTORS CORPORATION
BY: /s/ Charles A. Cotten
-----------------------------
NAME: Charles A. Cotten
---------------------------
TITLE: Attorney in fact
---------------------------
DR INTERNATIONAL, INC.
BY: /s/ James R. Gerrity
-----------------------------
NAME: James R. Gerrity
---------------------------
TITLE: Executive V.P.
---------------------------
DRA, Inc.
BY: /s/ James R. Gerrity
-----------------------------
NAME: James R. Gerrity
---------------------------
TITLE: Executive V.P.
---------------------------
19
<PAGE>
EXHIBIT A
---------
DELCO REMY AMERICA LOGO
-----------------------
[LOGO OF DELCO REMY APPEARS HERE]
PMS #185 and Black
4-20-94
Trademark License Agreement
Exhibit A
<PAGE>
EXHIBIT B
---------
LICENSED TERRITORIES
--------------------
<TABLE>
<CAPTION>
TERRITORY TERRITORY
--------- ---------
<S> <C>
Algeria Morocco
Argentina Namibia
Australia New Zealand
Austria Nicaragua
Bangladesh Nigeria
Benelux Norway
Bolivia O.A.P.I.
Bophuthatswana Pakistan
Botswana Papua New Guinea
Brazil Paraguay
Canada People's Republic of China
Chile Peru
Colombia Poland
Costa Rica Portugal
Czech Republic Russia
Denmark Saudi Arabia
Ecuador Singapore
Egypt South Africa
El Salvador Spain
Fiji Islands Sri Lanka
Finland Sudan
France Swaziland
Germany Sweden
Ghana Switzerland
Greece Syria
Hong Kong Taiwan
Hungary Tanganyika
Iceland Thailand
India Transkei
Indonesia Turkey
Iran Ukraine
Ireland United Arab Emirates
Israel United Kingdom
Italy United States
Japan Uruguay
Korea Venda
Kuwait Venezuela
Lesotho Western Samoa
Mexico Zambia
</TABLE>
Trademark License Agreement
Exhibit B
<PAGE>
Exhibit 10.5
TRADENAME LICENSE AGREEMENT
---------------------------
This TRADENAME LICENSE AGREEMENT ("License") is made and entered into July
31.1994, by and among DRA, Inc., a company organized under the laws of the State
of Delaware ("DRA"), DR International, Inc., a company organized under the laws
of the State of Delaware ("DRI" and together with DRA, the "Licensee"), and
General Motors Corporation, through its Delco Remy Division (together with any
successor thereto, the "Delco Remy Division"), a corporation organized under the
laws of the State of Delaware ("GM").
WITNESSETH
WHEREAS, GM, DRI and DRA have entered into the Asset Purchase Agreement,
dated July 13, 1994 (the "Asset Purchase Agreement") under which DRA has
acquired (The "Acquisition") certain assets and assumed certain liabilities of
the Delco Remy Division.
WHEREAS, DRI and DRA desire to acquire, and GM is willing to grant, a
license to use certain tradenames of Delco Remy Division.
NOW THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, for themselves and their successors and
assigns, agree as follows:
1. DEFINITIONS
-----------
The following terms have the meaning ascribed to them herein:
Businesses. The term "Businesses" shall mean the production,
----------
distribution, sale and servicing of heavy duty starter motors and
generators ("Heavy Duty Starter Motors Business"), remanufactured
heavy duty starter motors and generators ("HD Reman Business"), light
duty starter motors ("Light Duty
<PAGE>
Starter Motor Business"), remanufactured light duty starter motors ("LD Reman
Business"), and powder metal forge ("PMF Business").
Closing. The term "Closing" has the meaning ascribed in the Asset Purchase
- -------
Agreement.
Component Supply Agreements. The term "Component Supply Agreements" means the
- ---------------------------
Heavy Duty Component Supply Agreement, Light Duty Component Supply Agreement,
Powder Metal Forge Component Supply Agreement, and Distribution and Supply
Agreement between DRA and GM included among the Ancillary Agreements to the
Asset Purchase Agreement.
Delco Remy Trademarks. "Delco Remy Trademarks" means "DELCO REMY", "DELCO REMY
- ---------------------
AMERICA", "DELCOTRON" (with regard to heavy duty generators only), the "DELCO
REMY AMERICA logo" as set forth in Exhibit A, and such other logo types
containing "Delco Remy" as DRA or DRI may adopt (subject to GM's written consent
not to be unreasonably delayed or withheld) and use during the term of this
License as provided herein.
Delco Remy Tradenames. The term "Delco Remy Tradenames" shall mean "Delco Remy
- ---------------------
America" and/or "Delco Remy International".
Effective Date. The term "Effective Date" means the date of this Agreement.
- --------------
Product Liability Insurance. The term "Product Liability Insurance" means
- ---------------------------
insurance maintained by Licensee in accordance with Paragraph 7 hereof.
2
<PAGE>
Products. The term "Products" means the products manufactured by the
--------
Businesses as of the date of the signing of this License and any
replacements and extensions thereof.
Remy Trademarks. "Remy Trademarks" means "REMY", "REMY AMERICA", "REMY
---------------
INTERNATIONAL", and such logotypes as Licensee may adopt containing "REMY",
"REMY AMERICA", or "REMY INTERNATIONAL".
Remy Tradenames. "Remy Tradenames" means "REMY AMERICA" and "REMY
---------------
INTERNATIONAL."
Territory. Licensee shall be entitled to use the Tradenames world-wide.
---------
Trademarks. "Trademarks" means the "DELCO REMY Trademarks", the "Remy
----------
Trademarks", and any other term that GM authorizes as provided herein or in
the Trademark License Agreement for use as a trademark.
Tradenames. The term "Tradenames" shall mean the "Delco Remy Tradenames"
----------
and the "Remy Tradenames."
Trademark License Agreement. The term "Trademark License Agreement" shall
---------------------------
mean the Trademark License Agreement between GM and DRA.
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Asset Purchase Agreement.
3
<PAGE>
2. TRADENAME
---------
(a) Grant. GM specifically approves of and grants Licensee an exclusive,
-----
royalty free license to use the Tradenames in the Territory during the
term of the License as defined in 3(c). Licensee may display the
Tradename(s) in the logo type shown in Exhibit A and such other logo
types containing "Delco Remy" or "Remy" as DRA may adopt (any such
logotype being subject to GM's written consent not to be unreasonably
delayed or withheld), but Licensee will not display the Tradename(s)
in any other logo, without prior written approval of GM.
(b) Sole Use. Licensee agrees that its use of the Tradenames as its
--------
company name(s) and tradename(s) is with the permission of GM.
3. SCOPE OF USE
------------
(a) Use. Subject to the terms and conditions of this License, Licensee may
---
use the Tradename(s) in association with its business.
(b) The grant shall include all typical uses such as letterhead, business
cards, signage as well as the advertising, promotion, distribution,
service and sale of its products in the Territory by or for Licensee
except as provided herein, and shall include use as a corporate name
as well as a tradename.
(c) Term. The term of the License with respect to the Delco Remy
----
Tradenames hereby granted shall commence on the Effective Date, and,
unless extended by mutual agreement, shall continue until the earlier
to occur of (i) ten years after the Closing Date, (ii) any sale of all
or substantially all of the assets of DRA to any party other than the
Citicorp Venture Capital, Ltd., CIT Group/Business Credit, Inc., World
Equity Partners, L.P., MascoTech, Harold K. Sperlich, Thomas J. Snyder
and/or James R. Gerrity, or (iii) termination of this License as
provided herein. The license of the Remy Tradenames hereby granted
shall commence on the Effective Date, shall be perpetual, fully-paid,
and
4
<PAGE>
royalty-free, and may be freely assigned, mortgaged, sublicensed or
encumbered, subject, however, to the covenants in Paragraph 3(d) of this
Agreement.
(d) Limitations to Licensee's Rights. Licensee shall not use the Delco Remy
--------------------------------
Tradename physically on any product or packaging except the licensed
Products or as set forth in the Trademark License Agreement. Except as
contemplated by the Manufacturers Representative Agreement and the
Distribution and Supply Agreement, Licensee shall not use the Delco Remy
Tradenames directly or indirectly on or in connection with, or in relation
to, batteries or any other product or business of the Delco Remy Division
not acquired by Licensee. Licensee shall not combine the Tradenames with
any other trademark or tradename without the express written authorization
of GM, provided, however, that Licensee may use the Tradenames together
with other tradenames, trademarks and service marks. Licensee shall not
make tradename or corporate name use of the Tradenames or any confusingly
similar form of, variation on, or alternative spelling of "DELCO" except as
provided herein.
(e) Notwithstanding the other provisions of this Agreement, and except as
contemplated by the Manufacturers Representative Agreement and the
Distribution and Supply Agreement, neither Licensee nor its sublicensees,
assigns, or affiliates may use the Remy Tradenames directly or indirectly
on or in connection with or in relation to (i) batteries at any time after
the Closing Date or (ii) for 10 years after the Closing Date for any other
product manufactured by the Delco Remy Division on the Closing Date and not
acquired by DRA.
5
<PAGE>
4. RIGHTS RETAINED
---------------
Nothing in this License shall be construed to prevent GM from itself using,
prior to an assignment pursuant to Paragraph 9 of this Agreement, "Delco
Remy Division" as a tradename with regard to and in connection with
batteries or any other product or business of the Delco Remy Division not
acquired by Licensee as of the Closing Date except that GM will not use,
and will not directly or indirectly authorize or permit any third party to
use, the Tradenames or any confusingly similar form of, variation on, or
alternative spelling of any Tradename.
5. GOODWILL
--------
Licensee recognizes the value of the goodwill associated with the
Tradenames and acknowledges that, except for assignments pursuant to
Paragraph 9 of this Agreement, the Tradenames, and all rights therein and
the goodwill pertaining thereto, belong exclusively to GM and that the
Tradenames have acquired secondary meaning in the mind of the public in
relation to GM. Notwithstanding anything to the contrary expressed in this
License, Licensee shall not acquire, be deemed to have acquired and shall
not claim any rights to the Tradenames other than the rights granted by GM
under this License or pursuant to Paragraph 9 of this Agreement.
6. GM'S TITLE AND PROTECTION OF GM'S RIGHTS
----------------------------------------
(a) GM's Representations. GM represents and warrants that in the
--------------------
Territory: (i) it is the sole and exclusive owner of all right, title
and interest in and to the Tradenames for use in connection with the
Businesses; (ii) it has the power to grant the rights and licenses
granted to Licensee herein and has not granted such rights and
licenses to any other person with regard to Products; (iii) it is not
aware of any rights of any third party which would be infringed by
6
<PAGE>
Licensee's use of the Tradenames in relation to the Businesses as
authorized herein.
(b) Conduct of Licensee. Licensee agrees that it will not do or suffer to be
-------------------
done during the Term or any renewal period of this License any act or thing
that will impair in any way the rights of GM in and to the Tradenames then
licensed hereunder. GM hereby agrees to indemnify Licensee and undertakes
to hold it harmless against any claims or suits to the extent that such
claim or suit arises out of the exploitation and use by Licensee of the
Tradenames as authorized in this License, provided that the claim or suit
arises in the Territory and prompt notice is given to GM of any such claim
or suit and provided, further, that GM shall have the option to undertake
and conduct, at GM's expense, the defense of any suit brought and that no
settlement of any such claim or suit is made without prior written consent
of GM (which consent shall not be unreasonably delayed or withheld).
Licensee shall participate in such defense, at its own expense, to protect
its interest. GM shall keep Licensee informed of all material developments
throughout the progress of any such defense, and GM shall not, without
Licensee's prior approval (which approval shall not be unreasonably delayed
or withheld), enter into any consent, settlement, or other agreement which
materially diminishes or restricts Licensee's rights under this License or
places any material restrictions or conditions upon Licensee's use of the
Tradenames.
(c) No Assignment. It is agreed that nothing contained in this License shall be
-------------
construed as an assignment or grant to Licensee of any right, title or
interest in or to the Tradenames, it being understood that all rights
relating thereto are reserved by GM, except for (i) the License to Licensee
of the right to use and utilize the Tradenames only as specifically and
expressly provided in this License and (ii) the assignment to Licensee of
the trademarks and tradenames under the Asset Purchase Agreement and
pursuant to Paragraph 9 of this Agreement.
7
<PAGE>
7. INDEMNIFICATION BY LICENSEE AND PRODUCT LIABILITY INSURANCE
-----------------------------------------------------------
Licensee agrees that it will obtain as of the Closing, at its own expense,
Product Liability Insurance from a recognized insurance company which is
qualified to do business in the State of Indiana, providing adequate
protection (in the minimum amount of five million dollars ($5,000,000) per
occurrence) for GM (as well as Licensee) against any product liability
claims related to the Products. As proof of such insurance, a certificate
of Product Liability Insurance, naming GM as an additional insured party
(and setting forth the amount of insurance, the policy number, the date of
expiration and including a provision requiring that GM be given thirty (30)
days written notice prior to termination, reduction or modification of such
insurance coverage) shall be submitted to GM by Licensee within thirty (30)
days after the execution of this License. Upon modification thereof,
Licensee shall furnish promptly to GM a copy of the modified certificate of
Product Liability Insurance. Licensee's procurement of Product Liability
Insurance or furnishing to GM a certificate therefor shall not relieve
Licensee of its obligation or liabilities under this License.
8. CONDUCT OF BUSINESS
-------------------
(a) Standard of Conduct. GM acknowledges that the overall manner in which
-------------------
business is being conducted by its Delco Remy Division meets its high
standards. So as not to impair the substantial goodwill that GM has
built up and now possesses in the Tradenames it is an essential
condition of this License, and Licensee hereby covenants and agrees:
(i) that the overall manner in which the business will be conducted
under this License, and any use of the Delco Remy Tradenames in
connection therewith, shall meet or exceed the standard as that of the
Delco Remy Division as of the Closing; (ii) that business will be
conducted in all material respects in accordance with all applicable
and material federal, state and local laws and regulations; and (iii)
8
<PAGE>
that the activities of Licensee hereunder shall not reflect adversely
in any material respect upon the good name and reputation of GM.
(b) Advertising. Licensee shall provide GM at any time, at GM's reasonable
-----------
request but not more than three times per year, a representative
sampling of all current or proposed tags, labels, identification
plates, packaging, advertising copy, business cards, letterhead,
brochures, catalogs, and marketing and promotional materials bearing
the Delco Remy Tradenames not previously provided pursuant to this
provision (individually or collectively, the "Material") for GM's
review of the manner in which the Delco Remy Tradenames are used and
depicted in a manner consistent with this Agreement. GM shall use its
best efforts to respond with any objections as to content thereto in
writing within fourteen (14) days and the parties will use their best
efforts to resolve in good faith such objections. If GM shall fail,
however, to object in writing within thirty (30) days after receipt of
the Material, it shall be deemed to have consented to Licensee's use
of the Material. Such consent by GM shall not constitute a waiver of
Licensee's other duties under this License.
9. RIGHT TO ACQUIRE REMY TRADENAMES
--------------------------------
GM will, within 30 days after Licensee's written request, transfer and
assign, or cause to be transferred and assigned, to Licensee or its
designee the right, title and interest to the Remy Tradenames in such
country or countries as Licensee may designate, together with all
assignments and other documents necessary to effect such transfer. Licensee
will bear the expense of preparing and recording such documents and
assignments as well as all out-of-pocket legal costs, taxes, and fees
related thereto. Licensee may exercise its right to cause GM to transfer
the Remy Tradenames from time to time in such countries as it chooses until
it has acquired all right, title and interest to the Remy Tradenames in all
countries. To the extent necessary, the parties will enter into such
consent agreement as is appropriate under the laws of each such country to
ensure the protection of the Remy Tradenames as to Licensee and the
9
<PAGE>
Delco Remy Tradenames as to GM. Contemporaneous with each such transfer and
assignment, GM will, to the extent requested by Licensee in writing,
voluntarily partially abandon, relinquish or limit any of its or its
affiliates' rights to and registrations of Delco Remy Tradenames in such
country or countries with respect to the Businesses. Nothing herein will
limit GM's ability to use, license, or seek tradename registration of the
Delco Remy Tradenames in connection with businesses of the Delco Remy
Division as of the Closing Date other than the Businesses. With respect to
each country in which Licensee has been assigned the Remy Tradenames, as of
the effective date of any such assignment the Remy Tradenames will no
longer be subject to this License in such country, the definition of the
term "Tradenames" in this Agreement will exclude the Remy Tradenames as to
such country, and Licensee's covenants and acknowledgements in Paragraphs
3(d) and 5 with respect to the Delco Remy Tradenames will not be
interpreted to limit or restrict Licensee's use of or rights to the Remy
Tradenames as to such country.
10. TERMINATION
-----------
(a) Bankruptcy. If Licensee: (i) files a voluntary petition for an order
----------
for relief in bankruptcy; (ii) is adjudicated a bankrupt; (iii) has an
involuntary petition in bankruptcy filed against it which remains
unstayed or undismissed for sixty (60) days following the filing
thereof; (iv) makes an assignment for the benefit of its creditors or
pursuant to any bankruptcy law; or (v) has a liquidating receiver
appointed for it or for its business, the License hereby granted shall
automatically terminate without any notice being necessary.
(b) Breach. If either party shall commit a material breach of any of its
------
obligations under this License, the non-breaching party shall have the
right to terminate this License upon ninety (90) days written notice
("Notice Of Termination"), and such Notice Of Termination shall become
effective unless the breaching party shall have substantially remedied
the breach within the ninety (90) day period, which may be extended an
additional ninety (90) days if requested in
10
<PAGE>
writing by the breaching party and the breaching party is working in
good faith to fully remedy such breach.
11. EFFECT OF EXPIRATION OR TERMINATION
-----------------------------------
Upon and after the expiration or termination of this License, the license
granted to Licensee hereunder shall forthwith revert to GM, and Licensee
shall execute any instruments reasonably requested by GM, at GM's expense,
to accomplish or confirm the foregoing, provided, however, that such
expiration or termination shall not in any way diminish, limit, revoke, or
cause any reversion of, Licensee's rights to the trademarks and tradenames
transferred and assigned under the Asset Purchase Agreement or pursuant to
Paragraph 9 of this Agreement.
12. REMEDIES
--------
(a) No Waiver. The resort by either party to any remedies referred to
---------
herein shall not be construed as a waiver of any other rights or
remedies to which such party is entitled under this License or
otherwise.
(b) Remedies Cumulative. All rights and remedies of a party hereto whether
-------------------
evidenced hereby or arising as a result of any other contract,
agreement, instrument or law shall be cumulative and may be exercised
singularly or concurrently.
13. NOTICES
-------
All communications, notices and exchanges of information contemplated
herein, or required or permitted to be given under this License, must be in
writing and will be deemed effective when delivered in person or on the
third business day after the day on which such notice is mailed by the
highest class of regular mail to the following addresses:
11
<PAGE>
If to GM: AC Delco Systems Division
4800 S. Saginaw Street
Flint, Michigan 48501
Attention: Finance Director
Fax: (810) 257-5526
with a copy to: General Motors Corporation
Office of General Counsel
3031 West Grand Boulevard
P. O. Box 33122
Detroit, Michigan 48232-5122
Attention: Trademark Counsel
If to Licensee: Delco Remy America, Inc.
2405 Columbus Avenue
Anderson, Indiana 46018
Attention: Chief Financial Officer
Fax: (317) 646-3531
DR International, Inc.
275 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Harold K. Sperlich
Fax: (810) 852-7286
with a copy to: Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103
Attention: G. Daniel O'Donnell, Esquire
Fax: (215) 994-2222
14. RELATIONSHIP BETWEEN GM AND LICENSEE
------------------------------------
Nothing in this License shall be construed to place the parties in a
relationship whereby either shall be considered to be the agent of the
other for any purpose whatsoever. Neither party is authorized to bind the
other party or to enter into any contract or assume any obligation for the
other. Any such unauthorized act will be null and void as to the party for
which such obligations were assumed. Nothing in
12
<PAGE>
this License shall be construed to establish a relationship of partners or
joint venturers between GM and Licensee. Each party is individually
responsible only for its own obligations, duties and promises as set out in
this License.
15. ASSIGNMENT OR SUBLICENSE
------------------------
With the exception of the license of the Remy Tradenames and Licensee's
rights under Paragraph 9, this License and each part hereof and all rights
and duties hereunder are personal to Licensee and shall not, without the
prior written consent of GM, be assigned, mortgaged, sublicensed or
otherwise encumbered by Licensee or by operation of law. Notwithstanding
the foregoing, GM may assign this License without first obtaining
Licensee's written consent to any wholly owned subsidiary company of GM.
16. NO WAIVER, ENTIRE AGREEMENT
---------------------------
None of the terms of this License can be waived or modified except by an
express agreement in writing signed by all of the parties. There are no
representations, promises, warranties, covenants or undertakings other than
those contained in this License and Exhibits hereto, or the Asset Purchase
Agreement, which represent the entire understanding of the parties hereto
relating to the subject matter thereof. The failure of either party hereto
to enforce, or the delay by either party in enforcing, any of its rights
under this License shall not be deemed a continuing waiver or a
modification thereof, and either party may, within the time provided by
applicable law, commence appropriate legal proceedings to enforce any or
all of such rights. No person, firm, group or corporation other than
Licensee and GM shall be deemed to have acquired any rights by reason of
anything contained in this License.
13
<PAGE>
17. MISCELLANEOUS
-------------
(a) Controlling Law. This License shall be considered as having been
---------------
entered into in the State of New York, without giving effect to the
principles of conflict of laws, and shall be construed and interpreted
in accordance with the laws of that State.
(b) Service of Process. Service of process shall be effective if mailed
------------------
pursuant to Paragraph 13 hereof.
(c) Singular Shall Include Plural. Whenever required by the context, the
-----------------------------
singular shall include the plural, and the plural the singular, and
the masculine shall include the feminine and neuter.
(d) Severability. The provisions of this License shall be severable, and
------------
if any provision of this License shall be held or declared to be
illegal, invalid, or unenforceable in any jurisdiction, such
illegality, invalidity or unenforceability shall not affect any other
provision hereof or the interpretation and effect of this License as
to any other jurisdiction, and the remainder of this License,
disregarding such illegal, invalid or unenforceable provision shall
continue in full force and effect as though such illegal, invalid, or
unenforceable provision had not been contained herein.
(e) Headings. Headings or titles to Paragraphs or subparagraphs in this
--------
License are for the convenience of reference only and shall not affect
the meaning or interpretation of this License or any part hereof.
(f) No Modifications. This License may not be released, discharged,
----------------
abandoned, changed or modified in any manner except in an instrument
signed by each of the parties hereto.
(g) No Strict Construction. The language used in this License shall be
----------------------
deemed to be language chosen by all parties hereto to express their
mutual intent, and no rule of strict construction against either party
shall apply to any term or condition of this License.
14
<PAGE>
(h) Signature Representation. Each person who signs the License on
------------------------
behalf of a party hereto represents and warrants that he has
the proper authority to execute this License of such party's
behalf.
IN WITNESS WHEREOF, GM and DRA have caused this Agreement to be executed by
their duly authorized representatives on the day and year first written above.
DRA, INC. DELCO REMY DIVISION
GENERAL MOTORS CORPORATION
BY: /s/ James R. Gerrity BY: /s/ Charles A. Cotten
------------------------------ --------------------------------
NAME: James R. Gerrity NAME: Charles A. Cotten
---------------------------- ------------------------------
TITLE: Executive V.P. TITLE: Attorney in fact
--------------------------- -----------------------------
DR INTERNATIONAL, INC.
BY: /s/ James R. Gerrity
------------------------------
NAME: James R. Gerrity
----------------------------
TITLE: Executive V.P.
---------------------------
15
<PAGE>
EXHIBIT A
---------
DELCO REMY AMERICA LOGO
-----------------------
[LOGO OF DELCO REMY APPEARS HERE]
Tradename License Agreement
Exhibit A
<PAGE>
Exhibit 10.6
PARTNERSHIP AGREEMENT
OF
DELCO REMY MEXICO, S. de R.L. de C.V.
dated as of
April 17 , 1997
between
REMY MEXICO HOLDINGS, S. de R.L. de C.V.
and
GCID AUTOPARTES, S.A. de C.V.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................. 1
-----------
Section 1.1 Definitions......................................... 1
-----------
"Additional Contribution"........................................ 1
"Additional Equity Contribution"................................. 1
"Affiliate"...................................................... 1
"Amended Bylaws"................................................. 1
"Annual Limit"................................................... 2
"Applicable Law"................................................. 2
"Bylaws"......................................................... 2
"Board".......................................................... 2
"Closing"........................................................ 2
"Closing Date"................................................... 2
"Company"........................................................ 2
"Company's Business"............................................. 2
"Corporate Part.................................................. 2
"Covered Investment"............................................. 3
"Debt Contribution".............................................. 3
"DR Asset Purchase Agreement".................................... 3
"DRA"............................................................ 3
"DRI"............................................................ 3
"DRI Receivables"................................................ 3
"DRI Senior Bank Debt Rate"...................................... 3
"DR Service Agreement"........................................... 4
"EBIT"........................................................... 4
"Equipment Lease"................................................ 4
"Equity Contribution"............................................ 4
"Fix Rate"....................................................... 4
"Governmental Authority"......................................... 4
"Initial Bylaws"................................................. 5
"Initial Equity Contribution".................................... 5
"Initial Partners"............................................... 5
"JF"............................................................. 5
"JF Asset Purchase Agreement".................................... 5
"JV Equity Contribution"......................................... 5
"JV Partners".................................................... 5
"Lease Agreement"................................................ 5
"Licensed Products".............................................. 5
"Lien"........................................................... 5
"Majority Interest".............................................. 5
</TABLE>
i
<PAGE>
"Material Adverse Effect".......................................... 5
"Material Breach".................................................. 6
"Mexican GAAP"..................................................... 6
"Mexican Peso"..................................................... 6
"Noncompetition Agreements"........................................ 6
"Officer".......................................................... 7
"Partner".......................................................... 7
"Partner's Premium Capital"........................................ 7
"Partner's Social Capital"......................................... 7
"PCo."............................................................. 7
"Percentage"....................................................... 7
"Person"........................................................... 7
"Premium Capital".................................................. 7
"Related Agreements"............................................... 7
"Required Interest"................................................ 8
"RII".............................................................. 8
"RII Corporate Part Sale Agreement"................................ 8
"SCE".............................................................. 8
"SD License"....................................................... 8
"SD Motors"........................................................ 8
"Senior Officer"................................................... 8
"Service Agreement"................................................ 8
"Social Capital"................................................... 8
"Supply and Sales Agreement"....................................... 8
"Termination Agreement"............................................ 8
"TIA Agreement".................................................... 9
"Total Social Capital"............................................. 9
"Trademark Agreement".............................................. 9
"US Dollar"........................................................ 9
"US GAAP".......................................................... 9
"US Independent Accountants"....................................... 9
Section 1.2 Other Definitions.................................... 9
-----------------
ARTICLE II ORGANIZATION............................................... 10
------------
Section 2.1 Establishment of Partnership;.............................. 10
-----------------------------
Section 2.2 Bylaws; Conflict with Partnership Agreement................ 10
-------------------------------------------
Section 2.3 Principal Offices.......................................... 10
-----------------
Section 2.4 Capitalization............................................. 11
--------------
Section 2.5 Subscriptions and JV Equity Contributions.................. 11
-----------------------------------------
Section 2.6 Additional Contributions................................... 12
------------------------
Section 2.7 Cash Contributions......................................... 15
------------------
ii
<PAGE>
Section 2.8 Organizational and Other Costs............................. 15
------------------------------
Section 2.9 Bank Financing............................................. 16
--------------
ARTICLE III PURPOSES; TERM OF COMPANY.................................. 16
-------------------------
Section 3.1 Purposes................................................... 16
--------
Section 3.2 Term....................................................... 17
----
ARTICLE IV PARTNERS................................................... 17
--------
Section 4.1 Partner Meetings........................................... 17
----------------
Section 4.2 Voting..................................................... 17
------
Section 4.3 Ouorum..................................................... 20
------
Section 4.4 Action by Written Consent.................................. 20
-------------------------
Section 4.5 Other Activities........................................... 20
----------------
Section 4.6 Hiring of Employees........................................ 21
-------------------
ARTICLE V BOARD OF MANAGERS.......................................... 21
-----------------
Section 5.1 Number..................................................... 21
------
Section 5.2 Meetings of the Board...................................... 22
---------------------
Section 5.3 Powers..................................................... 22
------
Section 5.4 Ouorum..................................................... 22
------
Section 5.5 Voting; Action by Written Consent.......................... 23
---------------------------------
ARTICLE VI OFFICERS................................................... 23
--------
Section 6.1 Officers................................................... 23
--------
Section 6.2 Powers..................................................... 23
------
Section 6.3 Other Employment of Officers............................... 24
----------------------------
Section 6.4 General Manager as Administrator-Manager................... 24
----------------------------------------
ARTICLE VII LIABILITY AND INDEMNIFICATION.............................. 24
-----------------------------
Section 7.1 Liability.................................................. 24
---------
Section 7.2 Indemnification............................................ 24
---------------
ARTICLE VIII ACCOUNTING AND DIVIDENDS................................... 25
------------------------
Section 8.1 Books; Auditor; Financial Statements; Fiscal Year.......... 25
-------------------------------------------------
Section 8.2 Dividend Policy............................................ 26
---------------
ARTICLE IX TRANSFER OF CORPORATE PARTS; RIGHT OF FIRST REFUSAL........ 27
---------------------------------------------------
Section 9.1 Prior Consent.............................................. 27
-------------
Section 9.2 Right of First Refusal..................................... 27
----------------------
Section 9.3 Transferees; New Partners.................................. 28
-------------------------
iii
<PAGE>
Section 9.4 Costs...................................................... 28
-----
ARTICLE X PUT AND CALL RIGHTS OF THE PARTNERS........................ 28
-----------------------------------
Section 10.1 Put Right.................................................. 28
---------
Section 10.2 Call Right................................................. 28
----------
Section 10.3 Computation of Purchase Price.............................. 29
-----------------------------
Section 10.4 Payment.................................................... 30
-------
Section 10.5 Put/Call Rights If JF Investor Owns Less Than 10%.......... 31
-------------------------------------------------
ARTICLE XI ADDITIONAL COVENANTS....................................... 32
--------------------
Section 11.1 The Closing................................................ 32
-----------
Section 11.2 Operating Policy........................................... 33
----------------
Section 11.3 Payment of DRI Receivables................................. 33
--------------------------
Section 11.4 Consent to Assignment of SD License........................ 33
-----------------------------------
Section 11.5 Debt Policy................................................ 33
-----------
Section 11.6 Liens on Corporate Part of JF Investor..................... 34
--------------------------------------
Section 11.7 Prior Actions of SCE, Etc.................................. 34
-------------------------
Section 11.8 Company Employees.......................................... 34
-----------------
ARTICLE XII DISPUTE RESOLUTION......................................... 34
------------------
Section 12.1 Notice Regarding Dispute................................... 34
------------------------
Section 12.2 Referral to Senior Executive Officers...................... 35
-------------------------------------
Section 12.3 Arbitration................................................ 35
-----------
Section 12.4 No Limitation of Remedies.................................. 36
-------------------------
ARTICLE XIII TERMINATION FOR MATERIAL BREACH, ETC. ..................... 36
-------------------------------------
Section 13.1 Termination................................................ 36
-----------
Section 13.2 Put and Call Rights Prior to Termination................... 37
----------------------------------------
Section 13.3 Effect of Termination...................................... 37
---------------------
ARTICLE XIV REPRESENTATIONS AND WARRANTIES............................. 38
------------------------------
Section 14.1 Investment Representations................................. 38
--------------------------
Section 14.2 Representations and Warranties of DR Investor.............. 38
---------------------------------------------
Section 14.3 Representations and Warranties of JF Investor.............. 39
---------------------------------------------
ARTICLE XV MISCELLANEOUS.............................................. 40
-------------
Section 15.1 Public Announcements, Etc.................................. 40
-------------------------
Section 15.2 Confidentiality............................................ 41
---------------
Section 15.3 Relationship of the Parties................................ 41
---------------------------
iv
<PAGE>
<TABLE>
<S> <C> <C>
Section 15.4 Agreement for Further Execution.......................... 41
-------------------------------
Section 15.5 Notices.................................................. 42
-------
Section 15.6 Amendments; No Waivers................................... 43
----------------------
Section 15.7 Successors and Assigns................................... 43
----------------------
Section 15.8 Governing Law; Consent to Jurisdiction................... 43
--------------------------------------
Section 15.9 Illegality and Severability.............................. 43
---------------------------
Section 15.10 Specific Performance..................................... 44
--------------------
Section 15.11 Captions................................................. 44
--------
Section 15.12 Counterparts; Effectiveness.............................. 44
---------------------------
Section 15.13 Entire Agreement......................................... 44
----------------
Section 15.14 Setoff................................................... 44
------
</TABLE>
v
<PAGE>
List of Schedules and Exhibits
<TABLE>
<S> <C>
Schedule 1 - Licensed Products
Schedule 2 - SD Motors
Schedule 3 - Consents
Exhibit A - Amended Bylaws
Exhibit B - DR Asset Purchase Agreement
Exhibit C - DR Service Agreement
Exhibit D - Equipment Lease
Exhibit E - Lease Agreement
Exhibit F-1 to
F-5 - Noncompetition Agreements
Exhibit G - RII Corporate Part Sale Agreement
Exhibit H - Service Agreement
Exhibit I - Supply and Sales Agreement
Exhibit J - Termination Agreement
Exhibit K - TIA Agreement
Exhibit L - Trademark Agreement
Exhibit M - Statement of Initial Capitalization
Exhibit N - Form of Subordinated Note
Exhibit 0 - Promissory Note - Put Notice
Exhibit P - Promissory Note - Call Notice
</TABLE>
vi
<PAGE>
PARTNERSHIP AGREEMENT
---------------------
OF
--
DELCO REMY MEXICO. S. de R.L. de C.V.
-------------------------------------
A Mexican Company
THIS PARTNERSHIP AGREEMENT (this "Partnership Agreement") is made and
entered into as of the __________ day of ________________, 1997, by and between
REMY MEXICO HOLDINGS, S. de R.L. de C.V., a Mexican company whose address is c/o
Delco Remy International, Inc., 2902 Enterprise Drive, Anderson, IN 46013,
U.S.A. ("DR Investor") and GCID AUTOPARTES, S.A. de C.V., a Mexican corporation
whose address is EJE 128 No. 190, Zona Industrial Del Potosi, 78090 San Luis
Potosi, S.L.P., Mexico ("JF Investor"), to join together to establish Delco Remy
Mexico, S. de R.L. de C.V. as a joint venture between them for the purposes and
upon the terms and conditions set forth in this Partnership Agreement.
ARTICLE
I
DEFINITIONS
-----------
Section 1.1 Definitions. Whenever used in this Partnership Agreement,
-----------
the following terms shall have the meanings respectively assigned to them in
this Article I.
Additional Contribution: "Additional Contribution" shall mean either
-----------------------
a Debt Contribution or an Additional Equity Contribution.
Additional Equity Contribution: "Additional Equity Contribution"
------------------------------
shall mean any Equity Contribution other than an Initial Equity Contribution or
a JV Equity Contribution.
Affiliate: "Affiliate" of any Person shall mean any Person directly
---------
or indirectly controlling, controlled by, or under common control with, such
Person. As used in the definition of Affiliate, "controlling" (including, with
its correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities,
<PAGE>
partnership or other ownership interests, by contract or otherwise). For the
purposes of this Partnership Agreement, the Company shall not be deemed to be an
"Affiliate" of DR Investor, JF Investor, or any of their respective other
Affiliates, and none of such Persons shall be deemed to be "Affiliates" of the
Company.
Amended Bylaws: "Amended Bylaws" shall mean the amended and restated
--------------
Bylaws adopted by the corresponding Partners' Meeting pursuant to this
Partnership Agreement, which shall be substantially in the form of Exhibit A.
---------
Annual Limit: "Annual Limit" shall mean the maximum aggregate amount
------------
of Additional Contributions which the Board shall have the right to require of
the Partners (in the aggregate) in any relevant Fiscal Year. The Annual Limit
for all Partners taken together in Fiscal Year 1997 shall be US $0.00 and shall
be US$ 2,000,000 in each Fiscal Year from 1998 through and including 2001
(subject to the rights and limitations on carrying unused amounts forward from
preceding Fiscal Years set forth in the first sentence of Section 2.6(a)). The
JV Equity Contributions shall not count toward the 1997 Annual Limit. There is
no Annual Limit for any Fiscal Year after the 2001 Fiscal Year.
Applicable Law: "Applicable Law" shall mean, with respect to any
--------------
Person or matter, any Mexican, US or other national, federal, territorial, state
or local statute, law, treaty, ordinance, rule, administrative action,
regulation, order, writ, injunction, judgment, decree or other requirement of
any Governmental Authority applicable to such Person or matter or any of such
Person's properties, assets, officers, directors, administrator-managers,
employees, consultants or agents (in connection with such officer's, director's,
administrator-manager's, employee's, consultant's or agent's activities on
behalf of such Person).
Bylaws: "Bylaws" shall mean the Bylaws of the Company, as they may
------
be amended from time to time in accordance with their terms .
Board: "Board" shall mean the Board of Managers of the Company.
------
2
<PAGE>
Closing: "Closing" shall mean the consummation of the transactions
-------
contemplated by this Partnership Agreement through the occurrence of the actions
specified in Section 11.1.
Closing Date: "Closing Date" shall mean the date on which the
------------
Closing occurs.
Company: "Company" shall mean Delco Remy Mexico, S. de R.L. de C.V.,
-------
a Mexican sociedad de responsabilidad limitada de capital variable.
Company's Business: "Company's Business" shall mean the business of
------------------
the Company as described in Section 3.1.
Corporate Part: "Corporate Part" shall mean, as to any Partner, (i)
--------------
such Partner's participation in the equity of the Company, including but not
limited to such Partner's rights to receive dividends and distributions of the
Company pursuant to this Partnership Agreement, the Bylaws and Applicable Law;
(ii) such Partner's rights to participate in the governance of the Company and
vote in the Partners' meetings of the Company and (iii) all other rights of a
Partner in the Company set forth in this Partnership Agreement, the Bylaws and
Applicable Law.
Covered Investment: "Covered Investment" shall mean an investment
------------------
(whether used for the purchase of property, plant or equipment or for working
capital purposes) made by the Company in a specific, separate and identifiable
project or line of business and made for the purpose of yielding an incremental
return (the "Return") to the Company, unless such investment is (i) made for
general working capital purposes or (ii) a capital expenditure incurred in the
usual course of business that is not intended to yield a separate and
identifiable Return (such as capital expenditures for routine maintenance and
replacements and capital expenditures made for the purpose of compliance with
Applicable Laws).
Debt Contribution: "Debt Contribution" shall mean any loan extended
-----------------
by any Partner or its Affiliates to the Company after the date of this
Partnership Agreement. Each Debt Contribution, by its terms, shall be US Dollar
denominated and shall be subordinate to all Senior Debt (as deferred in Exhibit
-------
N) of the Company.
- -
3
<PAGE>
DR Asset Purchase Agreement: "DR Asset Purchase Agreement" shall
------------------------------
mean the Asset Purchase Agreement dated as of the Closing Date between DRA and
the Company in substantially the form of Exhibit B.
---------
DRA: "DRA" shall mean Delco Remy America, Inc., a Delaware
---
corporation. On the date of this Partnership Agreement, DRA is a wholly-owned
subsidiary of DRI.
DRI: "DRI" shall mean Delco Remy International, Inc., a Delaware
---
corporation. On the date of this Partnership Agreement, DRI is the indirect
parent of DR Investor.
DRI Receivables: "DRI Receivables" shall mean all accounts
---------------
receivable of DRI and its Affiliates owing from SCE and/or its Affiliates as at
the Closing Date.
DRI Senior Bank Debt Rate: "DRI Senior Bank Debt Rate" shall mean
-------------------------
the lowest interest rate available on the date of determination under any senior
bank term loan facility of DRI then outstanding (whether or not any funds have
then currently been drawn under such facility), as such rate is certified by
DRI. If there is no such credit facility in existence on the date of
determination, the DRI Senior Bank Debt Rate shall be the rate estimated by DRI
in good faith to be the lowest rate of interest at which a US-based bank would
lend US Dollars to DRI on the date of determination under a fully-secured senior
term loan facility, as such rate is certified by DRI.
DR Service Agreement: "DR Service Agreement" shall mean the DR
--------------------
Service Agreement dated as of the Closing Date between the Company and Remy
Mexico Services, S. de R.L. de C.V., in substantially the form of Exhibit C.
---------
EBIT: "EBIT" shall mean, for any Fiscal Year or any other period,
----
net income (or loss) as reflected on the Company's audited financial statements
stated in US dollars for such period and based on US GAAP; plus (or minus) to
the extent deducted (added) in the determination of such net income (or loss)
(a) the income tax expense (benefit) for such period, (b) all interest expense
(net of
4
<PAGE>
any interest income) for such period, (c) all items of extraordinary expense
(income) for such period, (d) any loss (gains) resulting from the sale or other
disposition of assets other than the sale of inventory in the normal course of
business, (e) depreciation in excess of straight-line depreciation as determined
in accordance with US GAAP and (f) all currency translation adjustments.
Equipment Lease: "Equipment Lease" shall mean the Equipment Lease,
---------------
Sublicense and Subcontract dated as of the Closing Date between SCE and the
Company, in substantially the form of Exhibit D.
---------
Equity Contribution: "Equity Contribution" shall mean any
-------------------
contribution to the Company by a Partner which represents or is evidenced by an
equity security of or equity interest in the Company.
Fix Rate: "Fix Rate" shall mean, for a given day, the conversion
--------
rate of Mexican Pesos into US Dollars published by Banco de Mexico in the Diario
Oficial de la Federacion on such day or most recently prior to such day;
provided, however, that if at any time Banco de Mexico ceases publication of
such conversion rate, the Partners shall thereafter accept and use such other
comparable statistics relative to US Dollar/Mexican Peso exchange rates as shall
be computed and published by a comparable source to be selected by mutual
agreement of the Partners.
Governmental Authority: "Governmental Authority" shall mean any
----------------------
Mexican, US or other national, federal, territorial, state or local governmental
authority, quasi-governmental authority, instrumentality, court, commission or
tribunal or any regulatory, administrative or other agency, or any political or
other subdivision, department or branch of any of the foregoing.
Initial Bylaws: "Initial Bylaws" shall mean the Bylaws of the
--------------
Company in effect on the date of formation of the Company.
5
<PAGE>
Initial Equity Contribution: "Initial Equity Contribution" shall
---------------------------
mean any of (i) the MP $49,500 Equity Contribution made by DR Investor on
formation of the Company or (ii) the MP $500 Equity Contribution made by RII on
formation of the Company.
Initial Partners: "Initial Partners" shall mean DR Investor and RII
----------------
JF: "JF" shall mean Jose de la Fuente, an individual whose address,
--
for the purposes of this Partnership Agreement and the Related Agreements, is
12454 Breckenridge Drive, Dallas, TX 75230.
JF Asset Purchase Agreement: "JF Asset Purchase Agreement" shall
---------------------------
mean the Asset Purchase Agreement attached as an exhibit to the Equipment Lease.
JV Equity Contribution: "JV Equity Contribution" shall mean any
----------------------
Equity Contribution made pursuant to Section 2.5.
JV Partners: "JV Partners" shall mean DR Investor and JF Investor.
-----------
Lease Agreement: "Lease Agreement" shall mean the Lease Agreement
---------------
dated as of the Closing Date between the Company and SCE in substantially the
form of Exhibit E.
Licensed Products: "Licensed Products" are the products which, on
-----------------
the date of this Partnership Agreement, are manufactured or sourced by DRA
and/or its Affiliates under the designations set forth on Schedule 1.
----------
Lien: "Lien" shall mean any lien, attachment, pledge, conditional
----
sale agreement or other title retention agreement, lease, security agreement,
security interest or other encumbrance or similar right of any nature.
Majority Interest: "Majority Interest" shall mean greater than fifty
-----------------
percent (50%) of the total votes cast.
Material Adverse Effect: "Material Adverse Effect" shall mean, with
-----------------------
respect to any event, occurrence or condition, or series
6
<PAGE>
of events, occurrences or conditions, a material adverse effect on the
operations, property, earnings, prospects or financial condition of the affected
Person taken as a whole.
Material Breach: "Material Breach" shall mean the breach by a
---------------
Partner of this Partnership Agreement which breach, if not cured, would have a
Material Adverse Effect on the Company or the non-breaching Partner. A Material
Breach shall not exist for purposes of this definition unless the non-breaching
Partner has given written notice of such breach to the breaching Partner and the
Partner in material breach fails to cure the subject breach within 60 days of
the receipt of such notice.
Mexican GAAP: "Mexican GAAP" shall mean Mexican generally accepted
------------
accounting principles consistently applied.
Mexican Peso: "Mexican Peso" or "MP $" shall mean lawful money of
------------
the United Mexican States.
Noncompetition Agreements: "Noncompetition Agreements" shall mean
-------------------------
the Noncompetition Agreements dated as of the Closing Date between SCE, JF, JF
Investor, PCo. or Guillermo Guerra, on the one hand, and the Company and DRA on
the other hand, in substantially the forms of Exhibits F-1 through F-5.
Non-Productive Investment: "Non-Productive Investment" shall mean
-------------------------
either debt (including Debt Contributions) that was taken down, or cash of the
Company that was utilized, for any Covered Investment which
(i) involves the expenditure of more than US $500,000, as measured
by the total amount of capital requested in the applicable
capital authorization request prepared by the Company in the
normal course with respect to a request for, and approval of,
capital expenditures pursuant to the Company's policies and
procedures in effect from time to time (the "Capital
Authorization") for such project; and
7
<PAGE>
(ii) (x) during any twelve-month period within the Applicable
Years, was not projected in the Capital Authorization to yield
an annual pre-tax, preinterest Return of 20% or more and (y)
such indebtedness has been designated by the JF Investor as
Non-Productive Investment in accordance with Section 4.2(e).
Officer: "Officer" shall mean any Senior Officer or any individual
-------
approved by the Senior Officers to act as an officer of the Company in
accordance with the Bylaws and this Partnership Agreement.
Partner: "Partner" shall mean any Person who holds legal title to
-------
any Corporate Part, as determined by and in accordance with this Partnership
Agreement, the Bylaws and Applicable Law.
Partner's Premium Capital: "Partner's Premium Capital" shall mean, as
-------------------------
to any Partner, the sum of the portions of all the Equity Contributions of such
Partner and its predecessors allocated to Premium Capital.
Partner's Social Capital: "Partner's Social Capital" shall mean, as
------------------------
to any Partner, the sum of the portions of all the Equity Contributions of such
Partner and its predecessors allocated to Social Capital.
PCo.: "PCO." shall mean GCI Services, S.A. de C.V., a Mexican
----
corporation and an Affiliate of SCE, JF and JF Investor.
Percentage: "Percentage" shall mean, as to any Partner, a fraction
----------
(expressed as a percentage) determined by dividing such Partner's Social Capital
by the Total Social Capital. Immediately following the Closing, DR Investor's
Percentage shall be 76% and JF Investor's Percentage shall be 24%.
Person. "Person" shall mean a natural person, partnership (whether
------
general or limited) , limited liability company, trust, estate, association,
corporation, custodian, nominee or any other individual or entity in its own or
any representative capacity.
8
<PAGE>
Premium Capital: "Premium Capital" shall mean that portion of each
---------------
Equity Contribution not allocated to Social Capital. None of the Initial Equity
Contributions or the JV Equity Contributions shall be allocated to Premium
Capital.
Related Agreements: "Related Agreements" shall mean the DR Service
------------------
Agreement, the DR Asset Purchase Agreement, the Equipment Lease, the Lease
Agreement, the Noncompetition Agreements, the RII Corporate Part Sale Agreement,
the Service Agreement, the Supply and Sales Agreement, the Termination
Agreement, the TIA Agreement and the Trademark Agreement. The JF Asset Purchase
Agreement shall become a Related Agreement on the date it is executed and
delivered by the parties thereto and the Closing defined therein occurs.
Required Interest: "Required Interest" shall mean ninety percent
-----------------
(90%) or more of the total votes of the Partners.
RII: "RII" shall mean Remy International, Inc., a Delaware
---
corporation and an Affiliate of DRI and DR Investor.
RII Corporate Part Sale Agreement: "RII Corporate Part Sale
---------------------------------
Agreement" shall mean the Corporate Part Purchase and Sale Agreement dated as of
the Closing Date among RII and JF Investor, in substantially the form of Exhibit
-------
G.
- -
SCE: "SCE" shall mean Sistemas y Componentes Electricos, S.A. de
---
C.V., a Mexican corporation and an Affiliate of JF Investor, JF and PCo.
SD License: "SD License" shall mean that portion of the license
----------
agreement dated May 16, 1991 between General Motors Corporation (as predecessor
to DRA) pursuant to which SCE has historically and/or is currently producing SD
Motors in Mexico; and all other rights and obligations of SCE (or its successors
and assigns) under such license agreement shall be unaffected by this Agreement
and the Related Agreements.
SD Motors: "SD Motors" means the SD Series starter motors and
---------
related sub-assemblies as listed on Schedule 2.
----------
9
<PAGE>
Senior Officer: "Senior Officer" shall mean any individual approved
--------------
by the Board or the Partners' Meeting to act as the General Manager, Chief
Financial Officer or any other officer of the Company in accordance with the
Bylaws and this Partnership Agreement.
Service Agreement: "Service Agreement" shall mean the Service
-----------------
Agreement dated as of the Closing Date between PCo. and the Company, in
substantially the form of Exhibit H.
---------
Social Capital: "Social Capital" shall mean the portion of each
--------------
Equity Contribution used to determine voting rights of the Partners and the
Percentages of the Partners. One hundred percent (100%) of the Initial Equity
Contributions and the JV Equity Contributions shall be allocated to Social
Capital.
Supply and Sales Agreement: "Supply and Sales Agreement" shall mean
--------------------------
the Supply and Sales Agreement dated as of the Closing Date between DRA and the
Company, in substantially the form of Exhibit I.
---------
Termination Agreement: "Termination Agreement" shall mean the
---------------------
Termination Agreement dated as of the Closing Date among DR Investor, the
Company, SCE, JF, JF Investor and PCo. in substantially the form of Exhibit J.
---------
TIA Agreement: "TIA Agreement" shall mean the Technology License,
-------------
Technical Information and Assistance Agreement dated as of the Closing Date
among DRA, the Company and PCO., in substantially the form of Exhibit K.
---------
Total Social Capital: "Total Social Capital" shall mean, at any
--------------------
time, the aggregate of the portions of all Equity Contributions allocated to
Social Capital.
Trademark Agreement: "Trademark Agreement" shall mean the Trademark
-------------------
and Trade Name Sublicense Agreement dated as of the Closing Date among DRA, the
Company and PCO., in substantially the form of Exhibit L.
---------
US Dollar: "US Dollar" or "US $" shall mean lawful money of the
---------
United States of America.
10
<PAGE>
US GAAP: "US GAAP" shall mean United States generally accepted
-------
accounting principles consistently applied.
US Independent Accountants: "US Independent Accountants" means the
--------------------------
independent accounting firm that audits the set of the Company's books and
records maintained in accordance with US GAAP. On the date of this Partnership
Agreement, Ernst & Young are the US Independent Accountants.
Section 1.2 Other Definitions. The following terms shall have the
-----------------
meanings assigned to such terms in the following Sections:
<TABLE>
<CAPTION>
Terms Sections
- ----- --------
<S> <C>
Applicable Years 10.3
Average EBIT 10.3
Breaching Partner 13.2
Buyout Notice 13.2
Call Notice 10.2
Call Price 10.3
Corporate Part Transfer 9.2
Current Quarter 8.2
Determination Date 10.3
DR Investor Introduction
Equity Value 10.3
Fiscal Year 8.1(c)
Initial Company Products 3.1(a)
Interested Party 4.5(a)
JF Investor Introduction
Make-Up Capital 2.6(a)
Nonparticipating Partner 2.6(a)
Offer 2.6(a)
Offer Response Notice 2.6(a)
Offered Debt/Equity Ratio 2.6(a)
Paid-In Capital 8.2
Participating Partner 2.6(a)
Partnership Agreement Introduction
Premium Capital Portion 2.6(a)
Put Notice 10.1
Put Price 10.3
Quarterly Partner Meetings 4.1
ROFR Period 9.2
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Social Capital Portion 2.6(a)
Subordinated Note 2.6(a)
Subscribed Equity 2.6(a)
Terminating Partner 13.2
Transfer 9.1
Transferring Partner 9.2
Unsubscribed Equity 2.6(a)
</TABLE>
ARTICLE II
ORGANIZATION
------------
Section 2.1 Establishment of Partnership;. The Partners hereby
-----------------------------
enter into this Partnership Agreement for the purpose of setting forth their
rights and obligations as Partners of the Company.
Section 2.2 Bylaws; Conflict with Partnership Agreement. On the
--------------------------------------------
Closing Date, or as soon thereafter as is practicable, the JV Partners shall
cause the Amended Bylaws to be filed of record in the offices of the Registro
Publico de Comercio in San Luis Potosi in accordance with Mexican law. In the
event that the Bylaws contain provisions which conflict with any provision of
this Partnership Agreement, the Partners agree that the provisions of this
Partnership Agreement shall govern and, to the extent consistent with Mexican
law, they shall amend the Bylaws to eliminate such conflict. To the extent that
any provisions of this Partnership Agreement which control over provisions of
the Bylaws are inconsistent with Mexican law, Section 15.9 of this Partnership
Agreement shall be applicable. Each Partner shall execute, acknowledge, swear
to, and deliver all certificates and other instruments conforming with this
Partnership Agreement that are necessary or appropriate to qualify, continue and
terminate the existence of the Company in all such jurisdictions in which the
Company may conduct business.
Section 2.3 Principal Offices. The principal executive offices of
-----------------
the Company shall be in the metropolitan area of San Luis Potosi, SLP, Mexico or
such other location as the Board shall designate. As required and as permitted
by the Board, branch offices and facilities or agencies may be established in
any place inside or outside of Mexico.
12
<PAGE>
Section 2.4 Capitalization.
---------------
(a) The Total Social Capital of the Company shall be variable. The
fixed capital of the Company shall be Fifty Thousand Mexican Pesos (MP $50,000),
which on the date of formation of the Company was fully subscribed and paid by
the Initial Partners. The variable part of the capital of the Company shall be
unlimited. Following the consummation of the RII Corporate Part Sale Agreement,
the Total Social Capital shall be reallocated to the JV Partners in accordance
with their Percentages set forth in Section 2.5.
(b) The corporate capital of the Company shall be divided into
Corporate Parts. Each Partner shall have one, and only one, Corporate Part, but
the Percentage of each Partner shall vary as set forth herein. The Partner's
Social Capital and Partner's Premium Capital are subcomponents of the Corporate
Part, to be used as described herein. In the event a Partner makes an Additional
Equity Contribution, or acquires all or a fraction of the Corporate Part of
another Partner pursuant to Section 2.6, Article X or Section 13.2, the
contributing or acquiring Partner's Corporate Part, Percentage, Partner's Social
Capital and Partner's Premium Capital shall be increased and the non-
contributing or non-acquiring Partner's Percentage shall be decreased as
described in such Section or Article. Ownership of Corporate Parts for all
purposes shall be determined solely by reference to the Company's corporate
registry, and any certificate which the Company may issue shall not constitute
such Corporate Part or proof of ownership thereof.
Section 2.5 Subscriptions and JV Equity Contributions.
-----------------------------------------
(a) JF Investor shall subscribe for a capital increase resulting in
a Corporate Part bearing a Percentage of twenty-three and 99/100 percent
(23.9999%) and to which shall be credited Twelve Million Three Hundred Twenty
Thousand and Sixty Eight (12,320,068) votes, and shall pay as an Equity
Contribution of One Million Five Hundred Sixty Thousand US Dollars (US
$1,560,000), minus Five Hundred
-----
Mexican Pesos (MP $500) for such Corporate Part. One hundred percent (100%) of
such Equity Contribution shall be credited to Social Capital. Such payment shall
be made in cash, or by check, in US Dollars in two parts and shall be converted
to the Mexican Peso equivalent by reference to the Fix Rate effective for the
date of payment. JF Investor shall pay Five Hundred Sixty Thousand US Dollars
(US $560,000), minus
-----
13
<PAGE>
Five Hundred Mexican Pesos (MP $500) on the Closing Date and shall pay One
Million US Dollars (US $1,000,000) on the fourth business day (in San Luis
Potosi, Mexico) after the Closing Date. Following JF Investor's purchase of the
Corporate Part of RII pursuant to the RII Corporate Part Sale Agreement and
after making the Equity Contribution described above, JF Investor shall have a
Corporate Part bearing a Percentage of twenty-four percent (24%), to which shall
be credited Twelve Million Three Hundred Twenty Thousand Five Hundred and Sixty
Eight (12,320,568) votes.
(b) DR Investor shall subscribe for a capital increase which, when
aggregated with DR Investor's Initial Equity Contribution, will result in a
Corporate Part bearing a Percentage of seventy-six percent (76%) and to which
shall be credited Thirty-Nine Million Fifteen Thousand One Hundred Thirty-Two
(39,015,132) votes, and shall pay as an Equity Contribution Four Million Nine
Hundred Forty Thousand US Dollars (US $4,940,000), minus Forty-nine Thousand
Five Hundred Mexican Pesos (MP $49,500) for such Corporate Part. One hundred
percent (100%) of such Equity Contribution shall be credited to Social Capital.
Such payment shall be made in cash, in US Dollars in two parts and shall be
converted to the Mexican Peso equivalent by reference to the Fix Rate effective
for the date of payment. DR Investor shall pay One Million Seven Hundred
Seventy-seven Thousand Three Hundred Thirty-three US Dollars (US $1,773,333),
minus Forty-nine Thousand Five Hundred Mexican Pesos (MP $49,500), on the
- -----
Closing Date and shall pay Three Million One Hundred Sixty-six Thousand Six
Hundred Sixty-seven US Dollars (US $3,166,667) on the fourth business day (in
San Luis Potosi, Mexico) after the Closing Date.
(c) For reference purposes only, attached to this Partnership
Agreement as Exhibit M is a "Statement of Initial Capitalization," which
---------
summarizes (both in US Dollar and Mexican Peso terms) the JV Equity
Contributions and Initial Equity Contributions made by or allocated to the JV
Partners.
Section 2.6 Additional Contributions. The Partners acknowledge that
------------------------
the Company may require Additional Contributions. Such determination shall be
made by the Board acting in good faith, based on the Company's forecasted
working capital and fixed capital requirements. All Additional Equity
Contributions shall be denominated in Mexican Pesos. Partners may designate
their Affiliates or, in the case of Affiliates who are natural persons, spouses,
parents (including step-parents) , children (including
14
<PAGE>
step-children), grandchildren and siblings (including half-siblings and step-
siblings), to make Debt Contributions, provided such designation has been
approved in advance in writing by the other Partner, which approval shall not be
unreasonably withheld. Subject to (a) below, at any time on or after January 1,
1998, the Board shall have the right to call upon the Partners to make certain
mandatory Additional Contributions; provided, however, that except for Equity
Contributions which comprise a part of such mandatory Additional Contributions,
the Company may not issue any equity interests or securities, or interests or
obligations convertible or exchangeable into or for or redeemable for equity
interests or securities, without the prior written consent of all Partners.
Under no circumstances shall Debt Contributions carry any voting rights in the
Partners' meeting or other governing bodies of the Company or be convertible
into or exchangeable for or redeemable for any rights, securities or interests
possessing such voting rights.
(a) The aggregate of all such mandatory Additional Contributions in
any given Fiscal Year shall not exceed the Annual Limit, if any, applicable to
the relevant Fiscal Year, unless agreed to by the Partners pursuant to the
provisions contained in Section 4.2(b) (i); provided, however that to the extent
-------- -------
an Annual Limit is not contributed to the Company by the Partners during the
relevant Fiscal Year, the unused amount of such Annual Limit shall be carried
forward and added to the Annual Limit for the next Fiscal Year; and provided
--------
further, that, such restated Annual Limit for the next Fiscal Year shall in no
- -------
event exceed US $4.0 million. Mandatory Additional Contributions, to the extent
actually received, shall be counted against Annual Limits as of the 120th day
after the date of the relevant Offer (defined below) , and any conversion
necessary from Mexican Pesos to US Dollars for the purpose of counting such
Additional Contribution against the Annual Limit shall be made by reference to
the Fix Rate last published before the 120th day after the date of the relevant
Offer. The Board shall satisfy the requirements for additional capital (to the
extent that such additional capital is not provided by external financing) by
calling a Partners' Meeting to resolve to make Debt Contributions and/or Equity
Contributions in such amounts and at such times as the Board shall deem
appropriate; provided, however, that all Additional Contributions shall be
-------- -------
Equity Contributions unless the Board, with the affirmative vote of at least one
administrator-manager proposed by JF Investor, resolves to offer
15
<PAGE>
debt securities in addition to equity interests. Notwithstanding the foregoing
proviso, the affirmative vote of an administrator-manager proposed by JF
Investor shall not be required for the Board to approve Debt Contributions
exclusively from DR Investor and/or its Affiliates which are in excess of the
then applicable Annual Limit. Whenever the Board determines that Additional
Contributions are necessary (and regardless of whether such Additional
Contributions are in excess of or within the Annual Limits) , the Company shall
first offer (the "Offer"), at a Partners' Meeting, to each of the Partners the
opportunity to invest in additional equity (through Equity Contributions) ,
subordinated Partner debt (through Debt Contributions made pursuant to
promissory notes (each, a "Subordinated Note") in substantially the form of the
promissory note attached to this Partnership Agreement as Exhibit N) or a
---------
combination of such debt and equity of the Company, in such debt/equity
proportions and having such terms as shall be determined by the Board in
accordance with this Section; provided, however, that (i) the relative ratio of
-------- -------
debt securities and equity interests so offered (the "Offered Debt/Equity
Ratio") and all terms and conditions of all such securities and interests shall
be the same for all Partners, and (ii) the sum of debt securities and equity
interests so offered to each Partner shall be proportional to each Partner's
Percentage, and (iii) with respect to the equity portion of the Additional
Contribution, the Offer shall specify the part of the Additional Equity
Contribution offered to each Partner to be credited to Social Capital and
Premium Capital. The part of the aggregate Additional Equity Contribution to be
credited to Total Social Capital (the "Social Capital Portion") shall be
determined as of the date of the Offer by the following formula: (1) dividing
the Total Social Capital as of the date immediately preceding the Offer by the
greater of (x) 150% of the book value of the Company determined as at the end
of the latest fiscal quarter before the date of the Offer and (y) the Equity
Value of the Company (determined as of the date of the Offer) and (2)
multiplying such fraction (which shall in no case be greater than 1.0) by the
aggregate Additional Equity Contribution. The part of such Social Capital
Portion to be offered to each Partner shall be determined by multiplying such
Partner's existing Percentage by the Social Capital Portion. The portion of the
Additional Equity Contribution not allocated to Social Capital shall be
allocated to Premium Capital (the "Premium Capital Portion"), and the part of
such Premium Capital Portion to be offered to each Partner shall be determined
by multiplying such Partner's existing Percentage by the
16
<PAGE>
Premium Capital Portion. If, at the date of an Offer, (A) the Company has been
in existence for less than two Fiscal Years but at least one Fiscal Year, the
Equity Value determined pursuant to the preceding sentence shall be calculated
by reference to the Company's EBIT for the completed Fiscal Year or (B) the
Company has not been in existence for one full Fiscal Year, the Equity Value
determined pursuant to the preceding sentence shall be calculated by annualizing
the Company's EBIT for the period from the date of its constitution to the end
of the last full calendar month prior to the date of the Offer. Each Partner
shall have the option of subscribing for all, a portion of or none of the
Additional Contributions included in the Offer, but in any event, only in the
same ratio of debt and equity as in the Offered Debt/Equity Ratio and in the
same ratio of Social Capital to Premium Capital as specified in the Offer. Each
Partner shall respond to an Offer in written form (an "Offer Response Notice")
not more than 30 days following the date of the Offer and shall be given 120
days following the date of the Offer to fund its subscription of the portion of
the Offer accepted in the Offer Response Notice. If a Partner (the
"Nonparticipating Partner") does not timely send its Offer Response Notice or
fund its subscription in accordance with the immediately preceding sentence,
(the portion of its offered debt and/or equity not subscribed or paid for being
called the "Make-Up Capital" and the Additional Equity Contributions, if any,
that are subscribed and paid for pursuant to a partial subscription called the
"Subscribed Equity"), the other Partner (the "Participating Partner") shall have
the option, but not the obligation, to provide all or any part of the Make-Up
Capital. The Participating Partner who exercises this option shall have the
right, so long as it has also subscribed to and funded all of the debt
securities and made the Additional Equity Contributions offered to it in the
Offer, to provide the Make-Up Capital to the Company by subscribing to all or
any portion of the Additional Equity Contributions then being offered to the
Nonparticipating Partner in excess of the Nonparticipating Partner's Subscribed
Equity (the "Unsubscribed Equity") and the unsubscribed or subscribed but
subsequently unfunded debt securities being offered to the Nonparticipating
Partner in the same proportion as the Offered Debt/Equity Ratio (and ratio of
Social Capital to Premium Capital) or in a higher ratio of debt to equity (but
not in a lower ratio of debt to equity than the Offered Debt/Equity Ratio) ,
than the Offered Debt/Equity Ratio, with a resulting increase in the Percentage,
Social Capital and Premium Capital of the Participating
17
<PAGE>
Partner, and a resulting decrease in the Percentage of the Nonparticipating
Partner.
(b) Notwithstanding and in addition to the provisions of 2.6(a)
above, and subject to the provisions of Section 4.2(b)(i), DR Investor and/or
its Affiliates shall have the absolute right to fund capital requirements (as
determined in good faith by the Board) in excess of the Annual Limits through
Debt Contributions. Each such Debt Contribution shall be evidenced by a
Promissory Note in substantially the form of Exhibit N. Such Debt Contributions
---------
shall bear a rate of interest which is equal to the DRI Senior Bank Debt Rate in
effect on the date of the Debt Contribution; provided, however, assuming one or
-------- -------
both of the following are higher than the DRI Senior Bank Debt Rate in effect on
the date of the Debt Contribution, the applicable rate of interest (fixed as of
the date of the Debt Contribution) shall equal the higher of (A) the highest
interest rate then applicable to US Dollar denominated third party bank debt of
the Company outstanding to US-based banks and (B) the rate of interest then
applicable for US Dollar denominated loans extended by Bancomext S.N.C. to the
Company.
Section 2.7 Cash Contributions. The cash payments of the Partners
------------------
required by Sections 2.5 and 2.6 shall be made by depositing the required amount
either by check or by wire transfer of immediately available funds in the
account established in the name of the Company at Bank One, Indianapolis, NA, or
any other bank to be agreed upon, in an amount in the name of the Company and in
accordance with the certification to be processed by the stated bank as required
by the Bylaws of the Company.
Section 2.8 Organizational and Other Costs. Within 90 days after
------------------------------
Closing, the Company shall pay or cause to be paid (or refunded to the party
which first incurred them) notary fees, legal fees and filing costs incurred in
connection with the registration of the Company and preparation of the Initial
Bylaws, Amended Bylaws and other formation documents (other than this
Partnership Agreement) and any notary fees, legal fees and filing costs incurred
in connection with the notarization and/or registration of any Related
Agreements. Costs and expenses incurred by the Initial Partners, the JV Partners
or their respective Affiliates in connection with the negotiation and
preparation of this Partnership Agreement and the Related Agreements, including,
by way of example,
18
<PAGE>
outside counsel expenses and the expenses of accounting consultants, shall be
for the account of, and paid when due by, the Person incurring such costs and
expenses.
Section 2.9 Bank Financing. To the extent any of the Company's
--------------
working capital, fixed asset capital, or other financial requirements are
satisfied by borrowing by the Company from any bank or other financial
institution, no Partner shall be obligated to guarantee or provide any other
financial support of any or all of such debt incurred by the Company.
ARTICLE III
PURPOSES; TERM OF COMPANY
-------------------------
Section 3.1 Purposes. The purpose of the Company shall include but
---------
not be limited to (the "Company's Business") :
(a) manufacture, assembly and sale of automotive and heavy duty
starting motors and alternators and related sub-assemblies and components,
including (i) the Licensed Products, which the Company shall produce and sell to
original equipment and aftermarket customers, including DRI and its Affiliates,
(ii) the SD Motors ((i) and (ii) together, the "Initial Company Products"), and
(iii) such other products as the Board may authorize; and
(b) marketing of Initial Company Products and such other products as
DR Investor may, in its sole discretion, select within Mexico and such other
countries as DR Investor may, in its sole discretion, select.
Notwithstanding (a) and (b) above, the Company shall notify JF
Investor in writing not more than thirty (30) days prior to the Company's
commencement of manufacturing, assembly, and/or sale of any product other than
the Initial Company Products pursuant to (a) above or prior to the marketing of
any product in any new country pursuant to (b) above. If JF Investor advises DR
Investor and the Company in writing within such thirty (30) day period that the
Company's manufacturing, sale, assembly and/or marketing of such product would
constitute a material violation of a covenant or agreement between a third party
that is not an Affiliate of JF, on the one hand, and JF Investor or any of its
19
<PAGE>
Affiliates, on the other hand, or if such manufacture, assembly, sale and/or
marketing of such product in such country would cause SCE, PCo., JF, JF Investor
or Guillermo Guerra to be in breach of any of the Noncompetition Agreements,
approval of the manufacture, sale, assembly and/or marketing of such product in
such country shall require the affirmative vote of all of the votes of all of
the Partners. In its notice, JF Investor shall identify, to DR Investor's
reasonable satisfaction, the specific covenant and agreement which would be
violated.
In furtherance of the Company's Business, the Company shall have all
of the powers granted to a limited liability company of variable capital under
the laws of Mexico.
Section 3.2 Term. The Company as constituted in this Partnership
----
Agreement shall continue for ninety-nine (99) years from the date of its
constitution, unless earlier dissolved or terminated pursuant to Applicable Law.
ARTICLE IV
PARTNERS
--------
Section 4.1 Partner Meetings. The Partners shall hold a meeting
----------------
within 60 days after the end of each fiscal quarter, at the corporate domicile
and at such time as the Chairman (or, in his absence, the Vice Chairman) shall
determine; provided, however, that the Partners' meeting to be held after the
--------- -------
end of a Fiscal Year shall be held within 120 days of the end of such Fiscal
Year (collectively, the "Quarterly Partner Meetings"). Other meetings of the
Partners may be called by the Chairman or one or more Partners having the right
to cast at least 20% of the total votes of the Partners, and shall be held at
the Company's corporate domicile at such times as may be specified in such call.
Notice of the time of each meeting of the Partners shall be given to each
Partner by the Person or Persons calling such meeting. Such notice shall specify
the purpose or purposes of the meeting and shall be provided at least fifteen
(15) days in advance of the meeting. The giving of notice shall be deemed to
have been waived by any Partner who shall participate in such meeting and may be
waived, in a writing, by any Partner either before or after such meeting. In the
absence of the Chairman at a meeting of the Partners the Vice
20
<PAGE>
Chairman shall assume the responsibilities of the Chairman. In the absence of
the Chairman and the Vice Chairman, one of those administrator-managers present
and proposed by DR Investor shall be elected to preside over that meeting. The
secretary of the Board shall act as secretary of the Partners' meeting and, in
his or her absence, the Partners shall appoint an alternate secretary of the
meeting. The Chairman shall appoint one of the Partners or its representative to
serve as examiner. The Company shall have a registry for the minutes of
Partners' meetings. The minutes of each Partners' meeting shall be entered into
such registry and shall be signed by at least the Persons acting as chairman and
secretary and the Partners' representatives attending such meeting.
Section 4.2 Voting. (a) Each Partner shall have one vote for each
------
NP $1 of such Partner's Social Capital. Except as set forth below or as
required by Applicable Law, all resolutions by the Partners shall require an
affirmative vote of a Majority Interest.
(b) The following matters shall require an affirmative vote of a
Required Interest:
(i) any call for Additional Contributions in any Fiscal Year in
excess of the Annual Limit for such Fiscal Year; provided, however, that only a
-------- -------
Majority Interest shall be required in the circumstance where only a Debt
Contribution is proposed and only DR Investor (and/or its Affiliates) agrees to
make the full amount of such Debt Contribution in excess of the Annual Limit;
and
(ii) a change of the business activities of the Company from that
described in Section 3.1(a) (i) and (ii) and the business activities as to any
other products.
(c) The following matters shall require the affirmative vote of all
the votes of all the Partners:
(i) any amendment of, waiver of any of the material requirements
of or modification to any of the Related Agreements or any exhibit or schedule
thereto (including, without limitation, any material modification of Schedules 1
and 2 of the Supply and Sales Agreement, which relate to prices of certain
products, and the Non-Price Competitive Features (as that term is defined in the
Supply
21
<PAGE>
and Sales Agreement) of all products sold thereunder) or any of the Subordinated
Notes;
(ii) any release by the Company of the liability of any Partner,
administrator-manager or Officer to the Company, other than the release
contained in Article VII;
(iii) any capitalization of any debt of the Company (including Debt
Contributions), any conversion, exchange or redemption of debt (including Debt
Contributions) for or into equity interests or securities in the Company or
(except for equity interests or securities issued as part of any mandatory
Additional Contribution), any issuance of any interests or obligations
convertible or exchangeable into or for or redeemable for equity interests or
securities, or, except as specifically provided for in this Agreement, any
increase, decrease or other modification of the equity capital structure of the
Company;
(iv) approval or modification of the annual plan and budget of the
Company; provided, however, that as to modifications to the annual plan and
-------- -------
budget, each of the partners covenants and agrees to refrain from using its veto
power under this Section 4.2(c) (iv) or declining to attend a meeting or to vote
for the purpose of denying the other rights specifically negotiated for the
Partners or the Company in this Partnership Agreement, the Bylaws and the
Related Agreements;
(v) approval of the manufacturing, assembly, sale and/or marketing of
any product other than the Initial Company Products or the marketing of any
product in a new country following the Company's receipt of a notice from JF
Investor pursuant to the second paragraph of Section 3.1 that such
manufacturing, assembly, sale and/or marketing would constitute a material
violation of a covenant or agreement between a third party that is not an
Affiliate of JF, on the one hand, and JF Investor or any of its Affiliates, on
the other hand or would cause SCE, PCo., JF, JF Investor or Guillermo Guerra to
be in breach of any of the Noncompetition Agreements;
(vi) approval of any Covered Investment which has a projected annual
pre-tax, pre-interest Return (as defined within the definition of Covered
Investment) on investment of less than
22
<PAGE>
twenty percent (20%) for any twelve-month period ending after December 31, 1998;
(vii) any amendment of or modification to the Bylaws; and
(viii) approval of any Transfer of all or any part of any
Corporate Part and approval of the admission of new Partners.
Notwithstanding anything to the contrary set forth in Article 72 of
the General Law of Commercial Companies of Mexico, an affirmative vote of all
the votes of all the Partners shall be required to override the rights of
Partners to subscribe to new equity in proportion to their Percentages granted
pursuant to Section 2.6 of this Partnership Agreement or the corresponding
provisions of the Bylaws, but this Section has no effect on the rights of
Partners to acquire Unsubscribed Equity pursuant to Section 2.6(a) or the rights
of the Partners under Section 2.6(b).
(d) The requirements in (b) above for an affirmative vote of a
Required Interest and in (c) above for the affirmative vote of all the votes of
all the Partners shall apply at any meeting held on any first or subsequent
calls. All of the matters requiring the affirmative vote of a Required Interest
or all the votes of all the Partners are exclusively the responsibility of the
Partners' meeting and the Board shall not have any authority with respect
thereto.
(e) All Capital Authorizations shall be approved by the Partners and
not the Board. Before the Partners approve any Capital Authorization for a
Covered Investment during the time JF Investor or any of its Affiliates hold a
Corporate Part which involves the expenditure of more than US $500,000 (as
measured by the total amount of capital requested in such Capital
Authorization), and if such Covered Investment is not projected to yield an
annual pre-tax, pre-interest Return of 20% or more for any twelve-month period
ending after December 31, 1998, the Officers and Board shall provide JF Investor
(or such other Affiliate) details of such Capital Authorization in writing.
Within 14 days after the receipt of such notice, JF Investor shall have the
right to give notice in writing to the Company and DR Investor that any debt
(including Debt Contributions) or cash utilized to fund such
23
<PAGE>
Covered Investment would be considered to be Non-Productive Investment by JF
Investor. If, after receipt of such notice, the Company proceeds with the
Covered Investment, then any debt or cash utilized to fund such Covered
Investment shall be eligible to be classified as Non-Productive Investment
pursuant to the definition thereof. It is agreed upon by the Partners that upon
the receipt of a notice designating debt or cash related to a Covered Investment
as Non-Productive Investment, the Company shall not be under any obligation to
approve such Covered Investment or make the related investment.
Section 4.3 Quorum. The quorum for any Partners' meetings shall
------
be the presence (in person or by proxy) of (a) the Partners having the right to
cast at least ninety percent (90%) of the total votes of the Partners, on the
first call for such Partners' meeting or (b) Partners having the right to cast
at least fifty percent (50%) of the total votes of the Partners, on any
subsequent call for such Partners' meeting. In the event that a quorum is not
present, the person presiding over the meeting as specified in Section 4.1 shall
adjourn the meeting and reschedule the meeting for a day not less than fifteen
(15) days from the original scheduled meeting date. Notice of meetings of the
Partners shall be given in accordance with the provisions of Section 15.5.
Section 4.4 Action by Written Consent. Any action permitted or
-------------------------
required by Applicable Law or this Partnership Agreement to be taken at a
meeting of the Partners may be taken without a meeting if a consent in writing,
setting forth the action to be taken, is signed by all Partners. Such consent
shall have the same force and effect as an affirmative vote at a meeting and may
be stated as such in any document or instrument filed with the appropriate
Governmental Authorities.
Section 4.5 Other Activities. (a) Except as otherwise set forth in
----------------
this Partnership Agreement or any Related Agreement (including, without
limitation, the Noncompetition Agreements), any Partner (the "Interested Party")
may engage in or possess an interest in other business ventures of any nature or
description, independently or with others, whether presently existing or
hereafter created, and neither the Company nor any Partner other than the
Interested Party shall have any rights in or to such independent ventures or the
income or profits derived therefrom.
24
<PAGE>
(b) Subject to Section 4.2(c) of this Partnership Agreement and the
provisions of any other Related Agreement, the Company may transact business
with the Partners, their Affiliates and their respective administrator-managers,
officers, employees and agents; provided, that the terms of those transactions
--------
are determined in good faith by the Board to be substantially comparable to or
more advantageous to the Company than those the Company could obtain from
unrelated third parties.
Section 4.6 Hiring of Employees. Notwithstanding anything to the
-------------------
contrary set forth in this Partnership Agreement or any of the Related
Agreements, except for offers by the Company and/or its controlled Affiliates
expressly permitted pursuant to the terms of the Service Agreement or the
Termination Agreement, neither the Company and/or its controlled Affiliates, DR
Investor nor any Affiliate of DR Investor shall hire, solicit or attempt to
entice away from JF Investor, SCE or PCo., or any of their Affiliates, any
individual who is, has agreed to be or within one year of such hiring,
solicitation or enticement has been employed or retained by such party, nor
shall any other company or entity, retained by the Company, which employs any
such individual use such individual in providing services to the Company. DR
Investor shall cause the Company and its controlled Affiliates and DR Investor's
Affiliates to comply with the terms of this Section 4.6. Notwithstanding the
termination of the Service Agreement or the Termination Agreement, or the
exercise of any Put Right or Call Right hereunder or under the Bylaws, the
covenants contained in this Section 4.6 shall continue to apply to the Company
and its controlled Affiliates and to DR Investor and its Affiliates following a
termination of this Partnership Agreement for a period of two (2) years from the
date of such termination.
ARTICLE V
BOARD OF MANAGERS
-----------------
Section 5.1 Number. The Board shall consist of six active and six
------
alternate administrator-managers. JF Investor shall have the right to propose
two active and two alternate administrator-managers and DR Investor shall have
the right to propose four active administrator-managers, including the Chairman
and Vice Chairman, and four alternate administrator-managers;
25
<PAGE>
provided, however, that if JF Investor's Percentage ever exceeds fifty percent
- -------- -------
(50%), (a) DR Investor shall cause two active and two alternate administrator-
managers proposed by it to resign and shall vote in favor of any Persons
proposed by JF Investor to fill such vacancies and (b) for so long as JF
Investor's Percentage exceeds fifty percent (50%), JF Investor shall have the
right to propose four active and four alternate administrator-managers and DR
Investor shall have the right to propose two active and two alternate
administrator-managers. Each Partner shall cast all its votes for the active and
alternate administrator-managers proposed by the other Partner. No member of the
Board may be removed without the affirmative vote of the Partner that proposed
such member. Each Partner shall cast all its votes in favor of the removal of
any member of the Board if the Partner who appointed such member so votes. Each
Partner shall cast all its votes in favor of any replacement member of the Board
proposed by the Partner who proposed the departing member. No alternate
administrator-manager shall have the right to vote in meetings or call meetings
of the Board unless he/she is serving in the place of an active administrator-
manager. Alternate administrator-managers may only serve in the place of active
administrator-managers proposed by the same Partner that proposed the alternate
administrator-manager. At the first Board meeting after the end of a Fiscal
Year, the Board shall elect a Secretary, who need not be an administrator-
manager or Partner, and who shall serve until his or her successor shall be
elected and qualified.
Section 5.2 Meetings of the Board. The Board shall meet at least
---------------------
four times in each Fiscal Year at such time and place as it shall determine. To
the extent feasible as determined by the Board, such ordinary meetings shall be
held on the same date and the same location as the Quarterly Partner Meetings.
Other meetings of the Board may be called by the Chairman, the Secretary or any
two (2) active administrator-managers (or their alternates), and shall be held
at such times and places, in Mexico or the United States, as may be specified in
such call. Notice of the time and place of each meeting of the Board shall be
given to each administrator-manager by the Person or Persons calling such
meeting. Such notice shall specify the purpose or purposes of the meeting and
shall be provided on at least fifteen (15) days advance notice. The giving of
notice shall be deemed to have been waived by any administrator-manager who
shall participate in such meeting and may be waived, in a writing, by any
administrator-manager
26
<PAGE>
either before or after such meeting. In the absence of the Chairman at a meeting
of the administrator-managers the Vice Chairman shall assume the
responsibilities of the Chairman. In the absence of the Chairman and the Vice
Chairman, one of those administrator-managers present and proposed by DR
Investor shall be elected to preside over that meeting. The Secretary shall keep
the minutes of the meeting and, if the Secretary does not attend a meeting, then
any person appointed by a majority vote of the Board shall act as Secretary. The
Company shall have a registry for Board meetings. The minutes of each Board
meeting shall be entered into such registry and shall be signed by at least the
Persons acting as chairman and secretary.
Section 5.3 Powers. The Board shall have all the necessary powers
------
and privileges to administer the Company and perform its functions except (a)
for the privileges that are reserved to the Partners according to the provisions
of this Partnership Agreement and the Bylaws and (b) as limited by Applicable
Laws.
Section 5.4 Quorum. A quorum for a meeting of the Board shall be
------
four (4) active administrator-managers (or any alternate administrator-manager
serving as an active administrator-manager in the absence of such active
administrator-manager). In the event that a quorum is not present, a majority of
the administrator-managers then present shall adjourn the meeting and reschedule
the meeting on a second call for a day not less than fifteen (15) days from the
original scheduled meeting date. The presence of four (4) active administrator-
managers (or any alternate administrator-manager serving as an active
administrator-manager in the absence of such active administrator-manager) at
the rescheduled meeting shall constitute a quorum. Notice of meetings of the
Board shall be given in accordance with the provisions of Section 15.5.
Section 5.5 Voting; Action by Written Consent. Except as described
---------------------------------
in Section 2.6(a), resolutions or other actions of the Board shall be effective
if affirmatively voted by a majority of the voting administrator-managers
present. Each active administrator-manager (including the Chairman and Vice
Chairman) or any alternate administrator-manager serving as an active
administrator-manager in the absence of such active administrator-manager shall
have a single vote. Any action permitted or required
27
<PAGE>
by Applicable Law, the Bylaws or this Partnership Agreement to be taken at a
meeting of the Board may be taken without a meeting if a consent in writing,
setting forth the action to be taken, is signed by all active administrator-
managers (or alternate administrator-managers in their absence). Such consent
shall have the same force and effect as an affirmative vote at a meeting and may
be stated as such in any document or instrument filed with the appropriate
Governmental Authorities.
ARTICLE VI
OFFICERS
--------
Section 6.1 Officers. The Board shall appoint a General Manager
--------
and a Chief Financial Officer of the Company who each shall be elected by a
majority vote of the Board upon the nomination of DR Investor and shall oversee
the day-to-day operation of the Company. The General Manager and Chief Financial
Officer may be the same individual. The Board may establish additional Officers
for the Company in its discretion and may delegate such authority to the Senior
Officers in whole or in part.
Section 6.2 Powers. All Officers of the Company shall exercise
------
their powers and duties in accordance with the Bylaws, the resolutions of the
Partners and the Board and Applicable Law. The General Manager shall have full
and complete authority and responsibility for the administration and management
of the Company's Business, in addition to those duties, responsibilities and
powers ordinary and necessary to his/her position. The Chief Financial Officer
shall have such powers and responsibilities as may be delegated to him from time
to time by the Board. All other Officers of the Company shall have such powers
and responsibilities as may be delegated to them from time to time by the Board
and the General Manager. During the first 12 months from the date of the
Company's constitution, the Company shall not employ any Officers other than the
Operations Director (who may be hired by the Company at any time after December
31, 1998), the General Manager and the Chief Financial Officer. Through December
31, 1998, Guillermo Guerra shall perform the function of General Manager, on a
full-time or part-time basis under the Service Agreement, in lieu of the Company
directly employing a General Manager.
28
<PAGE>
Section 6.3 Other Employment of Officers. Unless otherwise set
----------------------------
forth in an employment agreement between the Company and the Officer, each
Officer, while an employee of the Company, may continue his/her labor
relationship with DR Investor or JF Investor or their Affiliates, particularly
towards maintaining his/her pension, medical, and other social security
benefits.
Section 6.4 General Manager as Administrator-Manager. DR Investor
----------------------------------------
may name the General Manager to serve as one of its appointees to the Board.
ARTICLE VII
LIABILITY AND INDEMNIFICATION
-----------------------------
Section 7.1 Liability. Neither the Partners nor any administrator-
---------
manager nor Officer of the Company shall be liable, responsible or otherwise
accountable to the Company or to any Partner for any acts or omissions in good
faith performed or omitted by him/her/it or on his/her/its behalf in furtherance
of the interests of the Company and within the scope of such Partner's,
administrator-manager's or Officer's authority hereunder, unless such acts or
omissions were fraudulent, in bad faith or a result of wanton or willful
misconduct or gross negligence by such Partner, administrator-manager or
Officer.
Section 7.2 Indemnification. The Company shall indemnify,
---------------
defend and hold harmless each Partner, administrator-manager, and Officer of the
Company against any loss, expense, damage, claim, liability, obligations,
judgment or injury suffered or sustained by him/her/it by reason of any act,
omission or alleged act or omission by him/her/it arising out of his/her/its
activities on behalf of the Company or in furtherance of the interests of the
Company, including, without limitation, any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in connection
with the defense of any actual or threatened actions, proceedings or claims, all
costs of which shall be charged to and paid by the Company as incurred;
provided, however, that the acts, omissions or alleged acts or omissions upon
- --------- -------
which such actual or threatened actions, proceedings or claims are based were
performed or omitted in good faith and were not fraudulent, in bad faith or a
result of wanton and willful
29
<PAGE>
misconduct or gross negligence by such Partner, administrator-manager, or
Officer. The agreement above to indemnify, defend and hold harmless shall
survive termination of this Partnership Agreement.
ARTICLE VIII
ACCOUNTING AND DIVIDENDS
------------------------
Section 8.1 Books; Auditor; Financial Statements; Fiscal Year.
----------------------------------------------------
(a) The Company shall establish and maintain an accounting system
which conforms to all requirements of Mexican law. The Company shall maintain or
cause to be maintained proper and complete books and records in which shall be
entered fully and accurately all transactions and other matters relating to the
Company's Business in the detail and completeness customary and usual for
businesses of the type engaged in by the Company, and as is necessary to comply
with the reporting requirements of this Section 8.1. The Company shall keep and
prepare its financial statements on the accrual basis, and shall prepare two
sets of financial statements, one in accordance with Mexican GAAP and one in
accordance with US GAAP (and the Company will ensure that it maintains such
books as are necessary to prepare US GAAP financial statements, including using
whatever functional currency is required for US GAAP purposes). The US GAAP
financial statements shall be prepared for the Company by the US Independent
Accountants or under the management and overall supervision of the Chief
Financial Officer.
(b) The Company's auditor shall be Ernst & Young, or any other
independent public accountants selected by the Board. The fact that such
independent public accountants may audit the financial statements of one or more
of the Partners or their Affiliates shall not disqualify such accountants from
serving as the Company's auditor.
(c) The fiscal year of the Company and its taxable year (the "Fiscal
Year") shall be the calendar year (or, if applicable, that shorter period within
the calendar year during which the Company had legal existence) or such other
fiscal year as selected by the Board and permitted by Applicable Law.
30
<PAGE>
(d) Promptly after the Closing Date, the Board shall cause to be
prepared and distributed to each Partner an opening balance sheet of the Company
as of the Closing Date. The opening balance sheet shall reflect the provisions
of this Partnership Agreement and shall be prepared in accordance with both
Mexican and US GAAP.
(e) During such time as JF Investor or any Affiliate of JF Investor
is a Partner, but subject, if the Service Agreement remains in full force and
effect, to PCo.'s prompt performance of the related services under the
Service Agreement which are necessary to prepare such financial statements, the
Company shall prepare and distribute to JF Investor unaudited quarterly
financial statements within 60 days following the end of each fiscal quarter,
and audited annual financial statements prepared in accordance with US GAAP and
Mexican GAAP, together with an opinion of the Company's auditors in the case of
the audited annual financial statements, within 120 days following the end of
each Fiscal Year.
(f) The Company shall keep at its principal executive office such
books and records as may be required by Mexican law and such other books and
records as are customary and usual for businesses of the type engaged in by the
Company, and as are necessary for the Company to prepare and receive an
unqualified audit opinion thereon, financial statements prepared in accordance
with US GAAP and Mexican GAAP.
(g) Each Partner or its duly authorized representatives shall have
the right, during normal business hours and in accordance with Mexican law, to
inspect and copy the Company's books and records at the requesting Partner's
sole cost and expense.
Section 8.2 Dividend Policy. The declaration of dividends shall be
---------------
considered by the Partners on a quarterly basis at each Quarterly Partners
Meeting. Any dividends declared at a Partners' meeting shall be paid within 15
days after such meeting. In the event that the Company's financial statements
for the most recent fiscal quarter then ended reflect positive after-tax net
income for such period (the "Current Quarter"), the Partners shall take such
actions as shall be necessary to declare and cause the Company to make a
dividend distribution; provided that the declaration and payment of such
--------
dividend is permissible under Applicable Law, that the Company has sufficient
cash on hand to pay
31
<PAGE>
such dividend and that no additional debt shall be incurred in order to make the
distribution (and the Partners shall cause the administrator-managers proposed
by them to seek to ensure that such pre-conditions to the payment of dividends
are met, including postponing a prepayment of debt of the Company which would
be prejudicial to such distribution); and provided, further, that subject to the
--------- -------
above proviso and compliance with the requirements of Applicable Law, the amount
of any distribution to be declared and paid shall equal the lesser of; (i) 20%
of the Paid-In Capital (as defined below), or (ii) 30% of the applicable
Dividend Income Base, where the Dividend Income Base for the Current Quarter is
the amount of cumulative Fiscal Year-to-date positive net income after-tax
(stated in US Dollars applying US GAAP), if any, as at the end of the Current
Quarter, which has not been included in the Dividend Income Base for any
preceding quarter, if any, in the current Fiscal Year with respect to which
quarter a dividend was actually paid by the Company. Declaration and payment of
any additional dividends over the aforementioned limitation shall be considered
by the Partners after giving priority to the fixed and working capital needs and
other financial requirements of the Company. As used herein, "Paid-In Capital"
shall mean the aggregate of all Equity Contributions, but not including any
outside bank debt or Debt Contributions.
ARTICLE IX
TRANSFER OF CORPORATE PARTS; RIGHT OF FIRST REFUSAL
---------------------------------------------------
Section 9.1 Prior Consent. Except in connection with a put or call
-------------
under Article X, neither Partner shall, without the affirmative vote of all of
the votes of all of the Partners, sell, assign, exchange, transfer, encumber,
gift, pledge, enter into any voting trust or other arrangement with respect to
the transfer of voting rights or other beneficial interest in its Corporate
Part, or otherwise seek to transfer or place a Lien on (collectively,
"Transfer") any right, title or interest in its Corporate Part at any time;
provided, however that DR Investor may pledge its Corporate Part as collateral
- -------- -------
security if such is required by any master credit agreement of DRI or DRA; and
provided, further, that if at any time DR Investor sends a Call Notice or
- -------- -------
receives a Put Notice, DR Investor shall have the right to transfer a portion of
its Corporate Part to an Affiliate of DR Investor at any time prior
32
<PAGE>
to, or simultaneously with, DR Investor's purchase of JF Investor's Corporate
Part.
Section 9.2 Right of First Refusal. If DR Investor has consented
----------------------
to a Transfer pursuant to Section 9.1, DR Investor or its designee shall have a
right of first refusal with respect to such Transfer by JF Investor or any other
partner (other than DR Investor) (collectively, a "Transferring Partner") which
would result in a change in the equity ownership and/or in the right to vote at
a Partners' Meeting (a "Corporate Part Transfer"). In the event a Transferring
Partner wishes to effect a Corporate Part Transfer, the Transferring Partner
must obtain a written, binding Corporate Part Transfer offer from a bona fide
---------
third party, and provide written notice to DR Investor of the terms (including
the price to be paid) of the proposed Corporate Part Transfer. DR Investor
shall have the right, for 45 days after receipt of such written notice from the
Transferring Partner (the "ROFR Period"), to purchase from the Transferring
Partner all of the portion of the Corporate Part subject to the Corporate Part
Transfer at the same price and on substantially the same terms as in the
contemplated Corporate Part Transfer. If DR Investor declines to purchase all
of such portion of the Corporate Part, then the Transferring Partner shall have
the right for 120 days after the earlier of (i) receipt of DR Investor's notice
that it will not purchase such portion of the Corporate Part or (ii) expiration
of the ROFR Period, to Transfer such portion of the Corporate Part to the third
party at the same price and on the terms specified in the Corporate Part
Transfer notice. If such portion of the Corporate Part is not sold to the third
party within the 120-day period specified in the preceding sentence, any future
Transfer thereof shall be subject to the right of refusal set forth in this
Section 9.2.
Section 9.3 Transferees; New Partners. This Partnership
------------------------------
Agreement shall be binding on any transferee of a Corporate Part, including but
not limited to, one who acquires a Corporate Part as contemplated by the
penultimate sentence of Section 9.2 and any Person to whom a new Corporate Part
is issued. Failure of a transferee or purchaser of a new Corporate Part to
execute a joinder to this Partnership Agreement shall cause the Transfer or
issuance to be null and void.
Section 9.4 Costs. The Partner effecting a Corporate Part Transfer
-----
under this Article IX and any Person becoming a
33
<PAGE>
Partner in connection therewith shall pay or reimburse the Company and be
jointly and severally liable for, all reasonable costs incurred by the Company
in connection with the Corporate Part Transfer (including, without limitation,
any reasonable legal fees incurred in connection with the review and/or
consideration of the implications thereof under Applicable Laws) on or before
the tenth day after the receipt by the Person of the Company's invoice for the
amount due.
ARTICLE X
PUT AND CALL RIGHTS OF THE PARTNERS
-----------------------------------
Section 10.1 Put Right. At any time after January 1, 2000 and prior
---------
to the receipt of a Call Notice (as defined below), JF Investor shall be
entitled, in its sole discretion, by giving 60 days prior written notice (the
"Put Notice") to DR Investor, to require DR Investor to purchase all (but not
less than all) of JF Investor's Corporate Part at the Put Price as determined
pursuant to Section 10.3. Once the Put Notice has been delivered by JF Investor
to DR Investor, such notice shall be irrevocable and may not be cancelled,
delayed or amended in any respect without DR Investor's written consent (which
consent may be given or withheld in DR Investor's sole discretion).
Section 10.2 Call Right. DR Investor shall be entitled, in its
-----------
sole discretion, at any time after January 1, 2002, by giving 60 days prior
written notice (the "Call Notice") to JF Investor to purchase all (but not less
than all) of JF Investor's Corporate Part at the Call Price determined pursuant
to Section 10.3. Once the Call Notice has been delivered by DR Investor to JF
Investor, such notice shall be irrevocable and may not be cancelled, delayed or
amended in any respect without JF Investor's written consent (which consent may
be given or withheld in JF Investor's sole discretion). DR Investor shall attach
to the Call Notice a certificate, signed by the Chief Financial Officer of DRI,
which states that, in the six months prior to the date of the Call Notice, the
Company has not engaged in any activities or transactions outside of the
ordinary course of its business which had or would have any adverse effect on
the Call Price, other than those activities or transactions which were approved
by JF Investor (whether through the approval of the annual plan and budget, in a
34
<PAGE>
resolution of the Partners or a resolution of the administrator-managers which
received the affirmative vote of the administrator-managers proposed by JF
Investor or otherwise), and that the Company has taken no action within such
period that was specifically intended to reduce the Call Price. Receipt of the
certificate referenced above shall be a precondition to JF Investor's obligation
to tender its Corporate Part.
Section 10.3 Computation of Purchase Price. Promptly after receipt
-----------------------------
of a Put Notice or a Call Notice, as the case may be, DR Investor shall cause
the Company to determine the Put Price or Call Price, as the case may be, as
follows. The "Call Price" shall be an amount, determined and stated in US
Dollars, equal to (i) the greater of (A) 150% of the book value of the Company
determined as at the end of the latest fiscal quarter before the date of the
Call Notice and (B) the. Equity Value of the Company (as defined below),
multiplied by (ii) JF Investor's Percentage. The "Put Price" shall be equal to
ninety-nine and one-half percent (99 1/2%) of the Call Price. If JF Investor has
made an Additional Equity Contribution in the same calendar quarter as the date
of the Put Notice or Call Notice or in the same calendar quarter as the date of
the closing of the sale of JF Investor's Corporate Part, the amount of such
Additional Equity Contribution shall be added into the Put Price or Call Price
(as the case may be) . The amount of such Additional Equity Contribution shall
be paid (pursuant to the provisions of Section 10.4(c)) on the date of the
closing of the sale of JF Investor's Corporate Part, and the remainder of the
Put Price or Call Price shall be paid as set forth in Section 10.4. The US
Independent Accountants shall make the determinations of the book value and the
Equity Value of the Company from the applicable financial statements of the
Company prepared in accordance with US GAAP. The "Equity Value" of the Company
shall be an amount, determined for purposes of this Article X as of the date of
the Put Notice or Call Notice (the "Determination Date"), equal to (a) an amount
determined by multiplying the Average EBIT (as defined below) times 5; (b) less,
subject to (c) below, the total amount of all short term and long term debt,
including all Debt Contributions determined as at the Determination Date; (c)
plus the amount of any Non-Productive Investments, if any, determined as at the
Determination Date; (d) plus the amount of the cash balances and the fair market
value of marketable securities, if any, of the Company (excluding an amount
equal to the Purchase Price (as defined in the Equipment Lease) and all Interest
(as defined in the
35
<PAGE>
Equipment Lease) earned thereon if the Purchase Price and the Interest have not
been paid at such time), as at the Determination Date; all converted (where
applicable) to US Dollars using the Fix Rate in effect for the Determination
Date. The "Average EBIT" shall be the sum of the average of the EBIT for the two
most recently completed Fiscal Years (the "Applicable Years") prior to the date
of the Put Notice or the Call Notice, as the case may be. If there is a Material
Breach by either Partner which has a material effect on EBIT (whether materially
positive or materially negative) in any Fiscal Year used in the calculation of
Average EBIT, the Partners shall cooperate in good faith to quantify such
material effect and recalculate Average EBIT by making appropriate adjustments.
Section 10.4 Payment. The Put Price or Call Price so computed shall
-------
be paid to JF Investor as follows:
(a) the Put Price (less any Additional Equity Contribution returned
to JF Investor pursuant to Section 10.3) shall be evidenced by one or more
promissory notes in substantially the form of Exhibit O and shall be payable in
---------
5 equal annual installments with the first installment payable in US Dollars at
the closing of the sale of JF Investor's Corporate Part and 4 subsequent
installments, together with interest thereon at the DRI Senior Bank Debt Rate in
effect on the date of the closing (and, in the case of late payments, the DRI
Senior Bank Debt Rate in effect on the date of the closing plus 2.5 percentage
points), payable on each of the 1st, 2nd, 3rd and 4th anniversaries of the date
of closing of the sale of JF Investor's Corporate Part.
(b) the Call Price (less any Additional Equity Contribution returned
to JF Investor pursuant to Section 10.3) shall be paid in US Dollars in cash 20%
at closing of the sale of JF Investor's Corporate Part, and the deferred portion
of such purchase price shall be evidenced by one or more promissory notes in
substantially the form of Exhibit P providing that the principal of such
---------
promissory note(s), together with interest on the remaining balance thereof at
the DRI Senior Bank Debt Rate in effect on the date of the closing (and, in the
case of late payments, the DRI Senior Bank Debt Rate in effect on the date of
the closing plus 2.5 percentage points), shall be payable 40% on the date which
is 6 months after closing of the sale of JF Investor's Corporate Part
36
<PAGE>
and 40% on the date which is 12 months after closing of the sale of JF
Investor's Corporate Part.
(c) Payments in respect of the Put Price or Call Price shall be made
in US Dollars or Mexican Pesos, at JF Investors choice pursuant to written
instructions sent to DR Investor not less than thirty (30) days prior to any due
date (and subject to the restrictions of Applicable Laws) . Also subject to the
restrictions of Applicable Law, if JF Investor instructs DR Investor to make
payments in US Dollars, JF Investor shall also have the right to specify in its
notice to make payment to a bank account either in the United States or in
Mexico. In the case of payment in Mexican Pesos, such payment shall be
converted from US Dollars to Mexican Pesos by reference to the Fix Rate last
published before the date of payment.
(d) (i) If the Company has a tax-paid retained earnings account
("CUFIN") at the time of the closing of the sale of JF Investor's Corporate
Part, JF Investor shall have the right to instruct DR Investor to cause the
Company to declare and pay a dividend on such date (of which JF Investor will
receive a portion equal to its Percentage immediately prior to the sale of JF
Investor's Corporate Part) equal to the amount of the Company's tax-paid
retained earnings. If the amount paid to JF Investor as a dividend from the
Company's CUFIN account exceeds the aggregate of (x) the Additional Equity
Contribution if any, due to JF Investor pursuant to Section 10.3 plus (y) the
cash amount payable to JF Investor pursuant to (a) or (b) above at the time of
the closing of the sale of JF Investor's Corporate Part, on such date, JF
Investor shall lend such excess to DR Investor. Such lent amounts shall reduce
the amounts owed from DR Investor pursuant to (a) or (b) above on a dollar-
for-dollar basis and shall be incorporated in the promissory note attached as
Exhibit O or Exhibit P, as the case may be.
- --------- ---------
(ii) Notwithstanding the foregoing, DR Investor shall only be required
to comply with JF Investor's instruction if it receives a legal opinion,
reasonably satisfactory to DR Investor, rendered by counsel reasonably
acceptable to DR Investor, to the effect that the declaration and payment of
such a dividend will not, in itself, result in or give rise to any liabilities
under Applicable Law to DR Investor or the Company which are different in any
adverse way from those which would have existed if
37
<PAGE>
DR Investor paid the full amounts required to be paid on the closing date of the
sale of JF Investor's Corporate Part pursuant to (a) or (b) above and do not
violate any Applicable Laws (although DR Investor and the Company acknowledge
that this procedure will deplete the CUFIN account of the Company). JF Investor
shall bear the cost of such legal opinion.
(e) DR Investor shall cause all outstanding Debt Contributions from JF
Investor, together with all unpaid accrued interest thereon, to be repaid in
cash in US dollars in full at the closing of the sale of JF Investor's Corporate
Part.
Section 10.5 Put/Call Rights If JF Investor Owns Less Than 10%. If
-------------------------------------------------
at any time during the existence of the Company, the Corporate Part held by JF
Investor bears a Percentage of less than 10%: (i) JF Investor shall be entitled,
in its sole discretion, by giving a Put Notice to DR Investor, to require DR
Investor to purchase all (but not less than all) of JF Investor's Corporate Part
at the Put Price as determined pursuant to Section 10.3 and (ii) DR Investor,
shall be entitled, in its sole discretion, by giving a Call Notice to JF
Investor, to purchase all (but not less than all) of JF Investor's Corporate
Part at the Call Price as determined pursuant to Section 10.3. For the purposes
of this Section 10.5, if, at the date of a Put Notice or Call Notice, (A) the
Company has been in existence for less than two Fiscal Years but at least one
Fiscal Year, the Equity Value determined pursuant to Section 10.3 shall be
calculated by reference to the Company's EBIT for the completed Fiscal Year or
(B) the Company has not been in existence for one full Fiscal Year, the Equity
Value determined pursuant to Section 10.3 shall be calculated by annualizing the
Company's EBIT for the period from the date of its constitution to the end of
the last full calendar month prior to the date of the Put Notice or Call Notice.
If the Corporate Part of JF Investor is to be purchased pursuant to a Call
Notice, DR Investor shall also provide the certificate of the Chief Financial
Officer of DRI described in Section 10.2. Once a Put Notice or Call Notice has
been delivered by the relevant party pursuant to this Section 10.5, such notice
shall be irrevocable and may not be cancelled, delayed or amended in any respect
without the other Partner's written consent (which consent may be a given or
withheld in such other Partner's sole discretion). The Put Price or Call Price
shall be paid in the manner set forth in Section 10.4.
38
<PAGE>
ARTICLE XI
ADDITIONAL COVENANTS
--------------------
Section 11.1 The Closing. The following actions shall be taken and
-----------
events shall occur at the Closing:
(a) each JV Partner shall, and shall cause its Affiliates and
the Company to, execute and deliver each Related Agreement (other than the JF
Asset Purchase Agreement) to which it or they are parties and all other
documents, instruments and certificates required pursuant to the terms hereof
and thereof;
(b) the "Closing" shall occur under the DR Asset Purchase
Agreement;
(c) the JV Partners shall provide the Company with the funds
forming the JV Equity Contributions in accordance with this Partnership
Agreement;
(d) the Company shall record the ownership of the Corporate
Parts of the JV Partners in accordance with Section 2.5;
(e) the JV Partners shall cause the increase of the Total Social
Capital of the Company to reflect the JV Equity Contributions and shall cause
the appointment of all administrator-managers and Officers of the Company in
accordance with this Partnership Agreement and the Amended Bylaws; and
(f) JF Investor shall deliver evidence satisfactory to DR
Investor that there are no Liens on the Corporate Part to be issued to JF
Investor in connection with the transactions contemplated hereby, nor is there
any reasonable likelihood that any such Liens will attach to such Corporate Part
in the future.
On the Closing Date or as soon thereafter as is practicable, the JV
Partners shall cause the Amended Bylaws to be filed with the Registro Publico de
Comercio in San Luis Potosi.
Section 11.2 Operating Policy. The Partners shall use their best
----------------
efforts to have the Company conduct its business in accordance with the highest
business ethics and standards, and in full compliance with all Applicable Laws.
39
<PAGE>
Section 11.3 Payment of DRI Receivables. The DRI Receivables shall
--------------------------
be purchased by the Company on the Closing Date pursuant to the DR Asset
Purchase Agreement. JF Investor agrees to cause SCE to pay the DRI Receivables
promptly to the Company as they become due according to their terms. DR Investor
shall cooperate, and shall cause the Company to cooperate, in all reasonable
ways with SCE and JF Investor regarding the method of payment, including causing
the Company to draw any existing letters of credit securing payment of the DRI
Receivables.
Section 11.4 Consent to Assignment of SD License. SCE's rights under
-----------------------------------
the SD License shall be sublicensed to the Company by SCE on the Closing Date
pursuant to the Equipment Lease and shall be assigned to the Company if the
"Closing" occurs under the JF Asset Purchase Agreement. DR Investor shall ensure
that DRA has consented in writing to SCE's sublicense and assignment of the SD
License to the Company. DR Investor represents and warrants to JF Investor that
the SD License has been validly assigned by General Motors Corporation to DRA
and that, insofar as DR Investor is aware, there is nothing which prohibits
SCE's sublicense or assignment of the SD License to the Company.
Section 11.5 Debt Policy. DR Investor shall cause the Company to use
-----------
all reasonable efforts to maximize third party bank borrowing so as to minimize
the amount of Additional Contributions required to be made by the Partners.
Except as may be approved pursuant to Section 4.2, DR Investor shall cause the
Company only to incur third party bank financing in the form of debt and not
equity interests or securities or obligations convertible into or redeemable for
equity interests or securities. Furthermore, it is agreed by the Partners that
no Partner shall be obligated to guarantee any bank debt.
Section 11.6 Liens on Corporate Part of JF Investor. JF Investor
--------------------------------------
covenants not to grant or permit to exist any Liens on the Corporate Part owned
by it at any time during the term of this Partnership Agreement.
Section 11.7 Prior Actions of SCE. Etc. JF Investor represents and
-------------------------
warrants to DR Investor that none of DRI nor any of its Affiliates nor any of
their respective officers and directors will incur any liability in connection
with the consummation of the transactions contemplated by this Partnership
Agreement or the
40
<PAGE>
Related Agreements to any third party with whom SCE, JF or their Affiliates,
representatives or agents have had discussions regarding the establishment of a
joint venture or the sale of equity in SCE or its Affiliates, which liability
arises out of such discussions or agreements to which SCE, JF, their Affiliates,
representatives or agents are parties. JF Investor agrees to indemnify, defend
and hold harmless each of DRI, its Affiliates and their respective officers and
directors from any action by or against liabilities to such third parties,
including legal and other expenses incurred in connection with the defense of
such claims.
Section 11.8 Company Employees. DR Investor shall cause the Officers
-----------------
to consult with JF Investor and obtain advice from JF Investor concerning the
Company's hiring, directly or indirectly, of any employees. Such consultation
shall be conducted for the purpose of determining each such Person's past
relationships with JF Investor and its Affiliates, whether or not in JF
Investor's opinion the presence of such Person would be disruptive in the
workplace and whether or not JF Investor is aware of any prior criminal activity
or other misconduct of such Person. If the Company wishes to hire any Person to
perform direct labor for the manufacture of the Company's products, other than a
Person who was an employee of PCo. immediately prior to the proposed date of
hiring, DR Investor shall cause the Company to obtain the prior approval of the
labor union then representing the employees of the Company (and, if the Service
Agreement is in effect, the labor union then representing the employees of
Pco.).
ARTICLE XII
DISPUTE RESOLUTION
------------------
Section 12.1 Notice Regarding Dispute. If there is a dispute
------------------------
between the Partners relating to whether a Material Breach has occurred, any
Partner may give written notice to the other Partner requesting to discuss
actions which might be taken to resolve such dispute. No proposed actions are
required to be set forth in such notice. The Partners shall, commencing promptly
after such notice shall have been given, discuss such actions in good faith.
During such discussions, any Partner may propose for discussion any action which
it believes might be so taken.
41
<PAGE>
Section 12.2 Referral to Senior Executive Officers. If the Partners
-------------------------------------
shall have discussed actions which might be taken to resolve a dispute pursuant
to Section 12.1 and shall have failed to agree upon such actions within 30 days
after notice shall have been given pursuant to Section 12.1, a Partner may at
any time within 15 days after the expiration of such 30-day period give written
notice to the other Partner, requesting that the respective senior executive
officers of the Partners (the President of DRI, on behalf of DR Investor; and
JF, on behalf of JF Investor) and the General Manager of the Company, on behalf
of the Company, discuss such actions. Within 30 days after receipt of such
notice, the receiving Partner shall submit to the other parties a written
response. The notice and the response shall include a statement of each
Partner's position, to the extent applicable, and a summary of arguments
supporting that position. The Partners shall, commencing promptly after such
notice and response shall have been given, cause such senior executive officers
to meet at a mutually acceptable time and place (within 15 days after delivery
of the disputing Partner's notice), and thereafter as often as they reasonably
deem necessary, to discuss such actions and to attempt to resolve the dispute.
During such discussions, a senior executive officer may propose for discussion
any action which such senior executive officer believes might be so taken and
such senior executive officers may consult with counsel, accountants and other
experts. Such senior executive officers shall utilize their best commercial
efforts to resolve the dispute.
Section 12.3 Arbitration. Any dispute relating to the execution,
-----------
delivery, performance or interpretation of this Agreement or whether a Material
Breach has occurred which remains unresolved following completion of the process
provided in Sections 12.1 and 12.2 shall be settled and finally determined by
binding arbitration in Chicago, Illinois or any other location as the Partners
may agree, by three arbitrators, in accordance with the Commercial Arbitration
Rules then obtaining of the American Arbitration Association. The arbitral
tribunal may hold pre-hearing conferences or adopt other procedures, including
reasonable discovery. The right to reasonable examination of opposing witnesses
in oral hearing shall not be denied. Each party shall bear its own costs of
presenting or defending its position in the arbitration. The award of the
arbitral tribunal rendered therein shall specify the findings of fact of the
arbitrators and the reasons for such award, with reference to and reliance on
relevant
42
<PAGE>
law as provided for in Section 15.8 hereof. Any such award shall be final and
binding on each and all of the parties thereto and the Partners, and judgment
may be entered thereon in any court having jurisdiction thereof. The language of
the arbitration shall be English.
Section 12.4 No Limitation of Remedies. Notwithstanding the
-------------------------
foregoing, the initiation of the dispute resolution procedures set forth in
Sections 12.1 through 12.3 above shall not limit the rights and remedies of the
parties to the other Related Agreements (including, without limitation, DR
Investor's and the Company's rights and remedies under the Termination
Agreement) or pursuant to the Bylaws; provided, however, that the foregoing
shall not limit the parties' agreement to use arbitration as a final dispute
resolution mechanism under this Agreement pursuant to Section 12.3.
ARTICLE XIII
TERMINATION FOR MATERIAL BREACH, ETC.
-------------------------------------
Section 13.1 Termination. (a) This Partnership Agreement may
-----------
be terminated by any Partner, subject to Section 13.2, by giving 90 days' notice
to the other Partner if the other Partner is in Material Breach. Notwithstanding
anything to the contrary set forth herein, the decision of a Partner not to
subscribe to all or any part of an Additional Contribution (whether relating to
the contents of an Offer, to Unsubscribed Equity, to Unsubscribed Debt or
otherwise) shall not be deemed a Material Breach.
(b) This Partnership Agreement shall automatically be terminated:
(i) upon the written consent of the Partners;
(ii) upon the Transfer of all or substantially all of the assets
of the Company (other than through a mortgage, pledge, grant of security
interest or other financing encumbrance approved by the Board); or
(iii) if (A) any Partner (1) makes an assignment for the benefit
of creditors; (2) files a voluntary petition in
43
<PAGE>
bankruptcy or suspension of payment ("suspension de pagos") ; (3) is
adjudged a bankrupt or insolvent, or has entered against it an order for
relief, in any bankruptcy, insolvency or suspension de pagos proceedings;
(4) files a petition or answer seeking for itself any arrangement,
composition, readjustment, liquidation, dissolution, suspension de pagos or
similar relief under any statute, law or regulation; (5) files an answer or
other pleading admitting or failing to contest the material allegations of
a petition filed against it in any proceeding of the type described in
clauses (1) through (4) above; (6) seeks, consents to, or acquiesces in the
appointment of a receiver or liquidator of itself or of all or any
substantial part of its properties; or (7) is generally unable, on an
ongoing basis, to pay its debts as they become due; (B) the other Partner
sends a notice to such Partner terminating this Partnership Agreement; and
(C) thirty (30) days pass after the date of such notice.
Section 13.2 Put and Call Rights Prior to Termination. If either
----------------------------------------
Partner gives notice that it elects to terminate this Partnership Agreement
pursuant to Section 13.1(a), such Partner (the "Terminating Partner") shall have
the right, in addition to any other remedy that may be available, to send a
notice (the "Buyout Notice") to the other Partner (the "Breaching Partner")
stating that it will exercise a put right (if the Terminating Partner is JF
Investor) or a call right (if the Terminating Partner is DR Investor) with
respect to the Corporate Part of JF Investor on the date which is ten (10) days
after the date of the Buyout Notice. The price paid by DR Investor for the
Corporate Part of JF Investor shall be the Call Price (if DR Investor is the
Terminating Partner) or Put Price (if JF Investor is the Terminating Partner),
as calculated in accordance with Section 10.3, treating a Buyout Notice sent by
JF Investor pursuant hereto as a Put Notice and a Buyout Notice sent by DR
Investor pursuant hereto as a Call Notice; provided, however, that the 60-day
-------- -------
notice periods specified in Sections 10.1 and 10.2 shall be shortened to 10 days
for the purposes of this Section 13.2 and payment shall be in cash on the date
of purchase if JF Investor is the Terminating Partner. If, on the date of the
Buyout Notice, (A) the Company has been in existence for less than two Fiscal
Years but at least one Fiscal Year, in lieu of Average EBIT, the Call Price or
Put Price, as the case may be, shall be determined by reference to the Company's
EBIT for the completed Fiscal Year, or (B) the Company has not been in
44
<PAGE>
existence for one full Fiscal Year, in lieu of Average EBIT, the Call Price or
Put Price, as the case may be, shall be determined by reference to an annualized
calculation of the Company's EBIT for the period from the date of its
constitution to the end of the last full calendar month prior to the date of the
Buyout Notice. In addition to the purchase of the Corporate Part of JF Investor,
and simultaneously with the purchase of the Corporate Part of JF Investor, the
Company shall pay, and DR Investor shall cause the Company to pay, to JF
Investor the full amount of Debt Contributions (including, without limitation,
principal and accrued but unpaid interest) then outstanding from JF Investor to
the Company.
Section 13.3 Effect of Termination. If this Partnership
---------------------
Agreement is terminated, the Partners shall have no further obligations
hereunder, except with respect to those provisions hereof which by their terms
or this Section are intended to survive termination of this Partnership
Agreement, including, without limitation, any unfulfilled obligations arising
pursuant to Article XII or Section 9.4 and the obligations relating to public
announcements and confidentiality provided for in Sections 15.1 and 15.2,
respectively. The Breaching Partner shall cooperate in all reasonable ways
requested by the Terminating Partner to permit the Terminating Partner to
continue the Company, including through the amendment of the Bylaws, in the
event the Breaching Partner ceases to be a Partner of the Company pursuant to
Section 13.2.
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 14.1 Investment Representations. (a) Each Partner
--------------------------
represents and warrants to the Company and to each other Partner that it has
acquired its Corporate Part in the Company for its own account, for investment
purposes only and not with a view to the distribution thereof, except to the
extent provided in or contemplated by this Partnership Agreement.
(b) Each Partner recognizes that (i) the interests in the Company
have not been registered under the United States Securities Act of 1933, as
amended (the "1933 Act"), in reliance upon an exemption from such registration
and agrees that it will
45
<PAGE>
not sell, offer for sale, transfer, pledge or hypothecate its Corporate Part (A)
in the absence of an effective registration statement covering such Corporate
Part under the 1933 Act, unless such sale, offer of sale, transfer, pledge or
hypothecation is exempt from registration and (B) except in compliance with all
applicable provisions of this Partnership Agreement and (ii) the restrictions on
Transfers imposed by this Partnership Agreement may severely affect the
liquidity of an investment in its Corporate Part.
Section 14.2 Representations and Warranties of DR Investor. DR
---------------------------------------------
Investor represents, warrants and covenants to JF Investor as follows:
(a) Organization: Qualification. DR Investor is a sociedad de
---------------------------
responsabilidad limitada de capital variable duly organized and validly existing
under the laws of Mexico. DR Investor has all requisite corporate power and
authority to own, lease and operate its properties and assets as now owned,
leased and operated and to carry on its business as and where presently being
conducted.
(b) Authorization and Enforceability. DR Investor has the full
--------------------------------
corporate power and authority to make, execute, deliver and perform this
Partnership Agreement, and the execution, delivery and performance of this
Partnership Agreement by DR Investor has been duly authorized by all necessary
corporate action, including, if necessary, partner approval. This Partnership
Agreement has been duly executed and delivered by DR Investor and this
Partnership Agreement constitutes the legal, valid and binding obligation of DR
Investor enforceable in accordance with its terms.
(c) No Violation of Laws or Agreements. The execution and delivery
----------------------------------
of this Partnership Agreement do not, and the consummation of the transactions
contemplated by this Partnership Agreement and the compliance with the terms,
conditions and provisions of this Partnership Agreement by DR Investor will not,
conflict with or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or result in the creation of any Lien upon any of the business, assets or
properties of DR Investor under, any provision of (i) its articles of
46
<PAGE>
incorporation, bylaws or other corporate documents, or (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment,
agreement or arrangement to which DR Investor is a party, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to DR
Investor or the business, assets or properties of DR Investor.
(d) Consents. No consent, approval, order or authorization of, or
--------
registration, declaration or filing with, any court, administrative agency or
commission or authority, is required to be obtained or made, by or with respect
to, DR Investor in connection with the execution and delivery of this
Partnership Agreement or the consummation by DR Investor of the transactions
contemplated hereby.
(e) Board of Managers Approval. The formation of the Company and
--------------------------
the transactions contemplated by this Partnership Agreement have been approved
by the board of managers of DR Investor.
Section 14.3 Representations and Warranties of JF Investor. JF
---------------------------------------------
Investor represents, warrants and covenants to DR Investor as follows:
(a) Organization: Qualification. JF Investor is a sociedad anonima
---------------------------
de capital variable duly organized and validly existing under the laws of
Mexico. JF Investor has all requisite corporate power and authority to own,
lease and operate its properties and assets as now owned, leased and operated
and to carry on its business as and where presently being conducted.
(b) Authorization and Enforceability. JF Investor has full
--------------------------------
corporate power and authority to make, execute, deliver and perform this
Partnership Agreement, and the execution, delivery and performance of this
Partnership Agreement by JF Investor has been duly authorized by all necessary
corporate action, including, if necessary, shareholder approval. This
Partnership Agreement has been duly executed and delivered by JF Investor, and
this Partnership Agreement constitutes the legal, valid and binding obligation
of JF Investor enforceable in accordance with its terms.
(c) No Violation of Laws or Agreements. The execution and delivery
----------------------------------
of this Partnership Agreement do not, and the
47
<PAGE>
consummation of the transactions contemplated by this Partnership Agreement and
the compliance with the terms, conditions and provisions of this Partnership
Agreement by JF Investor will not, conflict with or result in any violation of
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or loss of a material benefit under, or result in the creation of any Lien upon
any of the business, assets or properties of JF Investor, JF, SCE or PCo. under,
any provision of (i) such Person's bylaws or other corporate documents, or (ii)
any note, bond, mortgage, indenture, deed of trust, license, lease, contract,
commitment, agreement or arrangement to which such Person is a party, or (iii)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to such Person or the business, assets, or properties of such Person.
(d) Consents. Other than as set forth on Schedule 3, no consent,
-------- ----------
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or Governmental Authority,
is required to be obtained or made, by or with respect to, JF Investor, JF, SCE
or PCo. in connection with the execution and delivery of this Partnership
Agreement or the consummation by JF Investor of the transactions contemplated
hereby.
(e) Board of Directors Approval. The formation of the Company and
---------------------------
the transactions contemplated by this Partnership Agreement have been approved
by all necessary corporate action.
ARTICLE XV
MISCELLANEOUS
-------------
Section 15.1 Public Announcements, Etc. The Partners shall consult
-------------------------
with each other before issuing any press release or making any public
announcement with respect to this Partnership Agreement or the constitution of
the Company and, except as may be required by Applicable Law or any national or
international securities exchange, shall not issue any such press release or
make any such public announcement without the consent of all Partners; provided,
--------
however, after the date of this Partnership Agreement, the Partners and their
- -------
officers and Affiliates shall not be prohibited by this Section 15.1 from
providing to third parties
48
<PAGE>
general, informal, unwritten information which is not confidential information
concerning the Company and the Company's Business. Notwithstanding the
foregoing, no provision of this Partnership Agreement shall relieve any Partner
from any of the obligations under Section 15.2.
Section 15.2 Confidentiality. Each Partner agrees that it will not,
---------------
and will cause each of its Affiliates, the Company and all of its and their
agents, employees, officers and/or directors not to, at any time reveal to any
Person or use in any way detrimental to the other Partner or the Company or the
business of the other Partner or the Company any of their non-public,
confidential or proprietary information received from them in connection with
this Partnership Agreement, the Related Agreements and/or the transactions
contemplated thereby, other than such information that (a) is generally
available to the public (other than as a result of a disclosure by such Person
in violation of this Partnership Agreement or any other agreement to which such
Person is a party), (b) is available to such Person on a non-confidential basis
from a source (including any Partner, as the case may be) that is not prohibited
from disclosing such information to such Person or (c) after notice and an
opportunity to contest, such Person is required to disclose under Applicable Law
or under subpoena or other process of laws. Notwithstanding the foregoing, each
Partner and its Affiliates shall have the right to disclose any information
which may be disclosed under the express terms of the Service Agreement, as such
information pertains to the term of the Lease Agreement.
Section 15.3 Relationship of the Parties. This Partnership
---------------------------
Agreement shall not constitute the appointment of any Partner as the legal
representative or agent of any other Partner. No party to this Partnership
Agreement shall have any right or authority to assume, create or incur any
liability or any obligation of any kind, express or implied, against or in the
name of or on behalf of any other party to this Partnership Agreement. Except as
may be specifically provided in this Partnership Agreement or any other Related
Agreement, neither the Company nor either Partner shall assume or be responsible
for any liability or obligation of any nature of, or any liability or obligation
that arises from any act or omission to act of, any other Partner however or
whenever arising.
49
<PAGE>
Section 15.4 Agreement for Further Execution. At any time or times
-------------------------------
upon the request of the Board or any Partner, each Partner agrees to sign and
swear to any certificate, any amendment to or cancellation of such certificate,
acknowledge similar certificates or affidavits or certificates of fictitious
firm name or the like (and any amendments or cancellations thereof) required by
the laws of Mexico, or any other jurisdiction in which the Company does, or
proposes to do, business; provided that such certificate, amendment,
cancellation or affidavit is consistent with the terms of this Partnership
Agreement and the Related Agreements. This Section 15.4 shall not prejudice or
affect the rights of the Partners to approve certain amendments to this
Partnership Agreement pursuant to Section 15.6.
Section 15.5 Notices. Any notice, demand, election or communication
-------
required, permitted or desired to be given between the Partners hereunder shall
be in writing and shall be personally delivered or shall be sent by prepaid
registered mail, return receipt requested, or by commercial courier service, or
electronic facsimile (but in the latter instance, also by prepaid registered
mail, return receipt requested, or by commercial courier service). Notices,
demands, elections or communications shall be deemed received on the first to
occur of the following: (i) when personally delivered; (ii) when actually
received; or (iii) when sent by commercial courier service, four (4) days
following the deposit thereof with such service. Notices, demands, elections or
communications shall be addressed as follows (or to any other address which the
relevant party may designate to the others by written notice):
if to DR Investor or any administrator-manager proposed by DR Investor:
Remy Mexico Holdings, S. de R.L. de C.V.
c/o Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
U.S.A.
Attention: Robert Padgett
Telecopy: 317-778-6454
50
<PAGE>
with a copy to: Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: G. Daniel O'Donnell
Telecopy: 215-994-2222
if to JF Investor or any administrator-
manager proposed by JF Investor:
GCID Autopartes, S.A. de C.V.
EJE 128 No. 190
Zona Industrial Del Potosi
78090 San Luis Potosi, S.L.P.
Mexico
Attention: Guillermo Guerra
Telecopy: 52-48-240-298
with a copy to: Little, Pedersen, Fankhauser & Cox
901 Main Street, Suite 5050
Dallas, TX 75202
U.S.A.
Attention: Fred C. Pedersen, Esq.
Telecopy: 214-573-2323
if to the Company: Delco Remy Mexico, S. de R.L. de C.V.
EJE 128 No. 190
Zona Industrial del Potosi
78090 San Luis Potosi, S.L.P.
Mexico
Attention: General Manager
Telecopy: 52-48-240-298
with a copy to both Partners.
Section 15.6 Amendments: No Waivers. (a) Any provision of this
----------------------
Partnership Agreement (including the definitions of any terms set forth herein
and/or any schedule or exhibit hereto) may be amended or waived if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by all the Partners, or in the case of a waiver, by the party against whom the
waiver is to be effective.
51
<PAGE>
(b) No failure or delay by any party in exercising any right, power
or privilege under this Partnership Agreement shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided in this Partnership Agreement shall be cumulative
and not exclusive of any rights or remedies provided by law.
Section 15.7 Successors and Assigns. Subject to the other
----------------------
provisions hereof, the provisions of this Partnership Agreement shall be binding
upon and inure to the benefit of the parties and their respective permitted
successors and assigns. No party to this Partnership Agreement may assign its
rights or obligations hereunder, without the written consent of the other,
except as specifically set forth herein or where such assignment is made in
connection with a Transfer of a Corporate Part in accordance herewith.
Section 15.8 Governing Law; Consent to Jurisdiction. In accordance
--------------------------------------
with Section 5-1401 of the General Obligations Law of the State of New York,
this Partnership Agreement shall be governed by the laws of the State of New
York, USA, without giving effect to the provisions, policies or principles
thereof relating to conflict of laws.
Section 15.9 Illegality and Severability. If application of any one
---------------------------
or more of the provisions of this Partnership Agreement shall be unlawful under
Applicable Law, then the Partners shall attempt in good faith to make such
alternative arrangements as may be legally permissible and which carry out as
nearly as practicable the terms of this Partnership Agreement. Should any
portion of this Partnership Agreement be deemed unenforceable by an arbitral
tribunal or a court of competent jurisdiction, the remaining portion hereof
shall remain unaffected and be interpreted as if such unenforceable portions
were initially deleted.
Section 15.10 Specific Performance. The Partners agree that
--------------------
immediate and irreparable damage would occur in the event any provision of this
Partnership Agreement was not performed in accordance with the terms hereof and
that the parties shall be
52
<PAGE>
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 15.11 Captions. The captions in this Partnership Agreement
--------
are included for convenience or reference only and shall be ignored in the
construction or interpretation hereof.
Section 15.12 Counterparts; Effectiveness. This Partnership
---------------------------
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and to this
Partnership Agreement were upon the same instrument. This Partnership Agreement
shall become effective when each party to this Partnership Agreement shall have
received a counterpart hereof signed by the other party to this Partnership
Agreement.
Section 15.13 Entire Agreement. This Partnership Agreement, the
----------------
Bylaws and the Related Agreements (and any other agreements contemplated hereby
or thereby) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof or thereof (including, without limitation, the Memorandum
of Understanding among DRI, SCE and JF dated May 31, 1996). No representation,
inducement, promise, understanding, condition or warranty not set forth in this
Partnership Agreement has been made or relied upon by any party to this
Partnership Agreement. This Partnership Agreement is not intended to confer upon
any Person other than the parties and the Company any rights or remedies
hereunder. This Section shall not apply to either party's obligations to pay
money.
Section 15.14 Setoff. To the extent DR Investor or the Company
------
and/or their respective successors ("DRI Entities") suffer or incur any direct
out-of-pocket damages (but not any consequential, special or exemplary damages
or damages for lost sales or loss of reputation or goodwill) ("Direct Damages")
as a result of or arising out of a breach by JF Investor of any of the covenants
contained in this Partnership Agreement, the DRI Entities may withhold and set
off any such Direct Damages against any payments due to JF Investor under this
Partnership Agreement and up to thirty percent (30%) of each payment due to JF
Investor, PCo.
53
<PAGE>
and SCE under any other agreement between any DRI Entity, on the one hand, and
JF Investor, SCE or PCo. on the other hand, including, without limitation, the
Bylaws and any Related Agreement. In addition, to the extent any money damages
are awarded by an arbitral tribunal or a court of competent jurisdiction to any
DRI Entity for a breach by JF Investor of any of the covenants contained in this
Partnership Agreement, the DRI Entities may satisfy such award by withholding
and offsetting against such damages any payments due to JF Investor under this
Partnership Agreement and up to thirty percent (30%) of each payment due to JF
Investor, PCo. or SCE under any other agreement between any DRI Entity, on the
one hand, and JF Investor, SCE or PCo. on the other hand, including, without
limitation, the Bylaws and any Related Agreement, to the extent not already
withheld and offset pursuant to the preceding sentence. Notwithstanding anything
to the contrary set forth in this Partnership Agreement, the DRI Entities may
not withhold or offset against Direct Damages or awarded money damages any
payments made in respect of the Put. Price, Call Price, dividends payable to JF
Investor (or its permitted successors) pursuant to this Partnership Agreement or
the Bylaws or the Purchase Price (as defined in the JF Asset Purchase
Agreement). No DRI Entity shall be required to use any remedy set forth in this
section, and the DRI Entities may pursue any other methods permitted by law
(subject to Section 12.3, specifying arbitration as the final dispute resolution
mechanism with respect to this Partnership Agreement) to recover such Direct
Damages or other damages at any time until they receive the full amount of the
such damages. The rights granted pursuant to this Section shall not affect in
any way the rights of the DRI Entities to pursue the other remedies set forth
in this Partnership Agreement. DR Investor shall provide JF Investor with
written notice at the time of exercise by DR Investor or any DR Entity of any of
their rights under this Section, specifying the amount withheld or setoff and
the amount and kind of Direct Damages or awarded money damages to which such
withholding or setoff relates.
54
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
day and year first above written.
PARTNERS:
--------
REMY MEXICO HOLDINGS, S. de R.L.
de C.V.
By: /s/ C. Robert Pudgett
--------------------------------------
Name: C. Robert Pudgett
Title: Legal Representative
GCID AUTOPARTS, S.A. de C.V.
By: /s/ [SIGNATURE APPEARS HERE]
--------------------------------------
Name: [COPY ILLEGIBLE]
Title: Legal Representative
55
<PAGE>
CONSENT
Each of the undersigned parties consents to and agrees to be bound by
the provisions of Section 15.14 of the preceding Partnership Agreement. The
provisions of Section 15.8 of the preceding Partnership Agreement shall apply to
this consent.
SISTEMAS y COMPONENTES ELECTRICOS,
S.A. de C.V.
By:
--------------------------------------
Name: [COPY ILLEGIBLE]
Title: Legal Representative
GCI SERVICES, S.A. de C.V.
By: /s/ [SIGNATURE APPEARS HERE]
--------------------------------------
Name: [COPY ILLEGIBLE]
Title: Legal Representative
56
<PAGE>
GUARANTY
The undersigned party (the "Guarantor") unconditionally guarantees the
performance of all obligations of Remy Mexico Holdings, S. de R.L. de C.V., its
indirect wholly-owned subsidiary, and its permitted successors and assigns ("DR
Investor"), under that certain Partnership Agreement (herein so called) dated as
of April 17, 1997, by and between DR Investor and GCID Autopartes, S.A. de C.V.
("JF Investor"), to each of the parties to whom such obligations are or may be
owed; provided, however, that Guarantor does not guarantee any debt or other
-------- -------
obligations of the Company (as the "Company" is defined in the Partnership
Agreement.), including, but not limited to, any bank debt (whether principal or
interest) owed by the Company, Debt Contributions (whether principal or
interest) (as defined in the Partnership Agreement) owed by the Company to any
of the Partners, debt (whether principal or interest) owed by the Company
arising from the put and call provisions of the Partnership Agreement or the
Company's payment of dividends (whether declared or not). Such guaranty is
irrevocable until such obligations are performed in full irrespective of (i) any
modifications of or amendments to the Partnership Agreement, (ii) the bankruptcy
or insolvency of DR Investor, (iii) any change in the time, manner or place of
performance of all or any of the obligations of DR Investor guaranteed hereby or
(iv) any release or amendment or waiver of or consent to departure from all or
any of the obligations of DR Investor guaranteed hereby. Guarantor waives all
requirements for notice or demand which may lawfully be waived in the State of
New York. This Guaranty is an absolute, continuing, guaranty of performance and
not a guaranty of collection; no beneficiary of this Guaranty shall be required
to sue or exhaust any remedies against DR Investor prior to making a demand
hereunder. In accordance with Section 5-1401 of the General Obligations Law of
the State of New York, this Guaranty shall be governed by the laws of the State
of New York, USA, without giving effect to the provisions, policies or
principles thereof relating to conflict of laws.
Guarantor further agrees to pay to each beneficiary of this Guaranty
any and all reasonable costs and expenses (including court costs and reasonable
attorneys' fees) incurred by such beneficiary in the preservation or enforcement
of its rights and remedies hereunder, provided that it is ultimately
<PAGE>
determined (by the parties, and arbitral tribunal, a court or otherwise) that
such beneficiary is entitled to payment by Guarantor.
DELCO REMY INTERNATIONAL, INC.
By: /s/ Thomas J. Snyder
--------------------------------------
Name: Thomas J. Snyder
Title: President and Chief Operating
Officer
<PAGE>
SCHEDULE l
Licensed Products
-----------------
l 28 MT Starting Motor Assembly
2. PG 260 FI Starting Motor Assembly
3. 21 SI Alternator Assembly
4. 37 MT Starting Motor Assembly
5. 41 MT Starting Motor Assembly
6. 42 MT Starting Motor Assembly
7. PG 260 F2 Brush Plate Assembly
The "Licensed Products" shall also include products sold under different
designations after the date of this Partnership Agreement if such products
are intended by DRA to be replacements for the products currently sold
under the designations listed above and if such products are Evolutionary
Improvements (as defined in the TIA Agreement) of the products currently
sold under the designations listed above. Once established as a "Licensed
Product," a product shall remain a "Licensed Product" even if DRA changes
the designation under which it is sold.
50
<PAGE>
SCHEDULE 2
SD Motors and Sub-Assemblies
<TABLE>
<CAPTION>
(a) Final Assemblies
Part Part Number
---- -----------
<S> <C> <C>
SD260 Current 10455013
SD210 Current 10455053
SD255 Current 10455065
SD255 Current 10455067
SD205 Current 10455069
SD200 10455016
SD250 10455024
SD200 10455019
SD200 10455021
SD200 10455049
SD200 10455055
</TABLE>
The final assemblies shall also include products sold under different part
numbers after the date of this Partnership Agreement if such products are
intended by DRA to be replacements for the final assemblies currently sold under
the part numbers listed above and if such products are substantially the same as
the final assemblies currently sold under the part numbers listed above. Once
established as an "SD Motor," a final assembly shall remain an "SD Motor" even
if DRA changes the part number under which it is sold.
(b) Sub-Assemblies
Brush Plate Assembly
Drive Assembly
Frame & Field Assembly 2
51
<PAGE>
SCHEDULE 3
Consents
--------
None.
<PAGE>
Exhibit 10.8
SECURITIES PURCHASE AND HOLDERS AGREEMENT
SECURITIES PURCHASE AND HOLDERS AGREEMENT, dated July 29, 1994 (the
"Agreement"), by and among DR INTERNATIONAL, INC., a Delaware corporation (the
"Company"), CITICORP VENTURE CAPITAL LTD., a New York corporation ("CVC"), WORLD
EQUITY PARTNERS, L.P., a Delaware limited partnership ("WEP"), MASCOTECH
AUTOMOTIVE SYSTEMS GROUP, INC., a Michigan corporation ("Masco"), HAROLD K.
SPERLICH ("Sperlich"), JAMES R. GERRITY ("Gerrity") and the individuals listed
on Schedule I hereto as "Management Investors" (the "Management Investors").
CVC, WEP and Masco are sometimes referred to hereinafter individually as an
"Institutional Investor" and together as the "Institutional Investors"; and CVC,
WEP, Masco, Gerrity, Sperlich and the Management Investors are sometimes
referred to hereinafter individually as an "Investor" and collectively as the
"Investors."
Background
----------
A. Following the Closing (as hereinafter defined) hereunder, the
Company will acquire (the "Acquisition") through its subsidiary DRA, Inc., a
Delaware corporation ("DRA"), substantially all of the assets of the heavy duty
starter motors and generators business, the remanufacturing heavy duty starter
motors and generators business, the light duty starter motors business, the
remanufacturing light duty starter motors business and the powder metal forge
business of the Delco Remy Division of General Motors Corporation ("GM")
(collectively, the "Businesses") pursuant to an Asset Purchase Agreement, dated
July 13, 1994 (the "Asset Purchase Agreement"), among GM, the Company and DRA.
B. The Company, which as of the date hereof has not issued any
securities, desires to sell, and (i) each of CVC, Masco, Gerrity and Sperlich
desires to purchase, the number of shares of the Company's Class A Common Stock,
par value $.01 per share ("Class A Common Stock"), and Class B Common Stock, par
value $.01 per share ("Class B Common Stock") (collectively hereinafter referred
to as the "Common Stock" or "Shares"), set forth opposite their respective names
on Exhibit A attached hereto and (ii) each of CVC and Masco desires to purchase
the principal amount of the Company's 11% Junior Subordinated Notes due July 31,
2004 (the "Debentures"), set forth opposite their respective names on Exhibit A
attached hereto.
<PAGE>
C. WEP has acquired a warrant ("the Warrant") exercisable for
100,000 shares of Class A Common Stock pursuant to the Warrant Agreement of even
date herewith between the Company and WEP.
D. The Management Investors will be employed by the Company and/or
DRA upon consummation of the Acquisition. The Board of Directors of the Company
wishes to grant the opportunity to the Management Investors to make an
investment in the Company, and thereby to acquire an increased personal and
proprietary interest in the Company's success and progress through the purchase
of securities pursuant to this Agreement.
E. Each of the Management Investors desires to purchase the number
of shares of Class A Common Stock set forth opposite his or her name on Exhibit
A attached hereto.
F. As used herein, the term "Securities" shall mean the Debentures,
the Warrant (including shares of Common Stock to be issued upon exercise
thereof) and the Common Stock held by any party hereto, including shares of
Common Stock and all other securities of the Company (or a successor to the
Company) received on account of ownership of the Common Stock, including all
securities issued in connection with any merger, consolidation, stock dividend,
stock distribution, stock split, reverse stock split, stock combination,
recapitalization, reclassification, subdivision, conversion or similar
transaction in respect thereof.
G. The Investors and the Company wish to set forth certain
agreements regarding their future relationships and their rights and obligations
with respect to the Securities.
Terms
-----
In consideration of the mutual covenants contained herein and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
PURCHASE OF SECURITIES
----------------------
1.1 Sale and Purchase of Common Stock and Debentures.
------------------------------------------------
Subject to the terms and conditions set forth herein, at the Closing
the Company will issue and sell (a) to each of the
- 2 -
<PAGE>
Investors (other than WEP) the number of shares of Common Stock set forth
opposite such Investor's name on Exhibit A and (b) to each of CVC and Masco the
principal amount of Debentures set forth opposite such Institutional Investor's
name on Exhibit A. The purchase price for the Common Stock shall be $2.00 per
share; and the purchase price for the Debentures sold pursuant to this Agreement
shall be 100% of the principal amount thereof.
1.2 Closing; Termination. The closing (the "Closing") of the
--------------------
purchase and sale of the Common Stock and Debentures will take place on July 29,
1994 or at such other time or on such other date as may be agreed by the parties
hereto (the "Closing date"). At the Closing, the Company will deliver (a) to
each Investor (other than WEP), certificates evidencing the number of Shares to
be purchased by such Investor and (b) to CVC and Masco, the Debentures, in each
case registered in such Investor's name, against payment of the purchase price
therefor in cash, by certified or bank cashier's check or by federal wire
transfer of immediately available funds, with confirmed receipt or, in the case
of each Management Investor, against payment of a portion of the purchase price
therefor (equal to the aggregate par value of the Shares to be issued) in cash
and the balance by delivery of a promissory note (the "Promissory Note")
substantially in the form of Exhibit B hereto in the principal amount set forth
opposite such Management Investor's name on Exhibit A. In the event that the
Closing under the Asset Purchase Agreement does not occur on or prior to August
15, 1994, this Agreement will terminate and be of no further force and effect,
all amounts paid by each Investor (other than WEP) pursuant to this Agreement
for the Common Stock and the Debentures shall be returned to such Investor upon
surrender to the Company of the Common Stock and Debentures held by him, her or
it, and there shall be no further liability on the part of any party hereto
except for breaches of this Agreement prior to the time of such termination.
1.3 Conditions to Certain Investor's Obligations. The obligation of
--------------------------------------------
each Investor (other than WEP) to purchase and pay for the Common Stock and
Debentures at the Closing is subject to the satisfaction on or prior to the
Closing Date of the following conditions:
(a) The representations and warranties of the Company set forth in
Article II shall be true and correct in all material respects on and as of the
Closing Date as though then made, and all covenants of the Company set forth in
Article II required to be
- 3 -
<PAGE>
performed on or prior to the Closing shall have been performed in all material
respects.
(b) The Company's Certificate of Incorporation and Bylaws shall be
substantially in the forms of Exhibits C-1 and C-2, respectively.
(c) The Company shall have delivered to each of the Investors
certificates for the Common Stock and the Debentures required pursuant to
Section 1.1.
(d) No preliminary or permanent injunction or order, decree or
ruling of any nature issued by any court or governmental agency of competent
jurisdiction, nor any statute, rule, regulation or executive order promulgated
or enacted by any United States federal, state or local governmental authority,
shall be in effect, that would prevent the consummation of the transactions
contemplated by this Agreement or the Asset Purchase Agreement.
(e) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not violate the
Company's Certificate of Incorporation or Bylaws, any applicable laws or orders,
regulations, rules or requirements of a court, public body or authority by which
the Company is bound.
(g) All corporate and other proceedings, if any, taken or to be
taken by the Company in connection with the transactions contemplated hereby to
be consummated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Investors (other than WEP),
and the Investors (other than WEP) shall have received from the Company all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
1.4 Conditions to the Company's Obligations. The obligations of the
---------------------------------------
Company to issue and sell the Common Stock to each Investor (other than WEP) and
the Debentures to CVC and Masco as set forth herein at the Closing are subject
to the satisfaction on or prior to the Closing of the following conditions:
(a) The representations and warranties of each Investor set forth in
Article III shall be true and correct in all material respects at and as of the
Closing Date as though then made, and all covenants of each Investor required to
be performed at or prior to the Closing shall have been performed in all
material respects.
- 4 -
<PAGE>
(b) The conditions set forth in paragraph (d) of Section 1.3 shall
have been satisfied, and the Investor shall have purchased or shall
simultaneously purchase the Securities set forth opposite its name on Exhibit A.
(c) All corporate and other proceedings, if any, taken or to be
taken by Investors in connection with the transactions contemplated hereby to be
consummated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company, and the Company
shall have received from each Investor all such counterpart originals or
certified or other copies of such documents as it may reasonably request.
(d) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not violate any
applicable laws or orders, regulations, rules or requirements of a court, public
body or authority by which the Investor is bound.
(e) The Investors shall have paid or shall pay concurrently the
purchase prices required of them pursuant to this Article I.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE COMPANY
------------------------
2.1 Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and covenants and agrees with, each of the Investors
as follows:
(a) The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware.
(b) The Company has full corporate power and corporate authority to
make, execute, deliver and perform this Agreement and to carry out all of the
transactions provided for herein.
(c) The Company has taken such corporate action as is necessary or
appropriate to enable it to perform its obligations hereunder, including, but
not limited to, the issuance and sale of the Common Stock and the Debentures to
be issued by it, and this Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
terms hereof.
- 5 -
<PAGE>
(d) The Shares when issued in compliance with the provisions of this
Agreement will be validly issued, fully paid and non-assessable.
(e) The Debentures when issued in compliance with the provisions of
this Agreement will constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms.
(f) Prior to the date hereof, the Company has not (i) incurred any
liabilities or obligations; (ii) engaged in any business or activities of any
kind whatsoever; (iii) entered into any agreement or arrangements with any
person or entity, or (iv) been subject to or bound by any obligation or
undertaking, except in each case as incurred in connection with its
incorporation, capitalization or the negotiation and consummation of the
transactions contemplated by this Agreement and the Asset Purchase Agreement
including, but not limited to, the financing relating to the Acquisition.
(g) As of the Closing, the authorized capital stock of the Company
will consist of (i) 1,000,000 shares of Class A Common Stock, of which the
number of shares reflected in Exhibit A will be issued and outstanding
immediately after the Closing and (ii) 1,000,000 shares of Class B Common Stock,
of which the number of shares reflected in Exhibit A will be issued and
outstanding immediately after the Closing. Except for the Warrant and as
otherwise set fourth herein, as of the Closing Date, there will be no rights,
subscriptions, warrants, options, conversion rights, or agreements of the kind
outstanding to purchase from the Company, or otherwise require the Company to
issue, any shares of capital stock of the Company or securities or obligations
of any kind convertible into or exchangeable for any shares of capital stock of
the Company; the Company will not be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock; and the Shares will constitute all of the outstanding shares of
the Company's capital stock.
- 6 -
<PAGE>
ARTICLE III
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF EACH INVESTOR
--------------------------
3.1 Representations, Warranties and Covenants of Each Investor.
----------------------------------------------------------
Each of the Investors severally represents and warrants to, and covenants and
agrees with, the Company that:
(a) Such Investor has full legal right, power and authority
(including the due authorization by all necessary corporate action) to enter
into this Agreement and to perform such Investor's obligations hereunder without
the need for the consent of any person, and this Agreement has been duly
authorized, executed and delivered and constitutes the legal, valid and binding
obligation of such Investor enforceable against such Investor in accordance with
the terms hereof.
(b) The Securities are being acquired by such Investor for
investment, and not with a view to any distribution thereof that would violate
the Securities Act of 1933, as amended (the "Securities Act"), or the applicable
state securities laws of any state; and such Investor will not distribute the
Securities in violation of the Securities Act or the applicable securities laws
of any state.
(c) Such Investor understands the Securities have not been
registered under the Securities Act or the securities laws of any state and must
be held indefinitely unless subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
becomes or is available.
(d) Such Investor is financially able to hold the Securities for
long-term investment, believes that the nature and amount of the Securities
being purchased are consistent with such Investor's overall investment program
and financial position, and recognizes that there are substantial risks involved
in the purchase of the Securities.
(e) Such Investor confirms that (i) such Investor is familiar with
the proposed business of the Company and DRA, (ii) such Investor has had the
opportunity to ask questions of the officers and directors of the Company and
DRA and to obtain (and that such Investor has received to its satisfaction) such
information about the business and financial condition of the
-7-
<PAGE>
Company and DRA as it has reasonably requested, and (iii) such Investor, either
alone or with such Investor's representative (as defined in Rule 501(h)
promulgated under the Securities Act), if any, has such knowledge and experience
in financial and business matters that such Investor is capable of evaluating
the merits and risks of the prospective investment in the Securities.
3.2 Legend. The Debentures, the Warrant and the certificates
------
representing the Shares shall bear the following legend in addition to any other
legend required under applicable law:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE TRANSFERRED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OR STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
THE TERMS AND CONDITIONS OF A SECURITIES PURCHASE AND HOLDERS
AGREEMENT BY AND AMONG THE COMPANY AND THE HOLDERS SPECIFIED THEREIN,
A COPY OF WHICH AGREEMENTS ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY. THE SALE, TRANSFER OR OTHER DISPOSITION OF THE SECURITIES IS
SUBJECT TO THE TERMS OF SUCH AGREEMENT AND THE SECURITIES ARE
TRANSFERABLE ONLY UPON PROOF OF COMPLIANCE THEREWITH.
3.3 Management Investor Representations and Warranties. Each
--------------------------------------------------
Management Investor severally represents and warrants to the Company that:
(a) such Management Investor has full legal right, power and
authority to enter into the promissory Note and to perform such Management
Investor's obligations thereunder without the need for the consent of any other
person; and the Promissory Note issued by him or her has been duly executed and
delivered by him or her and constitutes the legal, valid and binding obligation
of such management Investor in accordance with the terms thereof;
(b) such Management Investor's residence, business address, business
and residence telephone numbers and social
- 8 -
<PAGE>
security number are as set forth below his or her signature to this Agreement;
and
(c) in formulating a decision to enter into this Agreement, such
Management Investor has relied solely upon an independent investigation of the
Company's and DRA's business and upon consultations with his or her legal and
financial advisers with respect to this Agreement and the nature of his or her
investment; and that in entering into this Agreement no reliance was placed upon
any representations or warranties other than those contained in this Agreement.
3.4 Representations and Warranties of Certain Investors Other than
--------------------------------------------------------------
the Management Investors.
- ------------------------
(a) CVC, Masco, Gerrity and Sperlich each severally represent and
warrant to, and covenant and agree with, the Company that each of CVC, Masco,
Gerrity and Sperlich qualifies as an "accredited investor" within the meaning of
Rule 501(a) of Regulation D under the Securities Act, and has such knowledge and
experience in financial and business matters that each of CVC, Masco, Gerrity
and Sperlich is capable of evaluating the merits and risks of its purchase of
the Securities.
(b) The execution, delivery and performance of this Agreement by
each of CVC, Masco, Gerrity and Sperlich do not contravene or violate any laws,
rules or regulations applicable to him or it.
3.5 Restrictions on Transfers of Securities.
---------------------------------------
The following restrictions on Transfer shall apply to all Shares
owned by any Investor:
(a) No Investor or Permitted Transferee (except a Permitted
Transferee by virtue of Section 3.5(b)(iv) hereof) shall Transfer (other than in
connection with a redemption or purchase by the Company) any Securities other
than to a person or entity approved in advance in writing by the holders of at
least forty percent (40%) of the outstanding Common Stock (including shares held
by the transferor) so long as such Transfer complies with the provisions of
Article IV, this Section 3.5, and, in addition, in the case of Management
Investors, Article VI of this Agreement; provided, however, that such advance
--------
written approval shall not be required with respect to a Transfer of Securities
pursuant to and in compliance with Section 4.7. Any purported Transfer in
- 9 -
<PAGE>
violation of this Agreement shall be null and void and of no force and effect
and the purported transferee shall have no rights or privileges in or with
respect to the Company. As used herein, "Transfer" includes the making of any
sale, exchange, assignment, hypothecation, gift, security interest, Pledge or
other encumbrance, or any contract therefor, any voting trust or other
agreement or arrangement with respect to the transfer of voting rights or any
other beneficial interest in any of the Securities, the creation of any other
claim thereto or any other transfer or disposition whatsoever, whether voluntary
or involuntary, affecting the right, title, interest or possession in or to such
Securities.
Prior to any proposed Transfer of any Securities the holder thereof
shall give written notice to the Company describing the manner and circumstances
of the proposed Transfer accompanied by a written opinion of legal counsel,
addressed to the Company and the transfer agent, if other than the Company, and
reasonably satisfactory in form and substance to each addressee, to the effect
that the proposed Transfer of the Securities may be effected without
registration under the Securities Act and applicable state securities laws.
Each certificate evidencing the Securities transferred shall bear the legends
set forth in Section 3.2, except that such certificate shall not bear such
legend if the opinion of counsel referred to above is to the further effect that
such legend is not required in order to establish compliance with any provison
of the Securities Act or applicable state securities laws.
Nothing in this Section 3.5(a) shall prevent the Transfer, free of
any restrictions under this Agreement, of Securities by an Investor or a
Permitted Transferee to one or more of its Permitted Transferees, or to the
Company; provided, however, that each such Investor or Permitted Transferee
-------- -------
(except a Permitted Transferee by virtue of Section 3.5(b)(iv) hereof) shall
take such Securities subject to and be fully bound by the terms of this
Agreement applicable to it with the same effect as if it were a party hereto;
and provided, further, that (i) no entity or person (other than a Permitted
-------- -------
Transferee by virtue of Section 3.5(b)(iv) hereof) shall be a Permitted
Transferee unless such transferee executes a joinder to this Agreement
satisfactory in form and substance to the Company, and (ii) no Transfer shall be
effected except in compliance with the registration requirements of the
Securities Act or pursuant to an available exemption therefrom.
- 10 -
<PAGE>
(b) As used herein, "Permitted Transferee" shall mean:
(i) in the case of any Investor or Permitted Transferee who is
a natural person, his spouse or children or grandchildren (in each case, natural
or adopted), any trust for his benefit or the benefit of his spouse or children
or grandchildren (in each case, natural or adopted), or any corporation or
partnership in which the direct and beneficial owner of all of the equity
interest is such individual Investor or Permitted Transferee or his spouse or
children or grandchildren (in each case, natural or adopted) (or any trust for
the benefit of such persons);
(ii) in the case of any Investor or Permitted Transferee who
is, in each case, a natural person, the heirs, executors, administrators or
personal representatives upon the death of such Investor or Permitted Transferee
or upon the incompetency or disability of such Investor or Permitted Transferee
for purposes of the protection and management of his assets;
(iii) in the case of an Investor or Permitted Transferee who is
not a natural person, any Affiliate (as hereinafter defined) of such Investor;
(iv) in the case of any Investor or Permitted Transferee, any
person or other entity if such person or other entity takes such Securities
pursuant to a sale in connection with a public offering under the Securities Act
or following a public offering in open market transactions or under Rule 144
under the Securities Act;
(v) in the case of CVC, any of its employees, officers or
directors;
(vi) in the case of Masco and its Permitted Transferees,
MascoTech Corporation, a Delaware corporation ("MC"), and any corporation in
which MC owns, directly or indirectly through one or more intermediaries, one
hundred percent (100%) of the outstanding capital stock of such corporation; and
(vii) in the case of WEP, a distribution of Securities to its
limited partners.
(c) As used herein, "Affiliate" means with respect to any person
other than Masco or its Permitted Transferees, a corporation in which such
person owns, directly or indirectly
- 11 -
<PAGE>
through one or more intermediaries, fifty percent (50%) or more of the
outstanding capital stock of such corporation.
3.6 Notation. A notation will be made in the appropriate transfer
--------
records of the Company with respect to the restriction on transfer of the
Securities referred to in this Agreement.
ARTICLE IV
OTHER COVENANTS AND REPRESENTATIONS
-----------------------------------
4.1 Observers' Rights. So long as CVC or its Affiliates own at
-----------------
least 5% of the Common Stock outstanding, if no employee of CVC or its
Affiliates is a member of the Company's Board of Directors, CVC shall have the
right to designate two observers (the "Observers") to attend meetings of the
Company's Board of Directors and committees thereof. If at least one employee
of CVC is a member of the Company's Board of Directors, CVC shall have the right
to designate one Observer to attend meetings of the Company's Board of Directors
and committees thereof. The Observers shall not have the right to vote on any
matter presented to the Board of Directors or any committee thereof. The
Company shall give each Observer written notice of each meeting of the Board of
Directors and committees thereof at the same time and in the same manner as the
members of the Board of Directors or such committee receive notice of such
meetings, and the Company shall permit each Observer to attend as an observer
all meetings of its Board of Directors and committees thereof. Each Observer
shall be entitled to receive all written materials and other information given
to the directors in connection with such meetings at the same time such
materials and information are given to the directors, and each Observer shall
keep such materials and information confidential. If the Company proposes to
take any action by written consent in lieu of a meeting of its Board of
Directors or a committee thereof, the Company shall give written notice thereof
to each Observer prior to the effective date of such consent. The Company shall
provide to each Observer all written materials and other information given to
the directors in connection with such action by written consent at the same time
such materials and information are given to the directors, and each Observer
shall keep such materials and information confidential. The Company shall pay
the reasonable out-of-pocket expenses of each Observer incurred in connection
with attending such meetings.
4.2 Financial Statements and Other Information. So long as any
------------------------------------------
Institutional Investor, Gerrity or Sperlich, as the case may
- 12 -
<PAGE>
be, owns any of the Securities, the Company shall deliver to such Institutional
Investor, Gerrity and Sperlich:
(a) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Company,
consolidated balance sheets of the Company and its subsidiaries as of the end of
such period, and consolidated statements of income and cash flows of the Company
and its subsidiaries for the period then ended prepared in conformity
with generally accepted accounting principles applied on a consistent basis,
except as otherwise noted therein, and subject to the absence of footnotes and
to year-end adjustments; and
(b) as soon as available and in any event within 90 days after the
end of each fiscal year of the Company, a consolidated and consolidating balance
sheet of the Company and its subsidiaries as of the end of such year, and
consolidated and consolidating statements of income and cash flows of the
Company and its subsidiaries for the year then ended prepared in conformity with
generally accepted accounting principles applied on a consistent basis, except
as otherwise noted therein, together with an auditor's report thereon of a firm
of established national reputation.
4.3 Regulatory Compliance Cooperation. So long as CVC or its
---------------------------------
Affiliates beneficially own any of the Securities, before the Company redeems,
purchases or otherwise acquires, directly or indirectly, or converts or takes
any action with respect to the voting rights of, any shares of any class of its
capital stock or any securities convertible into or exchangeable for any shares
of any class of its capital stock, the Company shall give CVC thirty (30) days
prior written notice of such pending action. Upon the written request of CVC
made within thirty (30) days after its receipt of any such notice, stating that
after giving effect to such action CVC would have a Regulatory Problem (as
described below), the Company will defer taking such action for such period (not
to extend beyond ninety (90) days after CVC's receipt of the Company's original
notice) as CVC requests to permit it and its Affiliates to reduce the quantity
of Securities held by it and its Affiliates in order to avoid the Regulatory
Problem. In addition, the Company will not be a party to any merger,
consolidation, recapitalization or other transaction pursuant to which CVC would
be required to take any voting securities or any securities convertible into
voting securities, which might reasonably be expected to cause CVC to have a
Regulatory Problem. For purposes of this paragraph, a person will be deemed to
have a "Regulatory
-13-
<PAGE>
Problem" when such person and such person's Affiliates would own, control or
have power over a greater quantity of securities of any kind issued by the
Company than are permitted to be owned under any requirement of any governmental
authority applicable to such person.
4.4 Sale of the Company.
-------------------
(a) If the Board of Directors and holders of at least fifty percent
(50%) of the Company's Common Stock then outstanding approve the sale of the
Company to a person (whether by merger, consolidation, sale of all or
substantially all of its assets or sale of all of the outstanding capital stock)
(an "Approved Sale"), each Investor and Permitted Transferee will consent to,
vote for, and raise no objections against, and waive dissenters and appraisal
rights (if any) with respect to, the Approved Sale, and if the Approved Sale is
structured as a sale of stock, each Investor and Permitted Transferee will agree
to sell and will be permitted to sell all of such Investor's and Permitted
Transferee's Common Stock on the terms and conditions approved by the Board of
Directors and the holders of a majority of the Common Stock then outstanding.
Each Investor and Permitted Transferee will take all necessary and desirable
actions in connection with the consummation of an Approved Sale.
(b) The obligations of each of the Investors with respect to an
Approved Sale are subject to the satisfaction of the conditions that: (i) upon
the consummation of the Approved Sale all of the Investors and Permitted
Transferees will receive the same form and amount of consideration per share of
Common Stock, or if any holder of Common Stock is given an option as to the form
and amount of consideration to be received, all Investors and Permmitted
Transferees will be given the same option; and (ii) the terms of sale shall not
include any indemnification, guaranty or the similar undertaking of the Investor
(other than undertakings of Management Investors in respect of continued
employment) that (A) is not made or given pro rata with other Investors on the
basis of share ownership or (B) could result in liability to such Investor that
is in excess of the fair market value on the consideration to be received by
such Investor in the Approved Sale.
4.5 Tag-Along
---------
(a) (i) On or after the "Tag-Along Date" (as defined), except as
otherwise provided in Section 4.5(a)(v), no "Seller" (as hereinafter defined)
shall sell any Common Stock in
-14-
<PAGE>
any transaction or series of related transactions unless all "Holders" (as
hereinafter defined) are offered an equal opportunity to participate in such
transaction or transactions on a pro-rata basis and on identical terms
(including price and type of consideration paid). As used in this Section 4.5,
"Tag-Along Date" means, as to each Institutional Investor, the date on which
such Institutional Investor and its corporate Affiliates own, or would own as a
result of a sale of Common Stock or Warrant, as the case may be, less than 20%
of the outstanding Common Stock of the Company; "Seller" shall mean the
Institutional Investors and their respective corporate Affiliates; and "Holders"
shall mean the Investors and their Permitted Transferees.
(ii) Prior to any sale of Common Stock or Warrant subject to
these provisions, the Seller shall notify the Company in writing of the proposed
sale. Such notice (the "Seller's Notice") shall set forth: (A) the number of
shares of Common Stock subject to the proposed sale; (B) the name and address of
the proposed purchaser; and (C) the proposed amount of consideration and terms
and conditions of payment offered by such proposed purchaser. The Company shall
promptly, and in any event within 15 days, mail or cause to be mailed the
Seller's Notice to each Holder. A Holder may exercise the tag-along right by
delivery of a written notice (the "Tag-Along Notice") to the Seller within 15
days of the date the Company mailed or caused to be mailed the Seller's Notice.
The Tag-Along Notice shall state the number of shares of Common Stock that the
Holder proposes to include in the proposed sale, If no Tag-Along Notice is
received during the 15-day period referred to above, the Seller shall have the
right for a 120-day period to effect the proposed sale of shares of Common Stock
or Warrant, as the case may be, on terms and conditions no more favorable than
those stated in the notice and in accordance with the provisions of this Section
4.5.
(iii) Notwithstanding anything to the contrary, a Seller may
make any of the following sales without offering the Holders the opportunity to
participate: (a) sales by a Seller to any Affiliate or Permitted Transferee,
provided that the proposed purchase (except a Permitted Transferee by virtue of
- --------
Section 3.5(b)(iv) hereof) agrees in writing to be bound by the provisions of
this Agreement; (b) sales pursuant to an effective registration statement under
the Securities Act; (c) sales pursuant to an Approved Sale or a Required Sale;
and (d) sales by Masco pursuant to Section 4.7.
-15-
<PAGE>
(iv) Each Investor acknowledges for itself and its transferees
that CVC may grant in the future tag-along rights to other holders of Common
Stock and such holders will (a) have substantially the same opportunity to
participate in sales by CVC as provided to the parties hereto, and (b) be
included in the calculation of the pro rata basis upon which Holders may
participate in a sale.
(v) The tag-along obligations of the Sellers and the rights of
the Holders with respect thereto provided under this Section 4.5 shall terminate
upon the earlier of (a) such time as at least 10% of the outstanding shares of
Common Stock shall have been sold publicly pursuant to an effective registration
statement under the Securities Act and (b) as to each Institutional Investor,
the day after the date on which such Institutional Investor and its corporate
Affiliates own less than 10% of the Common Stock.
(vi) Notwithstanding the requirements of this Section 4.5, a
Seller may sell Common Stock at any time without complying with the requirements
of Section 4.5 (a)(ii) so long as the Seller deposits into escrow with an
independent third party at the time of sale that amount of the consideration
received in the sale equal to the "Escrow Amount." The "Escrow Amount" shall
equal that amount of consideration as all the Holders would have been entitled
to receive if they had the opportunity to participate in the sale on a pro rata
basis, determined as if each Holder (A) delivered a Tag-Along Notice to the
Seller in the time period set forth in Section 4.5(a)(ii) and (B) proposed to
include all of its shares of Common Stock in the sale.
No later than the date of the sale, the Seller shall
notify the Company in writing of the proposed sale. Such notice (the "Escrow
Notice") shall set forth the information required in the Seller's Notice, and in
addition, such notice shall state the name of the escrow agent and, if the
consideration (in whole or in part) for the sale was cash, then the account
number of the escrow account. The Company shall promptly, and in any event
within 10 days, mail or cause to be mailed the Escrow Notice to each Holder.
A Holder may exercise the tag-along right by delivery to
the Seller, within 15 days of the date the Company mailed or caused to be mailed
the Escrow Notice, of (i) a written notice specifying the number of shares of
Common Stock it proposes to sell, and (ii) the certificates for such Common
Stock, with stock powers duly endorsed in blank.
-16-
<PAGE>
Promptly after the expiration of the 15th day after the
Company has mailed or caused to be mailed the Escrow Notice, (A) the Seller
shall purchase that number of shares of Common Stock as Seller would have been
required to include in the sale had Seller complied with the provisions of
Section 4.5(a)(ii), (B) all shares of Common Stock not required to be purchased
by Seller shall be returned to the Holders thereof, and (C) all remaining funds
and other consideration held in escrow shall be released to Seller. If Seller
received consideration other than cash in its sale, Seller shall purchase the
shares of Common Stock tendering by paying to the Holders non-cash consideration
and cash in the same proportion as received by Seller in the sale.
4.6 Take-Along Rights.
-----------------
(a) If the holders of at least sixty-six percent (66%) of the
Company's Common Stock then outstanding approve the sale of the Company to a
person or entity (whether by merger, consolidation, sale of all or substantially
all of its assets or sale of all of the outstanding capital stock) (a "Required
Sale"), each Investor and Permitted Transferee will consent to, vote for and
raise no objections against, waive dissenters and appraisal rights (if any) with
respect to, the Required Sale of the Company, and if the Required Sale of the
Company is structured as a sale of stock, each Investor and Permitted
Transferee will agree to sell and will be permitted to sell all of such
Investor's and Permitted Transferee's Common Stock on the terms and conditions
approved by the holders of at least sixty-six percent (66%) of the Common Stock
then outstanding. Each Investor and Permitted Transferee will take all
necessary and desirable actions in connection with the consummation of a
Required Sale of the Company.
(b) The obligations of each of the Investors with respect to the
Required Sale of the Company are subject to the satisfaction of the conditions
that: (i) upon the consummation of the Required Sale all of the Investors and
Permitted Transferees will receive the same form and amount of consideration per
share of Common Stock, or if any holder of Common Stock is given an option as to
the form and amount of consideration to be received, all Investors and Permitted
Transferees will be given the same option; and (ii) the terms of sale shall not
include any indemnification, guaranty or the similar undertaking of the Investor
(other than undertakings of Management Investors in respect of continued
employment) that (A) is not made or given pro rata with other Investors on the
basis of share ownership or (B) could result in liability to such Investor that
is in excess of the fair market
- 17 -
<PAGE>
value of the consideration to be received by such Investor in the Required Sale.
4.7 Right of First Refusal on Transfer of Common Stock owned by
-----------------------------------------------------------
Masco.
- -----
(a) Right of First Refusal. In the event that at any time after
----------------------
the occurrence of a Masco Divestiture Condition (as hereinafter defined), Masco
(or its Permitted Transferees) receives a bona fide offer (a "Transfer Offer")
to purchase any or all of the Common Stock (the "Transfer Shares") then owned by
Masco (or its Permitted Transferees) from any person (the "Offeror") which Masco
(or its Permitted Transferees) wishes to accept, then Masco (and its Permitted
Transferees) shall give CVC written notice thereof ("Transfer Notice"), which
Transfer Notice shall state in reasonable detail all material terms of such
proposed sale or other transfer, the identity of the proposed purchaser or other
transferee, the price or other consideration for which the Common Stock is
proposed to be sold or transferred, and the number of shares of Common Stock to
be sold or transferred, and shall also contain an irrevocable offer to sell the
Transfer Shares to CVC at the price and on the terms contained in the Transfer
Offer. After its receipt of the Transfer Notice, CVC (and/or its designee(s))
shall have the right and option to purchase any or all of the Transfer Shares at
the price and on the terms of the Transfer Offer set forth in the Transfer
Notice; provided that if CVC purchases less than all of the Transfer Shares, the
Company must purchase the remaining Transfer Shares. Within thirty (30) days
after receipt of the Transfer Notice, CVC shall notify Masco (or its Permitted
Transferees) whether or not it wishes to purchase the Transfer Shares and, if
so, indicating the number of Transfer Shares desired to be purchased. The
closing of the purchase and sale shall be held at the place and date established
by CVC, which in no event shall be earlier than five (5) business days or later
than fifteen (15) days from the date on which CVC gives notice of its election
to purchase the Transfer Shares.
In the event that CVC (or its designee(s)) does not elect to purchase
all such Transfer Shares, Masco (or its Permitted Transferees) shall give notice
of such failure to the Company, and the Company shall thereupon have the right
and option to purchase in the aggregate all, but not less than all, of the
Transfer Shares not being purchased by CVC (or its designee(s)) and may give
notice to Masco (or its Transferees) of such intention at any time not later
than fifteen (15) days after the date on which such notice is sent by Masco (or
its Permitted Transferees) to the Company. The
- 18 -
<PAGE>
Company's notice shall indicate the number of Transfer Shares that the Company
desires to purchase. The closing of the purchase and sale of the Transfer
Shares pursuant of any such option exercise shall be held at the principal
office of the Company on a date to be established by the Company in its notice
to Masco in response to the Transfer Notice, which in no event shall be earlier
than five (5) business days or later than fifteen (15) days from the date of
such notice.
(b) Failure to Exercise Right of First Refusal. In the event
------------------------------------------
neither CVC nor the Company exercises the purchase option provided for in
Section 4.7(a), the, subject to the other provisions of this Agreement, for a
period of sixty (60) days, the Transfer Shares may be sold or transferred by or
on behalf of Masco (or its Permitted Transferees) to the transferee(s) specified
in the Transfer Notice at a price not less than the price per share of Common
Stock specified therein and otherwise on terms no less favorable to Masco and no
more favorable to the transferees than those contained in the Transfer Notice.
Any Transfer Shares not sold during such 60-day period shall be subject to the
provisions of this Agreement.
(c) Masco Divestiture Condition. A "Masco Divestiture Condition"
---------------------------
shall exist if Masco concludes in good faith upon the written advice of
independent outside antitrust counsel that Masco's continued investment in the
Company would present an unacceptable risk of noncompliance with applicable
antitrust law or impose unacceptable constraints on Masco's then current and
then proposed business activities under applicable antitrust law.
(d) Applicability to Other Securities. This Section 4.7 shall be
---------------------------------
equally applicable to Securities held by Masco other than Common Stock in the
event such other Securities are the subject of any such Transfer Offer.
ARTICLE V
CORPORATE ACTIONS
-----------------
5.1 Certificate of Incorporation and Bylaws. Each Investor has
---------------------------------------
reviewed the Certificates of Incorporation and Bylaws of each of the Company and
DRA in the forms attached hereto as Exhibits C-1, C-2, C-3 and C-4,
respectively, and hereby approves and ratifies the same.
- 19 -
<PAGE>
5.2 Directors and Voting Agreements. Each Investor and Permitted
-------------------------------
Transferee agrees that it shall take, at any time and from time to time, all
action necessary (including voting the Class A Common Stock owned by him, her or
it, calling special meetings of stockholders and executing and delivering
written consents) to ensure that the Board of Directors of the Company is
composed at all times of six to nine persons as follows: Sperlich (so long as he
continues to serve as Chairman of the Board of Directors of the Company); one
individual designated by Masco who shall initially be E. H. Billig; two
individuals designated by CVC; Gerrity (so long as he continues to serve as an
officer of or a consultant to the Company); Thomas J. Snyder (so long as he
continues to serve as President of the Company, and when he ceases to serve in
such office, his successor in such office); and up to three independent
directors, who shall be designated by CVC (to the extent permitted by applicable
law as determined by CVC in its sole discretion), subject to the right of the
holders of a majority of the outstanding shares of Class A Common Stock
(including any shares of Class A Common Stock held by CVC) to veto the election
of any such independent director, provided, that in the event that CVC concludes
--------
that it is unable to designate, or elects not to designate for any reason, one
or more of such independent directors or the election of any such independent
director is not approved by the holders of a majority of the outstanding shares
of Class A Common Stock, such directorship(s) shall not be filled by the
remaining members of the Company's Board of Directors but shall remain vacant
until the election of a director designated by CVC to fill such vacancy in
accordance with this Section 5.2.
5.3 Right to Remove Certain of the Company's Directors. Each of
--------------------------------------------------
CVC and Masco, as the case may be, may request that any director designated by
it be removed (with or without cause) by written notice to the other Investors,
and, in any such event, each Investor shall promptly consent in writing or vote
or cause to be voted all shares of Class A Common Stock now or hereafter owned
or controlled by it for the removal of such person as a director. In the event
any person ceases to be a director, such person shall also cease to be a member
of any committee of the Board of Directors of the Company.
5.4 Right to Fill Certain Vacancies in Company's Board. In the
--------------------------------------------------
event that a vacancy is created on the Company's Board of Directors at any time
by the death, disability, retirement, resignation or removal (with or without
cause) of a director designated by CVC or Masco, as the case may be, or if
otherwise there shall exist or occur any vacancy on the Company's Board of
- 20 -
<PAGE>
Directors in a directorship subject to designation by CVC or Masco, as the case
may be, such vacancy shall not be filled by the remaining members of the
Company's Board of Directors but each Investor hereby agrees promptly to consent
in writing or vote or cause to be voted all shares of Class A Common Stock now
or hereafter owned or controlled by it to elect that individual designated to
fill such vacancy and serve as a director, as shall be designated by CVC or
Masco, as the case may be.
5.5 Directors of DRA and Voting Agreements. The Company shall take, and
--------------------------------------
each of the Investors agrees that it shall cause the Company to take, at any
time and from time to time, all action necessary (including voting all shares of
common stock of DRA owned by the Company, calling special meetings of
stockholders and executing and delivering written consents) to ensure that the
Board of Directors of DRA is composed at all times of six to nine persons as
follows: Sperlich (so long as he continues to serve as Chairman of the Board of
Directors of the Company and DRA); one individual designated by Masco who shall
initially be E. H. Billig; two individuals designated by CVC; Gerrity (so long
as he continues to serve as an officer of or a consultant to the Company);
Thomas J. Snyder (so long as he continues to serve as President of DRA, and when
he ceases to serve in such office, his successor in such office); and up to
three independent directors, who shall be designated by CVC (to the extent
permitted by applicable law as determined by CVC in its sole discretion),
subject to the right of the holders of a majority of the outstanding shares of
Class A Common Stock (including shares of Class A Common Stock held by CVC) to
vote the election of any such independent director to the Board of Directors of
DRA, provided, that in the event that CVC concludes that it is unable to
--------
designate, or elects not to designate for any reason, one or more of such
independent directors or the election of any such independent director is not
approved by the holders of a majority of the outstanding shares of Class A
Common Stock, such directorship(s) shall not be filled by the remaining members
of DRA's Board of Directors but shall remain vacant until the election of a
director designated by CVC to fill such vacancy in accordance with this Section
5.5.
5.6. Right to Remove Certain DRA Directors. Each of CVC and Masco, as
-------------------------------------
the case may be, may request that any director designated by it to serve on the
Board of Directors of DRA be removed (with or without cause) by written notice
to the Company and, in such event, the Company shall promptly consent in writing
or vote or cause to be voted all shares of common stock of DRA now or hereafter
owned or controlled by the Company for the removal of
- 21 -
<PAGE>
such person as a director. In the event any person ceases to be a director, such
person shall also cease to be a member of any committee of the Board of
Directors of DRA.
5.7 Right to Fill Certain Vacancies in DRA's Board. In the event that a
----------------------------------------------
vacancy is created on the Board of Directors of DRA at any time by the death,
disability, retirement, resignation or removal (with or without cause) of a
director designated by CVC or Masco, as the case may be, or if otherwise there
shall exist or occur any vacancy on the Board of Directors of DRA in the
directorship subject to designation by CVC or Masco, as the case may be, such
vacancy shall not be filled by the remaining members of DRA's Board of Directors
but the Company shall promptly consent in writing or vote or cause to be voted
all shares of common stock of DRA now or hereafter owned or controlled by it to
elect that individual designated to fill such vacancy and serve as a director,
as shall be designated by CVC or Masco, as the case may be.
5.8 Amendment of Certificate and Bylaws. Each Investor agrees that it
-----------------------------------
shall not consent in writing or vote or cause to be voted any shares of Common
Stock now or hereafter owned or controlled by it in favor of any amendment,
repeal, modification, alteration or rescission of, or the adoption of any
provision in the Company's Certificate of Incorporation or Bylaws inconsistent
with this Agreement unless CVC consents in writing to such action or votes or
cause to be voted all of the shares of Common Stock held by it in favor of such
action; provided that CVC shall not consent to any amendment which would
--------
adversely affect Masco's right to designate a director to the Company's Board of
Directors or remove, or fill any vacancy created with respect to, any director
designated by Masco as set forth in Sections 5.2, 5.3, and 5.4 of this
Agreement. The Company hereby agrees that it shall not consent in writing or
vote or cause to be voted any shares of common stock of DRA held by the Company
in favor of any amendment, repeal, modification, alteration or rescission of, or
the adoption of any provision in DRA's Certificate of Incorporation or Bylaws
inconsistent with this Agreement unless the directors of the Company designated
by CVC consent in writing to, or vote in favor of, such action; provided that
--------
such directors shall not consent to any amendment which would adversely affect
Masco's rights to designate a director to DRA's Board of Directors or remove, or
fill any vacancy created with respect to, any director designated by Masco as
set forth in Section 5.5, 5.6 and 5.7 of this Agreement.
5.9 Termination of Voting Agreements. The voting agreements in Section
--------------------------------
5.2, 5.3, 5.4, 5.5, 5.6, 5.7 and 5.9 shall
- 22 -
<PAGE>
terminate ten (10) years from the date of this Agreement unless extended in the
manner provided in Section 218 of General Corporation Law of the State of
Delaware.
5.10 Officers. Each Investor approves the election of the following
--------
officers of the Company, together with such other officers as may be elected or
appointed by the Company or its Board of Directors:
Name Position
---- --------
Harold K. Sperlich Chairman
James R. Gerrity Executive Vice President
Chief Financial Officer
and Treasurer
Thomas J. Snyder President and Chief
Operating Officer
David E. Stoll Vice President,
Controller and Secretary
ARTICLE VI
ADDITIONAL RESTRICTIONS OF TRANSFERS OF
SECURITIES HELD BY MANAGEMENT INVESTORS
---------------------------------------
6.1 Certain Definitions. The terms defined below shall have the
-------------------
following meanings when used in this Article VI:
(a) "Company" means the Company and all other entities in which the
Company from time to time owns, directly or indirectly, fifty percent (50%) or
more of the stock or assets.
(b) "Cause", when used in connection with the termination of a
Management Investor's employment with the Company, means the Management
Investor's (i) act or acts of dishonesty, moral turpitude or criminality, (ii)
failure to perform his duties as an employee as reasonably determined by the
Board of Directors of the Company acting in good faith after reasonable notice
to such employee by the Board of Directors of the Company and, if so recommended
by the Board of Directors, after such employee has not cured such failure after
30 days opportunity to do so, or (iii) willful or deliberate violations of his
obligations to the Company
- 23 -
<PAGE>
(whether such obligations are designated by the Board of Directors or are set
forth in an employment agreement) that result in injury to the Company.
(c) "Public Offering" means a successfully completed firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act in respect of the offer and sale of shares of Common
Stock for the account of the Company resulting in aggregate net proceeds to the
Company and any stockholder selling shares of Common Stock in such offering of
not less than $20,000,000.
(d) "Securities" means any and all of the Shares and all other
securities of the Company (or a successor to the Company) received on account of
ownership of the Shares, including any and all securities issued in connection
with any merger, consolidation, stock dividend, stock distribution, stock split,
reverse stock split, stock combination, recapitalization, reclassification,
subdivision, conversion or similar transaction in respect thereof.
6.2 Restrictions on Transfer. In addition to the restrictions imposed by
------------------------
Section 3.5, and notwithstanding anything to the contrary contained herein, no
Management Investor shall effect a Transfer of any Securities prior to the fifth
anniversary of the Closing Date other than (i) pursuant to Section 4.4 in
connection with an Approved Sale, (ii) pursuant to Section 4.5 in connection
with the exercise of "Tag-Along Rights", (iii) pursuant to Section 4.6 in
connection with a Required Sale, (iv) pursuant to Section 6.3 in connection with
the Purchase Option (as hereinafter defined), (v) with the consent of the
Company (as evidenced by a resolution duly adopted by at least a majority of the
non-employee members of the Company's Board of Directors), (vi) to a Permitted
Transferee of the Management Investor in question or (vii) in connection with a
Public Offering in which such Management Investor is permitted to participate.
In exercising the consent and approval provided for in clause (v), the Company
may employ its sole discretion in evaluating the nature of the proposed
transferee and the Company may impose such conditions on Transfer as it deems
appropriate in its sole discretion, including, but not limited to, requirements
that the transferee be an employee of the Company or DRA and that the transferee
purchase the Management Investor's Securities as a "Management Investor" subject
to the restrictions of this Article VI. In the event any Transfer is authorized
pursuant to clause (v) to an employee of the Company as a "Management Investor,"
such employee shall execute an agreement, in form and substance satisfactory to
the Company, pursuant to which
- 24 -
<PAGE>
such employee shall agree to be bound by the terms and conditions of this
Agreement, and such other provisions as the Company may determine, and upon such
execution such employee shall be entitled to the benefit of such provisions
hereof and such other provisions as the Company determines and are set forth in
such agreement. Any purported Transfer in violation of this Agreement shall be
null and void and of no force and effect and the purported transferees shall
have not rights or privileges in or with respect to the Company.
Notwithstanding the foregoing provisions, each Management Investor agrees that
he will not effect a Transfer of any Securities prior to the lapse of such
period of time following acquisition thereof as may be required to comply with
applicable state securities laws.
For the purposes of this Agreement, the "Permitted Transferees" of a
Management Investor shall be (1) the executors, administrators, heirs and
distributees of the Management Investor or her or his transferees to whom the
Common Stock are Transferred by will or the laws of descent and distribution on
account of death, (2) the Management Investor's spouse or children or
grandchildren (in each case, natural or adopted) and (3) a trust the
beneficiaries of which, a corporation the stockholders and directors of which,
or a partnership the limited and general partners of which include only the
Management Investor, her or his spouse or her or his children or grandchildren
(in each case, natural or adopted); provided, that, as a condition to Transfer
-------- ----
to any Permitted Transferee such permitted Transferee shall agree, in writing
and in form and substance reasonably satisfactory to the Company, to become
bound, and thereby shall become bound, by all the terms of this Agreement
applicable to the Management Investor transferring such Securities. The
Termination Date (as hereinafter defined) for a permitted Transferee shall be
the Termination Date with respect to the Management Investor who first acquired
the Common Stock held by such Permitted Transferee pursuant to this Agreement.
6.3 Purchase Option.
---------------
(a) General Terms. In the event that on or prior to the fifth
-------------
anniversary of the Closing Date, any Management Investor shall cease to be
employed by the Company or DRA for any reason (including, but not limited to,
death, temporary or permanent disability, retirement at age 65 or more under the
Company's or DRA's normal retirement policies, resignation or termination by the
Company or DRA, as the case may be, with or without Cause), other than by reason
of a leave of absence approved by the Company or DRA, as the case may be such
Management Investor (or his heirs,
- 25 -
<PAGE>
executors, administrators, transferees, successors or assigns) shall give prompt
notice to the Company of such termination (except in the case of termination by
the Company with or without Cause), and the Company, or one or more designee(s)
selected by a majority of the members of the Board of Directors, shall have the
right and option at any time within 90 days after the later of the effective
date of such termination of employment (the "Termination Date") or the date of
the Company's receipt of the aforesaid notice, to purchase from such Management
Investor, or his heirs, executors, administrators, transferees, successors or
assigns, as the case may be, any or all of the Securities then owned by such
Management Investor (and his Permitted Transferees) at a purchase price equal to
the Option Purchase Price (as hereinafter defined). The Company or its
designee(s) shall give notice to the terminated Management Investor (or his
heirs, executors, administrators, transferees, successors or assigns) of its
intention to purchase Securities at any time not later than 90 days after the
Termination Date. (The right of the Company and its designee(s) set forth in
this Section 6.3 to purchase a terminated Management Investor's Securities is
hereinafter referred to as the "Purchase Option"). As a condition to purchasing
a Management Investor's Securities pursuant to this Section 6.3, any designee(s)
selected by the Board of Directors must agree in writing to assume the Company's
obligations under Section 6.3(a)(iii). A designee's agreement to assume such
obligation will relieve the Company of its obligations under Section 6.3(a)(iii)
with regard to the particular terminated Management Investor and such Management
Investor shall thereafter have no recourse against the Company under Section
6.3(a)(iii).
(i) Exercise of Purchase Option. The Purchase Option shall be
---------------------------
exercised by written notice to the terminated Management Investor (or his heirs,
executors, administrators, transferees, successors or assigns) signed by an
officer of the Company on behalf of the Company or by its designee(s), as the
case may be. Such notice shall set forth the number of shares of Common Stock
desired to be purchased and shall set forth a time and place of closing which
shall be no earlier than 10 days and no later than 60 days after the date such
notice is sent. At such closing, the seller shall deliver the certificates
evidencing the number of shares of Common Stock to be purchased by the Company
and/or its designee(s), accompanied by stock powers duly endorsed in blank or
duly executed instruments of transfer, and any other documents that are
necessary to transfer to the Company and/or its designee(s) good title to such
of the Securities to be transferred, free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims and options of
whatever nature other
- 26 -
<PAGE>
than those imposed under this Agreement, and concurrently with such delivery,
the Company and/or its designee(s) shall deliver to the seller the full amount
of the Option Purchase Price for such Securities in cash by certified or bank
cashier's check.
(ii) Option Purchase Price. Subject to Section 6.3(a)(iv) below, if
---------------------
the Management Investor shall be terminated by the Company without Cause or
shall cease to be employed by the Company or DRA by reason of death, normal
retirement at age 65 or more under the Company's or DRA's normal retirement
policies, or temporary or permanent disability, the "Option Purchase Price" for
the Common Stock to be purchased from such Management Investor pursuant to the
Purchase Option (such number of shares of Common Stock being the "Purchase
Number") shall equal the price calculated as set forth in the table below
opposite the applicable Termination Date of such Management Investor:
<TABLE>
<CAPTION>
Option
If the Termination Date Occurs: Purchase Price
- ------------------------------ --------------
<S> <C>
On or prior to the first Adjusted Cost Price
anniversary of the Closing multiplied by the
Date Purchase Number
After the first anniversary Adjusted Cost
of the Closing Date, and on or Price multiplied by
prior to the second anniversary 80% of the Purchase
of the Closing Date Number, plus Adjusted Book
Value Price multiplied by 20%
of the Purchase Number
After the second anniversary of Adjusted Cost Price multiplied
of the Closing Date, and on or by 60% of the Purchase Number,
prior to the third anniversary plus Adjusted Book Value Price
of the Closing Date multiplied by 40% of the
Purchase Number
After the third anniversary of Adjusted Cost Price
the Closing Date, and on or multiplied by 40% of the
prior to the fourth anniversary Purchase Number, plus
of the Closing Date Adjusted Book Value Price
multiplied by 60% of the
Purchase Number
</TABLE>
- 27 -
<PAGE>
<TABLE>
<S> <C>
After the fourth anniversary of Adjusted Cost Price
the Closing Date and on or prior multiplied by 20% of the
to the fifth anniversary of the Purchase Number, plus
Closing Date Adjusted Book Value Price
multiplied by 80% of the
Purchase Number
</TABLE>
Notwithstanding anything to the contrary contained herein, (A) if the
Management Investor shall cease to be employed by the Company or DRA for any
reason other than those set forth in the first sentence of this Section
6.3(a)(ii) (including, but not limited to, termination for Cause), the Option
Purchase Price for all shares of Company Stock to be purchased from the
Management Investor (and his Permitted Transferees) pursuant to the Purchase
Option shall equal the Adjusted Cost Price multiplied by the Purchase Number;
and (B) in connection with the exercise of any Purchase Option pursuant to
Section 6.3, the Company may deduct from the Option Purchase Price paid to any
Management Investor the aggregate amount of the outstanding principal and
accrued but unpaid interest due on any Promissory Note of such Management
Investor to the Company.
As used herein:
(A) "Adjusted Cost Price" for each share of Common Stock means the
original purchase price per share for the Management Investors Common Stock as
set forth in Section 1.1 (including any shares of Common Stock which have been
converted into other shares of capital stock of the Company, and adjusted for
any stock dividend payable upon, or subdivision or combination of, the Common
Stock); and
(B) "Adjusted Book Value Price" for each share means the
consolidated net worth of the Company per common share (adjusted to reflect the
pro forma exercise in full of any dilutive securities, regardless of whether
such securities are exercisable at the time or would otherwise satisfy any
requirements under generally accepted accounting principles as they relate to
the determination of "dilutive securities") reflected in the Company's
consolidated financial statements as of the end of the fiscal quarter
immediately preceding the Termination Date (as hereinafter defined); provided,
--------
however, that in reflecting the pro forma exercise of dilutive securities no
- -------
amount shall be added to the consolidated net worth of the Company on account of
the assumed exercise of dilutive securities that is in excess, on a per share
basis, of the consolidated net worth per share of the Company
- 28 -
<PAGE>
calculated without regard to the exercise of any dilutive securities; and
provided, further, that if any of the Common Stock is traded on a national
- -------- -------
securities exchange or reported on the National Association of Securities
Dealers, Inc. Automated Quotation System, then the "Adjusted Book Value Price"
shall equal for each Common Stock the closing price per common share on such
exchange or as so reported on the Management Investor's Termination Date.
(iii) Adjustments to Options Purchase Price. If the Company
-------------------------------------
its designee exercises the Purchase Option with respect to any or all of the
Common Stock of any Management Investor whose employment with the Company was
terminated by the Company without Cause (the "Called Shares"), and if within
twelve months after the closing pursuant to such exercise of the Purchase Option
by the Company or its designee:
(A) the Company is merged into, consolidated with or otherwise
combined with or acquired by another person or entity, or there is a
liquidation of the Company, or there is a Public Offering (a
"Subsequent Offering") of the Company's Common Stock pursuant to an
effective registration statement under the Securities Act in which
other Management Investors participate as selling stockholders (other
than (1) a Special Registration Statement (as hereinafter defined) or
(2) a registration statement relating to a Unit Offering (as
hereinafter defined)), and
(B) the per share consideration received by the stockholders of the
Company in such transaction, or the per share net proceeds received
by the Management Investors for the Company's Common Stock in the
Subsequent Offering, as the case may be (in each case after being
adjusted downward to reflect what the per share consideration or per
share net offering proceeds, as the case may be, would have been had
the Shares of such termination Management Investor purchased by the
Company or its designee pursuant to the Purchase Option been
outstanding on the date of the closing of such transaction or
Subsequent Offering) exceeds the Adjusted Book Value Price used in
calculating the Option Purchase Price pursuant to the exercise of the
Purchase Option,
- 29 -
<PAGE>
then such Management Investor shall be entitled to receive from the Company or
its designee an amount per share equal to such excess multiplied by the
applicable Adjusted Book Value Price Percentage (as hereinafter defined) within
30 days after the closing of any such transaction or Subsequent Offering.
As used herein:
"Special Registration Statement" means (i) a registration statement
------------------------------
on Forms S-8 or S-4 or any similar or successor form or any other registration
statement relating to an exchange offer or an offering of securities solely to
the Company's employees or security holders or (ii) a registration statement
registering a Unit Offering; and
"Unit Offering" shall mean a Public Offering of a combination of debt
and equity securities of the Company in which (i) not more than 10% of the
gross proceeds received from the sale of such securities is attributed to such
equity securities, and (ii) after giving effect to such offering, the Company
does not have a class of equity securities required to be registered under the
Securities Exchange Act of 1934, as amended.
(iv) Sale in Public Offering. Shares sold in a Public
-----------------------
Offering will be sold free of the restrictions contained in this Article VI, but
this Article VI shall continue to apply in accordance with its terms to all
Common Stock not sold in such offering. If less than all of a management
Investor's shares of Common Stock are sold in such an offering, for purposes of
any subsequent calculation hereunder of the Option Purchase Price, the Option
Purchase Price shall equal: (a) the Adjusted Cost Price multiplied by the
product of the Adjusted Cost Price Percentage and the Adjusted Purchase Number
(as hereinafter defined), plus (b) the Adjusted Book Value Price multiplied by
----
the product of the Adjusted Book Value Price Percentage and the Adjusted
Purchase Number, less (c) the product of the Publicly-Sold stock (as hereinafter
----
defined) and the Adjusted Book Value Price, where: (w) "Publicly-Sold Stock"
means the total number of shares of Common Stock previously sold by the
respective Management Investor in a public offering, (x) "Adjusted Purchase
Number" means the sum of the Purchase Number and the Publicly-Sold Stock, (y)
"Adjusted Book Value Price Percentage" means 20% multiplied by the number of
full years elapsed since the Closing Date, and (z) "Adjusted Cost Price
Percentage" means 100% minus the Adjusted Book Value Price Percentage.
Notwithstanding the foregoing, the Option Purchase Price at all times shall
equal
-30-
<PAGE>
or exceed the product of the Adjusted Cost Price and the Purchase Number.
(b) Company's Right of First Refusal. In the event that, on or
--------------------------------
prior to the fifth anniversary of the Closing Date, (i) a Management Investor is
no longer employed by the Company; (ii) the Company or its designee has declined
to exercise the Purchase Option with respect to any of such Management
Investor's Common Stock; and (iii) the Management Investor thereafter proposes
to sell any or all of such Common Stock to a third party in a bona fide
transaction, the Management Investor may not Transfer such Common Stock without
first offering to sell such Common Stock to the Company pursuant to this
Section 6.3(b).
The Management Investor shall deliver a written notice (a "Sale
Notice") to the Company describing in reasonable detail the Securities being
offered, the name of the offeree, the purchase price requested and all other
material terms of the proposed Transfer. Upon receipt of the Sale Notice, the
Company, or a designee selected by a majority of the non-employee members of the
Board of Directors of the Company, shall have the right and option to purchase
all or any portion of the Securities being offered at the price and on the terms
of the proposed Transfer set forth in the Sale Notice. Within 30 days after
receipt of the Sale Notice, the Company shall notify such Management Investor
whether or not it wishes to purchase any or all of the offered Securities.
If the Company elects to purchase any of the offered Securities, the
closing of the purchase and sale of such Securities shall be held at the place
and on the date established by the Company in its notice to the Management
Investor in response to the Sale Notice, which in no event shall be less than 10
or more than 60 days from the date of such notice. In the event that the
Company does not elect to purchase all the offered Securities, the Management
Investor may, subject to the other provisions of this Agreement, Transfer the
remaining offered Securities to the offeree specified in the Sale Notice at a
price no less than the price specified in the Sale Notice and on other terms no
more favorable to the transferee(s) thereof than specified in the Sale Notice
during the 180-day period immediately following the last date on which the
Company could have elected to purchase the offered Securities. Any such
Securities not transferred within such 180-day period will be subject to the
provisions of this Section 6.3(b) upon subsequent Transfer.
- 31 -
<PAGE>
6.4 Involuntary Transfers. In the event that the Securities owned by any
---------------------
Management Investor shall be subject to sale or other Transfer (the date of such
sale or transfer shall hereinafter be referred to as the "Transfer Date") prior
to the fifth anniversary of the Closing Date by reason of (i) bankruptcy or
insolvency proceedings, whether voluntary or involuntary, or (ii) distraint,
levy, executive or other involuntary Transfer, then such Management Investor
shall give the Company written notice thereof promptly upon the occurrence of
such event stating the terms of such proposed Transfer, the identity of the
proposed transferee, the price or other consideration, if readily determinable,
for which the Securities are proposed to be transferred, and the number of
shares of Common Stock to be transferred. After its receipt of such notice or,
failing such receipt, after the Company otherwise obtains actual knowledge of
such a proposed Transfer, the Company, or a designee selected by a majority of
the non-employee members of the Board of Directors of the Company, shall have
the right and option to purchase all, but not less than all of such Securities
which right shall be exercised by written notice given by the Company to such
proposed transferor within 60 days following the Company's receipt of such
notice or, failing such receipt, the Company's obtaining actual knowledge of
such proposed Transfer. Any purchase pursuant to this Section 6.4 shall be at
the price and on the terms applicable to such proposed Transfer. If the nature
of the event giving rise to such involuntary Transfer is such that no readily
determinable consideration is to be paid for the Transfer of the Securities, the
price to be paid by the Company shall be the Option Purchase Price that would
have been applicable hereunder had the Management Investor incurred a
Termination Date as of the date of such proposed Transfer for the Securities.
The closing of the purchase and sale of Securities shall be held at the place
and the date to be established by the Company, which in no event shall be less
than 10 or more than 60 days from the date on which the Company gives notice of
its election to purchase the Securities. At such closing, the Management
Investor shall deliver the certificates evidencing the number of shares of
Common Stock to be purchased by the Company, accompanied by stock powers duly
endorsed in blank or duly executed instruments of transfer, and any other
documents that are necessary to transfer to the Company good title to such of
the securities to be transferred, free and clear of all pledges, security
interests, liens, charges, encumbrances, equities, claims and options of
whatever nature other than those imposed under this Agreement, and concurrently
with such delivery, the Company shall deliver to the Management Investor the
full amount of the purchase
- 32 -
<PAGE>
price for such Securities in cash by certified or bank cashier's check.
6.5 Proceeds Upon Sale of the Company.
---------------------------------
Each Management Investor agrees, subject solely to the condition set
forth in the last sentence of this Section 6.5, that a portion of the proceeds
of any sale of Common Stock pursuant to Article IV equal to (x) multiplied by
(y) (such portion being the "Escrow Amount"), where (x) equals (i) the aggregate
of the after-tax total amount of such proceeds and all after-tax proceeds
received by such Management Investor upon sales of Shares pursuant to Article IV
less (ii) (A) the Adjusted Cost Price multiplied by all Shares owned by such
Management Investor and (B) the aggregate amount of the outstanding principal
and accrued but unpaid interest due on any Promissory Note of such Management
Investor to the Company for such shares of Common Stock, and (y) 100% on or
prior to the first anniversary of the Closing Date and thereafter the then
applicable Adjusted Cost Price Percentage, shall not be paid to such Management
Investor and shall instead be deposited into a trust for the exclusive benefit
of the Management Investors, unless and until there is an event of forfeiture
related to such Management Investor (as hereinafter defined), in which case the
funds subject to such forfeiture shall be paid to the Company. Such trust shall
be established in accordance with such agreements and instruments as shall be
reasonably required by the Board of Directors of the Company and shall permit
the trustee thereunder to invest the funds of such trust in such manner,
consistent with such trustee's fiduciary obligations, as such trustee shall
reasonably determine. The trust agreement shall provide that the assets of any
successor to the Company. Upon the occurrence of each date on which a subsequent
adjustment of the Adjusted Cost Price Percentage would have occurred, the
trustee shall distribute to each Management Investor the amount which thereupon
becomes distributable based on such reduced percentage; provided, however, that
-------- -------
in the event that the employment of the Management Investor is terminated by the
Company or its successor without Cause or by reason of death, disability or
retirement at age 65 or more under the Company's or DRA's normal retirement
policies, the trustee shall promptly pay all remaining funds held for the
account of such Management Investor, together with interest accrued thereon, to
such Management Investor, or to his heirs, administrators, or estate. In the
event that the Management Investor shall cease to be employed by the Company or
its successor or a subsidiary thereof (other than by reason of an approved leave
of absence) for any
- 33 -
<PAGE>
reason other than death, disability or retirement at age 65 or more under the
Company's or DRA's normal retirement policies or termination by the Company or a
subsidiary thereof without Cause, all interest of the Management Investor in
such funds shall immediately terminate. A Management Investor shall not be bound
by the provisions of this Section 6.5 unless the purchaser or purchasers agree
in writing to continue such Management Investor's employment through the period
ending on the fifth anniversary of the Closing Date (or, if earlier, on the date
which is eighteen months after the closing of such sale) on terms and conditions
at least as favorable, in the aggregate, to the Management Investor as the terms
and conditions of his employment prior to the sale.
6.6 Purchaser Representative. If the Company or any Investor enters
------------------------
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities and Exchange Commission under the
Securities Act may be available with respect to such negotiation or transaction
(including a merger, consolidation or other reorganization), each Management
Investor will, at the request of the Company, appoint a purchaser representative
(as such term is defined in Rule 501 (h) promulgated by the Securities and
Exchange Commission under the Securities Act) reasonably acceptable to the
Company. If any Management Investor appoints the purchaser representative
designated by the Company, the Company will pay the fees of such purchaser
representative, but if any Management Investor declines to appoint the purchaser
representative designated by the Company such Management Investor will appoint
another purchaser representative (reasonably acceptable to the Company), and
such Management Investor will be responsible for the fees of the purchaser
representative so appointed.
6.7 Section 83 (b) Elections. Each Management Investor shall make the
------------------------
election to include in his income, in the year he purchases the Common Stock,
the excess, if any, of the fair market value of the Common Stock at that time
over $2.00 per share, pursuant to Section 83 (b) of the Internal Revenue Code of
1986, as amended, in the manner and within the time period specified by the
regulations promulgated thereunder.
- 34 -
<PAGE>
ARTICLE VII
REGISTRATION RIGHTS
The Investors shall have registration rights with respect to the
Shares as set forth in the Registration Rights Agreement attached hereto as
Exhibit D. Each of the Investors agree not to effect any public sale or
distribution of any securities of the Company during the periods specified in
the Registration Rights Agreement, except as permitted by the Registration
Rights Agreement, and each such Investor agrees to be bound by the rights of
priority to participate in offerings as set forth therein.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Amendment and Modification. This Agreement may be amended or
--------------------------
modified, or any provision hereof may be waived, provided that such amendment or
waiver is set forth in a writing executed by (i) the Company, (ii) CVC (so long
as CVC and its Affiliates own in the aggregate at least 25% of the outstanding
Common Stock on a fully diluted basis) and (iii) the holders of a majority of
the outstanding Common Stock on a fully diluted basis (including Shares owned by
CVC and its Affiliates); provided, however that the provisions of this Agreement
-------- -------
which are for the express benefit of Masco cannot be amended, modified or
waived, unless Masco also executes such amendment or waiver. No course of
dealing between or among any persons having any interest in this Agreement will
be deemed effective to modify, amend or discharge any part of this Agreement of
any rights or obligations of any person under or by reason of this Agreement.
8.2 Survival of Representations and Warranties. All
------------------------------------------
representations, warranties, covenants and agreements set forth in this
Agreement will survive the execution and delivery of this Agreement and the
Closing Date and the consummation of the transactions contemplated hereby,
regardless of any investigation made by an Investor or on its behalf.
8.3 Successors and Assigns; Entire Agreement. This Agreement and
----------------------------------------
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns and
executors, administrators and heirs. This Agreement sets forth the entire
agreement and
- 35 -
<PAGE>
understanding among the parties as to the subject matter hereof and merges and
supersedes all prior discussions and understandings of any and every nature
among them.
8.4 Separability. In the event that any provision of this Agreement
------------
or the application of any provision hereof is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Agreement shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless that provision held
invalid shall substantially impair the benefits of the remaining portions of
this Agreement.
8.5 Notices. All notices provided for or permitted hereunder shall
-------
be made in writing by hand-delivery, registered or certified first-class mail,
telex, telecopier or air courier guaranteeing overnight delivery to the other
party at the following addresses (or at such other address as shall be given in
writing by any party to the others):
If to the Company to:
DR International, Inc.
275 Rex Boulevard
Auburn Hills, MI 48326
Attention: Harold K. Sperlich
with required copies to:
If to CVC, to:
Citicorp Venture Capital Ltd.
399 Park Avenue
Sixth Floor
New York, New York 10043
Attention: Richard M. Cashin, Jr., Vice President
- 36 -
<PAGE>
with a required copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: G. Daniel O'Donnell, Esquire
If to WEP, to:
World Equity Partners, L.P.
399 Park Avenue
New York, NY 10043
Attention: Byron L. Knief
with a required copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Attention: Kirk A. Radke, Esquire
If to Masco, to:
MascoTech Automotive Systems Group, Inc.
275 Rex Boulevard
Auburn Hills, MI 48326
Attention: E. H. Billig
with a required copy to:
Masco Corporation
21001 Van Borne Road
Taylor, MI 48180
Attention: General Counsel
If to Sperlich, to:
Harold K. Sperlich
3333 West Shore Drive
Orchard Lake, MI 48324
- 37 -
<PAGE>
If to Gerrity, to:
James R. Gerrity
9938 E. Bayview Drive
Scottsdale, AZ 85258
If to the Management Investors or any of them, to their addresses as
listed in the books of the Company.
All such notices shall be deemed to have been duly given: when
delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
8.6 Governing Law. The validity, performance, construction and
-------------
effect of this Agreement shall be governed by and construed in accordance with
the internal law of Delaware, without giving effect to principles of conflicts
of law.
8.7 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.
8.8 Counterparts. This Agreement may be executed in two or more
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same instrument.
8.9 Further Assurances. Each party shall cooperate and take such
------------------
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
8.10 Termination. Unless sooner terminated in accordance with its
-----------
terms, this Agreement shall terminate on the tenth anniversary of the Closing
Date.
8.11 Remedies. In the event of a breach or a threatened breach by
--------
any party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific
- 38 -
<PAGE>
performance of its rights under this Agreement. The parties agree that the
provisions of this Agreement shall be specifically enforceable, it being agreed
by the parties that the remedy at law, including monetary damages, for breach of
such provision will be inadequate compensation for any loss and that any defense
in any action for specific performance that a remedy at law would be adequate is
waived.
8.12 Party No Longer Owning Securities. If a party hereto ceases to
---------------------------------
own any Securities, such party will no longer be deemed to be an Investor or
Management Investor for purposes of this Agreement.
8.13 No Effect on Employment. Nothing herein contained shall confer
-----------------------
on any Management Investor the right to remain in the employ of the Company or
any of its subsidiaries or Affiliates.
8.14 Pronouns. Whenever the context may require, any pronouns used
--------
herein shall be deemed also to include the corresponding neuter, masculine and
feminine forms.
- 39 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase and Holders Agreement the day and year first above written.
DR INTERNATIONAL, INC.
By: /s/ James R. Gerrity
---------------------------------
Its: Executive V.P.
--------------------------------
CITICORP VENTURE CAPITAL LTD.
By:
---------------------------------
Its:
--------------------------------
WORLD EQUITY PARTNERS, L.P.
By:
---------------------------------
Its:
--------------------------------
MASCOTECH AUTOMOTIVE SYSTEMS GROUP, INC.
By:
---------------------------------
Its:
--------------------------------
------------------------------------
Harold K. Sperlich
/s/ James R. Gerrity
------------------------------------
James R. Gerrity
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase and Holders Agreement the day and year first above written.
DR INTERNATIONAL, INC.
By:
---------------------------------
Its:
--------------------------------
CITICORP VENTURE CAPITAL LTD.
By: /s/ [SIGNATURE APPEARS HERE]
---------------------------------
Its: MO
--------------------------------
WORLD EQUITY PARTNERS, L.P.
By:
---------------------------------
Its:
--------------------------------
MASCOTECH AUTOMOTIVE SYSTEMS GROUP, INC.
By:
---------------------------------
Its:
--------------------------------
------------------------------------
Harold K. Sperlich
/s/
------------------------------------
James R. Gerrity
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase and Holders Agreement the day and year first above written.
DR INTERNATIONAL, INC.
By:
---------------------------------
Its:
--------------------------------
CITICORP VENTURE CAPITAL LTD.
By:
---------------------------------
Its:
--------------------------------
WORLD EQUITY PARTNERS, L.P.
By: /s/ [SIGNATURE APPEARS HERE]
---------------------------------
Its: Sr. Vice President
--------------------------------
MASCOTECH AUTOMOTIVE SYSTEMS GROUP, INC.
By:
---------------------------------
Its:
--------------------------------
------------------------------------
Harold K. Sperlich
/s/
------------------------------------
James R. Gerrity
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase and Holders Agreement the day and year first above written.
DR INTERNATIONAL, INC.
By:
---------------------------------
Its:
--------------------------------
CITICORP VENTURE CAPITAL LTD.
By:
---------------------------------
Its:
--------------------------------
WORLD EQUITY PARTNERS, L.P.
By:
---------------------------------
Its:
--------------------------------
MASCOTECH AUTOMOTIVE SYSTEMS GROUP, INC.
By: /s/ [SIGNATURE APPEARS HERE]
---------------------------------
Its: Vice President
--------------------------------
------------------------------------
Harold K. Sperlich
/s/
------------------------------------
James R. Gerrity
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase and Holders Agreement the day and year first above written.
DR INTERNATIONAL, INC.
By:
---------------------------------
Its:
--------------------------------
CITICORP VENTURE CAPITAL LTD.
By:
---------------------------------
Its:
--------------------------------
WORLD EQUITY PARTNERS, L.P.
By:
---------------------------------
Its:
--------------------------------
MASCOTECH AUTOMOTIVE SYSTEMS GROUP, INC.
By:
---------------------------------
Its:
--------------------------------
/s/ Harold K. Sperlich
------------------------------------
Harold K. Sperlich
/s/
------------------------------------
James R. Gerrity
<PAGE>
MANAGEMENT INVESTORS:
/s/ Thomas J. Snyder
-----------------------------------
Thomas J. Snyder
984 North 500 West
Anderson, IN 46011
Social Security Number:
313 44 0970
-----------------------------------
Tel. 317 642 2996 (H)
317 646 2939 (O)
<PAGE>
Schedule I
----------
Management Investors
--------------------
Thomas J. Synder
<PAGE>
EXHIBIT A
DR INTERNATIONAL, INC.
(ON A FULLY DILUTED BASIS AS OF JULY 31, 1994)
<TABLE>
<CAPTION>
Total
Shares of Percentage Shares of Percentage Shares of
Common of Total Shares Class A of Class A Class B
Stock of Common Common Common Common
Name Outstanding Stock Stock Stock Stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Citicorp Venture Capital, Ltd. 550,000 55.0% 432,350 49.0% 117,650
MascoTech Automotive 150,000 15.0% 150,000 17.0% --
Systems Group, Inc.
World Equity Partners, L.P. * 100,000 10.0% 100,000 11.3% --
Harold K. Sperlich 50,000 5.0% 50,000 5.7% --
James R. Gerrity 15,000 1.5% 15,000 1.7% --
Thomas J. Snyder 25,000 2.5% 25,000 2.8% --
Management Investors ** 110,000 11.0% 110,000 12.5% --
----------- ----------- ----------- ----------- -----------
TOTAL 1,000,000 100.00% 882,350 100.0% 117,650
<CAPTION>
Principal
Percentage Amount of Purchase Purchase Price
of Class B 11% Junior Price of of Junior Total
Common Subordinated Common Subordinated Purchase
Name Stock Notes Stock Notes Price Paid
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Citicorp Venture Capital, Ltd. 100.0% $14,300,000 $1,100,000 $14,300,000 $15,400,000
MascoTech Automotive -- $ 3,900,000 300,000 3,900,000 4,200,000
Systems Group, Inc.
World Equity Partners, L.P. * -- -- -- -- --
Harold K. Sperlich -- -- 100,000 -- 100,000
James R. Gerrity -- -- 30,000 -- 30,000
Thomas J. Snyder -- -- 50,000 *** -- 50,000
Management Investors ** -- -- 220,000 -- 220,000
----------- ----------- ----------- ----------- -----------
TOTAL 100.0% $18,200,000 $1,800,000 $18,200,000 $20,000,000
</TABLE>
* Warrant issued to World Equity Partners, L.P., pursuant to Warrant
Agreement dated July 29, 1994.
** Shares to be held by Management Investors will be purchased following the
Closing.
*** Purchase price paid as follows: $250 in cash and a promissory note in the
principle amount of $49,750
<PAGE>
Exhibit B
PROMISSORY NOTE
---------------
$ July __, 1994
FOR VALUE RECEIVE, _______________________ ("Borrower"), hereby promises to
pay to the order of DR INTERNATIONAL, INC., a Delaware corporation ("Holder"),
the principal sum of _____________________ DOLLARS ($_________) (the "Principal
Amount"), on ___________________, 1999, together with interest accrued thereon
the date of payment.
The Borrower shall pay to the holder hereof interest from the date hereof
on the outstanding principal balance hereunder at the rate of nine and one
quarter percent (9.25%) per annum. Interest shall be calculated on the basis of
a 365-day year for the actual number of days elapsed and shall be payable on the
last day of each Yearly Period (as hereinafter defined) during the term hereof.
To the extent that interest for any Yearly Period or portion thereof is not paid
on the last day of such Yearly Period, such interest shall become part of the
Principal Amount effective such last day of such Yearly Period. As used herein,
the term "Yearly Period" means each successive twelve-month period, beginning on
the date hereof and ending on the first anniversary of the date hereof and
continuing to each successive anniversary thereafter, during which the Principal
Amount remains outstanding.
Payment shall be made at such place as the holder may designate. All
payments hereunder shall be made in immediately available funds in lawful money
of the United States of America.
This Note represents a full recourse obligation of the Borrower.
All or any portion of the Principal Amount evidenced by this Note may be
prepaid at any time without premium or penalty.
Except as set forth in the next sentence, the obligations of the Borrower
and the rights of the Holder under this Note shall be absolute and shall not be
subject to any counterclaim, set-off, deduction or defense. Notwithstanding
anything to the contrary contained herein, Holder shall be entitled to apply
twenty-five percent (25%) of the pre-tax amount of any and all bonus payments
awarded by the Company to the Borrower (other than any bonus payment awarded on
the Closing Date under the Asset Purchase Agreement, dated July 13, 1994, among
General Motors Corporation, the Company and DRA, Inc.) to
<PAGE>
reduce the aggregate amount of the outstanding principal accrued and unpaid
interest thereon due under this Note.
The Borrower hereby waives presentment, notice of dishonor and
protest in respect hereof.
In the event of default under this Note, the Holder shall have all
rights and remedies provided at law and in equity. All costs and expenses of
collection, including attorneys fees shall be added to and become part of the
Principal Amount of this Note and shall be collectible as part of such Principal
Amount.
No interest or other amount shall be payable in excess of the maximum
permissible rate under applicable law and any interest or other amount which is
paid in excess of such maximum rate shall be deemed to be a payment of principal
hereunder.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the party sought to be charged.
This Note shall be governed by, and construed in accordance with, the
laws of the State of [Indiana] [Mississippi], without giving effect to the
principles of conflict of laws thereof. If any term or provision of the Note
shall be held invalid, illegal or unenforceable, the validity of all other terms
and provisions hereof shall in no way be affected thereby.
This Note shall be binding upon the successors and assigns of the
Borrower and shall inure to the benefit of the Holder and its successors and
assigns.
Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to such terms in the Securities Purchase and Holders
Agreement, dated July 29, 1994, among Holder, Citicorp Venture Capital Ltd.,
World Equity Partners, L.P., Mascotech Automotive Systems, Group, Inc. and the
other signatories thereto.
[Management Investor]
----------------------------------------
<PAGE>
Exhibit 10.9
REGISTRATION RIGHTS AGREEMENT
FOR
COMMON STOCK
Dated July 29, 1994
by and among
DR INTERNATIONAL, INC.,
CITICORP VENTURE CAPITAL LTD.,
WORLD EQUITY PARTNERS, L.P.,
MASCOTECH AUTOMOTIVE SYSTEMS GROUP, INC.,
HAROLD K. SPERLICH,
JAMES R. GERRITY
and
THE MANAGEMENT INVESTORS LISTED ON SCHEDULE A
<PAGE>
REGISTRATION RIGHTS AGREEMENT FOR COMMON STOCK
This Registration Rights Agreement for Common Stock (the "Agreement")
is made and entered into July 29, 1994, by and among DR International, Inc., a
Delaware corporation (the "Company"), Citicorp Venture Capital Ltd., a New York
corporation ("CVC"), World Equity Partners, L.P., a Delaware limited partnership
("WEP"), MascoTech Automotive Systems Group, Inc., a Michigan corporation
("Masco"), Harold K. Sperlich ("Sperlich"), James R. Gerrity ("Gerrity") and the
management investors (the "Management Investors") listed on Schedule A hereto.
CVC, WEP, Masco, Sperlich, Gerrity and the Management Investors are sometimes
referred to herein collectively as the "Investors" and each individually as the
"Investor".
This Agreement is made pursuant to the Securities Purchase and Holders
Agreement (as hereinafter defined). In order to induce the Investors to enter
into the Securities Purchase and Holders Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"Commission" means the Securities and Exchange Commission.
----------
"Closing Date" means the date of this Agreement.
------------
"Common Stock" means the Class A Common Stock, par value $.O1 per
------------
share, of the Company, including shares of Class A Common Stock issuable upon
the conversion of shares of Class B Common Stock, par value $.01 per share, and
shares of Class A Common Stock issuable upon the exercise of the Warrant, and as
adjusted for any stock dividend or distribution payable thereon or stock split,
reverse stock split, recapitalization, reclassification, reorganization,
exchange, subdivision or combination thereof.
"Demand Registration" has the meaning set forth is Section 4(a) of
-------------------
this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time.
<PAGE>
"Person" means an individual, partnership, corporation, trust or
------
unincorporated organization, or a government or agency or political subdivision
thereof.
"Prospectus" means the prospectus included in any Registration
----------
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
"Purchase Agreement" means the Asset Purchase Agreement dated July 13,
------------------
1994 among General Motors Corporation, the Company and DRA, Inc.
"Registration Expenses" means the costs and expenses of all
---------------------
registrations and qualifications under the Securities Act, and of all other
actions the Company is required to take in order to effect the registration of
Registrable Securities under the Securities Act pursuant to this Agreement
(including all federal and state registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company and the fees and
expenses of the Company's independent public accountants (including the expenses
of any special audit and "cold comfort" letters required by or incident to such
registration)) other than the costs and expenses of any Investors whose
Registrable Securities are to be registered pursuant to this Agreement
comprising underwriters' commissions, brokerage fees, transfer taxes or the fees
and expenses of any accountants or other representatives retained by any
Investor.
"Registration Statement" means any registration statement of the
----------------------
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
"Registrable Securities" has the meaning set forth in Section 2 of
----------------------
this Agreement.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
- 2 -
<PAGE>
"Securities Purchase and Holders Agreement" means the Securities
-----------------------------------------
Purchase and Holders Agreement dated July 29, 1994 among the Company, CVC, WEP,
Masco, Gerrity, Sperlich and the other signatories thereto.
"Special Registration Statement" means (i) a registration statement on
------------------------------
Forms S-8 or S-4 or any similar or successor form or any other registration
statement relating to an exchange offer or an offering of securities solely to
the Company's employees or security holders or (ii) a registration statement
registering a Unit Offering.
"Unit Offering" means a public offering of a combination of debt and
-------------
equity securities of the Company in which (i) not more than 20% of the gross
proceeds received for the sale of such securities is attributed to such equity
securities, and (ii) after giving effect to such offering, the Company does not
have a class of equity securities required to be registered under the Exchange
Act.
"underwritten registration or underwritten offering" means a
------------------------- ---------------------
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
"Warrant" means the warrant exercisable for shares of Class A Common
-------
Stock of the Company issued pursuant to the Warrant Agreement dated the date
hereof between WEP and the Company.
2. Registrable Securities. The securities entitled to the benefits
----------------------
of this Agreement are the Registrable Securities. As used herein, "Registrable
Securities" means the shares of Common Stock that are issued (or issuable) and
outstanding on the date hereof and the shares of Common Stock that become issued
(or issuable) and outstanding after the date hereof; provided, however, that
-------- -------
shares of Common Stock issued to Management Investors shall be deemed to be
Registrable Securities only to the extent such shares are eligible for
repurchase by the Company at the Adjusted Book Value Price (as defined in the
Securities Purchase and Holders Agreement) pursuant to Section 6.3 of the
Securities Purchase and Holders Agreement; and provided, further, that each such
-------- -------
share of Common Stock shall cease to be a Registrable Security when (i) it has
been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering it; (ii) it is distributed
to the public pursuant to Rule 144 (or any similar provisions then in force)
under the Securities Act; or (iii) it has otherwise been transferred and a new
certificate or other evidence of ownership for it not bearing a legend as set
- 3 -
<PAGE>
forth in Section 3.2 of the Securities Purchase and Holders Agreement (or other
legend of similar import) and not subject to any stop transfer order has been
delivered by or on behalf of the Company and no other restriction on transfer
exists under the Securities Act.
3. Incidental Registration.
-----------------------
(a) Right to Include Common Stock. If the Company at any time
-----------------------------
proposes to register any of its Common Stock under the Securities Act (other
than on a Special Registration Statement), whether or not for sale for its own
account, it will each such time give at least 30 days prior written notice to
all holders of Registrable Securities of its intention to file a registration
statement under the Securities Act and of such holders' rights under this
Section 3. Upon the written request of any such holders of Registrable
Securities made prior to the proposed filing date (which request shall specify
the intended method of disposition thereof), the Company will effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the holders thereof (an "Incidental
Registration"), to the extent required to permit the public disposition (in
accordance with such intended methods thereof) of the Registrable Securities to
be so registered; provided, that (i) if, any time after giving written notice of
--------
its intention to register shares of Common Stock and prior to the effective date
of the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register the Company's Common
Stock, the Company shall give written notice of such determination to each
holder of Registrable Securities and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith); (ii) if a registration requested pursuant to this Section
3 shall involve an underwritten public offering, any holder of Registrable
Securities requesting to be included in such registration may elect, in writing
at least 30 days prior to the effective date of the registration statement filed
in connection with such registration, not to register such securities in
connection with such registration; and (iii) if, at any time after the 180-day
or shorter period specified in Section 3 (b), the sale of the securities has
not been completed, the Company may withdraw from the registration on a pro rata
basis (based on the number of Registrable Securities requested by each holder of
Registrable Securities to be so registered) the Registrable Securities which the
Company has been requested to register and which have not been sold.
- 4 -
<PAGE>
(b) Priority in Incidental Registrations. If a registration
------------------------------------
pursuant to Section 3(a) involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the total
number of shares of Common Stock to be included in such registration, including
the Registrable Securities requested to be included pursuant to this Section 3,
exceeds the maximum number of shares of Common Stock specified by the managing
underwriter that may be distributed without adversely affecting the price,
timing or distribution of such shares of Common Stock, then the Company shall
include in such registration only such maximum number of Registrable Securities
which, in the reasonable opinion of such underwriter or underwriters, can be
sold in the following order of priority: (i) first, all of the shares of Common
Stock that the Company proposes to sell for its own account, if any, (ii)
second, all of the shares of Common Stock being registered by holder(s) of
Registrable Securities pursuant to a Demand Registration (as hereinafter
defined), and (iii) third, the Registrable Securities of the holder(s) of
Registrable Securities requested to be included in such Incidental Registration.
To the extent that shares of Common Stock to be included in the Incidental
Registration must be allocated among the holders(s) of Registrable Securities
pursuant to clause (iii) above, such shares shall be allocated pro rata among
the holders(s) of Registrable Securities based on the number of shares of Common
Stock that such holders(s) of Registrable Securities shall have requested to be
included therein; provided, however, that (other than with respect to holders of
-------- -------
Registrable Securities that are entitled to make a Demand Registration Request
(as hereinafter defined)) if an Incidental Registration is an underwritten
offering, the managing underwriter or underwriters may select shares for
inclusion in such Incidental Registration on a basis other than a pro rata basis
if, in the reasonable opinion of such underwriter or underwriters, selection on
such other basis would be material to the success of the offering.
(c) Expenses. The Company will pay all Registration Expenses in
--------
connection with any registration of Registrable Securities requested pursuant to
this Section 3.
(d) Liability for Delay. The Company shall not be held responsible
-------------------
for any delay in the filing or processing of a registration statement which
includes any Registrable Securities due to requests by holders of Registrable
Securities pursuant to this Section 3 nor for any delay in requesting the
effectiveness of such registration statement if the Company advises the holders
of Registrable Securities participating in such registration in
- 5 -
<PAGE>
writing that, in the opinion of its Board of Directors, such delay is warranted
by market conditions or business considerations.
(e) Participation in Underwritten Registrations. No holder of
-------------------------------------------
Registrable Securities may participate in any underwritten registration
hereunder unless such holder (i) agrees to sell his or its Common Stock on the
basis provided in any underwriting arrangements approved by the persons who have
selected the underwriter and (ii) accurately completes in a timely manner and
executes all questionnaires, powers of attorney, underwriting agreements and
other documents customarily required under the terms of such underwriting
arrangements.
4. Demand Registration
-------------------
(a) Right to Demand Registration. Subject to Section 4(b)
----------------------------
below, CVC and the holders of a majority of the Registrable Securities (the "WEP
Shares") held by WEP on the date hereof (the "WEP Holders") shall be entitled to
make a written request ("Demand Registration Request") to the Company for
registration with the Commission under and in accordance with the provisions of
the Securities Act of all or part of the Registrable Securities owned by it (a
"Demand Registration") (which Demand Registration Request shall specify the
intended number of Registrable Securities to be disposed of by such holder and
the intended method of disposition thereof); provided, that (i) the Company may,
--------
if the Board of Directors so determines in the exercise of its reasonable
judgment that due to a pending or contemplated acquisition or disposition or
public offering it would be inadvisable to effect such Demand Registration at
such time, defer such Demand Registration for a single period not to exceed 180
days, and (ii) if the Company elects not to effect the Demand Registration
pursuant to the terms of this sentence, no Demand Registration shall be deemed
to have occurred for purposes of this Agreement. Within 10 days after receipt of
the Demand Registration Request, the Company will serve written notice (the
"Notice") of such Demand Registration Request to all holders of Registrable
Securities and, subject to paragraph (c) below, the Company will include in such
registration all Registrable Securities of such holders with respect to which
the Company has received written requests for inclusion therein from such
holders within fifteen (15) business days after the receipt by the applicable
holder of the Notice. All requests made pursuant to this paragraph 4(a) will
specify the aggregate number of the Registrable Securities to be registered and
will also specify the intended methods of disposition thereof.
- 6 -
<PAGE>
(b) Number of Demand Registrations. CVC shall be entitled
-------------------------------
to make one or more Demand Registration Requests at any time and from time to
time. The holders of a majority of the WEP Shares shall be entitled to make one
Demand Registration Request at any time after the earlier to occur of (i) the
sixth anniversary of the date of this Agreement or (ii) the date on which an
initial public offering of the Common Stock is consummated; provided that
--------
immediately prior to the effective date of the registration statement relating
to such Demand Registration, the WEP Holders shall have exercised the Warrant,
or portion thereof, held by it for such shares of Common Stock that are subject
to the Demand Registration Request in accordance with the terms of such Warrant.
The Registration Expenses shall be borne by the Company. In the case of a Demand
Registration Request made by the WEP Holders, such Demand Registration shall not
be counted as a Demand Registration hereunder (i) until such Demand Registration
has been declared effective and maintained continuously effective for a period
of at least six months or such shorter period when all Registrable Securities
included therein have been sold in accordance with such Demand Registration and
(ii) unless the WEP Holders are able to register and sell at least ninety
percent (90%) of the WEP Shares initially requested to be included in such
Demand Registration.
(c) Priority on Demand Registration. If any of the
-------------------------------
Registrable Securities proposed to be registered pursuant to a Demand
Registration are to be sold in a firm commitment underwritten offering and the
managing underwriter or underwriters of a Demand Registration advise the Company
and the holders of such Registrable Securities in writing that in its or their
reasonable opinion the number of shares of Common Stock proposed to be sold in
such Demand Registration exceeds the maximum number of shares specified by the
managing underwriter that may be distributed without adversely affecting the
price, timing or distribution of the Common Stock, the Company shall include in
such registration only such maximum number of Registrable Securities which, in
the reasonable opinion of such underwriter or underwriters can be sold in the
following order of priority: (i) first, the Registrable Securities requested to
be included in such Demand Registration held by the party requesting such Demand
Registration (provided that, in the case of a Demand Registration Request made
by the WEP Holders, such amount shall be allocated among the WEP Holders on a
pro rata basis based upon the number of Registrable Securities requested to be
included by such WEP Holders in such Demand Registration); (ii) second, shares
of Common Stock to be offered by the Company in such Demand Registration; and
(iii) third, shares of Common Stock held by other holders requested to be
included in such Demand Registration, provided that such amount shall be
--------
allocated
- 7 -
<PAGE>
among such other holders on a pro rata basis based upon their respective
percentage of ownership of the total number of shares of Common Stock then
outstanding.
5. Registration Procedures. If and whenever the Company is
-----------------------
required to effect or cause the registration of any Registrable Securities under
the Securities Act as provided in this Agreement, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities, and use its best efforts
to cause such registration statement to become effective, provided, however,
-------- -------
that the Company may discontinue any registration of its securities which is
being effected pursuant to Sections 3 or 4 herein at any time prior to the
effective date of the registration statement relating thereto;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 180 days or such shorter period which will terminate
when all Registrable Securities covered by such registration statement have been
sold (but not before the expiration of the 90-day period referred to in Section
4(3) of the Securities Act and Rule 174 thereunder, if applicable) and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement;
(c) furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereof (in each case including all exhibits), such number of
copies of the prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall request,
and do any and all other acts and things which may be necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registrable
- 8 -
<PAGE>
Securities owned by such seller; provided, however, that the Company shall not
-------- -------
be required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action which would subject it to general
service of process in any such jurisdiction where it is not then so subject or
subject itself to general taxation in any jurisdiction where it is not then so
subject;
(e) immediately notify each seller of any Registrable
Securities covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Act within the
appropriate period mentioned in clause (b) of this Section 5, of the Company
becoming aware that the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and within ten days prepare and furnish to all sellers a reasonable
number of copies of an amended or supplemental prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(f) use its best efforts to list such Registrable Securities
on any securities exchange on which the Common Stock is then listed, if such
Registrable Securities are not already so listed and if such listing is then
permitted under the rules of such exchange, and provide an independent transfer
agent and registrar for such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;
(g) furnish to each seller of Registrable Securities covered
by such registration statement a signed counterpart, addressed to such seller
(and the underwriters, if any) of:
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such
registration involves an underwritten public offering, dated the date
of the closing under the underwriting agreement), reasonably
satisfactory in form and substance to the sellers of not less than 50%
of such
- 9 -
<PAGE>
Registrable Securities (and the managing underwriter, if any); and
(ii) a "comfort" letter, dated the effective date of
such registration statement (or, if such registration involves an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement, covering such matters with respect to such
registration statement as are customarily covered in accountants'
letters delivered to the underwriters in underwritten offerings of
securities as may reasonably be requested by the sellers of not less
than 50% of such Registrable Securities (and the managing underwriter,
if any); and
(h) make available for inspection by any seller of such
Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent retained
by any such seller or any such underwriter (individually, an "Inspector" and
collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility (collectively, the "Records"), and cause all of the Company's
officers, directors and employees to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement; provided that any Records that are designated
--------
by the Company in writing as confidential shall be kept confidential by the
Inspectors unless (A) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in such registration statement or (B) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction or by any regulatory authority having
jurisdiction. Each Investor agrees that non-public information obtained by it as
a result of such Inspections shall be deemed confidential and acknowledges its
obligations under the Federal securities laws not to trade any securities of the
Company on the basis of material non-public information.
The Company may require each seller of Registrable Securities as to
which any registration is being effected promptly to furnish to the Company such
information regarding the distribution of such Registrable Securities as may be
legally
- 10 -
<PAGE>
required. Such information shall be furnished in writing and shall state that it
is being furnished for use in the registration statement.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in clause (e) of this Section 5,
such holder will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by clause (e) of this Section 5, and, if so directed by
the Company, such holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such holder's possession,
of the prospectus covering such Registrable Securities current at the time of
receipt of the Company's notice. In the event the Company shall give any such
notice, the period mentioned in clause (b) of this Section 5 shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to clause (e) of this Section 5 and including the
date when each seller of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by clause (e) of this Section 5.
To the extent not inconsistent with applicable law, each holder of
Registrable Securities whose Common Stock is included in a registration
statement hereunder, if requested by the managing underwriter or underwriters
for such registration, agrees not to effect any public sale or distribution of
Registrable Securities, including a sale pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act, during the fifteen business
days prior to, and during the ninety-day period (or such shorter period as may
be agreed to by such holders) beginning on, the effective date of a demand
registration statement.
6. Indemnification.
---------------
(a) Indemnification by the Company. The Company hereby
------------------------------
agrees to indemnify and hold harmless each holder of Registrable Securities
which shall have been registered under the Securities Act, and such holder's
officers, directors and agents and each other Person, if any, who controls such
holder within the meaning of the Securities Act and each other Person (including
underwriters) who participates in the offering of such Registrable Securities
against any losses, claims, damages, liabilities,
- 11 -
<PAGE>
reasonable attorneys' fees, costs or expenses (collectively, the "Damages"),
joint or several, to which such holder or controlling Person or participating
Person may become subject under the Securities Act or otherwise, insofar as such
Damages (or proceedings in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact made by the
Company or its agents contained in any registration statement under which such
Registrable Securities are registered under the Securities Act, in any
preliminary prospectus or final prospectus contained therein, or in any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse such holder of Registrable Securities or such controlling Person or
participating Person in connection with investigating or defending any such
Damages or proceeding; provided, however, that the Company will not be liable in
--------
any such case to the extent that any such Damages arise out of or are based upon
(i) an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, said preliminary or final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such holder or such
controlling or participating Person, as the case may be, specifically for use in
the preparation thereof; or (ii) an untrue statement or alleged untrue
statement, omission or alleged omission in a prospectus if such untrue statement
or alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the prospectus which amendment or supplement is
delivered to such holder in a timely manner and such holder thereafter fails to
deliver such prospectus as so amended or supplemented prior to or concurrently
with the sale of such Registrable Securities to the Person asserting such
Damages.
(b) Indemnification by the Holders of Registrable Securities Which
--------------------------------------------------------------
Are Registered. It shall be a condition of the Company's obligations under this
- --------------
Agreement to effect any registration under the Securities Act that there shall
have been delivered to the Company an agreement or agreements duly executed by
each holder of Registrable Securities to be so registered, whereby such holder
agrees to indemnify and hold harmless the Company, its directors, officers and
agents and each other Person, if any, which controls the Company within the
meaning of the Securities Act against any Damages, joint or several, to which
the Company, or such other Person or such Person controlling the Company may
become subject under the Securities Act or otherwise, but only to the extent
that such Damages (or proceedings in respect
- 12 -
<PAGE>
thereof) arise out of or are based upon any untrue statements or alleged untrue
statement of any material fact contained, on the effective date thereof, in any
registration statement under which such Registrable Securities are registered
under the Securities Act, in any preliminary prospectus or final prospectus
contained therein or in any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, which, in each such case, has been made in or omitted from such
registration statement, said preliminary or final prospectus or said amendment
or supplement in reliance upon, and in conformity with, written information
furnished to the Company by such holder of Registrable Securities specifically
for use in the preparation thereof. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above, with respect to information with to such Persons so
furnished in writing by such Persons specifically for inclusion in any
prospectus or registration statement.
(c) Conduct of Indemnification Proceedings. Any Person
--------------------------------------
entitled to indemnification hereunder shall (i) give prompt written notice to
the indemnifying party of the commencement of any action or proceeding involving
a claim referred to in the preceding paragraphs of this Section 6; and (ii)
unless the indemnified party has been advised by its counsel that a conflict of
interest exists between such indemnified and indemnifying parties under
applicable standards of professional responsibility, with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will consent to the entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation; provided, however, that no indemnifying party will consent to the
-------- -------
entry of any judgment or enter into any settlement (other than for the payment
of money only) without the consent of the indemnified party (which consent will
not be unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to, assume the defense of the claim, will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the
- 13 -
<PAGE>
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels.
(d) Contribution. If for any reason the indemnification
------------
provided for in the preceding Sections 6 (a) or 6 (b) is unavailable to an
indemnified party in respect of any Damages referred to therein, the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such Damages in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action; provided,
--------
however, that in no event shall the liability of any selling holder of
- -------
Registrable Securities hereunder be greater in amount than the difference
between the dollar amount of the proceeds received by such holder upon the sale
of the Registrable Securities giving rise to such contribution obligation and
all amounts previously contributed by such holder with respect to such Damages.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of fraudulent misrepresentation.
7. Hold-Back Agreements
--------------------
(a) Restrictions on Public Sale by Holder of Registrable
----------------------------------------------------
Securities. Each holder of Registrable Securities whose Registrable Securities
- ----------
are eligible for inclusion in a Registration Statement filed pursuant to
Sections 3 or 4 agrees, if requested by the managing underwriter or underwriters
in an underwritten offering of any Registrable Securities, not to effect any
public sale or distribution of Registrable Securities, including a sale pursuant
to Rule 144 (or any similar provision then in force) under the Securities Act
(except as part of such underwritten registration), during the 10-day period
prior to, and during the 90-day period (or such shorter period as may be agreed
- 14 -
<PAGE>
to by the parties hereto) beginning on the effective date of such Registration
Statement, to the extent timely notified in writing by the Company or the
managing underwriter or underwriters.
The foregoing provisions shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute or regulation from
entering into any such agreement; provided, however, that any such holder shall
undertake, in its request to participate in any such underwritten offering, not
to effect any public sale or distribution of Registrable Securities (except as
part of such underwritten registration) during such period unless it has
provided 45 days prior written notice of such sale or distribution to the
managing underwriter or underwriter.
(b) Restrictions on Public Sale by the Company and Others.
-----------------------------------------------------
The Company agrees (i) not to effect any public sale or distribution of any of
its Common Stock for its own account during the 10-day period prior to, and
during the 90-day period beginning on, the effective date of a Registration
Statement filed pursuant to Sections 3 or 4 (except as part of a Special
Registration Statement), and (ii) use reasonable efforts to cause each holder of
Common Stock purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution of any such securities during such period,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such underwritten registration, if permitted).
8. Underwritten Registration
-------------------------
If any of the Registrable Securities covered by any Incidental
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the Company and, in the case of a Demand Registration,
approved by CVC.
Notwithstanding anything herein to the contrary, no Person may
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwritten arrangements approved by the Persons entitled hereunder to approve
such arrangement and (b) accurately completes and executes all questionnaires,
powers of attorney, indemnities, custody agreements, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
- 15 -
<PAGE>
9. Miscellaneous
-------------
(a) Amendment and Modification. This Agreement may be
--------------------------
amended or modified, or any provision hereof may be waived, provided that such
amendment or waiver is set forth in a writing executed by (i) the Company, (ii)
CVC (so long as CVC and its Affiliates own in the aggregate at least 25% of the
outstanding Common Stock on a fully diluted basis), (iii) the holders of a
majority of the shares of the Registrable Securities of the other Investors,
(iv) in the case of any amendment which materially and adversely affects any
Investor differently from any other Investor, such Investor and (v) in the case
of an amendment which materially and adversely affects any rights of the WEP
Holders in connection with the Demand Registration Request of the WEP Holders,
the holders of a majority of the WEP Shares. No course of dealing between or
among any persons having any interest in this Agreement will be deemed effective
to modify, amend or discharge any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement.
(b) Survival of Representations and Warranties. All
------------------------------------------
representations, warranties, covenants and agreements set forth in this
Agreement will survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by an Investor or on its behalf.
(c) Successors and Assigns; Entire Agreement. This Agreement
----------------------------------------
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns and
executors, administrators and heirs. This Agreement sets forth the entire
agreement and understandings among the parties as to the subject matter hereof
and merges and supersedes all prior discussions and understandings of any and
every nature among them.
(d) Separability. In the event that any provision of this
------------
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
(e) Notices. All notices provided for or permitted hereunder
-------
shall be made in writing by hand-delivery, registered or
- 16 -
<PAGE>
certified first-class mail, telex, telecopier or air courier guaranteeing
overnight delivery to the other party at the following addresses (or at such
other address as shall be given in writing by any party to the others):
If to the Company to:
DR International, Inc.
275 Rex Boulevard
Auburn Hills, MI 48326
Attention: Harold K. Sperlich
with required copies to:
If to CVC, to:
Citicorp Venture Capital Ltd.
399 Park Avenue
Sixth Floor
New York, New York 10043
Attention: Richard M. Cashin, Jr., Vice President
with a required copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: G. Daniel O'Donnell, Esquire
If to WEP, to:
World Equity Partners, L.P.
399 Park Avenue
New York, NY 10043
Attention: Byron L. Knief
with a required copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Attention: Kirk A. Radke, Esquire
- 17 -
<PAGE>
If to Masco, to:
MascoTech Automotive Systems Group, Inc.
275 Rex Boulevard
Auburn Hills, MI 48326
Attention: E. H. Billig
with a required copy to:
Masco Corporation
21001 Van Borne Road
Taylor, MI 48180
Attention: General Counsel
If to Sperlich, to:
Harold K. Sperlich
3333 West Shore Drive
Orchard Lake, MI 48324
If to Gerrity, to:
James R. Gerrity
9938 E. Bayview Drive
Scottsdale, AZ 85258
If to a Management Investor, at the most current address given by such
Management Investor to the Company in accordance with this Section 10
(e), which address initially is, with respect to each Management
Investor, the address set forth on Schedule A hereto.
All such notices shall be deemed to have been duly given: when
delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
(f) Governing Law. The validity, performance, construction
-------------
and effect of this Agreement shall be governed by and construed in accordance
with the internal law of Delaware, without giving effect to principles of
conflicts of law.
- 18 -
<PAGE>
(g) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
(h) Counterparts. This Agreement may be executed in two or
------------
more counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same instrument.
(i) Further Assurances. Each party shall cooperate and take
------------------
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
(j) Termination. Unless sooner terminated in accordance with
-----------
its terms, this Agreement shall terminate on the fifteenth anniversary of the
date of this Agreement; provided that the indemnification rights and obligations
set forth in Section 6 hereof shall survive the termination of this Agreement.
(k) Remedies. In the event of a breach or a threatened
--------
breach by any party to this Agreement of its obligations under this Agreement,
any party injured or to be injured by such breach, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement, it being
agreed by the parties that the remedy at law, including monetary damages, for
breach of such provision will be inadequate compensation for any loss and that
any defense in any action for specific performance that a remedy at law would be
adequate is waived.
(l) Party No Longer Owning Securities. If a party hereto
---------------------------------
ceases to own any Securities, such party will no longer be deemed to be an
Investor for purposes of this Agreement; provided that the indemnification
rights and obligations set forth in Section 6 hereof shall survive any such
cessation of ownership.
(m) Pronouns. Whenever the context may require, any pronouns
--------
used herein shall be deemed also to include the corresponding neuter, masculine
or feminine forms.
(n) No Effect on Employment. Nothing herein contained shall
-----------------------
confer on any investor the right to remain in the employ of the Company or any
of its subsidiaries or Affiliates.
- 19 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
DR INTERNATIONAL, INC.
By: /s/ James R. Gerrity
-------------------------
Title: Executive V.P.
----------------------
CITICORP VENTURE CAPITAL LTD.
By:
-------------------------
Title:
----------------------
WORLD EQUITY PARTNERS, L.P.
By:
-------------------------
Title:
----------------------
MASCOTECH AUTOMOTIVE SYSTEMS
GROUP, INC.
By:
-------------------------
Title:
----------------------
----------------------------
Harold K. Sperlich
/s/ James R. Gerrity
----------------------------
James R. Gerrity
/s/ Thomas J. Snyder
----------------------------
Thomas J. Snyder
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
DR INTERNATIONAL, INC.
By:
-------------------------
Title:
----------------------
CITICORP VENTURE CAPITAL LTD.
By: [SIGNATURE APPEARS HERE]
-------------------------
Title: [TITLE ILLEGIBLE]
----------------------
WORLD EQUITY PARTNERS, L.P.
By:
-------------------------
Title:
----------------------
MASCOTECH AUTOMOTIVE SYSTEMS
GROUP, INC.
By:
-------------------------
Title:
----------------------
----------------------------
Harold K. Sperlich
----------------------------
James R. Gerrity
----------------------------
Thomas J. Snyder
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
DR INTERNATIONAL, INC.
By:
-------------------------
Title:
----------------------
CITICORP VENTURE CAPITAL LTD.
By:
-------------------------
Title:
----------------------
WORLD EQUITY PARTNERS, L.P.
By: [SIGNATURE APPEARS HERE]
-------------------------
Title: SVP
----------------------
MASCOTECH AUTOMOTIVE SYSTEMS
GROUP, INC.
By:
-------------------------
Title:
----------------------
----------------------------
Harold K. Sperlich
----------------------------
James R. Gerrity
----------------------------
Thomas J. Snyder
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
DR INTERNATIONAL, INC.
By:
-------------------------
Title:
----------------------
CITICORP VENTURE CAPITAL LTD.
By:
-------------------------
Title:
----------------------
WORLD EQUITY PARTNERS, L.P.
By:
-------------------------
Title:
----------------------
MASCOTECH AUTOMOTIVE SYSTEMS
GROUP, INC.
By: [SIGNATURE APPEARS HERE]
-------------------------
Title: Vice President
----------------------
----------------------------
Harold K. Sperlich
----------------------------
James R. Gerrity
----------------------------
Thomas J. Snyder
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
DR INTERNATIONAL, INC.
By:
-------------------------
Title:
----------------------
CITICORP VENTURE CAPITAL LTD.
By:
-------------------------
Title:
----------------------
WORLD EQUITY PARTNERS, L.P.
By:
-------------------------
Title:
----------------------
MASCOTECH AUTOMOTIVE SYSTEMS
GROUP, INC.
By:
-------------------------
Title:
----------------------
/s/ Harold K. Sperlich
----------------------------
Harold K. Sperlich
----------------------------
James R. Gerrity
----------------------------
Thomas J. Snyder
<PAGE>
SCHEDULE A
----------
Name of Management Investor Address
- --------------------------- -------
Thomas J. Snyder 984 North 500 West
Anderson, IN 46011
-21-
<PAGE>
Exhibit 10.12
================================================================================
DELCO REMY INTERNATIONAL, INC.
10-5/8% Senior Subordinated Notes due 2006
----------------------------------------------
INDENTURE
Dated as of August 1, 1996
----------------------------------------------
NATIONAL CITY BANK OF INDIANA
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions........................................... 1
SECTION 1.02. Other Definitions..................................... 28
SECTION 1.03. Incorporation by Reference of Trust Indenture Act..... 28
SECTION 1.04. Rules of Construction................................. 29
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating....................................... 30
SECTION 2.02. Execution and Authentication.......................... 30
SECTION 2.03. Registrar and Paying Agent............................ 31
SECTION 2.04. Paying Agent To Hold Money in Trust................... 31
SECTION 2.05. Securityholder Lists.................................. 32
SECTION 2.06. Replacement Securities................................ 32
SECTION 2.07. Outstanding Securities................................ 32
SECTION 2.08. Temporary Securities.................................. 33
SECTION 2.09. Cancellation.......................................... 33
SECTION 2.10. Defaulted Interest.................................... 33
SECTION 2.11. CUSIP Numbers......................................... 34
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee.................................... 34
SECTION 3.02. Selection of Securities To Be Redeemed................ 34
SECTION 3.03. Notice of Redemption.................................. 35
SECTION 3.04. Effect of Notice of Redemption........................ 36
SECTION 3.05. Deposit of Redemption Price........................... 36
SECTION 3.06. Securities Redeemed in Part........................... 36
<PAGE>
Contents, p. 2
Page
----
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities....................................... 36
SECTION 4.02. SEC Reports................................................. 37
SECTION 4.03. Limitation on Indebtedness.................................. 37
SECTION 4.04. Limitation on Restricted Payments........................... 41
SECTION 4.05. Limitation on Restrictions on Distributions from Restricted
Subsidiaries.............................................. 45
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock.......... 47
SECTION 4.07. Limitation on Affiliate Transactions........................ 51
SECTION 4.08. Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries................................... 52
SECTION 4.09. Change of Control........................................... 53
SECTION 4.10. Limitation on Liens......................................... 54
SECTION 4.11. Compliance Certificate...................................... 54
SECTION 4.12. Further Instruments and Acts................................ 55
SECTION 4.13. Future Guarantors........................................... 55
ARTICLE 5
Successor Company
SECTION 5.01. When Company May Merge or Transfer Assets................... 55
SECTION 5.02. When a Subsidiary Guarantor May Merge or Transfer Assets.... 56
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default........................................... 57
SECTION 6.02. Acceleration................................................ 60
SECTION 6.03. Other Remedies.............................................. 60
SECTION 6.04. Waiver of Past Defaults..................................... 61
SECTION 6.05. Control by Majority......................................... 61
SECTION 6.06. Limitation on Suits......................................... 61
SECTION 6.07. Rights of Holders to Receive Payment........................ 62
SECTION 6.08. Collection Suit by Trustee.................................. 62
<PAGE>
Contents, p. 3
Page
----
SECTION 6.09. Trustee May File Proofs of Claim............................ 62
SECTION 6.10. Priorities.................................................. 63
SECTION 6.11. Undertaking for Costs....................................... 63
SECTION 6.12. Waiver of Stay or Extension Laws............................ 63
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee........................................... 64
SECTION 7.02. Rights of Trustee........................................... 65
SECTION 7.03. Individual Rights of Trustee................................ 66
SECTION 7.04. Trustee's Disclaimer........................................ 66
SECTION 7.05. Notice of Defaults.......................................... 66
SECTION 7.06. Reports by Trustee to Holders............................... 66
SECTION 7.07. Compensation and Indemnity.................................. 67
SECTION 7.08. Replacement of Trustee...................................... 68
SECTION 7.09. Successor Trustee by Merger................................. 69
SECTION 7.10. Eligibility; Disqualification............................... 69
SECTION 7.11. Preferential Collection of Claims Against Company........... 69
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance............ 70
SECTION 8.02. Conditions to Defeasance.................................... 71
SECTION 8.03. Application of Trust Money.................................. 72
SECTION 8.04. Repayment to Company........................................ 73
SECTION 8.05. Indemnity for Government Obligations........................ 73
SECTION 8.06. Reinstatement............................................... 73
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders.................................. 73
SECTION 9.03. Compliance with Trust Indenture Act......................... 76
SECTION 9.04. Revocation and Effect of Consents and Waivers............... 76
SECTION 9.05. Notation on or Exchange of Securities....................... 77
<PAGE>
Contents, p. 4
Page
----
SECTION 9.06. Trustee To Sign Amendments.................................. 77
SECTION 9.07. Payment for Consent......................................... 77
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate.................................... 77
SECTION 10.02. Liquidation, Dissolution, Bankruptcy........................ 78
SECTION 10.03. Default on Senior Indebtedness.............................. 78
SECTION 10.04. Acceleration of Payment of Securities....................... 79
SECTION 10.05. When Distribution Must Be Paid Over......................... 79
SECTION 10.06. Subrogation................................................. 79
SECTION 10.07. Relative Rights............................................. 80
SECTION 10.08. Subordination May Not Be Impaired by Company................ 80
SECTION 10.09. Rights of Trustee and Paying Agent.......................... 80
SECTION 10.10. Distribution or Notice to Representative.................... 81
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit
Right To Accelerate....................................... 81
SECTION 10.12. Trust Moneys Not Subordinated............................... 81
SECTION 10.13. Trustee Entitled To Rely.................................... 81
SECTION 10.14. Trustee To Effectuate Subordination......................... 82
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness.... 82
SECTION 10.16. Reliance by Holders of Senior Indebtedness on Subordination
Provisions................................................ 82
ARTICLE 11
Subsidiary Guaranties
SECTION 11.01. Guaranties.................................................. 83
SECTION 11.02. Limitation on Liability..................................... 85
SECTION 11.03. Successors and Assigns...................................... 86
SECTION 11.04. No Waiver................................................... 86
SECTION 11.05. Modification................................................ 86
SECTION 11.06. Release of Subsidiary Guarantor............................. 86
SECTION 11.07. Execution of Supplemental Indenture for Future Subsidiary
Guarantors................................................ 87
<PAGE>
Contents, p. 5
<TABLE>
<CAPTION>
Page
----
ARTICLE 12
Subordination of Subsidiary Guaranties
<S> <C> <C>
SECTION 12.01. Agreement To Subordinate................................... 87
SECTION 12.02. Liquidation, Dissolution, Bankruptcy....................... 87
SECTION 12.03. Default on Senior Indebtedness of Subsidiary Guarantor..... 88
SECTION 12.04. Demand for Payment......................................... 89
SECTION 12.05. When Distribution Must Be Paid Over........................ 89
SECTION 12.06. Subrogation................................................ 89
SECTION 12.07. Relative Rights............................................ 89
SECTION 12.08. Subordination May Not Be Impaired by Company............... 90
SECTION 12.09. Rights of Trustee and Paying Agent......................... 90
SECTION 12.10. Distribution or Notice to Representative................... 90
SECTION 12.11. Article 12 Not To Prevent Defaults Under a Subsidiary
Guaranty or Limit Right To Demand Payment................ 91
SECTION 12.12. Trustee Entitled To Rely................................... 91
SECTION 12.13. Trustee To Effectuate Subordination........................ 91
SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of
Subsidiary Guarantor..................................... 92
SECTION 12.15. Reliance by Holders of Senior Indebtedness on Subordination
Provisions............................................... 92
ARTICLE 13
Miscellaneous
SECTION 13.01. Trust Indenture Act Controls............................... 92
SECTION 13.02. Notices.................................................... 92
SECTION 13.03. Communication by Holders with Other Holders................ 93
SECTION 13.04. Certificate and Opinion as to Conditions Precedent......... 93
SECTION 13.05. Statements Required in Certificate or Opinion.............. 94
SECTION 13.06. When Securities Disregarded................................ 94
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar............... 95
SECTION 13.08. Legal Holidays............................................. 95
SECTION 13.09. Governing Law.............................................. 95
</TABLE>
<PAGE>
Contents, p. 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 13.10. No Recourse Against Others............................... 95
SECTION 13.11. Successors............................................... 95
SECTION 13.12. Multiple Originals....................................... 95
SECTION 13.13. Table of Contents; Headings.............................. 96
Appendix A Provisions Relating to Initial
Securities and Exchange Securities
Exhibit 1 to
Appendix A Form of Initial Security
Exhibit A Form of Exchange Security
Exhibit B Form of Supplemental Indenture
</TABLE>
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
------- ---------
<S> <C>
310(a) (1) ......................................... 7.10
(a) (2) ......................................... 7.10
(a) (3) ......................................... N.A.
(a) (4) ......................................... N.A.
(b) ......................................... 7.08; 7.10
(c) ......................................... N.A.
311(a) ......................................... 7.11
(b) ......................................... 7.11
(c) ......................................... N.A.
312(a) ......................................... 2.05
(b) ......................................... 13.03
(c) ......................................... 13.03
313(a) ......................................... 7.06
(b) (1) ......................................... N.A.
(b) (2) ......................................... 7.06
(c) ......................................... 13.02
(d) ......................................... 7.06
314(a) ......................................... 4.02; 4.11;
13.02
(b) ......................................... N.A.
(C) (1) ......................................... 13.04
(C) (2) ......................................... 13.04
(c) (3) ......................................... N.A.
(d) ......................................... N.A.
(e) ......................................... 13.05
(f) ......................................... 4.11
315(a) ......................................... 7.01
(b) ......................................... 7.05; 13.02
(c) ......................................... 7.01
(d) ......................................... 7.01
(e) ......................................... 6.11
316(a) (last ......................................... 13.06
sentence)
(a) (1) (A) ......................................... 6.05
(a) (1) (B) ......................................... 6.04
(a) (2) ......................................... N.A.
(b) ......................................... 6.07
317(a) (1) ......................................... 6.08
(a) (2) ......................................... 6.09
(b) ......................................... 2.04
318(a) ......................................... 13.01
</TABLE>
N.A. Means Not Applicable.
- --------------------------------------------
Note: This Cross-Reference Table shall not, for any purposes, be deemed to be
part of this Indenture.
<PAGE>
INDENTURE dated as of August 1, 1996, among DELCO REMY
INTERNATIONAL, INC., a Delaware corporation (the "Company"),
certain of the Company's subsidiaries signatory hereto (each, a
"Subsidiary Guarantor" and, collectively, the "Subsidiary
Guarantors") and NATIONAL CITY BANK OF INDIANA, a
(the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 10-5/8% Senior
Subordinated Notes Due August 1, 2006 (the "Initial Securities") and, if and
when issued pursuant to a registered exchange for the Initial Securities, the
Company's 10-5/8% Senior Subordinated Notes Due August 1, 2006 (the "Exchange
Notes" and, together with the Initial Securities, the "Securities") :
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.
------------
"A&B Seller Notes" means the 10% Subordinated Notes due September 30,
----------------
2001, of A&B Enterprises, Inc., in an original aggregate principal amount of
$3.5 million.
"Additional Assets" means (i) any property or assets (other than
-----------------
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
-------- -------
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly
---------
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person
<PAGE>
2
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of Sections 4.04, 4.06 and 4.07
only, "Affiliate" shall also mean any beneficial owner of Capital Stock
representing 10% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of the Company or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof;
provided further, however, that for purposes of Section 4.06 only, World Debt
- ---------------- -------
Partners shall not be deemed an "Affiliate" of the Company.
"Asset Disposition" means any sale, lease, transfer or other
-----------------
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares and,
to the extent required by local ownership laws in foreign countries, shares
owned by foreign shareholders), (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above, (y)
a disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary and (z) for purposes of
Section 4.06 only, a disposition that constitutes a Permitted Investment or
Restricted Payment permitted by Section 4.04).
"Asset Purchase Agreement" means the Asset Purchase Agreement dated
------------------------
July 13, 1994, by and among the Company, DRA and General Motors Corporation.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
-----------------
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the
<PAGE>
3
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
------------
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in
-----------------
respect of the Senior Credit Facility including principal, premium (if any),
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, Guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or
------------------
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
------------
"Capital Lease Obligations" means an obligation that is required to be
-------------------------
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
-------------
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
<PAGE>
4
"Change of Control" means the occurrence of any of the following
-----------------
events:
(i) prior to the first public offering of common stock of the
Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company, whether as a result of issuance of securities
of the Company, any merger, consolidation, liquidation or dissolution of
the Company, any direct or indirect transfer of securities by the Permitted
Holders or otherwise (for purposes of this clause (i) and clause (ii)
below, the Permitted Holders shall be deemed to beneficially own any Voting
Stock of any entity (the "specified entity") held by any other entity (the
"parent entity") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of the parent entity);
(ii) after the first public offering of common stock of the Company,
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes
of this clause (ii) such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power
of the Voting Stock of the Company; provided, however, that the Permitted
-------- -------
Holders beneficially own (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors (for the
purposes of this clause (ii), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person is the beneficial owner (as defined in this
clause (ii)), directly or indirectly, of more than 35% of the voting power
of the Voting Stock of such parent entity and the Permitted Holders
beneficially own (as
<PAGE>
5
defined in clause (I) above) , directly or indirectly, in the aggregate a
lesser percentage of the voting power of the voting Stock of such parent
entity and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of such parent entity) ;
(iii) after the first public offering of common stock of the Company,
during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in
office; or
(iv) after the first public offering of common stock of the Company,
the merger or consolidation of the Company with or into another Person or
the merger of another Person with or into the Company, or the sale of all
or substantially all the assets of the Company to another Person (other
than a Person that is controlled by the Permitted Holders), and, in the
case of any such merger or consolidation, the securities of the Company
that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of the
Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended .
----
"Company" means the party named as such in this Indenture until a
-------
successor replaces it and, thereafter, means the successor and, for purposes of
any provision
<PAGE>
6
contained herein and required by the TIA, each other obligor on the indenture
securities.
"Consolidated Coverage Ratio" as of any date of determination means
---------------------------
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days (or, if less,
the number of days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be provided to the Securityholders
pursuant to the Indenture) prior to the date of such determination (determined
for the four fiscal quarters ending prior to the Issue Date, or any of such
fiscal quarters, on a pro forma basis to give effect to the Subsequent
Acquisitions as if they occurred on the first day of such period) to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
-------- -------
that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period (except that, in the case of Indebtedness used to
finance working capital needs incurred under a revolving credit or similar
arrangement, the amount thereof shall be deemed to be the average daily balance
of such Indebtedness during such four-fiscal-quarter period);
(2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
<PAGE>
7
Restricted Subsidiary repaid, repurchased, defeased, assumed by a third person
(to the extent the Company and its Restricted Subsidiaries are no longer liable
for such Indebtedness) or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale);
(3) if since the beginning of such period the Company shall have
consummated a Public Equity Offering following which there is a Public Market,
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its Restricted
Subsidiaries in connection with such Public Equity Offering for such period;
(4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, which acquisition constitutes all or substantially
all of an operating unit of a business, including any such Investment or
acquisition occurring in connection with a transaction requiring a calculation
to be made hereunder, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred on
the first day of such period; and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such
<PAGE>
8
Asset Disposition, Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting Officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking in to account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
-----------------------------
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, (a) to the extent not included in such total interest expense, and to the
extent incurred by the Company or its Restricted Subsidiaries, (i) interest
expense attributable to Capital Lease Obligations, (ii) amortization of debt
discount, (iii) capitalized interest, (iv) non-cash interest expenses, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs associated with
Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock held by Persons other than the
Company or a Wholly Owned Subsidiary, (viii) interest incurred in connection
with Investments in discontinued operations, (ix) interest actually paid on any
Indebtedness of any other Person that is Guaranteed by the Company or any
Restricted Subsidiary and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the Company
or any Wholly Owned Subsidiary) in connection with Indebtedness Incurred by such
plan or trust, minus, (b) to the extent included in such total interest expense,
amortization of deferred financing costs, fees and expenses.
"Consolidated Net Income" means, for any period, the net income of the
-----------------------
Company and its consolidated Subsidi-
<PAGE>
aries; provided, however, that there shall not be included in such Consolidated
-------- -------
Net Income:
(i) any net income (or loss) of any Person if such Person is not a
Restricted Subsidiary, except that subject to the exclusion contained in
clause (iv) below, the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained
in clause (iii) below);
(ii) for purposes of subclause (a) (3) (A) of Section 4.04 only, any
net income (or loss) of any Person acquired by the Company or a Subsidiary
in a pooling of interests transaction for any period prior to the date of
such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary consistent
with such restriction during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Restricted Subsidiary for such
period shall be included in determining such Consolidated Net Income;
(iv) any gain (or loss) realized upon the sale or other disposition of
any assets of the Company or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of
<PAGE>
10
business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
Section pursuant to clause (a) (3) (D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
----------------------
balance sheet of the Company and the Restricted Subsidiaries, determined on a
consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated value
of all outstanding Capital Stock of the Company plus (ii) paid-in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Currency Agreement" means with respect to any Person, any foreign
------------------
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"CVC Investor" means (i) CVC, (ii) Citicorp, N.A. and (iii) any
------------
officer, employee or director of CVC so long as such person shall be an officer,
employee or director of
CVC.
"Default" means any event which is, or after notice or passage of time
-------
or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness, and
------------------------------
(ii) the World Indebtedness and (iii) any other Senior Indebtedness of the
Company which, at
<PAGE>
11
the date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are committed to
lend up to, at least $10 million and is specifically designated by the Company
in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
------------------
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable, at the option of the holder
thereof, for Indebtedness or Disqualified Stock or (iii) is redeemable at the
option of the holder thereof, in whole or in part, in each case on or prior to
the first anniversary of the Stated Maturity of the Securities.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of
------------------------------
the Company other than a Foreign Restricted Subsidiary.
"DRA" means Delco Remy America, Inc., a Delaware corporation and a
---
Wholly Owned Subsidiary.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
------
Consolidated Interest Expense plus the following, without duplication, to the
extent deducted in calculating such Consolidated Net Income: (a) income tax
expense, (b) depreciation expense, (c) amortization expense and (d) all other
non-cash items reducing Consolidated Net Income (other than items that will
require cash payments and for which an accrual or reserve is, or is required by
GAAP to be, made, other than accruals for post-retirement benefits other than
pensions), less all non-cash items increasing Consolidated Net Income, in each
case for such period. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization of, a
Subsidiary of the Company shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating Consolidated Net Income.
"Excess Proceeds" has the meaning set forth in Section 4.06(a).
---------------
<PAGE>
12
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Financing Disposition" means any sale of any accounts receivable, or
---------------------
interest therein, by the Company or any Subsidiary to any Receivables
Subsidiary, or by the Receivables Subsidiary, pursuant to a Permitted
Receivables Financing.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
-----------------------------
Company which is not organized under the laws of the United States of America or
any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United
----
States of America as in effect as of the Issue Date, including those set forth
(i) in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board and (iii) in such
other statements by such other entity as approved by a significant segment of
the accounting profession.
"GM Acquisition Note" means the 11 1/2% Subordinated Note due July 31,
-------------------
2004, in an original principal amount of $45 million, issued by DRA pursuant to
the Asset Purchase Agreement.
"GM Contingent Note" means the Contingent Purchase Price Note issued
------------------
by DRA pursuant to the Asset Purchase Agreement.
"GM Exchange Debentures" means any senior subordinated notes issued by
----------------------
DRA after the Issue Date in exchange for the GM Preferred Stock in accordance
with the certificate of designation thereof as in effect on the Issue Date.
"GM Notes" means the GM Acquisition Note, the GM Contingent Note and
--------
the GM Exchange Debentures, if issued.
"GM Preferred Stock" means the Series A 8% Preferred Stock of DRA
------------------
issued pursuant to the Asset Purchase Agreement, with a stated value of $1,000
per share.
"Guarantee" means any obligation, contingent or otherwise, of any
---------
Person directly or indirectly guaranteeing
<PAGE>
13
any Indebtedness or other obligation of any other Person and any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
-------- -------
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such
-------------------
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a
------ --------------
Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
-----
liable for; provided, however, that any Indebtedness or Capital Stock of a
-------- -------
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary; and provided further, however,
---------------- -------
that in the case of a discount security, neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness, but the entire face amount of such security shall be deemed
Incurred upon the issuance of such security. The term "Incurrence" when used as
a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
------------
determination (without duplication):
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable;
<PAGE>
14
(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property or services, all conditional sale obligations of such
Person and all obligations of such Person under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business), which purchase price or obligation is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such services (provided that, in the case of
--------
obligations of an acquired Person assumed in connection with an acquisition of
such Person, such obligations would constitute Indebtedness of such Person);
(iv) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing obligations
(other than obligations described in clauses (i) through (iii) above) entered
into in the ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon, such
drawing is reimbursed no later than the tenth Business Day following receipt by
such Person of a demand for reimbursement following payment on the letter of
credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in
each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v) of
other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee;
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other Persons secured by
<PAGE>
15
any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the
amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations as described above at such date;
provided, however, that (A) the amount outstanding at any time of any
- -------- -------
Indebtedness issued with original issue discount shall be deemed to be the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP and (B) the outstanding principal amount of the GM
Contingent Note shall be deemed to be zero until the last day of the fiscal year
or other period with respect to which the amount due thereunder shall be
determined.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time.
"Interest Rate Agreement" means any interest rate swap agreement,
-----------------------
interest rate cap agreement or other financial agreement or arrangement designed
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
----------
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and Section
4.04, (i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such
<PAGE>
16
subsidiary) of the fair market value of the net assets of any Subsidiary of the
Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a
-------- -------
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date on which the Initial Securities are
----------
originally issued.
"Joint Venture" means, in respect of any Person, any corporation,
-------------
association, partnership or other business entity of which not less than 20% and
not more than 80% of the total voting power of shares of Capital Stock or other
interests (including partnership interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
(i) such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"Junior Subordinated Notes" means the Company's 11% junior
-------------------------
subordinated notes due July 31, 2004, in an original aggregate principal amount
of $18.2 million.
"Lien" means any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Management Investors" means each of the officers, employees and
--------------------
directors of the Company who own Voting Stock of the Company on the Issue Date,
in each case so long as such person shall remain an officer, employee or
director of the Company.
<PAGE>
17
"MascoTech" means MascoTech Automotive Systems Group, Inc., a
---------
Delaware corporation.
"Net Available Cash" from an Asset Disposition means cash payments
------------------
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be, repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (iv) the deduction of appropriate amounts provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
-----------------
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Core Assets" means any assets of the Company used primarily in
---------------
the powder metal forge business of the Company on the Issue Date.
"Non-Wholly Owned Subsidiary" means a Restricted Subsidiary all the
---------------------------
Capital Stock (other than, to the extent required by local ownership laws in
foreign countries,
<PAGE>
18
shares owned by foreign shareholders) of which is owned by (i) the Company or
one or more Wholly Owned Subsidiaries and/or (ii) any of the directors,
officers, employees or former owners of such Restricted Subsidiary.
"Officer" means the Chairman of the Board, the Chief Executive
-------
Officer, the Chief Financial Officer the President, any Vice President, the
Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
---------------------
"Opinion of Counsel" means a written opinion from legal counsel who
------------------
is acceptable to the Trustee. The counsel may be an employee of or counsel to
the Company or the Trustee.
"Permitted Holders" means the CVC Investors, MascoTech, World Equity
-----------------
Partners, the Management Investors and their respective Permitted Transferees;
provided, however, that in no event shall the Management Investors and the CVC
- -------- -------
Investors (other than CVC or Citicorp, N.A.), collectively, be deemed "Permitted
Holders" with respect to more than 30% of the total voting power of all classes
of Voting Stock of the Company.
"Permitted Investment" means an Investment by the Company or any
--------------------
Restricted Subsidiary in (i) the Company; (ii) a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such Restricted
-------- -------
Subsidiary is a Related Business; (iii) another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Domestic Restricted Subsidiary; provided, however, that such Person's primary
-------- -------
business is a Related Business; (iv) Temporary Cash Investments; (v) receivables
owing to the Company or any Restricted Subsidiary if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include such
-------- -------
consessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances; (vi) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes
<PAGE>
19
and that are made in the ordinary course of business; (vii) loans or advances to
employees made in the ordinary course of business consistent with past practices
of the Company or such Restricted Subsidiary and not exceeding $2 million in the
aggregate outstanding at any time; (viii) stock, obligations or securities
received in settlement of debts created in the ordinary course of business and
owing to the Company or any Restricted Subsidiary or in satisfaction of
judgments; and (ix) any Person to the extent such Investment represents the non-
cash portion of the consideration received for an Asset Disposition as permitted
pursuant to Section 4.06.
"Permitted Receivables Financing" means any financing pursuant to
-------------------------------
which the Company or any Restricted Subsidiary may sell, convey or otherwise
transfer to a Receivables Subsidiary or any other Person (in the case of a
transfer by a Receivables Subsidiary), or grant a security interest in, any
accounts receivable (and related assets) of the Company or any Restricted
Subsidiary; provided, however, that (i) the covenants, events of default and
-------- -------
other provisions applicable to such financing shall be customary for such
transactions and shall be on market terms (as determined in good faith by the
Board of Directors) at the time such financing is entered into, (ii) the
interest rate applicable to such financing shall be a market interest rate (as
determined in good faith by the Board of Directors) at the time such financing
is entered into and (iii) such financing shall be non-recourse to the Company
and its Subsidiaries (other than the Receivables Subsidiary) except to a limited
extent customary for such transactions.
"Permitted Transferee" means, (a) with respect to any CVC Investor,
--------------------
who is an employee, officer or director of CVC, any spouse or lineal descendant
(including by adoption) of such CVC Investor so long as such CVC Investor shall
be an employee, officer or director of CVC; (b) with respect to MascoTech,
MascoTech Inc.; and (c) with respect to any Management Investor, any spouse or
lineal descendant (including by adoption) of such Management Investor so long as
such Management Investor shall be an employee, officer or director of the
Company.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
<PAGE>
20
"Power Investments" means Power Investments, Inc., an Indiana
-----------------
corporation.
"Power Seller Notes" means the 9.86% Subordinated Notes due February
------------------
6, 2001, of Reman Holdings, Inc., in an original aggregate principal amount of
$24.3 million.
"Preferred Stock", as applied to the Capital Stock of any corporation,
---------------
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the
---------
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
"Public Equity Offering" means an underwritten primary public offering
----------------------
of common stock of the Company (or, for purposes of Section 4.08(D), any
Restricted Subsidiary referred to therein) pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has
-------------
been consummated and (y) at least 10% of the total issued and outstanding common
stock of the Company (or, for purposes of Section 4.08(D), any Restricted
Subsidiary referred to therein) has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Purchase Money Indebtedness" mean Indebtedness (i) consisting of the
---------------------------
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds or similar Indebtedness, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Restricted Subsidiary of such asset,
including additions and improvements; provided, however, that any Lien arising
-------- -------
in connection with any such Indebtedness shall be limited to the specified asset
being financed or, in the case of real property or fixtures, including additions
and improvements,
<PAGE>
21
the real property on which such asset is attached; and provided further,
----------------
however, that such Indebtedness is Incurred within 90 days after such
- -------
acquisition of such asset by the Company or Restricted Subsidiary.
"Receivables Subsidiary" means a bankruptcy-remote, special-purpose
----------------------
Wholly Owned Subsidiary formed in connection with a Permitted Receivables
Financing.
"Refinance" means, in respect of any Indebtedness, to refinance,
---------
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
------------------------
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture, including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (i) such
-------- -------
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the Average Life of the Indebtedness being
Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal
amount (or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if Incurred
with original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance costs)
under the Indebtedness being Refinanced; provided further, however, that
-------- ------- -------
Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary. For purposes of this definition, the Average Life and the aggregate
principal amount of the GM Contingent Note at the time of any Refinancing
thereof shall be determined by a responsible financial or accounting Officer of
the Company based on a good faith estimate of the amount of the contingent
payment that will become due and payable under such note and the timing of the
scheduled installments thereof in accordance with the terms of such note.
<PAGE>
22
"Related Business" means any business related, ancillary or
----------------
complementary (as determined in good faith by the Board of Directors) to the
businesses of the Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any)
--------------
for an issue of Senior Indebtedness of the Company.
"Restricted Payment" means, with respect to any Person, (i) the
------------------
declaration or payment of any dividends or any other distributions on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the holders
of its Capital Stock, except dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock)) and except dividends or
distributions payable solely to the Company or a Restricted Subsidiary (and, if
such Restricted Subsidiary is not wholly owned, to its other shareholders on a
pro rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis), (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company held by
any Person or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of the Company (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Company that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Subordinated Obligations (other than the purchase, repurchase, or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the making
of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is
---------------------
not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
--------------------------
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such
<PAGE>
23
property to a Person and the Company or a Restricted Subsidiary leases it from
such Person.
"SEC" means the Securities and Exchange Commission.
---
"Secured Indebtedness" means any Indebtedness of the Company secured
--------------------
by a Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
--------------------
meaning.
"Senior Credit Facility" means the revolving credit facility made
----------------------
available pursuant to the Third Amended and Restated Financing Agreement dated
as of August 2, 1996, among the Subsidiary Guarantors, as borrowers, the
Company, as guarantor, the lenders from time to time party thereto and Bank One,
Indianapolis Branch, National Association, as Agent, as the same may be amended,
waived, modified, Refinanced or replaced from time to time (except to the extent
that any such amendment, waiver, modification, replacement or Refinancing would
be prohibited by the terms of the Indenture).
"Senior Indebtedness" of the Company means (i) Indebtedness of the
-------------------
Company, whether outstanding on the Issue Date or thereafter Incurred ,
including the Guarantees by the Company of all Bank Indebtedness and all World
Indebtedness, and (ii) accrued and unpaid interest (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization
relating to the Company whether or not a claim for post-filing interest is
allowed in such proceeding) in respect of (A) indebtedness of the Company for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which the Company is responsible or
liable unless, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such obligations are
subordinate in right of payment to the Securities; provided, however, that
-------- -------
Senior Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal, state, local or other taxes owed or
owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness of the
Company (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect (other than as a result of the Indebtedness
being unsecured)
<PAGE>
24
to any other Indebtedness or other obligation of the Company including any
Senior Subordinated Indebtedness and any Subordinated Obligations, (5) any
obligations with respect to any Capital Stock or (6) that portion of any
Indebtedness which at the time of Incurrence is Incurred in violation of this
Indenture. "Senior Indebtedness" of any Subsidiary Guarantor has a correlative
-------------------
meaning.
"Senior Subordinated Indebtedness" of the Company means the Securities
--------------------------------
and any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Securities in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness. "Senior
------
Subordinated Indebtedness" of any Subsidiary Guarantor has a correlative
- -------------------------
meaning; provided, however, that "Senior Subordinated Indebtedness" of DRA shall
-------- -------
specifically include (i) the Subsidiary Guaranty of DRA and (ii) the GM Notes
(and any Senior Subordinated Indebtedness Incurred to Refinance such notes).
"Significant Subsidiary" means any Restricted Subsidiary that would be
----------------------
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-x promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
---------------
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" of the Company means any Indebtedness of the
-----------------------
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect. "Subordinated Obligation" of any Subsidiary
-----------------------
Guarantor has a correlative meaning.
"Subsequent Acquisitions" means the acquisitions by the Company prior
-----------------------
to the Issue Date of substantially all the Capital Stock or assets of each of
Nabco, Inc., The A&B Group, Inc., Autovill RT Ltd. and Power Investments.
<PAGE>
25
"Subsidiary" means, in respect of any Person, any corporation,
----------
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary designated as such on the
--------------------
signature pages hereto and any other Subsidiary that has issued a Subsidiary
Guaranty.
"Subsidiary Guaranty" means any Guarantee of the Securities which may
-------------------
from time to time be executed and delivered pursuant to this Indenture. Each
such Subsidiary Guaranty shall be in the form prescribed in this Indenture.
"Temporary Cash Investments" means any of the following: (i) any
--------------------------
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America, any State thereof or the District of Columbia or any foreign country
recognized by the United
<PAGE>
26
States of America with a rating at the time as of which any Investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-
1" (or higher) according to Standard and Poor's Ratings Group, and (v)
investments in securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or
"A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
-----
77bbbb) as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
-------------
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
-----------------------
as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
-----------------------
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that either
-------- -------
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B)
if such Subsidiary has assets greater than $1,000, such designation would be
permitted under Section 4.04. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
-------- -------
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under
<PAGE>
27
Section 4.03(a) and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions. As of
the date of this Indenture, the only Unrestricted Subsidiaries are Autovill
Holdings, Inc., Remy Mexico Holdings, Inc., Remy South America Holdings, Inc.,
and Remy Korea Holdings, Inc. (in each case as to which the Company represents
and warrants that such Subsidiary has total assets of $1,000 or less).
"U.S. Government Obligations" means direct obligations (or
---------------------------
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
------------
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
-----------------------
Capital Stock of which (other than directors' qualifying shares is owned by the
Company and/or one or more Wholly Owned Subsidiaries.
"World Indebtedness" means any and all amounts payable under or in
------------------
respect of the World Senior Debt (or any Refinancing Indebtedness in respect
thereof), including principal, premium (if any), interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the borrowers thereunder whether or not a claim for
post-filing interest is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, Guarantees and all other amounts payable thereunder
or in respect thereof.
"World Debt Partners" means World Subordinated Debt Partners, L.P., a
-------------------
Delaware limited partnership.
<PAGE>
28
"World Equity Partners" means World Equity Partners, L.P., a Delaware
---------------------
limited partnership.
"World Senior Debt" means the 10 1/2% Senior Notes due July 31, 2003,
-----------------
in an original aggregate principal amount of $75 million, issued by DRA pursuant
to the Amended and Restated Senior Credit Agreement dated as of August 2, 1996,
among DRA and certain other Subsidiaries, as borrowers, the Company and certain
other Subsidiaries, as guarantors, and World Debt Partners, as the same may be
amended, waived or modified from time to time (except to the extent that any
such amendment, waiver or modification, would be prohibited by the terms of the
Indenture).
SECTION 1.02. Other Definitions.
-----------------
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction"..................................... 4.07
"Bankruptcy Law"............................................ 6.01
"Blockage Notice"........................................... 10.03
"covenant defeasance option"................................ 8.01(b)
"Custodian"................................................. 6.01
"Event of Default".......................................... 6.01
"legal defeasance option"................................... 8.01(b)
"Legal Holiday.............................................. 13.08
"Offer"..................................................... 4.06
"Offer Amount".............................................. 4.06
"Offer Period".............................................. 4.06
"pay the Securities"........................................ 10.03
"Paying Agent".............................................. 2.03
"Payment Blockage Period"................................... 10.03
"Purchase Date"............................................. 4.06
"Registrar"................................................. 2.03
"Successor Company"......................................... 5.01
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
<PAGE>
29
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
---------------------
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
<PAGE>
30
ARTICLE 2
The Securities
--------------
SECTION 2.01. Form and Dating. Provisions relating to the Initial
---------------
Securities and the Exchange Securities are set forth in Appendix A, which is
hereby incorporated in and expressly made part of this Indenture. The Initial
Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to Appendix A which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Company). Each Security
shall be dated the date of its authentication. The terms of the Securities set
forth in Exhibit 1 to Appendix A and Exhibit A are part of the terms of this
Indenture.
SECTION 2.02. Execution and Authentication. Two Officers shall sign
----------------------------
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Securities and
may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authen-
<PAGE>
31
tication by such agent. An authenticating agent has the same rights as any
Registrar, Paying Agent or agent for service of notices and demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain
--------------------------
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents; provided, however, that so long as National City Bank of Indiana shall
-------- -------
be the Trustee, without the consent of the Trustee, there shall be no more than
one Registrar or Paying Agent. The term "Paying Agent" includes any additional
paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of any such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and
shall be entitled to appropriate compensation therefor pursuant to Section 7.07.
The Company or any of its domestically incorporated Wholly Owned Subsidiaries
may act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due
-----------------------------------
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money held
by it as Paying Agent and hold it as a separate
<PAGE>
32
trust fund. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed by the Paying
Agent. Upon complying with this Section, the Paying Agent shall have no further
liability for the money delivered to the Trustee.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as
--------------------
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.06. Replacement Securities. If a mutilated Security is
----------------------
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee may charge
the Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.07. Outstanding Securities. Securities outstanding at any
----------------------
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.06, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser, in which
<PAGE>
33
event the replacement Security shall cease to be outstanding, subject to the
provisions of Section 8-405 of the Uniform Commercial Code.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture, then on and after that date
such Securities (or portions thereof) cease to be outstanding and interest on
them ceases to accrue.
SECTION 2.08. Temporary Securities. Until definitive Securities are
--------------------
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.09. Cancellation. The Company at any time may deliver
------------
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver a certificate of such destruction to the Company. The
Company may not issue new Securities to replace Securities it has redeemed, paid
or delivered to the Trustee for cancellation.
SECTION 2.10. Defaulted Interest. If the Company defaults in a
------------------
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
<PAGE>
34
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.11. CUSIP Numbers. The Company in issuing the Securities
-------------
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
-------
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
------------------
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 45 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than
--------------------------------------
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee
considers fair and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. The Trustee shall
make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Secur-
<PAGE>
35
ities and portions of them the Trustee selects shall be in amounts of $1,000 or
a whole multiple of $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption. The Trustee shall notify the Company promptly of the Securities or
portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more
--------------------
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Indenture, interest on Securities (or portion thereof)
called for redemption ceases to accrue on and after the redemption date;
and
(7) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section at least 45 days before the redemption date.
<PAGE>
36
SECTION 3.04. Effect of Notice of Redemption. Once notice of
------------------------------
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to the redemption
---------------------------
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest on all Securities
to be redeemed on that date other than Securities or portions of Securities
called for redemption which have been delivered by the Company to the Trustee
for cancellation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
---------------------------
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities. The Company shall promptly pay
---------------------
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
<PAGE>
37
SECTION 4.02. SEC Reports. Until such time as the Company shall
-----------
become subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall provide the Trustee, the Initial Purchasers, the
Securityholders and prospective Securityholders (upon request) with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
provided at the times specified for the filing of such information, documents
and reports under such Sections. Thereafter, notwithstanding that the Company
may not be required to remain subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, the Company shall file with the SEC and provide
the Trustee and Securityholders and prospective Securityholders (upon request)
with such annual reports and such information, documents and other reports as
are specified in such Sections and applicable to a U.S. corporation subject to
such Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections; provided, however, that the Company shall not
-------- -------
be required to file any report, document or other information with the SEC if
the SEC does not permit such filing.
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not
--------------------------
and shall not permit any Restricted Subsidiary to Incur, directly or indirectly,
any Indebtedness unless, on the date of such Incurrence, the Consolidated
Coverage Ratio exceeds 2.00 to 1 if such Indebtedness is Incurred prior to
August 1, 1998 or 2.25 to 1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Senior Credit Facility or
any Permitted Receivables Financing; provided, however, that, after giving
-------- -------
effect to any such Incurrence, the aggregate principal amount of such
Indebtedness then outstanding does not exceed the greater of (i) $150
million (less any permanent reductions in the amount of available
borrowings thereunder) and (ii) the sum of (x) 60% of the book value of the
inventory of the Company and its
<PAGE>
38
Restricted Subsidiaries and (y) 85% of the book value of the accounts receivable
of the Company and its Restricted Subsidiaries, in each case determined in
accordance with GAAP;
(2) Indebtedness of the Company owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by the
Company or a Wholly Owned Subsidiary; provided, however, that any subsequent
-------- -------
issuance or transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
such Indebtedness (other than to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such Indebtedness of
the issuer thereof;
(3) Indebtedness of the Company or a Restricted Subsidiary owed to and held
by any Non-Wholly Owned Subsidiary; provided, however, that (i) any such
-------- -------
Indebtedness shall be unsecured Subordinated Obligations of the Company or such
Restricted Subsidiary, as applicable and (ii) any subsequent issuance or
transfer of any Capital Stock of such Non-Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company, a Wholly
Owned Subsidiary or another Non-Wholly Owned Subsidiary) shall be deemed to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(4) Indebtedness of the Company represented by the Securities;
(5) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this Section 4.03(b);
(6) the GM Exchange Debentures;
(7) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to Section 4.03(a) or pursuant to clause (4), (5), (6) or (13) of this Section
4.03(b) or this paragraph (7);
(8) Indebtedness in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds entered into by the Company and the
<PAGE>
39
Restricted Subsidiaries in the ordinary course of their business;
(9) Hedging Obligations consisting of Interest Rate Agreements and
Currency Agreements entered into in the ordinary course of business and not for
the purpose of speculation; provided, however, that, in the case of Currency
-------- -------
Agreements and Interest Rate Agreements, such Currency Agreements and Interest
Rate Agreements do not increase the Indebtedness of the Company outstanding at
any time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder;
(10) Purchase Money Indebtedness and Capital Lease Obligations Incurred to
finance the acquisition by the Company or a Restricted Subsidiary of any assets
in the ordinary course of business and which do not exceed $20 million in the
aggregate at any time outstanding;
(11) Indebtedness represented by the Subsidiary Guaranties and Guarantees
of Indebtedness Incurred pursuant to clause (1), (4), (5) and (7) above;
(12) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in the
case of daylight overdrafts) drawn against insufficient funds in the ordinary
course of business, provided that such Indebtedness is extinguished within five
--------
business days of Incurrence;
(13) Indebtedness of the Company and its Restricted Subsidiaries, to the
extent the proceeds thereof are immediately used after the Incurrence thereof to
purchase Securities tendered in an offer to purchase made as a result of a
Change of Control;
(14) Indebtedness of the Company and its Restricted Subsidiaries arising
from agreements providing for indemnification, adjustment of purchase price or
similar obligations, in any case Incurred in connection with the disposition of
any assets of the Company or any Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such assets
for the purpose of financing such acquisition), in a principal
<PAGE>
40
amount not to exceed the gross proceeds actually received by the Company
or any Restricted Subsidiary in connection with such disposition; and
(15) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (14)
of this Section 4.03(b) or Section 4.03(a)) does not exceed $50 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall
not permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to
Section 4.03(b) if the proceeds thereof are used, directly or indirectly, to
Refinance (i) any Subordinated Obligations unless such Indebtedness shall be
subordinated to the Securities and the Subsidiary Guaranties, as applicable to
at least the same extent as such Subordinated Obligations or (ii) any Senior
Subordinated Indebtedness unless such Indebtedness shall be Senior Subordinated
Indebtedness or shall be subordinated to the Securities and the Subsidiary
Guaranties, as applicable; provided, however, that clause (ii) above shall not
-------- -------
prohibit the Refinancing of all or any part of the GM Notes with Refinancing
Indebtedness if, at the time of such Incurrence, no Default shall have occurred
and be continuing (or would result therefrom).
(d) For purposes of determining compliance with this Section 4.03,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described in this Section, the Company, in its
sole discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described herein.
(e) Notwithstanding Section 4.03(a) or 4.03(b), the Company shall not,
and shall not permit any Subsidiary Guarantor to, Incur (i) any Indebtedness if
such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness of the Company or any Subsidiary Guarantor, as applicable,
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness or (ii) any
Secured Indebtedness
<PAGE>
41
that is not Senior Indebtedness of the Company or any Subsidiary Guarantor, as
applicable, unless contemporaneously therewith effective provision is made to
secure the Securities or Subsidiary Guaranty, as applicable equally and ratably
with such Secured Indebtedness for so long as such Secured Indebtedness is
secured by a Lien.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company
---------------------------------
shall not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment together with all
other Restricted Payments (the amount of any payments made in property
other than in cash to be valued at the fair market value of such property,
as determined in good faith by the Board of Directors) declared or made
since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the
Initial Securities are originally issued to the end of the most recent
fiscal quarter ending at least 45 days (or, if less, the number of
days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be provided to the
Securityholders pursuant to the Indenture) prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income accrued
during such period (treated as one accounting period) shall be a
deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to
a Subsidiary of the Company
<PAGE>
42
and other than an issuance or sale to an employee stock ownership plan
or to a trust established by the Company or any of its Subsidiaries
for the benefit of their employees to the extent that the purchase by
such plan or trust is financed by Indebtedness of such plan or trust
to the Company or any Subsidiary or for which the Company or any
Subsidiary is liable, directly or indirectly, as a guarantor or
otherwise (including by the making of cash contributions to such plan
or trust which are used to pay interest or principal on such
Indebtedness));
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company or
its Restricted Subsidiaries convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount
of any cash, or the fair value of any other property, distributed by
the Company or any Restricted Subsidiary upon such conversion or
exchange); and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets
subsequent to the Issue Date, in each case to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the
-------- -------
foregoing sum shall not exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made (and treated as
a Restricted Payment) by the Company or any Restricted Subsidiary in
such Unrestricted Subsidiary.
(b) The provisions of Section 4.04(a) shall not prohibit:
<PAGE>
43
(1) any purchase or redemption of Capital Stock or Subordinated Obligations
of the Company or any Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of their
employees to the extent that the purchase by such plan or trust is financed by
Indebtedness of such plan or trust to the Company or any Subsidiary or for which
the Company or any Subsidiary is liable, directly or indirectly, as a guarantor
or otherwise (including by the making of cash contributions to such plan or
trust which are used to pay interest or principal on such Indebtedness));
provided, however, that (A) such purchase or redemption shall be excluded in the
- -------- -------
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale shall be excluded from the calculation of amounts under Section
4.04 (a) (3) (B);
(2) any purchase or redemption of (A) Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to be
Incurred pursuant to paragraphs (b) and (c) of Section 4.03 or (B) Subordinated
Obligations of a Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of such
Restricted Subsidiary or the Company which is permitted to be Incurred pursuant
to paragraphs (b) and (c) of Section 4.03; provided, however, that such purchase
-------- -------
or redemption shall be excluded in the calculation of the amount of Restricted
Payments;
(3) any purchase or redemption of (A) Disqualified Stock of the Company
made by exchange for, or out of the proceeds of the substantially concurrent
sale of, Disqualified Stock of the Company, (B) Disqualified Stock of a
Restricted Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock of such Restricted
Subsidiary or the Company or (C) GM Preferred Stock made by exchange for GM
Exchange Debentures in an aggregate principal amount equal to the stated amount
<PAGE>
44
of the GM preferred Stock (plus accrued and unpaid dividends thereon); provided,
--------
however, that (i) at the time of such exchange, no Default or Event of Default
- -------
shall have occurred and be continuing or would result therefrom and (ii) such
purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments;
(4) any purchase or redemption of the A&B Seller Notes or the Power Seller
Notes; provided, however, that (A) at the time of such purchase or redemption,
-------- -------
no Default shall have occurred and be continuing (or would result therefrom),
(B) the Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to Section 4.03(a) after giving pro forma effect to such Restricted
Payment, (C) such purchase or redemption is not made, directly or indirectly,
from the proceeds of (or made in anticipation of) any Issuance of Indebtedness
by the Company or any Subsidiary and (D) such purchase or redemption will be
included in the calculation of the amount of Restricted Payments;
(5) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by Section 4.06; provided, however, that
-------- -------
such purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments;
(6) upon the occurrence of a Change of Control and within 60 days after the
completion of the offer to repurchase the Securities pursuant to Section 4.09
(including the purchase of all Securities tendered), any purchase or redemption
of Subordinated Obligations required pursuant to the terms thereof as a result
of such Change of Control at a purchase or redemption price not to exceed the
outstanding principal amount thereof, plus accrued and unpaid interest thereon,
if any; provided, however, that (A) at the time of such purchase or redemption,
-------- -------
no Default shall have occurred and be continuing (or would result therefrom),
(B) the Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to Section 4.03(a) after giving pro forma effect to such Restricted
Payment, (C) such purchase or redemption is not made, directly or indirectly,
from the proceeds of (or made in anticipation of) any Issuance of Indebtedness
by the Company or any Subsidiary and (D) such purchase or
<PAGE>
45
redemption will be included in the calculation of the amount of Restricted
Payments;
(7) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with Section 4.04(a); provided, however, that at the time of payment of
-------- -------
such dividend, no other Default shall have occurred and be continuing (or
would result therefrom); provided further, however, that such dividend
-------- ------- -------
shall be included in the calculation of the amount of Restricted Payments;
(8) the repurchase of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of
its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
such common stock; provided, however, that the aggregate amount of such
-------- -------
repurchases shall not exceed the sum of (i) $5 million and (ii) the
aggregate amount of cash received by the Company after the Issue Date from
the sale of such shares to, or the exercise of options to purchase such
shares by, employees or directors of the Company or any of its
Subsidiaries; provided further, however, that such repurchases shall be
-------------------------
included in the calculation of the amount of Restricted Payments; or
(9) Investments in Joint Ventures primarily engaged in a Related
Business, provided, however, that the aggregate amount of all such
-------- -------
Investments shall not exceed $25 million at the time any such Investment is
made; provided, however, that (A) the amount referred to above in this
-------- -------
clause (9) shall be increased to $40 million at the time of any Investment
if, after giving pro forma effect to such Investment, the Consolidated
Coverage Ratio exceeds 3.50 to 1 and (B) such Investments shall be included
in the calculation of the amount of Restricted Payments.
SECTION 4.05. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company
- -----------------------
<PAGE>
46
shall not, and shall not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (ii) make any loans or advances to the Company or (iii) transfer
any of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary which was entered into on or prior to the
date on which such Restricted Subsidiary was acquired by the Company (other
than as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(3) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this Section 4.05 or this clause (3) or contained
in any amendment to an agreement referred to in clause (1) or (2) of this
Section 4.06 or this clause (3) or contained in any amendment to an
agreement referred to in clause (1) or (2) of this Section 4.05 or this
clause (3); provided, however, that the encumbrances and restrictions with
-------- -------
respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are no more restrictive in any material respect than
the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder;
<PAGE>
47
(5) in the case of clause (iii) of this Section 4.05, restrictions
contained in security agreements or mortgages securing Indebtedness of a
Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements or mortgages;
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(7) any encumbrance or restriction with respect to any Receivables
Subsidiary pursuant to an agreement related to Indebtedness of the
Receivables Subsidiary which is permitted under Section 4.03 or pursuant
to any agreement relating to a Financing Disposition to or by the
Receivables Subsidiary.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock.
---------------------------------------------------
(a) The Company shall not, and shall not permit any Restricted Subsidiary to
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all noncash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition, and (ii) at least 75% (or
100% in the case of lease payments) of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or cash
equivalents. In the event and to the extent that the aggregate Net Available
Cash received by the Company or any Restricted Subsidiary from one or more Asset
Disposition occurring on or after the Issue Date exceeds $10 million, then the
Company or such Restricted Subsidiary shall (A) within 360 days after the
receipt of such Net Available Cash and to the extent the Company or such
Restricted Subsidiary elects (or is required by the terms of any Senior
Indebtedness) to (1) apply an amount equal to such excess Net Available Cash to
prepay, repay or purchase Senior Indebtedness of the Company or such Restricted
Subsidiary, in each case owing to a Person other than the Company or any
Affiliate of the Company or (2) invest (or enter into a binding commitment to
invest, provided that such commitment shall be subject only to customary
--------
conditions (other than
<PAGE>
48
financing) and such investment shall be consummated within 360 days after the
end of such 360-day period) an equal amount, or the amount not so applied
pursuant to clause (1), in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary) and (B) apply
such excess Net Available Cash (to the extent not applied pursuant to clause
(A)), to make an Offer (as defined below) to purchase Securities pursuant to and
subject to the conditions of Section 4.06(b); provided, however that in
-------- -------
connection with any prepayment, repayment or purchase of Senior Indebtedness
pursuant to clause (A) above, the Company or such Restricted Subsidiary shall
retire such Senior Indebtedness and shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased; provided further, however, that the Company or
---------------- -------
such Restricted Subsidiary shall not be required to permanently reduce the
related loan commitment in the case of any such prepayment, repayment or
purchase with Net Available Cash from any Asset Disposition of Non-Core Assets,
so long as an amount equal to 100% of such Net Available Cash is invested in
Additional Assets within the period required pursuant to clause (B) above. The
amount of such excess Net Available Cash required to be applied pursuant to
clause (B) above and not theretofore so applied shall constitute "Excess
Proceeds". Pending application of Net Available Cash pursuant to this covenant,
such Net Available Cash shall be invested in Temporary Cash Investments.
For the purposes of this Section 4.06 (a) (ii), the following are
deemed to be cash: (x) the assumption of Senior Indebtedness of the Company or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to clause (B) of Section 4.06(a), the Company shall be
required to purchase an aggregate principal amount of Securities equal to the
Excess Proceeds (rounded down to the nearest multiple of $1,000) which have been
tendered by Holders pursuant to an offer, commenced within 30 days following the
expiration
<PAGE>
49
of the applicable period referred to clause (A) of Section 4.06(a) (or, if the
Company so elects, at any time within such period), by the Company for the
Securities (the "Offer") at a purchase price of 100% of their principal amount
plus accrued and unpaid interest, if any, to the date of purchase in accordance
with the procedures (including prorationing in the event of oversubscription)
set forth in Section 4.06(c). If the aggregate purchase price of Securities
tendered pursuant to the Offer is less than the Net Available Cash allotted to
the purchase of the Securities, such remaining Net Available Cash may be used by
the Company for any corporate purpose (to the extent not otherwise prohibited by
the Indenture). The Company shall not be required to make an Offer for
Securities pursuant to this Section if the Net Available Cash available therefor
(after application of the proceeds as provided in Section clause (A) of 4.06(a))
is less than $10 million (which lesser amount shall be carried forward for
purposes of determining whether an Offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 30 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorationing as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum will
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form l0-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials, or corresponding successor reports (or, until such time as the
Company shall become subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, corresponding reports prepared pursuant to Section
4.02), (ii) a description of material developments in the Company's business
subsequent to the date of the
<PAGE>
50
latest of such reports, and (iii) if material, appropriate pro forma financial
information) and all instructions and materials necessary to tender Securities
pursuant to the Offer, together with the information contained in clause (2).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided above, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.06(a). On such date, the
Company shall also irrevocably deposit with the Trustee or with a paying agent
(or, if the Company is acting as its own paying agent, segregate and hold in
trust) in Temporary Cash Investments, maturing on the last day prior to the
Purchase Date or on the Purchase Date if funds are immediately available by open
of business, an amount equal to the Offer Amount to be held for payment in
accordance with the provisions of this Section. Upon the expiration of the
period for which the Offer remains open (the "Offer Period"), the Company shall
deliver to the Trustee for cancellation the Securities or portions thereof which
have been properly tendered to and are to be accepted by the Company. The
Trustee shall, on the Purchase Date, mail or deliver payment to each tendering
Holder in the amount of the purchase price. In the event that the aggregate
purchase price of the Securities delivered by the Company to the Trustee is less
than the Offer Amount, the Trustee shall deliver the excess to the Company
immediately after the expiration of the Offer Period for application in
accordance with this Section.
(3) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business Days prior to the
Purchase Date. Holders shall be entitled to withdraw their election if the
Trustee or the Company receives not later than one Business Day prior to the
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Security which was delivered
for purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities
<PAGE>
51
surrendered by Holders exceeds the Offer Amount, the Company shall select the
Securities to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Securities in denominations of
$1,000, or integral multiples thereof, shall be purchased). Holders whose
Securities are purchased only in part shall be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant, to and in accordance with the terms of this Section 4.06. A Security
shall be deemed to have been accepted for purchase at the time the Trustee,
directly or through an agent, mails or delivers payment therefor to the
surrendering Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section by virtue thereof.
SECTION 4.07. Limitation on Affiliate Transactions. (a) The Company
-------------------------------------
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
the terms thereof (i) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (ii) if such
Affiliate Transaction involves an amount in excess of $5 million, (1) are set
forth in writing, (2) comply with clause (i), and (3) have been approved by a
majority of disinterested members of the Board of Directors and (iii) if such
Affiliate Transaction involves an amount in excess of $10 million, (A) comply
with clause (ii) and (B) have been determined by a nationally recognized
investment banking
<PAGE>
52
firm to be fair, from a financial standpoint, to the Company and its Restricted
Subsidiaries; provided, however, that no such opinion shall be required with
-------- -------
respect to any Financing Disposition.
(b) The provisions of Section 4.07(a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 4.04, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans in the ordinary course of business and
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees and directors of the Company in the ordinary course of
business pursuant to plans approved by the Board of Directors, (iv) loans or
advances to employees in the ordinary course of business of the Company or its
Restricted Subsidiaries, (v) fees, compensation or employee benefit arrangements
paid to and indemnity provided for the benefit of directors, officers or
employees of the Company or any Subsidiary in the ordinary course of business,
(vi) the payment of interest, principal and other amounts under the Junior
Subordinated Notes and the World Senior Debt when due in accordance with the
terms thereof, (vii) the prepayment or redemption of any World Senior Debt prior
to scheduled maturity in accordance with the terms thereof or (viii) any
Affiliate Transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries in the ordinary course of business (so long as the other
stockholders of any participating Restricted Subsidiaries which are not Wholly
Owned Restricted Subsidiaries and are not themselves Affiliates of the Company).
SECTION 4.08. Limitation on the Sale or Issuance of Capital Stock of
------------------------------------------------------
Restricted Subsidiaries. The Company shall not (i) sell, pledge, hypothecate or
- ------------------------
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary
(other than pledges of Capital Stock securing Designated Senior Indebtedness as
in effect on the Issue Date), or (ii) shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock other than (A) to the Company or a Wholly Owned
Subsidiary, (B) directors' qualifying shares, (C) if, immediately after giving
effect to such issuance, sale or other disposition, such Restricted Subsidiary
would no longer constitute a Restricted Subsidiary or (D) with respect to the
common stock of any Restricted Subsidiary, in
<PAGE>
53
a Public Equity Offering as a result of or after which a Public Market exists.
The proceeds of any sale of such Capital Stock permitted hereby will be treated
as Net Available Cash from an Asset Disposition and must be applied in
accordance with the terms of Section 4.06.
SECTION 4.09. Change of Control. (a) Upon the occurrence of a
------------------
Change of Control, each Holder shall have the right to require that the Company
repurchase all or a portion of such Holder's Securities at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the terms contemplated in
Section 4.10(b).
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase (subject to
the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business Days prior to the
purchase date. Holders will be entitled to withdraw their election if the
Trustee or the Company receives not later than one Business Day prior to the
purchase date, a
<PAGE>
54
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security which was delivered for purchase by
the Holder and a statement that such Holder is withdrawing his election to have
such Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered by the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations thereunder in connection with the repurchase of Securities
pursuant to this Section. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section by virtue thereof.
SECTION 4.10. Limitation on Liens. The Company shall not, and shall
--------------------
not permit any Restricted Subsidiary to, directly or indirectly, Incur or permit
to exist any Lien of any nature whatsoever on any property of the Company or any
Restricted Subsidiary (including Capital Stock of a Restricted Subsidiary),
whether owned at the Issue Date or thereafter acquired, which secures
Indebtedness that ranks pari passu with or subordinated to the Securities or the
Subsidiary Guaranty, as applicable, unless (i) if such Lien secures Indebtedness
that ranks pari passu with the Securities or the Subsidiary Guaranty, as
applicable, the Securities are secured on an equal and ratable basis with the
obligations so secured until such time as such obligation is no longer secured
by a Lien or (ii) if such Lien secures Indebtedness that is subordinated to the
Securities or the Subsidiary Guaranty, as applicable, such Lien shall be
subordinated to a Lien granted to the Securityholders in the same collateral as
that securing such Lien to the same extent as such subordinated Indebtedness is
subordinated to the Securities or the Subsidiary Guaranty, as applicable.
SECTION 4.11. Compliance Certificate. The Company shall deliver to
-----------------------
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers'
<PAGE>
55
Certificate stating that in the course of the performance by the signers of
their duties as Officers of the Company they would normally have knowledge of
any Default and whether or not the signers know of any Default that occurred
during such period. If they do, the certificate shall describe the Default, its
status and what action the Company is taking or proposes to take with respect
thereto. The Company also shall comply with TIA (S) 314(a) (4).
SECTION 4.12. Further Instruments and Acts. Upon request of the
-----------------------------
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.13. Future Guarantors. After the date of this Indenture,
------------------
the Company shall cause each Domestic Restricted Subsidiary (other than each
such Subsidiary that is a party hereto) to execute and deliver to the Trustee a
supplemental indenture in the form of Exhibit B hereto pursuant to which such
Subsidiary shall Guarantee payment of the Securities as provided in Section
11.07.
ARTICLE S
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets. The Company
------------------------------------------
shall not consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of transactions, all or substantially all its
assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having
<PAGE>
56
been Incurred by the Successor Company or such Subsidiary at the time of
such transaction), no Default shall have occurred and be continuing;
(iii) except in the case of a merger the sole purpose of which is to
change the Company's jurisdiction of incorporation, immediately after
giving effect to such transaction, the Successor Company would be able to
Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a);
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount which is not less
than the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Securities.
SECTION 5.02. When a Subsidiary Guarantor May Merge or Transfer
-------------------------------------------------
Assets. The Company shall not permit any Subsidiary Guarantor to consolidate
- -------
with or merge with or into, or convey, transfer or lease, in one transaction or
series of transactions, all or substantially all of its assets to any Person
unless:
(i) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of
the United States of America, or any State hereof or
<PAGE>
57
the District of Columbia, and such Person shall expressly assume, by an
amendment to this Indenture, in a form acceptable to the Trustee, all the
obligations of such Subsidiary, if any, under its Subsidiary Guaranty;
(ii) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person as
a result of such transaction as having been issued by such Person at the
time of such transaction), no Default shall have occurred and be
continuing; and
(iii) the Company delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such amendment to this Indenture, if any, complies with this
Indenture;
provided, however, that the foregoing clauses (i) and (iii) shall not apply to
- -------- -------
any transaction which constitutes an Asset Disposition if the Company has
complied with the applicable provisions of Section 4.06 with respect to such
Asset Disposition.
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
------------------
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall be
prohibited by Article 10, and such default continues for a period of 30
days;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or
otherwise, whether or not such payment shall be prohibited by Article 10;
(3) the Company fails to comply with Section 5.01;
<PAGE>
58
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06,
4.07, 4.08, 4.09, 4.10 or 4.13 (other than a failure to purchase Securities when
required under Section 4.06 or 4.09) and such failure continues for 30 days
after the notice specified below;
(5) the Company or any Subsidiary Guarantor fails to comply with any of
its agreements in the Securities or this Indenture (other than those referred to
in clause (1), (2), (3) or (4) above) and such failure continues for 30 days
after the notice specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated by the
holders thereof because of a default and the total amount of such Indebtedness
unpaid or accelerated exceeds $10 million or its foreign currency equivalent at
the time and such non-payment or acceleration continues for 10 days after the
notice specified below;
(7) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to insolvency;
(8) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Significant Subsidiary
in an involuntary case;
<PAGE>
59
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property;
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary; or
(D) any similar relief is granted under any foreign laws;
and in each such case the order or decree remains unstayed and in effect
for 60 days;
(9) any judgment or decree for the payment of money in excess of $10
million or its foreign currency equivalent at the time is entered against
the Company or any Significant Subsidiary, remains outstanding for a period
of 60 days following the entry of such judgment or decree and is not
discharged, waived or the execution thereof stayed within 10 days after the
notice specified below; or
(10) a Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty and such Default continues for a period of 10 days
after the notice specified below.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
------------------
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4) or (5) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the Securities
notify the Company of the Default and the Company does not cure such Default
within the time specified after receipt of such notice. Such notice must specify
the Default, demand that it be
<PAGE>
60
remedied and state that such notice is a "Notice of Default" (and, if given by
the Holders, a copy of such notice shall also be given to the Trustee).
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (3), (7) or (10) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5), (6), (8) or (9), its status and what action the Company is
taking or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an
-------------
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the Securities by notice to the
Company and the Trustee, may declare the principal of and accrued interest on
all the Securities to be due and payable. Upon such a declaration, such
principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.01(7) or (8) with respect to the Company occurs,
the principal of and interest on all the Securities shall ipso facto become and
---- -----
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Securityholders. The Holders of a majority in principal
amount of the Securities by notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
---------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair
<PAGE>
61
the right or remedy or constitute a waiver of or acquiescence in the Event of
Default. No remedy is exclusive of any other remedy. All available remedies
are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
------------------------
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security or (ii) a Default in respect of a
provision that under Section 9.02 cannot be amended without the consent of each
Securityholder affected. When a Default is waived, it is deemed cured, but no
such waiver shall extend to any subsequent or other Default or impair any
consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
--------------------
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
-------- -------
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. Limitation on Suits. A Security-holder may not pursue
--------------------
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the Securities
make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
<PAGE>
62
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities
do not give the Trustee a direction inconsistent with the request during
such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
-------------------------------------
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Securities, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
---------------------------
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
---------------------------------
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.07.
<PAGE>
63
SECTION 6.10. Priorities. If the Trustee collects any money or
-----------
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness of the Company to the
extent required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the
----------------------
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by
Holders of more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
---------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or
<PAGE>
64
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
------------------
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
<PAGE>
65
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
------------------
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it
<PAGE>
66
believes to be authorized or within its rights or powers; provided, however,
-------- -------
that the Trustee's conduct does not constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
-----------------------------
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
---------------------
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in the Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
-------------------
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest on any Security
(including payments pursuant to the mandatory redemption provisions of such
Security, if any), the Trustee may withhold the notice if and so long as the
Trustee in good faith determines that withholding the notice is in the interests
of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
------------------------------
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of such date
<PAGE>
67
that complies with TIA (S) 313 (a). The Trustee also shall comply with TIA (S)
313 (b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
---------------------------
the Trustee promptly upon request from time to time reasonable compensation for
its services. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable out-of-pocket expenses incurred
or made by it, including costs of collection, in addition to the compensation
for its services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Company shall indemnify the Trustee against any
and all loss, liability or expense (including attorneys' fees) incurred by it in
connection with the acceptance and administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee may have separate
counsel and the Company shall pay the fees and expenses of such counsel. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by the Trustee through the Trustee's own wilful misconduct,
negligence or bad faith. The Company need not pay for any settlement made by
the Trustee without the Company's consent, such consent not to be unreasonably
withheld.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a
<PAGE>
68
Default specified in Section 6.01(7) or (8) with respect to the Company, the
expenses are intended to constitute expenses of administration under the
Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
-----------------------
time by so notifying the Company. The Holders of a majority in principal amount
of the Securities may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders
of a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent
<PAGE>
69
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee .
SECTION 7.09. Successor Trustee by Merger. If the Trustee
----------------------------
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
------------------------------
all times satisfy the requirements of TIA (S) 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
(S) 310(b); provided, however, that there shall be excluded from the operation
-------- -------
of TIA (S) 310(b) (1) any indenture or indentures under which other securities
or certificates of interest or participation in other securities of the Company
are outstanding if the requirements for such exclusion set forth in TIA (S)
310(b) (1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
--------------------------------------------------
Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated.
<PAGE>
70
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a)
-------------------------------------------------
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof and
the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities, including interest
thereon to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.07), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Sections
8.01(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel and at the
cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10 and 4.13 and the operation of Sections
6.01(4), 6.01(6), 6.0l(7), 6.01(8) and 6.01(9) (but, in the case of Sections
6.01(7) and (8), with respect only to Significant Subsidiaries) ("covenant
defeasance option") or contained in Sections 5.01(a) (iii) and (iv). The Company
may exercise its legal defeasance option notwithstanding its prior exercise of
its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Sections 6.01(4)
6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and
(8), with respect only to Significant Subsidiaries) or because of the failure of
the Company to comply with Section 5.01(a) (iii) or (iv). If the Company
exercises its legal defeasance option or its covenant defeasance option, each
Subsidiary
<PAGE>
71
Guarantor, if any, shall be released from all its obligations under its
Subsidiary Guaranty.
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 7.07, 7.08, 8.04, 8.05 and 8.06
shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
-------------------------
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Sections 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a
<PAGE>
72
regulated investment company under the Investment Company Act of 1940;
(6) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall confirm
that, the Securityholders will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
--------------------------
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities. Money and securities
so held in trust are not subject to Article 10.
<PAGE>
73
SECTION 8.04. Repayment to Company. The Trustee and the Paying
--------------------
Agent shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years, and,
thereafter, Securityholders entitled to the money must look to the Company for
payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company
------------------------------------
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
-------------
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, if the
-------- -------
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from
the money or U.S. Government Obligations held by the Trustee or Paying Agent.
<PAGE>
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Company, the
--------------------------
Subsidiary Guarantors and the Trustee may amend this Indenture or the Securities
without notice to or consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the uncertifi-
-------- -------
cated Securities are issued in registered form for purposes of Section 163
(f) of the Code or in a manner such that the uncertificated Securities are
described in Section 163 (f) (2) (B) of the Code;
(4) to make any change in Article 10 or Article 12 that would limit
or terminate the benefits available to any holder of Senior Indebtedness of
the Company or any Subsidiary Guarantor (or Representatives therefor) under
Article 10 or Article 12, respectively;
(5) to add further Guarantees with respect to the Securities or to
release Subsidiary Guarantors when permitted by the terms hereof, or to
secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA; or
(8) to make any change that does not adversely affect the rights of
any Securityholder.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 or Article 12 of any holder of
Senior Indebtedness of the Company or any Subsidiary Guarantor then outstanding
unless
<PAGE>
10
which certain Holders of such Initial Securities are offered Exchange
Securities in exchange for their Initial Securities, all requirements
pertaining to such Initial Securities that Initial Securities issued to
certain Holders be issued in global form will cease to apply and
certificated Initial Securities with the restricted securities legend set
forth in Exhibit 1 hereto will be available to Holders of such Initial
Securities that do not exchange their Initial Securities, and Exchange
Securities in certificated or global form will be available to Holders that
exchange such Initial Securities in such Registered Exchange Offer. Upon
the occurrence of any of the circumstances described in this paragraph, the
Company will deliver an Officers' Certificate to the Trustee instructing
the Trustee to issue Securities without legends.
(e) Cancellation or Adjustment of Global Security. At such time as
---------------------------------------------
all beneficial interests in a Global Security have either been exchanged for
certificated or Definitive Securities, redeemed, repurchased or canceled, such
Global Security shall be returned to the Depository for cancellation or retained
and canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Security is exchanged for certificated or
Definitive Securities, repurchased or canceled, the principal amount of
Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
(f) Obligations with Respect to Transfers and Exchanges of
------------------------------------------------------
Securities.
- -----------
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate certificated Securities,
Definitive Securities and Global Securities at the Registrar's or co-
registrar's request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar governmental
charge payable in connection therewith (other than any such transfer
<PAGE>
11
taxes, assessments or similar governmental charge payable upon exchange or
transfer pursuant to Section 3.08).
(iii) The Registrar or co-registrar shall not be required to register
the transfer of or exchange of any Security for a period beginning 15 days
before the mailing of a notice of an offer to repurchase Securities or 15 days
before an interest payment date.
(iv) Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security and for all other purposes
whatsoever, whether or not such Security for the purpose of receiving
payment of principal of and interest on such Security is overdue, and none of
the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar
shall be affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture shall evidence the same debt and shall be entitled to
the same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
(g) No Obligation of the Trustee.
----------------------------
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, a member of, or a participant in the
Depository or other Person with respect to the accuracy of the records of the
Depository or its nominee or of any participant or member thereof, with respect
to any ownership interest in the Securities or with respect to the delivery to
any participant, member, beneficial owner or other Person (other than the
Depository) of any notice (including any notice of redemption) or the payment of
any amount, under or with respect to such Securities. All notices and
communications to be given to the Holders and all payments to be made to Holders
under the Securities shall be given or made only to or upon the order of the
registered Holders (which shall be the Depository or its nominee in the case of
a Global Security). The rights of beneficial owners in any Global Security shall
be exercised only through the Depository subject to the applicable rules and
procedures of the Depository. The
<PAGE>
12
Trustee may rely and shall be fully protected in relying upon information
furnished by the Depository with respect to its members, participants and
any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depository participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4 Certificated Securities
-----------------------
(a) A Global Security deposited with the Depository or with the
Trustee as custodian for the Depository pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for such Global
Security or if at any time such Depository ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Company within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Company, in its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section 2.4 shall be surrendered by the Depository to
the Trustee, to be so transferred, in whole or from time to time in part,
without charge, and the Trustee shall authenticate and deliver, upon such
transfer of each portion of such Global Security, an equal aggregate principal
amount of certificated Initial Securities of authorized denominations. Any
portion of a Global Security transferred pursuant to this Section shall be
executed, authenticated and delivered only in denominations of $1,000 and any
integral multiple thereof and registered in
<PAGE>
13
such names as the Depository shall direct. Any certificated Initial Security
delivered in exchange for an interest in the Global Security shall, except as
otherwise provided by Section 2.3(d), bear the restricted securities legend set
forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of either of the events specified
in Section 2.4(a)(i), (ii) or (iii), the Company will promptly make available to
the Trustee a reasonable supply or certificated Securities in definitive, fully
registered form without interest coupons.
<PAGE>
EXHIBIT 1
to APPENDIX A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE THIRD ANNIVERSARY OF
THE ISSUANCE HEREOF (OR A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT
WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING
THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE
<PAGE>
2
TRANSFEROR ON THE CERTIFICATE ON THE REVERSE OF THIS SECURITY), AND, IF SUCH
TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE (AS
DEFINED BELOW) PRIOR TO THE EXPIRATION OF THE "40 DAY RESTRICTED PERIOD" (WITHIN
THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT), A
CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE, (4) TO AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501 (A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE, WHICH MAY BE
OBTAINED FROM THE TRUSTEE, IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE
TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY NOT
TRANSFER THIS SECURITY PURSUANT TO THIS CLAUSE (4) PRIOR TO THE EXPIRATION OF
THE "40 DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF
REGULATION S UNDER THE SECURITIES ACT), (5) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE )
UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AN INSTITUTIONAL ACCREDITED
INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE COMPANY AND THE
TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE
TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING
RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) or (7) UNDER THE
SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OR
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.
[IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO
<PAGE>
3
CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.] 1
-
- -----------------
1/ Include if a Definitive Security to be held by an institutional
-
"accredited investor" (as defined in Rule 501(a), (1), (2), (3) or (7) under the
Securities Act).
<PAGE>
4
CUSIP No.
No. $
10-5/8% Senior Subordinated Notes Due 2006
DELCO REMY INTERNATIONAL, INC., a Delaware corporation, promises to
pay to , or registered assigns, the principal sum of
Dollars on August 1, 2006.
Interest Payment Dates: February 1 and August 1, commencing February
1, 1997.
Record Dates: January 15 and July 15.
Additional provisions of this Security are set forth on the other
side of this Security.
DELCO REMY INTERNATIONAL, INC.
by
---------------------------
President
---------------------------
Secretary
<PAGE>
5
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION Dated:
NATIONAL CITY BANK OF INDIANA,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
-----------------------------
Authorized Signatory
<PAGE>
6
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
10-5/8% Senior Subordinated Note Due 2006
1. Interest
--------
(a) General. Delco Remy International, Inc., a Delaware corporation
-------
(such corporation, and its successors and assigns under the Indenture
hereinafter referred to, being herein called the "Company"), promises to pay
interest on the principal amount of this Security at the rate per annum shown
above. The Company will pay interest semiannually on February 1 and August 1 of
each year. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the Issue
Date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne
by the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
(b) Special Interest. The holder of this Security is entitled to
----------------
the benefits of a Registration Agreement, dated as of July 26, 1996, among the
Company and the Purchasers named therein (the "Registration Agreement").
Capitalized terms used in this paragraph (b) but not defined herein have the
meanings assigned to them in the Registration Agreement.
In the event that (i) neither the Exchange Offer Registration
Statement nor the Shelf Registration Statement has been filed with the
Commission on or prior to October 31,1997, (ii) the Exchange Offer Registration
Statement has not been declared effective on or prior to December 31, 1997,
(iii) the Registered Exchange Offer has not been consummated or the Shelf
Registration Statement has not been declared effective on or prior to January
31, 1998, or (iv) after either the Exchange Offer Registration Statement or the
Shelf Registration Statement has been declared effective, such Registration
Statement thereafter ceases to be effective or usable in connection with resales
of the Securities at any time that the Company is obligated to maintain the
effectiveness thereof pursuant to the Registration Agreement (each such event
referred to in
<PAGE>
7
clauses (i) through (iv) above being referred to herein as a "Registration
Default" interest (the "Special Interest") shall accrue (in addition to secured
interest on the Notes) from and including the date on which the first such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured, at a rate per annum equal to 0.25% of the
principal amount of the Securities; provided, however, that such rate per annum
-------- -------
shall increase by 0.25% per annum from and including the 91st day after the
first such Registration Default (and each successive 91st day thereafter) unless
and until all Registration Defaults have been cured, provided further, however,
-------- ------- -------
that in no event shall the Special Interest accrue at a rate in excess of 1.00%
per annum. The Special Interest will be payable in cash semiannually in arrears
each February 1 and August 1 commencing February 1, 1997.
2. Method of Payment
-----------------
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the January 15 or July 15 immediately preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company. The Company will make all payments in
respect of a certificated Security (including principal, premium and interest),
by mailing a check to the registered address of each Holder thereof; provided,
however, that payments on the Securities may also be made, in the case of a
- -------
Holder of at least $1,000,000 aggregate principal amount of Securities, by wire
transfer to a U.S. dollar account maintained by the payee with a bank in the
United States if such Holder elects payment by wire transfer by giving written
notice to the Trustee or the Paying Agent to such effect designating such
account no later than 30 days immediately preceding the relevant due date for
payment (or such other date as the Trustee may accept in its discretion).
<PAGE>
8
3. Paying Agent and Registrar
--------------------------
Initially, National City Bank of Indiana, a ("Trustee"), will act
as Paying Agent and Registrar. The Company may appoint and change any Paying
Agent, Registrar or co-registrar without notice. The Company or any of its
domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of
August 1, 1996 ("Indenture"), between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
------
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are unsecured senior subordinated obligations of the
Company limited to $140,000,000 aggregate principal amount at any one time
outstanding (subject to Section 2.07 of the Indenture). This Security is one of
the Initial Securities referred to in the Indenture. The Securities include the
Initial Securities and any Exchange Securities issued in exchange for the
Initial Securities pursuant to the Indenture. The Initial Securities and the
Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries; the payment of
dividends on, and redemption of, Capital Stock of the Company and its Restricted
Subsidiaries and the redemption of certain Subordinated Obligations of the
Company and its Restricted Subsidiaries; Investments; sales of assets and
Restricted Subsidiary Capital Stock; certain transactions with Affiliates of the
Company; the sale or issuance of Capital Stock of the Restricted Subsidiaries;
the creation of Liens; and consolidations, mergers and transfers of all or
substantially all of the Company's assets. In addition,
<PAGE>
9
the Indenture prohibits certain restrictions on distributions and dividends from
Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors have
unconditionally guaranteed the Obligations on a senior subordinated basis
pursuant to the terms of the Indenture.
5. Optional Redemption
-------------------
Except as set forth in the next two paragraphs, the Securities may not
be redeemed prior to August 1, 2001. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date that is on or prior to the date of
redemption), if redeemed during the 12-month period beginning on of after
August 1 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ ----------
<S> <C>
2001 ...................................................... 105.313%
2002 ...................................................... 103.542%
2003 ...................................................... 101.771%
2004 and thereafter ........................................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to August 1, 1999,
the Company may redeem in the aggregate up to 35% of the original aggregate
principal amount of Securities with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount thereof) of 110.0% plus accrued
and unpaid interest, in any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date that is
<PAGE>
10
on or prior to the date of redemption); provided, however, that at least 50% of
-------- -------
the original aggregate principal amount of the Securities must remain
outstanding after each such redemption.
6. Notice of Redemption
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of an
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
7. Put Provisions
--------------
Upon a Change of Control, unless the Company has elected to redeem
the Securities pursuant to paragraph 5, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of purchase) as provided in, and subject to the terms of, the
Indenture.
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness of the
Company, as defined in the Indenture. To the extent provided in the Indenture,
Senior Indebtedness of the Company must be paid before the Securities may be
paid. In addition, each Subsidiary Guaranty is subordinated to Senior
Indebtedness of the relevant Guarantor Subsidiary, as defined in the Indenture.
The Company and each Guarantor Subsidiary agrees, and each Securityholder by
accepting a
<PAGE>
11
Security agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give it effect and appoints the Trustee as
attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in
denominations of $1,000 (or in the case of Definitive Securities sold to
institutional accredited investors as described in Rule 501 (a)(1), (2), (3) or
(7) under the Securities Act, minimum denominations of $250,000, unless the
Company otherwise consents) and whole multiples of $1,000. A Holder may
transfer or exchange Securities in accordance with the Indenture. Upon any
transfer or exchange, the Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements or transfer documents and to
pay any taxes required by law or permitted by the Indenture. The Registrar need
not register the transfer of or exchange any Securities selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or to transfer or exchange any Securities for a
period of 15 days prior to a selection of Securities to be redeemed or 15 days
before an interest payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
<PAGE>
12
12. Discharge and Defeasance
------------------------
Subject to certain conditions the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
12. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company, the Subsidiary
Guarantors and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article V of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to make certain changes in the
subordination provisions, or to add guarantees with respect to the Securities or
to secure the Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any other
change that does not adversely affect the rights of any Securityholder, or to
provide for the issuance and authorization of the Exchange Securities.
13. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities (whether or not such payment is
prohibited by the subordination provision of the Indenture); (ii) default in
payment of principal on the Securities at maturity, upon redemption pursuant to
paragraph 5 of the Securities, upon acceleration or otherwise, or failure by the
Company to redeem or purchase, upon declaration or otherwise (whether or not
such payment is prohibited by the subordination provision of the Indenture),
Securities when required;
<PAGE>
13
(iii) failure by the Company or any Subsidiary Guarantor to comply with other
agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain accelerations (including failure to pay
within any grace period after final maturity) of other Indebtedness of the
Company if the amount accelerated (or so unpaid) exceeds $10,000,000 and such
acceleration continues for 10 days after notice; (v) certain events of
bankruptcy, insolvency or reorganization with respect to the Company and the
Significant Subsidiaries; (vi) certain judgments or decrees not covered by
insurance for the payment of money in excess of $10,000,000 or its foreign
currency equivalent against the Company or a Significant Subsidiary; and (vii) a
Subsidiary Guaranty ceasing to be in full force and effect (other than in
accordance with its terms) and such default continues for 10 days after notice.
If any of certain Events of Default enumerated in the Indenture occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Securities may declare all the Securities to be due and payable immediately.
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
14. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
<PAGE>
14
15. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Guarantor shall not have any liability for any obligations of
the Company or a Subsidiary Guarantor under the Securities or the Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
16. Governing Law
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
17. Authentication
--------------
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. Holders' Compliance with Registration Agreement
-----------------------------------------------
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
<PAGE>
15
20. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Indentification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUISP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture which has in it the
text of this Security in larger type.
<PAGE>
16
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security To
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the book of the Company. The agent may substitute another to act for
him.
- --------------------------------------------------------------------------------
Date: Your Signature:
---------------------- --------------------------------
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [_] to the Company; or
(2) [_] pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) [_] inside the United States to a "qualified institutional buyer"
(as defined in Rule 144A
<PAGE>
17
under the Securities Act of 1933) that purchases for its own
account or for the account of a qualified institutional buyer
to whom notice is given that such transfer is being made in
reliance on Rule 144A, in each case pursuant to and in
compliance with Rule 144A under the Securities Act of 1933; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act of 1933; or
(5) [_] to an institutional "accredited investor" (as defined in
Schedule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933) that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter can be obtained from the Trustee); or
(6) [_] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; provided, however, that if box
-------- -------
(4), (5) or (6) is checked, the Trustee may require, prior to registering
any such transfer of the Securities, such legal opinions, certifications
and other information as the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not
<PAGE>
18
subject to, the registration requirements of the Securities Act of 1933,
such as the exemption provided by Rule 144 under such Act
---------------------
Signature
Signature Guarantee:
- ------------------------ ---------------------
Signature must be guaranteed Signature
- --------------------------------------------------------------------------------
<PAGE>
19
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated:
---------------------------- ---------------------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
20
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<CAPTION>
Amount of decrease Amount of increase in Principal Amount of the Signature of authorized
Date of Principal Amount of this Principal Amount of this Global Security following Signators of Trustee or
Exchange Global Security Global Security Sum decrease or increase Securities Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
21
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.09 of the Indenture, check the box:
[_]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.09 of the Indenture, state the amount in
principal amount: $
Date: Your Signature:
--------------------- -----------------------------------
(Sign exactly as your name appears
on the other side of this
Security.)
Signature Guarantee:
----------------------------------------------------
(Signature must be guaranteed)
<PAGE>
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY]
[*/]
-
CUSIP No.
No. $
10-5/8% Senior Subordinated Notes Due 2006
DELCO REMY INTERNATIONAL, INC., a Delaware corporation, promises to pay to
, or registered assigns, the principal sum of
Dollars on August 1, 2006.
Interest Payment Dates: February 1 and August 1, commencing February 1, 1997.
Record Dates: January 15 and July 15.
Additional provisions of this Security are set forth on the other side of this
Security.
DELCO REMY INTERNATIONAL, INC.
by
----------------------
President
----------------------
Secretary
<PAGE>
2
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION Dated:
NATIONAL CITY BANK OF INDIANA,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
----------------------------
Authorized Signatory
- ------------------------
*/ If the Security is to be issued in global form, add the Global Securities
Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1
captioned "TO BE ATTACHED TO GLOBAL SECURITIES - SCHEDULE OF INCREASES OR
DECREASES IN GLOBAL SECURITY".
<PAGE>
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
10-5/8% Senior Subordinated Note Due 2006
1. Interest
--------
Delco Remy International, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above. The Company
will pay interest semiannually on February 1 and August 1 of each year. Interest
on the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from the Issue Date. Interest will
be computed on the basis of a 360-day year of twelve 30-day months. The Company
shall pay interest on overdue principal at the rate borne by the Securities plus
1% per annum, and it shall pay interest on overdue installments of interest at
the same rate to the extent lawful.
2. Method of Payment
-----------------
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the January 15 or July 15 immediately preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a paying
Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the
accounts specified by The Depository Trust Company. The Company will make all
payments in respect of a certificated Security (including principal, premium and
interest), by mailing a check to the registered address of each Holder thereof;
provided, however, that payments on the Securities may also be made, in the case
-------
of a Holder of at least $1,000,000 aggregate principal amount
<PAGE>
4
of Securities, by wire transfer to a U.S. dollar account maintained by the payee
with a bank in the United States if such Holder elects payment by wire transfer
by giving written notice to the Trustee or the Paying Agent to such effect
designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
3. Paying Agent and Registrar
--------------------------
Initially, National City Bank of Indiana, a ("Trustee"), will act as
Paying Agent and Registrar. The Company may appoint and change any Paying Agent,
Registrar or co-registrar without notice. The Company or any of its domestically
incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or
co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of
August 1, 1996 ("Indenture"), between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
------
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are unsecured senior subordinated obligations of the
Company limited to $140,000,000 aggregate principal amount at any one time
outstanding (subject to Section 2.07 of the Indenture). This Security is one of
the Exchange Securities referred to in the Indenture. The Securities include the
Initial Securities and any Exchange Securities issued in exchange for the
Initial Securities pursuant to the Indenture. The Initial Securities and the
Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries; the payment of
dividends on, and redemption of, Capital Stock of the
<PAGE>
5
Company and its Restricted Subsidiaries and the redemption of certain
Subordinated Obligations of the Company and its Restricted Subsidiaries;
Investments; sales of assets and Restricted Subsidiary Capital Stock; certain
transactions with Affiliates of the Company; the sale or issuance of Capital
Stock of the Restricted Subsidiaries; the creation of Liens; and consolidations,
mergers and transfers of all or substantially all of the Company's assets. In
addition, the Indenture prohibits certain restrictions on distributions and
dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors have
unconditionally guaranteed the Obligations on a senior subordinated basis
pursuant to the terms of the Indenture.
5. Optional Redemption
-------------------
Except as set forth in the next two paragraphs, the Securities may not
be redeemed prior to August 1, 2001. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date that is on or prior to the date of
redemption), if redeemed during the 12-month period beginning on or after August
1 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ ----------
<S> <C>
2001 ..................................................... 105.313%
2002 ..................................................... 103.542%
2003 ..................................................... 101.771%
2004 and thereafter ........................................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to August 1, 1999,
the Company may redeem in the aggregate
<PAGE>
6
up to 35% of the original aggregate principal amount of Securities with the
proceeds of one or more Public Equity Offerings following which there is a
Public Market, at a redemption price expressed as a percentage of principal
amount thereof) of 110.0% plus accrued and unpaid interest, if any, to the
redemption date subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date that is on or
prior to the date of redemption); provided, however, that at least 50% of the
-------- -------
original aggregate principal amount of the Securities must remain outstanding
after each such redemption.
6. Notice of Redemption
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued interest
on all Securities (or portions thereof) to be redeemed on the redemption date
is deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to accrue
on such Securities (or such portions thereof) called for redemption.
7. Put Provisions
--------------
Upon a Change of Control, unless the Company has elected to redeem
the Securities pursuant to paragraph 5, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of purchase) as provided in, and subject to the terms of, the
Indenture.
<PAGE>
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness of the
Company, as defined in the Indenture. To the extent provided in the Indenture,
Senior Indebtedness of the Company must be paid before the Securities may be
paid. In addition, each Subsidiary Guaranty is subordinated to Senior
Indebtedness of the relevant Guarantor Subsidiary, as defined in the Indenture.
The Company and each Guarantor Subsidiary agrees, and each Securityholder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give it effect and appoints the Trustee
as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. Upon any transfer or
exchange, the Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay any
taxes required by law or permitted by the Indenture. The Registrar need not
register the transfer of or exchange any Securities selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or to transfer or exchange any Securities for a
period of 15 days prior to a selection of Securities to be redeemed or 15 days
before an interest payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner
of it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the
<PAGE>
8
money must look only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
12. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company, the Subsidiary
Guarantors and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article V of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to make certain changes in the
subordination provisions, or to add guarantees with respect to the Securities or
to secure the Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any other
change that does not adversely affect the rights of any Securityholder, or to
provide for the issuance and authorization of the Exchange Securities.
13. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities (whether or not such payment is
prohibited by the subordination provision of the Indenture); (ii) default in
payment of principal on the Securities at maturity, upon redemption pursuant to
paragraph 5 of the Securities, upon
<PAGE>
9
acceleration or otherwise, or failure by the Company to redeem or purchase, upon
declaration or otherwise (whether or not such payment is prohibited by the
subordination provision of the Indenture), Securities when required;(iii)
failure by the Company or any Subsidiary Guarantor to comply with other
agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain accelerations (including failure to pay
within any grace period after final maturity) of other Indebtedness of the
Company if the amount accelerated (or so unpaid) exceeds $10,000,000 and such
acceleration continues for 10 days after notice; (v) certain events of
bankruptcy, insolvency or reorganization with respect to the Company and the
Significant Subsidiaries; (vi) certain judgments or decrees not covered by
insurance for the payment of money in excess of $10,000,000 or its foreign
currency equivalent against the Company or a Significant Subsidiary; and (vii) a
Subsidiary Guaranty ceasing to be in full force and effect (other than in
accordance with its terms) and such default continues for 10 days after notice.
If any of certain Events of Default enumerated in the Indenture occurs and is
continuing,the Trustee or the Holders of at least 25% in principal amount of the
Securities may declare all the Securities to be due and payable immediately.
Certain events of bankruptcy or insolvency are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
14. Trustee Dealings with Company
-----------------------------
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities any may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may other-
<PAGE>
10
wise deal with the Company or [COPY ILLEGIBLE] Affiliates with the same rights
it would have if it were not Trustee.
15. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Guarantor shall not have any liability for any obligations of
the Company or a Subsidiary Guarantor under the Securities or the Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
16. Governing Law
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
17. Authentication
--------------
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. Holders' Compliance with Registration Agreement
-----------------------------------------------
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the
<PAGE>
11
Registration Agreement, including, without limitation, the obligations of the
Holders with respect to a registration and the indemnification of the Company to
the extent provided therein.
20. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture which has in it the
text of this Security in larger type.
<PAGE>
12
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
------------------------ ---------------------------------
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE>
13
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by
the Company pursuant to Section 4.09 of the Indenture, check the box:
[_]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.09 of the Indenture, state the
amount:
$
Date: Your Signature:
---------------------- -------------------------------------
(Sign exactly as your name appears on the other side
of the Security)
Signature Guarantee:
------------------------------------------------------------
<PAGE>
EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture",
dated as of , among [SUBSIDIARY GUARANTOR] (the
"Subsidiary Guarantor"), a subsidiary of Delco Remy
International Inc. (or its successor), a Delaware corporation
(the "Company"), DELCO REMY INTERNATIONAL, INC., on behalf of
itself and the Subsidiary Guarantors (the "Existing Subsidiary
Guarantors") under the Indenture referred to below, and
NATIONAL CITY BANK OF INDIANA, a , as trustee under the
indenture referred to below, (the "Trustee").
W I T N E S S E T H :
WHEREAS the Company has heretofore executed and delivered to the
Trustee an Indenture (the "Indenture"), dated as of August 1, 1996, providing
for the issuance of an aggregate principal amount of $140,000,000 of 10-5/8%
Senior Subordinated Notes due 2006 (the "Securities");
WHEREAS Section 4.13 of the Indenture provides that under certain
circumstance the Company is required to cause the New Subsidiary Guarantor to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the New Subsidiary Guarantor shall unconditionally guarantee all of the
Company's obligations under the Securities pursuant to a Subsidiary Guaranty on
the terms and conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the
Company and Existing Subsidiary Guarantors are authorized to execute and deliver
this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor, the Company, the Existing Subsidiary Guarantors and the
Trustee mutually covenant and agree for the equal
<PAGE>
2
and ratable benefit of the holders of the Securities as follows:
1. Definitions. (a) Capitalized terms used herein without definition
-----------
shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplement, except as otherwise herein
expressly provided or unless the context otherwise requires: (i) the terms and
expressions used herein shall have the same meanings as corresponding terms and
expressions used in the Indenture; and (ii) the words "herein," "hereof" and
"hereby" and other words of similar import used in this Supplement refer to this
Supplement as a whole and not to any particular section hereof.
2. Agreement to Guarantee. The New Subsidiary Guarantor hereby
----------------------
agrees, jointly and severally with all other Subsidiary Guarantors, to guarantee
the Company's obligations under the Securities on the term and subject to the
conditions set forth in Article 11 of the Indenture and to be bound by all other
applicable provisions of the Indenture.
3. Ratification of Indenture; Supplemental Indentures Part of
----------------------------------------------------------
Indenture. Except as expressly amended hereby, the Indenture is in all respects
- ---------
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby.
4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
-------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
5. Trustee Makes No Representation. The Trustee makes no
-------------------------------
representation as to the validity or sufficiency of this Supplemental Indenture.
6. Counterparts. The parties may sign any number of copies of this
------------
Supplemental Indenture. Each signed copy
<PAGE>
3
shall be an original, but all of them together represent the same agreement.
7. Effect of Headings The Section headings herein are for convenience
------------------
only and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NEW SUBSIDIARY GUARANTOR],
by
-----------------------------------
Name:
Title:
DELCO REMY INTERNATIONAL, INC., on
behalf of itself and the Existing
Subsidiary Guarantors,
by
-----------------------------------
Name:
Title:
NATIONAL CITY BANK OF INDIANA,
as Trustee,
by
-----------------------------------
Name:
Title:
<PAGE>
75
the holders of such Senior Indebtedness (or any group or representative thereof
authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such Amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company, the Subsidiary
-----------------------
Guarantors and the Trustee may amend this Indenture or the Securities without
notice to any Securityholder but with the written consent of the Holders of at
least a majority in principal amount of the Securities. However, without the
consent of each Securityholders affected thereby, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on any
Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) make any change in Article 10 or Article 12 that adversely affects
the rights of any Securityholder under Article 10 or Article 12;
(7) impair the right of any Holder to institute suit for enforcement of
any payment on or with respect to such Holder's Securities or any Subsidiary
Guaranty; or
(8) make any change in Section 6.04 or 6.07 or the second sentence of
this Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of
<PAGE>
76
any proposed amendment, but it shall be sufficient if such consent approves the
substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 or Article 12 of any holder of
Senior Indebtedness of the Company or any Subsidiary Guarantor then outstanding
unless the holders of such Senior Indebtedness (or any group or representative
thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail the Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
-----------------------------------
to this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
---------------------------------------------
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder of a Security shall bind the Holder and every subsequent Holder of that
Security or portion of the Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent or waiver is not
made on the Security. However, any such Holder or subsequent Holder may revoke
the consent or waiver as to such Holder's Security or portion of the Security if
the Trustee receives the notice of revocation before the date the amendment or
waiver becomes effective. After an amendment or waiver become effective, it
shall bind every Securityholder. An amendment or waiver becomes effective upon
the execution of such amendment or waiver by the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose or determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders
<PAGE>
77
after such record date. No such consent shall be valid or effective for more
than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an
-------------------------------------
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign
--------------------------
any amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Company nor any
-------------------
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waiver or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement To Subordinate. The Company agrees, and
------------------------
each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article 10, to the
<PAGE>
78
prior payment of all Senior Indebtedness of the Company and that the
subordination is for the benefit of and enforceable by the holders of such
Senior Indebtedness. The Securities shall in all respects rank pari passu with
---- -----
all other Senior Subordinated Indebtedness of the Company and only Indebtedness
of the Company which is Senior Indebtedness shall rank senior to the Securities
in accordance with the provisions set forth herein. All provisions of this
Article 10 shall be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any
------------------------------------
payment or distribution of the assets of the Company to creditors upon a total
or partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Indebtedness of the Company shall be entitled
to receive payment in full of such Senior Indebtedness before
Securityholders shall be entitled to receive any payment of principal of or
interest on the Securities; and
(2) until such Senior Indebtedness is paid in full, any distribution
to which Securityholders would be entitled but for this Article 10 shall be
made to holders of such Senior Indebtedness as their interests may appear,
except that Securityholders may receive shares of stock and any debt
securities that are subordinated to such Senior Indebtedness to at least
the same extent as the Securities.
SECTION 10.03. Default on Senior Indebtedness. The Company may not
------------------------------
pay the principal of or interest on the Securities or make any deposit pursuant
to Section 8.01 and may not repurchase, redeem or otherwise retire any
Securities (collectively, "pay the Securities") if (i) any Senior Indebtedness
is not paid when due or (ii) any other default on Senior Indebtedness occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, (x) the default has been cured or waived and any
such acceleration has been rescinded or (y) such Senior Indebtedness has been
paid in full; provided, however, that the Company may pay the Securities without
-------- -------
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of such Senior Indebtedness.
During the continuance of any default (other than a default described
<PAGE>
79
in clause (i) or (ii) of the proceeding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Securities for a period (a "Payment Blockage Period")
commencing upon the receipt by the Company and the Trustee of written notice (a
"Blockage Notice") of such default from the Representative of such Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
and ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) by repayment in full of such
Designated Senior Indebtedness or (iii) because the default giving rise to such
Blockage Notice is no longer continuing). Notwithstanding the provisions
described in the immediately preceding sentence (but subject to the provisions
contained in the first sentence of this Section), unless the holders of such
Designed Senior Indebtedness or the Representative of such holders shall have
accelerated the maturity of such Designated Senior Indebtedness, the Company may
resume payments on the Securities after such Payment Blockage Period. Not more
than one Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.
SECTION 10.04. Acceleration of Payment of Securities. If payment
-------------------------------------
of the Securities is accelerated because of an Event of Default, the Company or
the Trustee shall promptly notify the holders of the Designated Senior
Indebtedness (or their Representatives) of the acceleration.
SECTION 10.05. When Distribution Must Be Paid Over. If a
-----------------------------------
distribution is made to Securityholders that because of this Article 10 should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of Senior Indebtedness of the Company and pay
it over to them as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness of the
-----------
Company is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to such
<PAGE>
80
Senior Indebtedness. A distribution made under this Article 10 to holders of
such Senior Indebtedness which otherwise would have been made to Securityholders
is not, as between the Company and Securityholders, a payment by the Company on
such Senior Indebtedness.
SECTION 10.07. Relative Rights. This Article 10 defines the
---------------
relative rights of Securityholders and holders of Senior Indebtedness of the
Company. Nothing in this Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their terms;
or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness of the Company to receive distributions otherwise
payable to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No
--------------------------------------------
right of any holder of Senior Indebtedness of the Company to enforce the
subordination of the Indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or by its failure to comply with
this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
----------------------------------
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article 10. The Company, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Indebtedness may give the notice; provided,
--------
however, that, if an issue of Senior Indebtedness of the Company has a
- -------
Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness of the Company with the same rights it would have if it were not
Trustee. The Registrar and co-registrar and the Paying Agent may do the
<PAGE>
81
same with like rights. The Trustee shall be entitled to all the rights set
forth in this Article 10 with respect to any Senior Indebtedness of the Company
which may at any time be held by it, to the same extent as any other holder of
such Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article 10 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
----------------------------------------
distribution is to be made or a notice given to holders of Senior Indebtedness
of the Company, the distribution may be made and the notice given to their
Representative (if any).
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit
----------------------------------------------------
Right To Accelerate. The failure to make a payment pursuant to the Securities
- -------------------
by reason of any provision in this Article 10 shall not be construed as
preventing the occurrence of a Default. Nothing in this Article 10 shall have
any effect on the right of the Securityholders or the Trustee to accelerate the
maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
-----------------------------
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article 8 by the Trustee for
the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or subject to the
restrictions set forth in this Article 10, and none of the Securityholders shall
be obligated to pay over any such amount to the Company or any holder of Senior
Indebtedness of the Company or any other creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
------------------------
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness of the Company for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of such Senior
<PAGE>
82
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 10. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness of the Company to participate
in any payment or distribution pursuant to this Article 10, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of such Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and other facts pertinent to the rights of such Person under this
Article 10, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Section 7.01 and 7.02 shall
be applicable to all actions or omissions of actions by the Trustee pursuant to
this Article 10.
SECTION 10.14. Trustee To Effectuate Subordination. Each
-----------------------------------
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness of the Company as provided in this Article 10 and appoints
the Trustee as attorney-in-fact for any and all such purposes.
SECTION 10.15. Trustees Not Fiduciary for Holders of Senior
--------------------------------------------
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
- ------------
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall mistakenly pay over or distribute to Securityholders or the Company or any
other Person, money or assets to which any holders of Senior Indebtedness of the
Company shall be entitled by virtue of this Article 10 or otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
---------------------------------------------
Subordination Provisions. Each Securityholder by accepting a Security
- ------------------------
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness of the Company, whether such Senior Indebtedness was created or
acquired before or after the issuance of the Securities, to acquire and continue
to hold, or to continue to hold, such Senior
<PAGE>
83
Indebtedness and such holder of such Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Indebtedness.
ARTICLE 11
Subsidiary Guaranties
---------------------
SECTION 11.01. Guaranties. Each Subsidiary Guarantor hereby
----------
unconditionally and irrevocably guarantees, jointly and severally, to each
Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of and interest on the Securities when due,
whether at maturity, by acceleration, by redemption or otherwise, and all other
monetary obligations of the Company under this Indenture and the Securities and
(b) the full and punctual performance within applicable grace periods of all
other obligations of the Company under this Indenture and the Securities (all
the foregoing being hereinafter collectively called the "Obligations"). Each
Subsidiary Guarantor further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice or further assent from such
Subsidiary Guarantor and that such Subsidiary Guarantor will remain bound under
this Article 11 notwithstanding any extension or renewal of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also waives notice
of protest for nonpayment. Each Subsidiary Guarantor waives notice of any
default under the Securities or the Obligations. The obligations of each
Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the Securities or any other agreement;
(d) the release of any security held by any Holder or the Trustee for the
Obligations or any of them; (e) the failure of any Holder or the Trustee to
exercise any right or remedy against any other guarantor of the Obligations; or
(f) any change in the ownership of such Subsidiary Guarantor.
<PAGE>
84
Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty
herein constitutes a guarantee of payment, performance and compliance when due
(and not a guarantee of collection) and waives any right to require that any
resort be had by any Holder or the Trustee to any security held for payment of
the Obligations.
Each Subsidiary Guaranty is, to the extent and in the manner set
forth in Article 12, subordinated and subject in right of payment to the prior
payment in full of the principal of and premium, if any, and interest on all
Senior Indebtedness of the Subsidiary Guarantor giving such Subsidiary Guaranty
and each Subsidiary Guaranty is made subject to such provisions of this
Indenture.
Except as expressly set forth in Sections 8.01(b), 11.02 and 11.06,
the obligations of each Subsidiary Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and shall not
be subject to any defense of setoff, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Subsidiary Guarantor herein shall not be discharged or
impaired or otherwise affected by the failure of any Holder or the Trustee to
assert any claim or demand or to enforce any remedy under this Indenture, the
Securities or any other agreement, by any waiver or modification of any thereof,
by any default, failure or delay, willful or otherwise, in the performance of
the obligations, or by any other act or thing or omission or delay to do any
other act or thing which may or might in any manner or to any extent vary the
risk of such Subsidiary Guarantor or would otherwise operate as a discharge of
such Subsidiary Guarantor as a matter of law or equity.
Each Subsidiary Guarantor further agrees that its Guarantee herein
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of principal of or interest on any Obligation
is rescinded or must otherwise be restored by any Holder or the Trustee upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the
<PAGE>
85
Trustee has at law or in equity against any Subsidiary Guarantor by virtue
hereof upon the failure of the Company to pay the principal of or interest on
any Obligation when and as the same shall become due, whether at maturity, by
acceleration, by redemption or otherwise, or to perform or comply with any other
Obligation, each Subsidiary Guarantor hereby promises to and will, upon receipt
of written demand by the Trustee, forthwith pay, or cause to be paid, in cash,
to the Holders or the Trustee an amount equal to the sum of (i) the unpaid
amount of such Obligations, (ii) accrued and unpaid interest on such Obligations
(but only to the extent not prohibited by law) and (iii) all other monetary
Obligations of the Company to the Holders and the Trustee.
Each Subsidiary Guarantor agrees that it shall not be entitled to any
right of subrogation in respect of any Obligations guaranteed hereby until
payment in full of all Obligations and all obligations to which the Obligations
are subordinated as provided in Article 12. Each Subsidiary Guarantor further
agrees that, as between it, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the Obligations Guaranteed hereby may be
accelerated as provided in Article 6 for the purposes of such Subsidiary
Guarantor's Subsidiary Guaranty herein, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6, such Obligations (whether or not due
and payable) shall forthwith become due and payable by such Subsidiary Guarantor
for the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section.
SECTION 11.02. Limitation on Liability. Any term or provision of this
-----------------------
Indenture to the contrary notwithstanding, the maximum, aggregate amount of the
obligations guaranteed hereunder by any Subsidiary Guarantor shall not exceed
the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
<PAGE>
86
SECTION 11.03. Successors and Assigns. This Article 11 shall be binding
-----------------------
upon each Subsidiary Guarantor and its successors and assigns and shall enure to
the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee,
the rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 11.04. No Waiver. Neither a failure nor a delay on the part of
----------
either the Trustee or the Holders in exercising any right, power or privilege
under this Article 11 shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article 11 at law,
in equity, by statute or otherwise.
SECTION 11.05. Modification. No modification, amendment or waiver of any
-------------
provision of this Article 11, nor the consent to any departure by any Subsidiary
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Trustee, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any Subsidiary Guarantor in any case shall entitle such
Subsidiary Guarantor to any other or further notice or demand in the same,
similar or other circumstances.
SECTION 11.06. Release of Subsidiary Guarantor. This Subsidiary Guaranty as
--------------------------------
to any Subsidiary Guarantor shall terminate and be of no further force or effect
upon the sale or other transfer (i) by such Subsidiary Guarantor of all or
substantially all of its assets or (ii) by the Company of all of its stock or
other equity interests in such Subsidiary Guarantor, to a Person that is not an
Affiliate of the Company; provided, however, that such sale or transfer shall be
-------- -------
deemed to constitute an Asset Disposition and the Company shall comply with all
applicable provisions of Section 4.06 with respect to such Asset Disposition.
<PAGE>
87
SECTION 11.07. Execution of Supplemental Indenture for Future Subsidiary
---------------------------------------------------------
Guarantors. Each Subsidiary which is required to become a Subsidiary Guarantor
- ----------
pursuant to Section 4.13 shall promptly execute and deliver to the Trustee a
supplemental indenture in the form of Exhibit B hereto pursuant to which such
Subsidiary shall become a Subsidiary Guarantor under this Article 11 and shall
guarantee the Obligations. Concurrently with the execution and delivery of such
supplemental indenture, the Company shall deliver to the Trustee an Opinion of
Counsel to the effect that such supplemental indenture has been duly authorized,
executed and delivered by such Subsidiary and that, subject to the application
of bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and
other similar laws relating to creditors' rights generally and to the principles
of equity, whether considered in a proceeding at law or in equity, the
Subsidiary Guaranty of such Subsidiary Guarantor is a legal, valid and binding
obligation of such Subsidiary Guarantor, enforceable against such Subsidiary
Guarantor in accordance with its terms.
ARTICLE 12
Subordination of Subsidiary Guaranties
--------------------------------------
Section 12.01. Agreement To Subordinate. Each Subsidiary
------------------------
Guarantor agrees, and each Securityholder by accepting a Security agrees, that
the Obligations of such Subsidiary Guarantor are subordinated in right of
payment, to the extent and in the manner provided in this Article 12, to the
prior payment of all Senior Indebtedness of such Subsidiary Guarantor and that
the subordination is for the benefit of and enforceable by the holders of such
Senior Indebtedness. The Obligations of a Subsidiary Guarantor shall in all
respects rank pari passu with all other Senior Subordinated Indebtedness of such
---- -----
Subsidiary Guarantor and only Senior Indebtedness of such Subsidiary Guarantor
(including such Subsidiary Guarantor's Guarantee of Senior Indebtedness of the
Company) shall rank senior to the Obligations of such Subsidiary Guarantor in
accordance with the provisions set forth herein.
SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any payment
------------------------------------
or distribution of the assets of any Subsidiary Guarantor to creditors upon a
total or partial liquidation or a total or partial dissolution of
<PAGE>
88
such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor or its
property:
(1) holders of Senior Indebtedness of such Subsidiary Guarantor shall
be entitled to receive payment in full of such Senior Indebtedness in cash
or cash equivalents before Securityholders shall be entitled to receive any
payment pursuant to any Obligations of such Subsidiary Guarantor; and
(2) until the Senior Indebtedness of any Subsidiary Guarantor is paid
in full in cash or cash equivalents, any distribution to which
Securityholders would be entitled but for this Article 12 shall be made to
holders of such Senior Indebtedness as their interests may appear, except
that Securityholders may receive shares of stock and any debt securities of
such Subsidiary Guarantor that are subordinated to Senior Indebtedness, and
to any debt securities received by holders of Senior Indebtedness, of such
Subsidiary Guarantor to at least the same extent as the Obligations of such
Subsidiary Guarantor are subordinated to Senior Indebtedness of such
Subsidiary Guarantor.
SECTION 12.03. Default on Senior Indebtedness of Subsidiary
--------------------------------------------
Guarantor. No Subsidiary Guarantor may make any payment pursuant to any of its
- ---------
Obligations or repurchase, redeem or otherwise retire or defease any Securities
or other Obligations (collectively, "pay its Subsidiary Guaranty") if (i) any
Designated Senior Indebtedness of the Company is not paid when due or (ii) any
other default on Designated Senior Indebtedness of the Company occurs and the
maturity of such Designated Senior Indebtedness is accelerated in accordance
with its terms unless, in either case, (x) the default has been cured or waived
and any such acceleration has been rescinded or (y) such Designated Senior
Indebtedness has been paid in full; provided, however, that any Subsidiary
-------- -------
Guarantor may pay its Subsidiary Guaranty without regard to the foregoing if
such Subsidiary Guarantor and the Trustee receive written notice approving such
payment from the Representatives of the Designated Senior Indebtedness. No
Subsidiary Guarantor may pay its Subsidiary Guaranty during the continuance of
any Payment Blockage Period after receipt by the Company and the Trustee of a
Payment Notice under Section 10.03.
<PAGE>
89
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this Section),
unless the holders of Designated Senior Indebtedness giving such Payment Notice
or the Representative of such holders shall have accelerated the maturity of
such Designated Senior Indebtedness, any Subsidiary Guarantor may resume
payments pursuant to its Subsidiary Guaranty after such Payment Blockage
Period.
SECTION 12.04. Demand for Payment. If a demand for payment is made
------------------
on a Subsidiary Guarantor pursuant to Article 11, the Trustee shall promptly
notify the holders of the Designated Senior Indebtedness (or their
Representatives) of such demand.
SECTION 12.05. When Distribution Must Be Paid Over. If a
-----------------------------------
distribution is made to Securityholders that because of this Article 12 should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of the relevant Senior Indebtedness and pay
it over to them or their Representatives as their interests may appear.
SECTION 12.06. Subrogation. After all Senior Indebtedness of a
-----------
Subsidiary Guarantor is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to Senior Indebtedness. A
distribution made under this Article 12 to holders of such Senior Indebtedness
which otherwise would have been made to Securityholders is not, as between the
relevant Subsidiary Guarantor and Securityholders, a payment by such Subsidiary
Guarantor on such Senior Indebtedness.
SECTION 12.07. Relative Rights. This Article 12 defines the relative
---------------
rights of Securityholders and holders of Senior Indebtedness of a Subsidiary
Guarantor. Nothing in this Indenture shall:
(1) impair, as between a Subsidiary Guarantor and Securityholders,
the obligation of such Subsidiary Guarantor, which is absolute and
unconditional, to pay the Obligations to the extent set forth in Article 11
or the relevant Subsidiary Guaranty; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a default by such Subsidiary Guarantor under the
Obligations, sub-
<PAGE>
90
ject to the rights of holders of Senior Indebtedness of such Subsidiary
Guarantor to receive distributions otherwise payable to Securityholders.
SECTION 12.08. Subordination May Not Be Impaired by Company. No
--------------------------------------------
right of any holder of Senior Indebtedness of any Subsidiary Guarantor to
enforce the subordination of the Obligations of such Subsidiary Guarantor shall
be impaired by any act or failure to act by such Subsidiary Guarantor or by its
failure to comply with this Indenture.
SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding
----------------------------------
Section 12.03, the Trustee or Paying Agent may continue to make payments on any
Subsidiary Guaranty and shall not be charged with knowledge of the existence of
facts that would prohibit the making of any such payments unless, not less than
two Business Days prior to the date of such payment, a Trust Officer of the
Trustee receives written notice satisfactory to it that payments may not be
made under this Article 12. The Company, the relevant Subsidiary Guarantor, the
Registrar or co-registrar, the Paying Agent, a Representative or a holder of
Senior Indebtedness of any Subsidiary Guarantor may give the notice; provided,
--------
however, that, if an issue of Senior Indebtedness of any Subsidiary Guarantor
- -------
has a Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not the Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 12 with respect to any Senior Indebtedness of any Subsidiary Guarantor
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any
of its rights as such holder. Nothing in this Article 12 shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 7.07.
SECTION 12.10. Distribution or Notice to Representative. Whenever a
----------------------------------------
distribution is to be made or a notice given to holders of Senior Indebtedness
of any Subsidiary Guarantor, the distribution may be made and the notice given
to their Representative (if any).
SECTION 12.11. Article 12 Not To Prevent Defaults Under a Subsidiary
-----------------------------------------------------
Guaranty or Limit Right To Demand
- ---------------------------------
<PAGE>
91
Payment. The failure to make a payment pursuant to a Subsidiary Guaranty by
- -------
reason of any provision in this Article 12 shall not be construed as preventing
the occurrence of a default under such Subsidiary Guaranty. Nothing in this
Article 12 shall have any effect on the right of the Securityholders or the
Trustee to make a demand for payment on any Subsidiary Guarantor pursuant to
Article 11 or the relevant Subsidiary Guaranty.
SECTION 12.12. Trustee Entitled To Rely. Upon any payment or
------------------------
distribution pursuant to this Article 12, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 12.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness of any Subsidiary Guarantor for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
such Senior Indebtedness and other indebtedness of such Subsidiary Guarantor,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 12. In the
event that the Trustee determines, in good faith, that evidence is required with
respect to the right of any Person as a holder of Senior Indebtedness of any
Subsidiary Guarantor to participate in any payment or distribution pursuant to
this Article 12, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
of such Subsidiary Guarantor held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article 12, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the rights of such Person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article 12.
SECTION 12.13. Trustee to Effectuate Subordination. Each
-----------------------------------
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and
<PAGE>
92
the holders of Senior Indebtedness of any Subsidiary Guarantor as provided in
this Article 12 and appoints the Trustee as attorney-in-fact for any and all
such purposes.
SECTION 12.14. Trustee Not Fiduciary for Holders of Senior
-------------------------------------------
Indebtedness of Subsidiary Guarantor. The Trustee shall not be deemed to owe any
- ------------------------------------
fiduciary duty to the holders of Senior Indebtedness of any Subsidiary Guarantor
and shall not be liable to any such holders of it shall mistakenly pay over or
distribute to Securityholders or the Company or any other Person, money or
assets to which any holders of such Senior Indebtedness shall be entitled by
virtue of this Article 12 or otherwise.
SECTION 12.15. Reliance by Holders of Senior Indebtedness on
---------------------------------------------
Subordination Provisions. Each Securityholder by accepting a Security
- ------------------------
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness of any Subsidiary Guarantor, whether such Senior Indebtedness was
created or acquired before or after the issuance of the Securities, to acquire
and continue to hold, or to continue to hold, such Senior Indebtedness and such
holder of Senior Indebtedness shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness.
ARTICLE 13
Miscellaneous
------------
SECTION 13.01. Trust Indenture Act Controls. If any provision of
----------------------------
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 13.02. Notices. Any notice or communication shall be in
-------
writing and delivered in person, or sent by registered or certified mail, by air
courier guaranteeing
<PAGE>
93
overnight delivery or by fax (promptly confirmed by telephone) and addressed as
follows:
if to the Company or any Subsidiary Guarantor:
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
Attention: Chief Financial Officer
Phone: (317) 778-6499
Fax: (317) 778-6424
if the Trustee:
National City Bank of Indiana
101 West Washington Street
Suite 655 South
Indianapolis, IN 46255
Attention: Corporate Trust Department
Phone: (317) 267-8872
Fax: (317) 267-7658
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is given in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communication by Holders with Other Holders.
-------------------------------------------
Securityholders may communicate pursuant to TIA (S)312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S)312(c).
SECTION 13.04. Certificate and Opinion as to Conditions
----------------------------------------
Precedent. Upon any request or application by
- ---------
<PAGE>
94
the Company to the Trustee to take or refrain from taking any action under this
Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06. When Securities Disregarded. In determining
---------------------------
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent, Securities owned by the Company
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company shall be disregarded and
deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be
<PAGE>
95
protected in relying on any such direction, waiver or consent, only Securities
which the Trustee knows are so owned shall be so disregarded. Also, subject to
the foregoing, only Securities outstanding at the time shall be considered in
any such determination.
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The
--------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday,
--------------
a Sunday or a day on which banking institutions are not required to be open in
the State of New York. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 13.09. Governing Law. This Indenture and the Securities
-------------
shall be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 13.10. No Recourse Against Others. A director, officer,
--------------------------
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 13.11. Successors. All agreements of the Company in this
----------
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 13.12. Multiple Originals. The parties may sign any
------------------
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough to
prove this Indenture.
<PAGE>
96
SECTION 13.13. Table of Contents; Headings. The table of
---------------------------
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
DELCO REMY INTERNATIONAL, INC.,
by /s/ Thomas J. Snyder
------------------------------------
Name: Thomas J. Snyder
Title: President
SUBSIDIARY GUARANTORS:
DELCO REMY AMERICA, INC.,
by /s/ Thomas J. Snyder
------------------------------------
Name: Thomas J. Snyder
Title: President
REMY INTERNATIONAL, INC.,
by /s/ Thomas J. Snyder
------------------------------------
Name: Thomas J. Snyder
Title: President
REMAN HOLDINGS, INC.,
by /s/ Thomas J. Snyder
------------------------------------
Name: Thomas J. Snyder
Title: President
<PAGE>
NABCO, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
THE A&B GROUP, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
A&B ENTERPRISES, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
DALEX, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
A&B CORES, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
R&L TOOL COMPANY, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
<PAGE>
MCA, INC. OF MISSISSIPPI,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
POWER INVESTMENTS, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
FRANKLIN POWER PRODUCTS, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
INTERNATIONAL FUEL SYSTEMS, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
MARINE DRIVE SYSTEMS, INC.,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
MARINE CORPORATION OF AMERICA,
by
/s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
<PAGE>
99
POWRBILT PRODUCTS, INC.,
by /s/ David L. Harbert
------------------------------
Name: David L. Harbert
Title: Vice President
NATIONAL CITY BANK OF INDIANA,
by /s/ Ann Forey
------------------------------
Name: Ann Forey
Title: AVP & Trust Officer
<PAGE>
APPENDIX A
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A,
INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501 (A) (1), (2), (3)
OR (7) AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON
REGULATIONS.
PROVISIONS RELATING TO INITIAL SECURITIES
-----------------------------------------
AND EXCHANGE SECURITIES
-----------------------
1. Definitions
-----------
1.1 Definitions
-----------
For the purposes of this Appendix A the following terms shall have the
meanings indicated below:
"Definitive Security" means a certificated Initial Security bearing
the restricted securities legend set forth in Section 2.3(d) and which is held
by an IAI in accordance with Section 2.1(c).
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Securities" means the 10-5/8% Senior Subordinated Notes Due
2006 to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to the Registration Agreement.
"IAI" means an institutional "accredited investor" as described in
Rule 501(a) (1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" means Salomon Brothers Inc and Smith Barney Inc.
"Initial Securities" means the 10-5/8% Senior Subordinated Notes Due
2006, issued under this Indenture on or about the date hereof.
"Purchase Agreement" means the Purchase Agreement dated July 26,
1996, among the Company, the Subsidiary Guarantor and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Registered Exchange Offer" means the offer by the Company, pursuant
to the Registration Agreement, to certain
<PAGE>
2
Holders of Initial Securities, to issue and deliver to such Holders, in exchange
for the Initial Securities, a like aggregate principal amount of Exchange
Securities registered under the Securities Act.
"Registration Agreement" means the Registration Agreement dated July 26,
1996, among the Company, the Subsidiary Guarantors and the Initial Purchasers.
"Securities" means the Initial Securities and the Exchange Securities,
treated as a single class.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depository), or any successor person thereto and
shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement issued
by the Company in connection with the offer and sale of Initial Securities
pursuant to the Registration Agreement.
"Transfer Restricted Securities" means Definitive Securities and
Securities that bear or are required to bear the legend set forth in Section
2.3(d) hereto.
1.2 Other Definitions
-----------------
<TABLE>
<CAPTION>
Defined in
----------
Term Section:
---- -------
<S> <C>
"Agent Members"....................................................... 2.1(b)
"Global Security"..................................................... 2.1(a)
"Regulation S"........................................................ 2.1(a)
"Rule 144A"........................................................... 2.1(a)
</TABLE>
2. The Securities
--------------
2.1 Form and Dating
---------------
The Initial Securities are being offered and sold by the Company
pursuant to the Purchase Agreement.
(a) Global Securities. Initial Securities offered and sold to a QIB in
-----------------
reliance to Rule 144A under the
<PAGE>
3
Securities Act ("Rule 144A") or in reliance on Regulation S under the Securities
Act ("Regulation S"), in each case as provided in the Purchase Agreement, shall
be issued initially in the form of one or more permanent global Securities in
definitive, fully registered form without interest coupons with the global
securities legend and restricted securities legend set forth in Exhibit 1 hereto
(each, a Global Security"), which shall be deposited on behalf of the purchasers
of the Initial Securities represented thereby with the Trustee, as custodian for
the Depository (or with such other custodian as the Depository may direct), and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as provided in the
Indenture. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depository or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to
---------------------
a Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b) and pursuant to an order of the Company, authenticate and
deliver initially one or more Global Securities that (a) shall be registered in
the name of the Depository for such Global Security or Global Securities or the
nominee of such Depository and (b) shall be delivered by the Trustee to such
Depository or pursuant to such Depository's instructions or held by the Trustee
as custodian for the Depository.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depository or by the Trustee as the custodian of the
Depository or under such Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customer practices of
such Depository governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
<PAGE>
4
(c) Definitive Securities. Except as provided in this Section 2.1
---------------------
or Section 2.3 or 2.4, owners of beneficial interests in Global Securities will
not be entitled to receive physical delivery of certificated Securities.
Purchasers of Initial Securities who are IAI's and are not QIBs and did not
purchase Initial Securities sole in reliance on Regulation S will receive
Definitive Securities, provided, however, that upon transfer of such Definitive
-------- -------
Securities to a QIB, such Definitive Securities will, unless the Global Security
has previously been exchanged, be exchanged for an interest in a Global Security
pursuant to the provisions of Section 2.3.
2.2 Authentication. The Trustee shall authenticate and deliver:
--------------
(1) Initial Securities for original issue in an aggregate principal amount of
$140,000,000 and (2) Exchange Securities for issue only in a Registered Exchange
Offer pursuant to the Registration Agreement, for a like principal amount of
Initial Securities, upon a written order of the Company signed by two Officers
or by an Officer and either an Assistant Treasurer or an Assistant Secretary of
the Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated and whether the Securities are to be Initial Securities or
Exchange Securities. The aggregate principal amount of Securities outstanding
at any time may not exceed $140,000,000, except as provided in Section 2.07 of
this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive
--------------------- -----------------------------------
Securities. When Definitive Securities are presented to the Registrar or a
- ----------
co-registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
- -------- -------
exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar
or
<PAGE>
5
co-registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act, pursuant to Section 2.3(b) or
pursuant to clause (A), (B) or (C) below, and are accompanied by the following
additional information and documents, as applicable:
(A) if such Definitive Securities are being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect (in
the form set forth on the reverse of the Security); or
(B) if such Definitive Securities are being transferred to
the Company, a certification to that effect (in the form set forth on
the reverse of the Security); or
(C) if such Definitive Securities are being transferred
pursuant to an exemption from registration in accordance with
Rule 144, (i) a certification to that effect (in the form set forth
on the reverse of the Security) and (ii) if the Company or Registrar
so requests, on opinion of counsel or other evidence reasonably
satisfactory to them as to the compliance with the restrictions set
forth in the legend set forth in Section 2.3(d)(i).
(b) Registrations on Transfer of a Definitive Security for a
--------------------------------------------------------
Beneficial Interest in a Global Security. A Definitive Security may not be
- ----------------------------------------
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments or transfer, in form satisfactory to the Trustee, together with:
(i) certification, in the form set forth on the reverse of the
Security, that such Definitive Security is being transferred (A) to a QIB
in accordance with Rule 144A, or (B) outside the United States in an
offshore transaction within the meaning of Regulation S and in compliance
with Rule 904 under the Securities Act; and
<PAGE>
6
(ii) written instructions directing the Trustee to make, or to
direct the Securities Custodian to make, an adjustment on its books and
records with respect to such Global Security to reflect an increase in the
aggregate principal amount of the Securities represented by the Global
Security, such instructions to contain information regarding the Depositary
account to be credited with such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased by the aggregate principal amount of the Definitive Security to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Security
equal to the principal amount of the Definitive Security so cancelled. If no
Global Securities are then outstanding and the Global Security has not been
previously exchanged pursuant to Section 2.4, the Company shall issue and the
Trustee shall authenticate, upon written order of the Company in the form of an
Officers' Certificate, a new Global Security in the appropriate principal
amount.
(c) Transfer and Exchange of Global Securities. (i) The transfer
------------------------------------------
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depository therefor. A transferor of a beneficial interest in a Global
Security shall deliver to the Registrar a written order given in accordance with
the Depositary's procedures containing information regarding the participant
account of the Depositary to credited with a beneficial interest in the Global
Security. The Registrar shall, in accordance with such instructions instruct
the Depositary to credit to the account of the Person specified in such
instructions a beneficial interest in the Global Security and to debit the
account of the Person making the transfer the beneficial interest in the Global
Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix A (other
than the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the
<PAGE>
7
Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository.
(iii) In the event that a Global Security is exchanged for Securities
in definitive registered form pursuant to Section 2.4 prior to the
consummation of a Registered Exchange Offer or the effectiveness of a Shelf
Registration Statement with respect to, such Securities may be exchanged
only in accordance with such procedures as are substantially consistent
with the provisions of this Section 2.3 (including the certification
requirements set forth on the reverse of the Initial Securities intended to
ensure that such transfers comply with Rule 144A or Regulation S, as the
case may be) and such other procedures as may from time to time be adopted
by the Company.
(d) Legend.
------
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or
in substitution thereof) shall bear a legend in substantially the following
form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY
NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE THIRD
ANNIVERSARY OF THE ISSUANCE HEREOF (OR A PREDECESSOR SECURITY HERETO) OR
(Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING
THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER
THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE RESALE PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A
(AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT
<PAGE>
8
(AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE ON
THE REVERSE OF THIS SECURITY), AND, IF SUCH TRANSFER IS BEING EFFECTED BY
CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE (AS DEFINED BELOW) PRIOR TO
THE EXPIRATION OF THE "40 DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF
RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT), A CERTIFICATE
WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE, (4) TO AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED
BY THE TRANSFEROR ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A
CERTIFICATE, WHICH MAY BE OBTAINED FROM THE TRUSTEE, IS DELIVERED BY THE
TRANSFEREE TO THE COMPANY AND THE TRUSTEE (PROVIDED THAT CERTAIN HOLDERS
SPECIFIED IN THE INDENTURE MAY NOT TRANSFER THIS SECURITY PURSUANT TO THIS
CLAUSE (4) PRIOR TO THE EXPIRATION OF THE "40 DAY RESTRICTED PERIOD"
(WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES
ACT), (5) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES
ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES, AN INSTITUTIONAL ACCREDITED
INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE COMPANY AND
THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY
REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH
THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S.
PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT
SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OR RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT."
Each Definitive Security will also bear the following additional
legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH
<PAGE>
9
CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY
REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS."
(ii) Upon any sale of transfer of a Transfer Restricted Security
including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Security that is
a Definitive Security, the Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Security for a Definitive
Security that does not bear the legend set forth above the rescind
any restriction on the transfer of such Transfer Restricted Security;
and
(B) in the case of any Transfer Restricted Security that is
represented by a Global Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security for a
Definitive Security that does not bear the legend set forth above and
rescind any restriction on the transfer of such Transfer Restricted
Security,
in either case, if the Holder certifies in writing to the Registrar that its
request for such exchange was made in reliance on Rule 144 (such certification
to be in the form set forth on the reverse of the Initial Security).
(iii) After a transfer of any Initial Securities during the period
of the effectiveness of a Shelf Registration Statement with respect to such
Initial Securities, all requirements pertaining to legends on such Initial
Security will cease to apply, the requirements requiring any such Initial
Security issued to certain Holders be issued in global form will cease to
apply, and an Initial Security in certificated or global form without
legends will be available to the transferee of the Holder of such Initial
Securities upon exchange of such transferring Holder's certificated Initial
Security. Upon the occurrence of any of the circumstances described in this
paragraph, the Company will deliver an Officers' Certificate to the Trustee
instructing the Trustee to issue Securities without legends.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to
<PAGE>
Exhibit 10.14
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
IN THE ABSENCE OF (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS HAVING BECOME EFFECTIVE WITH REGARD THERETO, OR
(ii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS.
THIS NOTE IS SUBJECT TO THE TERMS AND PROVISIONS OF THE SUBORDINATION AGREEMENT
EXECUTED BY HOLDER IN FAVOR OF THE CIT GROUP/BUSINESS CREDIT, INC., AS AGENT,
AND WORLD SUBORDINATED DEBT PARTNERS, L.P.
DRA, INC.
CONTINGENT PURCHASE PRICE NOTE
This Note is being delivered by DRA, Inc., a Delaware corporation (the
"Corporation") to General Motors Corporation, a Delaware corporation ("GM") in
connection with the Asset Purchase Agreement dated July 13, 1994 (the "Asset
Purchase Agreement") among the Corporation, GM and DR International, Inc., a
Delaware corporation and parent of the Corporation ("DRI"). In addition to the
purchase price consideration to be paid to GM by DRA under the Asset Purchase
Agreement, the Corporation (which term includes any successor corporation), for
value received, hereby promises to pay to GM or permitted assigns ("Holder"),
the contingent purchase price payment described on Exhibit A attached hereto,
without interest. Any payments to be made hereunder shall be paid on such dates
as are specified on Exhibit A.
This Note shall be binding upon the successors and assigns of the Corporation
and shall inure to the benefit of the successors and permitted assigns of the
Holder. The Holder may assign, transfer or dispose of its rights with respect to
this Note only upon registration of this Note under the Securities Act of 1933,
as amended (the "Securities Act") and any applicable state securities laws, or
the existence of an exemption from such registration and subject to the
provisions of the Subordination Agreement (as hereinafter defined).
1. Method of Payment.
-----------------
Payments hereunder may be mailed to the Holder's registered address. The
Corporation will pay amounts due hereunder in money of the United States that at
the time of payment is legal tender for payment of public and private debts
(payment may be made by check payable in such money). If a payment date is a
Saturday, a Sunday or a legal holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Saturday, a Sunday or a
legal holiday.
<PAGE>
2. Subordination.
-------------
The Holder and the Corporation covenant and agree that to the extent
and in the manner set forth in the Subordination Agreement dated as of July 31,
1994 (the "Subordination Agreement") among the Holder, the Corporation, The CIT
Group/Business Credit, Inc., as agent, and World Subordinated Debt Partners,
L.P., the payment of the amounts due under this Note, and all other sums due and
payable by the Corporation to the Holder hereunder are hereby expressly made
subordinate and subject in right of payment to the prior final and indefeasible
payment in full of all Senior Debt as provided in the Subordination Agreement.
3. Events of Default.
-----------------
(a) An "Event of Default" occurs if at any time after July 31, 2004:
(i) the Corporation defaults in the payment of amounts due under
this Note when the same become due and the default continues for a period of 30
days, whether or not such payment shall be prohibited by the provisions of
Section 2 hereof;
(ii) the Corporation or any subsidiary of the Corporation whose
assets are 10% or more of the total assets of the Parent on a consolidated
basis or whose revenues provided 10% or more of the Parent's net pre-tax
consolidated income (a "Significant Subsidiary"), pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceedings,
(B) consents to the entry of an order for relief against
it in an involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) generally is unable to pay its debts as they become due;
or
(iii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Corporation or
-2-
<PAGE>
any Significant Subsidiary in an involuntary case or proceeding,
(B) appoints a Custodian of the Corporation or any
Significant Subsidiary or for all or substantially all of its
property, or
(C) orders the liquidation of the Corporation or any
Significant Subsidiary;
and in each case the order or decree remains unstayed and in effect for 45 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator, sequestrator or similar official under any
Bankruptcy Law.
(b) Acceleration. If an Event of Default (other than an Event of Default
------------
specified in clause (a) (ii) or (a) (iii) of Section 3) occurs and is
continuing, the Holder, by written notice to the Corporation (an "Acceleration
Notice"), may, subject to the provisions of the Subordination Agreement,
declare the unpaid amounts due under this Note to be immediately due and
payable. If an Event of Default specified in clause (a) (ii) or (a) (iii) of
Section 3 occurs, all amounts due under this Note outstanding shall ipso facto
----------
become and be immediately due and payable without any declaration or other act
on the part of the Holder. The Holder by written notice to the Corporation shall
rescind an acceleration and its consequences if (i) all existing Events of
Default, other than the nonpayment of amounts due under this Note which have
become due solely because of the acceleration, have been cured or waived and
(ii) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction.
(c) Other Remedies. Subject to the provisions of Section 2, if an Event
--------------
of Default occurs and is continuing, the Holder may pursue any available remedy
by proceeding at law or in equity to collect the payment of amounts due under
this Note or to enforce the performance of any provision of this Note.
A delay or omission by the Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All remedies are cumulative to the extent
permitted by law.
(d) Waiver of Past Defaults. Subject to Section 3(b), the Holder may
-----------------------
waive an existing default or Event of Default and its consequences. Upon any
such waiver, such default shall cease to exist, and any Event of Default arising
therefrom shall be
-3-
<PAGE>
deemed to have been cured for every purpose of this Note; but no such waiver
shall extend to any subsequent or other defaults or impair any right consequent
thereon.
4. Financial Statements. So long as any amounts remain outstanding
--------------------
hereunder, the Corporation shall deliver to Holder:
(a) as soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of DRI, consolidated
balance sheets of DRI and its subsidiaries as of the end of such period, and
consolidated statements of income and cash flows of the Corporation and its
subsidiaries for the period then ended prepared in conformity with generally
accepted accounting principles applied on a consistent basis (commencing with
the second fiscal year), except as otherwise noted therein, and subject to the
absence of footnotes and to year-end adjustments;
(b) as soon as available and in any event within 90 days after the end
of each fiscal year of DRI, a consolidated balance sheet of DRI and its
subsidiaries as of the end of such year, and consolidated statements of income
and cash flows of DRI and its subsidiaries for the year then ended prepared in
conformity with generally accepted accounting principles applied on a consistent
basis (commencing with the second fiscal year), except as otherwise noted
therein, together with an auditor's report thereon of a firm of established
national reputation;
provided, however, that all information provided to Holder shall be kept
- -------- -------
confidential and shall in no event be disclosed (in whole or in part, including
summaries of such information prepared by Holder) to any person (including
without limitation General Motor's Worldwide Purchasing Organization and/or
Service Parts Operations or any successor organization or division thereto)
other than those persons who are responsible for the administration of this Note
at General Motors Corporation;
(c) together with each delivery of financial statements of DRI and its
subsidiaries pursuant to clauses (a) and (b) above, an Officers' Certificate of
the Corporation stating that the signers have reviewed the terms of this Note
and have made or caused to be made under their supervision, a review in
reasonable caused to be made under their supervision, a review in reasonable
detail of the results of operations and financial condition of DRI and its
subsidiaries during the accounting period covered by such financial statements
and that such review has not disclosed the existence at the end of such
accounting period, and that the signers do not have knowledge of the existence
as at the date of the Officers' Certificate, of any condition or event which
constitutes an Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Corporation has taken, is taking and
-4-
<PAGE>
proposes to take with respect thereto; and
(d) promptly upon the occurrence of any Event of Default, an Officer's
Certificate of the Corporation setting forth the details thereof and the action
which the Corporation is taking or proposes to take with respect thereto.
5. Amendment and Waiver.
--------------------
Subject to the exception set forth below, this Note may be amended
with the consent of the Holder and any past default or compliance with any
provision may be waived in a particular instance with the consent of the Holder.
An amendment under this Section 5 may not make any change that
affects the rights under Section 2 of any holder of an issue of Senior
Indebtedness unless the holders of the issue pursuant to its terms consent to
the change.
After an amendment under this Section 5 becomes effective, the
Corporation shall mail to the Holder a notice briefly describing the amendment.
6. Denominations; Transfer and Exchange.
------------------------------------
When this Note is presented to the Corporation with a request to
register the transfer, the Corporation shall register a transfer as requested,
if the requirements for such transfer are met; provided, however, that if this
------------------
Note is presented or surrendered for registration of transfer or exchange it
shall be duly endorsed or be accompanied by a written instrument of transfer in
form satisfactory to the Corporation duly executed by the Holder or his attorney
duly authorized in writing. The Corporation may charge a reasonable fee for any
transfer or exchange and may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto.
7. Replacement Note.
----------------
If a mutilated Note is surrendered to the Corporation or if the Holder of
this Note presents evidence to the reasonable satisfaction of the Corporation
that this Note has been lost, destroyed or wrongfully taken, the Corporation
shall issue a replacement Note of like tenor if the requirements of this
paragraph are met. An indemnity bond may be required that is sufficient in the
reasonable judgment of the Corporation to protect the Corporation from any loss
which it may suffer. The Corporation may charge for its expenses in replacing
this Note.
-5-
<PAGE>
8. No Recourse Against Others.
--------------------------
No director, officer, employee or stockholder, as such, of the Corporation
shall have any liability for any obligations of the Corporation under this Note
or for any claim based on, in respect or by reason of, such obligations or their
creation. The Holder by accepting this Note waives and releases all such
liability. This waiver and release are part of the consideration for the issue
of this Note.
9. Notice.
------
All notices, requests, consents and demands shall be made in writing and
shall be given by registered or certified mail postage prepaid to the following:
if to the Corporation, at 2405 Columbus Ave., Anderson, Indiana, Attention:
Chief Financial Officer, with a required copy to Dechert Price & Rhoads, 4000
Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA 19103, Attention: G.
Daniel O'Donnell, Esquire or to such other address as may be furnished in
writing to the Holder; and if to the Holder, at 767 Fifth Avenue, New York, New
York 10153, Attention: Treasurer, with a required copy to General Motors Legal
Staff, New Center One Building, 3031 West Grand Blvd., Detroit, MI 48232,
Attention: General Counsel. Unless otherwise indicated herein, notices hereunder
shall be effective when delivered, if delivered personally, or, if sent by mail,
when sent.
10. Governing Law. This Note shall be deemed a contract under, and shall be
-------------
governed and construed in accordance with, the laws of the State of New York
without giving effect to principles of conflicts of laws.
11. Successors, etc.; Entire Agreement. This Note shall be binding upon and
----------------------------------
shall inure to the benefit of and be enforceable by the respective successors
and assigns of the Corporation and the registered Holder thereof. This Note and
the Subordination superseding all prior understandings and writings, with
respect to the indebtedness represented hereby.
12. Headings. The section headings of this Note are for convenience only
--------
and shall not affect the meaning or interpretation of this Note or any provision
hereof.
13. Waivers. The Corporation waives presentment, demand, protest and
-------
notice of dishonor and agrees that no extension or indulgence to the Corporation
or release or non-enforcement of any security, or release of any party, whether
with or without notice, shall affect the obligations of the Corporation.
- 6 -
<PAGE>
14. Reimbursements. The Corporation agrees to reimburse the Holder for
--------------
any and all costs and expenses (including, but not limited to, reasonable
attorneys' fees) incurred in collecting or attempting to collect this Note,
following any Event of Default which is continuing.
IN WITNESS WHEREOF, the Corporation has caused this Note to be executed.
Dated: July 31, 1994
DRA, INC.
By: /s/ James R. Gerrity
________________________
Executive Vice President
General Motors Corporation,
as Holder, hereby consents and
agrees to be bound by the
proviso set forth in Section 4
of this Note:
GENERAL MOTORS CORPORATION
By: /s/ Robert D. Feller
_______________________
Title: Attorney-in-Fact
____________________
Date: July 31, 1994
-7-
<PAGE>
Exhibit A
Contingent Purchase Price Payment
---------------------------------
GM shall be entitled to receive a contingent payment, equal to the product
of (a) the Capitalized Value (as hereinafter defined) times (b) the Applicable
Percentage (as hereinafter defined) (the "Contingent Payment"). The Contingent
Payment shall be paid in five equal consecutive annual installments; the first
such installment shall be paid on July 31, 2004 and the four remaining
installments shall be paid on each of the next four anniversary dates of such
date.
Terms used in this Exhibit A shall have the following meanings:
"Additional Investment" means any additional investment made by DRI, the
Corporation or any subsidiary of DRI or the Corporation whether financed in the
form of debt or equity, to fund any acquisitions made by DRI or the Corporation
or any subsidiary of DRI or the Corporation subsequent to the Closing Date and
shown as the initial investment in such subsidiary(s) or business(es) in DRI's,
the Corporation's or the applicable subsidiary's separate financial statements
for any one or more of the years ended, December 31, 2001, 2002, and 2003.
"Applicable Percentage" at any point in time shall mean the result
(expressed as a percentage) obtained by dividing 100,000 which number shall be
adjusted to give appropriate effect to any stock splits, reverse stock splits or
stock dividends affecting DRI's common stock after the Closing Date, by the
total number of shares of common stock of all classes of DRI or any successor
outstanding on a fully diluted basis as of the date or determination, excluding
any shares issued subsequent to July 31, 1994, to the extent that the proceeds
therefrom have been accounted for as Additional Investment.
"Average EBIT" shall mean the sum of EBIT for the three (3) years ended
December 31, 2001, 2002 and 2003, divided by three (3).
"Average Imputed Return" means the sum of the Imputed Return for the three
(3) years ended December 31, 2001, 2002 and 2003, divided by three (3).
"Capitalized Value" shall mean an amount determined by (a) multiplying (i)
the excess of Average EBIT over Average Imputed Return times (ii) five (5), and
-----
(b) deducting therefrom the Senior Obligations.
"Closing Date" shall mean the Closing Date as defined in the asset Purchase
Agreement.
<PAGE>
"EBIT" shall mean net income plus the provision for income taxes and
interest expense, plus or minus any extraordinary charges or credits or
nonrecurring charges or credits, as the case may be, including in the
determination of such net income, as reflected on DRI's audited consolidated
financial statements for the period in question.
"Imputed Return" for any year shall mean an amount determined by
multiplying (a) 0.175 times the Additional Investment times (b) the number of
days such investment(s) was outstanding during such year divided by 365.
"DRI" shall mean DR International, Inc., a Delaware corporation and parent
of the Purchaser.
"Senior Obligations" shall mean the sum of the outstanding principal plus
accrued but unpaid interest thereon of all senior, mezzanine, subordinated and
all other debt and redeemable preferred stock as reflected on the audited
consolidated balance sheet of DRI as of December 31, 2003, provided, however,
that Senior Obligations shall not include the outstanding balance of any of the
foregoing as of December 31, 2003 to the extent that the original proceeds from
such debt or redeemable preferred stock was accounted for as Additional
Investment.
<PAGE>
Exhibit 12.1
Delco Remy International, Inc.
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
For the Year Ended July 31
--------------------------------------------------------------
Pro Forma
1995 1996 1997 1997
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Earnings:
Income (loss) from continuing operations
before income taxes (benefit), preferred
dividend requirement of subsidiary and
minority interest............................. $ 18,569 $ 13,312 $ (10,737) $ 1,242
Total fixed charges........................... 21,076 31,346 42,842 36,770
Less preferred stock dividend requirement..... (2,328) (2,527) (2,747) --
Less interest capitalized during period....... -- (393) -- --
------------- -------------- ------------- -------------
Total earnings $ 37,317 $ 41,738 $ 29,358 $ 38,012
============= ============== ============= =============
Fixed charges:
Interest expense.............................. $ 18,432 $ 27,367 $ 38,774 $ 35,449
Interest capitalized during period............ -- 393 -- --
Preferred stock dividend requirement.......... 2,328 2,527 2,747 --
Implicit interest in rent expense............. 316 1,059 1,321 1,321
------------- -------------- ------------- -------------
Total fixed charges................................ $ 12,076 $ 31,348 $ 42,842 $ 36,770
============= ============== ============= =============
Ratio of earnings to fixed charges................. 1.8x 1.3x --(a) 1.0x
============= ============== ============= =============
</TABLE>
(a) The deficiency of earnings to fixed charges was $13.5 million.
Excluding the restructuring charge, the ratio of earnings to fixed charges would
have been 1.5x.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 10,050
<SECURITIES> 0
<RECEIVABLES> 113,119
<ALLOWANCES> 2,935
<INVENTORY> 164,417
<CURRENT-ASSETS> 324,144
<PP&E> 147,222
<DEPRECIATION> 26,858
<TOTAL-ASSETS> 570,569
<CURRENT-LIABILITIES> 168,842
<BONDS> 363,261
16,071
0
<COMMON> 9
<OTHER-SE> (8,545)
<TOTAL-LIABILITY-AND-EQUITY> 570,569
<SALES> 689,787
<TOTAL-REVENUES> 689,787
<CGS> 540,234
<TOTAL-COSTS> 540,234
<OTHER-EXPENSES> 124,056
<LOSS-PROVISION> 3,774
<INTEREST-EXPENSE> 38,774
<INCOME-PRETAX> (10,737)
<INCOME-TAX> (3,014)
<INCOME-CONTINUING> (10,263)
<DISCONTINUED> 1,682
<EXTRAORDINARY> 2,351
<CHANGES> 0
<NET-INCOME> (14,296)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
