Underwriting Agreement

EXHIBIT 10.2


4,000,000 Shares


DELCO REMY INTERNATIONAL, INC.


CLASS A COMMON STOCK ($.01 PAR VALUE)


UNDERWRITING AGREEMENT


December 17, 1997


December 17, 1997


Morgan Stanley & Co. Incorporated Credit Suisse First Boston Corporation Smith Barney Inc. c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036


Dear Sirs and Mesdames:


Delco Remy International, Inc., a Delaware corporation (the "COMPANY"), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the "UNDERWRITERS") 4,000,000 shares of its Class A Common Stock ($.01 par value) (the "FIRM SHARES"). The Company also proposes to issue and sell to the several Underwriters not more than an additional 600,000 shares of its Class A Common Stock ($.01 par value) (the "ADDITIONAL SHARES") if and to the extent that you shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of common stock granted to the Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "SHARES." The shares of Class A Common Stock ($.01 par value) of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "COMMON STOCK."


The Company has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement, including a prospectus, relating to the Shares. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS." If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b)


under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement.


As part of the offering contemplated by this Agreement, Morgan Stanley & Co. Incorporated ("MORGAN STANLEY") has agreed to reserve out of the Shares set forth opposite its name on Schedule I to this Agreement, up to 278,870 shares, for sale to the Company's employees, officers and directors and certain other parties designated by the Board of Directors of the Company (collectively, the "PARTICIPANTS"), as set forth in the Prospectus under the heading "Underwriters" (the "DIRECTED SHARE PROGRAM"). The Shares to be sold by Morgan Stanley pursuant to the Directed Share Program (the "DIRECTED SHARES") will be sold by Morgan Stanley pursuant to this Agreement at the Public Offering Price (as defined). Any Directed Shares not orally confirmed for purchase by any Participants by the end of the first business day after the date on which this Agreement is executed will be offered to the public by Morgan Stanley as set forth in the Prospectus.


1. Representations and Warranties. The Company represents and
------------------------------- warrants to and agrees with each of the Underwriters that:


(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.


(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply
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to statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein.


(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.


(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims. As of the Closing Date (as
defined), references in this Agreement to "SUBSIDIARIES" of the Company
shall be deemed to include Ballantrae Corporation ("BALLANTRAE"), Tractech,
Inc. ("TRACTECH") and Kraftube, Inc. ("KRAFTUBE"), notwithstanding that the
Company may not have consummated its acquisition of Ballantrae prior to the
Closing Date.


(e) This Agreement has been duly authorized,
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executed and delivered by the Company.


(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus; and the
Shares have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.


(g) All shares of Common Stock and Class B Common Stock ($.01 par
value) of the Company (the "CLASS B COMMON STOCK" and, together with the
Common Stock, the "CAPITAL STOCK") outstanding prior to the issuance of the
Shares have been duly authorized and are validly issued, fully paid and
non-assessable.


(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.


(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.


(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the
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date of this Agreement).


(k) There are no legal or governmental proceedings pending or, to the
best of the Company's knowledge, threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.


(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.


(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.


(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries,
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taken as a whole.


(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.


(p) There are no contracts, agreements or understandings between the
Company or any of its subsidiaries and any person granting such person the
right to require the Company or any such subsidiary to file a registration
statement under the Securities Act with respect to any securities of the
Company or such subsidiary (except as described in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement)) or to require the Company or any such subsidiary to
include such securities with the Shares registered pursuant to the
Registration Statement.


(q) Except as expressly described in the Prospectus, subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, (1) the Company and its subsidiaries have not
incurred any material liability or obligation, direct or contingent, nor
entered into any material transaction not in the ordinary course of
business; (2) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of
any kind on its capital stock other than ordinary and customary dividends;
and (3) there has not been any material change in the capital stock, short-
term debt or long-term debt of the Company and its consolidated
subsidiaries, except in each case as described in or contemplated by the
Prospectus.


(r) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and valid title to all personal property
owned by them which is material to the business of the Company and
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its subsidiaries, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do
not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and
its subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, in each case except as
described in or contemplated by the Prospectus.


(s) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole.


(t) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in or contemplated by
the Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.


(u) The Company and each of its subsidiaries are
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insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would
not materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, except as described in or contemplated by
the Prospectus.


(v) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate Federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received
any notice of proceedings relating to the revocation or modification of any
such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, except as described in or contemplated
by the Prospectus.


(w) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's general
or specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (3)
access to assets is permitted only in accordance with management's general
or specific authorization; and (4) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
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(x) The fourth amended and restated financing agreement (together
with all other documents and agreements entered into in connection
therewith, the "CREDIT AGREEMENT") relating to the Senior Credit Facility
(as defined in the Prospectus) has been executed and delivered by the
parties thereto and is in full force and effect, and the Underwriters have
received conformed counterparts of the Credit Agreement. There exists, and
at and as of the Closing Date (after giving effect to the actions
contemplated hereby and to the other Transactions (as defined in the
Prospectus)) shall exist, no condition that would constitute a default (or
an event that with notice or lapse of time, or both, would constitute a
default) under the Senior Credit Facility.


Furthermore, the Company represents and warrants that (i) the Registration Statement, the Prospectus and any preliminary prospectus comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States.


2. Agreements To Sell and Purchase. The Company hereby agrees to
-------------------------------- sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedule I hereto opposite its name at $11.16 a share (the "PURCHASE PRICE").


On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Underwriters the Additional Shares, and the Underwriters shall have a one-time right to purchase, severally and not jointly, up to 600,000 Additional Shares at the Purchase Price. If you, on
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behalf of the Underwriters, elect to exercise such option, you shall so notify the Company in writing not later than 30 days after the date of this Agreement, which notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. Such date may be the same as the Closing Date (as defined below) but not earlier than the Closing Date nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares.


The Company hereby agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Capital Stock or any securities convertible into or exercisable or exchangeable for Capital Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Capital Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Capital Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold hereunder, (B) the issuance by the Company of shares of Capital Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof of which the Underwriters have been advised in writing, (C) any options granted or shares of Capital Stock issued pursuant to benefit plans of the Company as in effect on the date of this Agreement, (D) any issuances to officers or employees of the Company of shares of Capital Stock pursuant to the Securities Purchase and Holders Agreement dated July 29, 1994, by and among the Company and the shareholders set
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forth therein or (E) the conversion, in accordance with the terms thereof, of shares of Common Stock into shares of Class B Common Stock, or of shares of Class B Common Stock into Common Stock.


3. Terms of Public Offering. The Company is advised by you that the
------------------------- Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at $12.00 a share (the "PUBLIC OFFERING PRICE") and to certain dealers selected by you at a price that represents a concession not in excess of $0.47 a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $0.10 a share, to any Underwriter or to certain other dealers.


4. Payment and Delivery. Payment for the Firm Shares shall be made
--------------------- to the Company in Federal funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on December 22, 1997, or at such other time on the same or such other date, not later than December 30, 1997, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "CLOSING DATE". The documents required to be delivered by this Agreement shall be delivered on the Closing Date at the offices of Dechert, Price & Rhoads, counsel for the Company, at 30 Rockefeller Plaza, New York, New York.


Payment for any Additional Shares shall be made to the Company in Federal funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the notice described in Section 2 or at such other time on the same or on such other date, in any event not later than February 2, 1998, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "OPTION CLOSING DATE".


Certificates for the Firm Shares and Additional Shares shall be in definitive form and registered in such names and in such denominations as you shall request in
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writing not later than one full business day prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and Additional Shares shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor.


5. Conditions to the Underwriters' Obligations. The of obligations
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