Exhibit 10.6
PARTNERSHIP AGREEMENT
OF
DELCO REMY MEXICO, S. de ▇.▇. de C.V.
dated as of
April 17 , 1997
between
REMY MEXICO HOLDINGS, S. de ▇.▇. de C.V.
and
GCID AUTOPARTES, S.A. de C.V.
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................. 1
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Section 1.1 Definitions......................................... 1
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"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
i
"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
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ARTICLE II ORGANIZATION............................................... 10
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Section 2.1 Establishment of Partnership;.............................. 10
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Section 2.2 Bylaws; Conflict with Partnership Agreement................ 10
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Section 2.3 Principal Offices.......................................... 10
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Section 2.4 Capitalization............................................. 11
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Section 2.5 Subscriptions and JV Equity Contributions.................. 11
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Section 2.6 Additional Contributions................................... 12
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Section 2.7 Cash Contributions......................................... 15
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ii
Section 2.8 Organizational and Other Costs............................. 15
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Section 2.9 Bank Financing............................................. 16
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ARTICLE III PURPOSES; TERM OF COMPANY.................................. 16
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Section 3.1 Purposes................................................... 16
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Section 3.2 Term....................................................... 17
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ARTICLE IV PARTNERS................................................... 17
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Section 4.1 Partner Meetings........................................... 17
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Section 4.2 Voting..................................................... 17
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Section 4.3 Ouorum..................................................... 20
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Section 4.4 Action by Written Consent.................................. 20
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Section 4.5 Other Activities........................................... 20
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Section 4.6 Hiring of Employees........................................ 21
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ARTICLE V BOARD OF MANAGERS.......................................... 21
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Section 5.1 Number..................................................... 21
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Section 5.2 Meetings of the Board...................................... 22
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Section 5.3 Powers..................................................... 22
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Section 5.4 Ouorum..................................................... 22
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Section 5.5 Voting; Action by Written Consent.......................... 23
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ARTICLE VI OFFICERS................................................... 23
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Section 6.1 Officers................................................... 23
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Section 6.2 Powers..................................................... 23
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Section 6.3 Other Employment of Officers............................... 24
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Section 6.4 General Manager as Administrator-Manager................... 24
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ARTICLE VII LIABILITY AND INDEMNIFICATION.............................. 24
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Section 7.1 Liability.................................................. 24
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Section 7.2 Indemnification............................................ 24
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ARTICLE VIII ACCOUNTING AND DIVIDENDS................................... 25
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Section 8.1 Books; Auditor; Financial Statements; Fiscal Year.......... 25
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Section 8.2 Dividend Policy............................................ 26
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ARTICLE IX TRANSFER OF CORPORATE PARTS; RIGHT OF FIRST REFUSAL........ 27
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Section 9.1 Prior Consent.............................................. 27
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Section 9.2 Right of First Refusal..................................... 27
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Section 9.3 Transferees; New Partners.................................. 28
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iii
Section 9.4 Costs...................................................... 28
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ARTICLE X PUT AND CALL RIGHTS OF THE PARTNERS........................ 28
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Section 10.1 Put Right.................................................. 28
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Section 10.2 Call Right................................................. 28
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Section 10.3 Computation of Purchase Price.............................. 29
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Section 10.4 Payment.................................................... 30
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Section 10.5 Put/Call Rights If JF Investor Owns Less Than 10%.......... 31
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ARTICLE XI ADDITIONAL COVENANTS....................................... 32
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Section 11.1 The Closing................................................ 32
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Section 11.2 Operating Policy........................................... 33
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Section 11.3 Payment of DRI Receivables................................. 33
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Section 11.4 Consent to Assignment of SD License........................ 33
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Section 11.5 Debt Policy................................................ 33
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Section 11.6 Liens on Corporate Part of JF Investor..................... 34
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Section 11.7 Prior Actions of SCE, Etc.................................. 34
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Section 11.8 Company Employees.......................................... 34
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ARTICLE XII DISPUTE RESOLUTION......................................... 34
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Section 12.1 Notice Regarding Dispute................................... 34
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Section 12.2 Referral to Senior Executive Officers...................... 35
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Section 12.3 Arbitration................................................ 35
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Section 12.4 No Limitation of Remedies.................................. 36
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ARTICLE XIII TERMINATION FOR MATERIAL BREACH, ETC. ..................... 36
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Section 13.1 Termination................................................ 36
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Section 13.2 Put and Call Rights Prior to Termination................... 37
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Section 13.3 Effect of Termination...................................... 37
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ARTICLE XIV REPRESENTATIONS AND WARRANTIES............................. 38
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Section 14.1 Investment Representations................................. 38
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Section 14.2 Representations and Warranties of DR Investor.............. 38
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Section 14.3 Representations and Warranties of JF Investor.............. 39
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ARTICLE XV MISCELLANEOUS.............................................. 40
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Section 15.1 Public Announcements, Etc.................................. 40
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Section 15.2 Confidentiality............................................ 41
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Section 15.3 Relationship of the Parties................................ 41
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iv
Section 15.4 Agreement for Further Execution.......................... 41
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Section 15.5 Notices.................................................. 42
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Section 15.6 Amendments; No Waivers................................... 43
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Section 15.7 Successors and Assigns................................... 43
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Section 15.8 Governing Law; Consent to Jurisdiction................... 43
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Section 15.9 Illegality and Severability.............................. 43
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Section 15.10 Specific Performance..................................... 44
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Section 15.11 Captions................................................. 44
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Section 15.12 Counterparts; Effectiveness.............................. 44
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Section 15.13 Entire Agreement......................................... 44
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Section 15.14 Setoff................................................... 44
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v
List of Schedules and Exhibits
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
vi
PARTNERSHIP AGREEMENT
---------------------
OF
--
DELCO REMY MEXICO. S. de ▇.▇. 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 ▇.▇. de C.V., a Mexican company whose address is c/o
Delco Remy International, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
▇.▇.▇. ("DR Investor") and GCID AUTOPARTES, S.A. de C.V., a Mexican corporation
whose address is ▇▇▇ ▇▇▇ ▇▇. ▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ San ▇▇▇▇
Potosi, S.L.P., Mexico ("JF Investor"), to join together to establish Delco Remy
Mexico, S. de ▇.▇. 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,
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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,
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
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be amended from time to time in accordance with their terms .
Board: "Board" shall mean the Board of Managers of the Company.
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2
Closing: "Closing" shall mean the consummation of the transactions
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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
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Closing occurs.
Company: "Company" shall mean Delco Remy Mexico, S. de ▇.▇. de C.V.,
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a Mexican sociedad de responsabilidad limitada de capital variable.
Company's Business: "Company's Business" shall mean the business of
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the Company as described in Section 3.1.
Corporate Part: "Corporate Part" shall mean, as to any Partner, (i)
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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
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(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
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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
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.
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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
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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 ▇.▇. de C.V., in substantially the form of Exhibit C.
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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
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.
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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
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 ▇▇▇▇ de la Fuente, an individual whose address,
--
for the purposes of this Partnership Agreement and the Related Agreements, is
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
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.
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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.
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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
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
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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 ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, 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
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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
(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
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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
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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
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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
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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
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(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
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
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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
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(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
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G.
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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
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related sub-assemblies as listed on Schedule 2.
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9
Senior Officer: "Senior Officer" shall mean any individual approved
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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
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Agreement dated as of the Closing Date between PCo. and the Company, in
substantially the form of Exhibit H.
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Social Capital: "Social Capital" shall mean the portion of each
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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.
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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.
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TIA Agreement: "TIA Agreement" shall mean the Technology License,
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Technical Information and Assistance Agreement dated as of the Closing Date
among DRA, the Company and PCO., in substantially the form of Exhibit K.
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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.
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US Dollar: "US Dollar" or "US $" shall mean lawful money of the
---------
United States of America.
10
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:
Terms Sections
----- --------
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
11
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)
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
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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 ▇▇▇▇ 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 ▇▇▇▇ 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
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
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 ▇▇▇▇
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 ▇▇▇▇ 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
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
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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
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
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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
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
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
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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
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
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 ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 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
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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
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
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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
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
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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 ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 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
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
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
(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
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
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
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, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 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
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
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
(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
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
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
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
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
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
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
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
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 ▇▇▇▇ 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
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
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
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
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
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
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
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
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
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
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
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 ▇.▇. de C.V.
c/o Delco Remy International, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇.▇.▇.
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
50
with a copy to: Dechert Price & ▇▇▇▇▇▇
4000 ▇▇▇▇ Atlantic Tower
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: G. ▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
if to JF Investor or any administrator-
manager proposed by JF Investor:
GCID Autopartes, S.A. de C.V.
▇▇▇ ▇▇▇ ▇▇. ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ San ▇▇▇▇ Potosi, S.L.P.
Mexico
Attention: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy: ▇▇-▇▇-▇▇▇-▇▇▇
with a copy to: Little, Pedersen, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇.▇.▇.
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopy: 214-573-2323
if to the Company: Delco Remy Mexico, S. de ▇.▇. de C.V.
▇▇▇ ▇▇▇ ▇▇. ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ San ▇▇▇▇ Potosi, S.L.P.
Mexico
Attention: General Manager
Telecopy: ▇▇-▇▇-▇▇▇-▇▇▇
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
(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
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
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
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 ▇.▇.
de C.V.
By: /s/ C. ▇▇▇▇▇▇ Pudgett
--------------------------------------
Name: C. ▇▇▇▇▇▇ Pudgett
Title: Legal Representative
GCID AUTOPARTS, S.A. de C.V.
By: /s/ [SIGNATURE APPEARS HERE]
--------------------------------------
Name: [COPY ILLEGIBLE]
Title: Legal Representative
55
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
GUARANTY
The undersigned party (the "Guarantor") unconditionally guarantees the
performance of all obligations of Remy Mexico Holdings, S. de ▇.▇. 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 ▇▇▇ 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
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/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Operating
Officer
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
SCHEDULE 2
SD Motors and Sub-Assemblies
(a) Final Assemblies
Part Part Number
---- -----------
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
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
SCHEDULE 3
Consents
--------
None.