EXHIBIT 10.18
EXECUTION COPY
MEMBERS AGREEMENT
by and between
GRUPO INDUSTRIAL ZAGA, S.A. de C.V.
and
XXX RIVER INTERNATIONAL LTD.
Dated as of
January 5, 2000
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................................... 1
1.1 Definitions.................................................................... 1
1.2 Other References............................................................... 1
1.3 Governing Language............................................................. 2
ARTICLE II BASIC STRUCTURE OF COMPANY..................................................... 2
2.1 Formation of the Company....................................................... 2
2.2 Name........................................................................... 2
2.3 Place of Business.............................................................. 2
2.4 Purpose........................................................................ 2
ARTICLE III CAPITAL, CAPITAL INTERESTS AND FUNDING......................................... 3
3.1 Capital of the Company......................................................... 3
3.2 Mandatory Member Funding....................................................... 3
3.3 Priority Subscription Rights................................................... 3
3.4 Subscription................................................................... 3
ARTICLE IV BOARD OF MANAGERS.............................................................. 4
4.1 Board of Managers.............................................................. 4
4.2 Alternate Manager.............................................................. 4
4.3 Term and Vacancies............................................................. 4
4.4 Meetings and Agenda............................................................ 4
4.5 Quorum and Decisions........................................................... 5
4.6 Powers of the Board of Managers................................................ 5
4.7 Execution of Documents......................................................... 6
4.8 Compliance..................................................................... 6
4.9 Remuneration................................................................... 6
ARTICLE V MEETING OF MEMBERS............................................................. 6
5.1 Members Meeting................................................................ 6
5.2 Calling a Members Meeting; Agenda.............................................. 6
5.3 Related Matters................................................................ 7
5.4 Quorum for Members Meeting..................................................... 7
5.5 Voting Generally............................................................... 7
5.6 Ordinary Resolutions........................................................... 7
5.7 Extraordinary Resolutions...................................................... 8
ARTICLE VI BUY-SELL....................................................................... 9
6.1 Buy-Sell Notice................................................................ 9
6.2 Actions by Receiving Member.................................................... 9
6.3 Closing........................................................................ 9
ARTICLE VII COMPETITION.................................................................... 10
7.1 Competition.................................................................... 10
7.2 Restrictions on Competition.................................................... 10
ARTICLE VIII TRANSFERS...................................................................... 10
8.1 Restrictions on Capital Interest Transfers and Encumbrances and New Issues..... 10
8.2 Preferential Purchase Right......................................... 11
ARTICLE IX MANAGEMENT.......................................................... 13
9.1 Management.......................................................... 13
9.2 Operation of the Project............................................ 13
ARTICLE X REPORTING AND INFORMATION........................................... 13
10.1 Accounting; Fiscal Year; Tax Information............................ 13
10.2 Annual Financial Statements and Auditing............................ 14
10.3 Inspection and Other Information.................................... 14
10.4 Monthly Reports..................................................... 14
10.5 Tax Returns and Partnership Status.................................. 15
10.6 Submission of Annual and Three-Year Business Plans.................. 16
10.7 Approval of Annual Business Plan and Three-Year Business Plan....... 16
ARTICLE XI RESOLUTION OF DISPUTES.............................................. 16
11.1 Conciliation........................................................ 16
11.2 Agreement to Arbitrate.............................................. 17
11.3 Appointment of Arbitrators.......................................... 17
11.4 Authority of the Arbitrators........................................ 17
11.5 Place of Arbitration................................................ 18
11.6 Conduct of the Arbitration.......................................... 18
11.7 ICC Rules........................................................... 18
11.8 Payment of Award.................................................... 18
11.9 Finality of the Arbitrators' Award.................................. 18
11.10 Use of the Courts................................................... 18
11.11 Confidentiality..................................................... 18
11.12 Arbitration Provision Enforceable................................... 18
ARTICLE XII OBLIGATIONS OF THE PARTIES.......................................... 19
12.1 Observance of Laws.................................................. 19
12.2 Confidentiality..................................................... 19
12.3 Publicity........................................................... 20
ARTICLE XIII REPRESENTATIONS, WARRANTIES, AND LIABILITIES........................ 21
13.1 Representations and Warranties...................................... 21
13.2 Limitation on Liability............................................. 22
ARTICLE XIV TERMINATION......................................................... 22
ARTICLE XV MISCELLANEOUS PROVISIONS............................................ 22
15.1 Notices............................................................. 22
15.2 Governing Law....................................................... 23
15.3 Interest............................................................ 24
15.4 Further Assurances.................................................. 24
15.5 No Further Relationship............................................. 24
15.6 Conflict of Terms................................................... 24
15.7 Assignment.......................................................... 24
15.8 Specific Performance................................................ 24
15.9 Entire Agreement.................................................... 25
15.10 Amendment........................................................... 25
15.11 Waivers............................................................. 25
15.12 No Third Party Beneficiaries........................................ 25
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15.13 Severability................................................ 25
15.14 Counterparts................................................ 25
15.15 Interpretation.............................................. 25
15.16 Force Majeure............................................... 25
EXHIBIT A ............................................................ 1
EXHIBIT B ............................................................ 1
EXHIBIT D ............................................................ 1
EXHIBIT E ............................................................ 1
EXHIBIT F ............................................................ 1
EXHIBIT G ............................................................ 1
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MEMBERS AGREEMENT
This Members Agreement (this "Agreement"), dated as of January 5, 2000, is
entered into by and between Grupo Industrial Zaga, S.A. de C.V., a sociedad
anonima de capital variable organized under the laws of the United Mexican
States ("Zaga") and Xxx River International Ltd., a corporation organized under
the laws of the Commonwealth of Virginia, U.S.A. ("DRI").
RECITALS
Zaga and DRI shall be the sole Members, and thus shall own in the
aggregate 100% of the corporate capital of the Company. The Company shall own
and operate the Project.
As soon as practicable but no later than five (5) business days after the
formation of the Company, the Company shall enter into a marketing agreement, a
copy of which is attached hereto as Exhibit A, the purpose of which is to permit
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Xxx River Inc. or any Affiliate thereof to be the sole and exclusive marketer of
the Project's products (the "Marketing Agreement").
As soon as practicable but no later than five (5) business days after the
formation of the Company, the Company and Xxx River Inc. shall enter into a
sales agency agreement, a copy of which is attached hereto as Exhibit B, the
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purpose of which is to permit Zaga or its agents to solicit orders in Mexico.
Contemporaneously with the execution of this Agreement, Xxx River Inc., the
parent company of DRI, and Zaga shall enter into two separate letter agreements
(the "Letter Agreements"), copies of which are attached hereto as Exhibits C and
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D.
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The Members desire to set forth herein the terms and conditions concerning
their ownership of and cooperation concerning the Company.
NOW, THEREFORE, intending to be legally bound, the Members agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The capitalized words and phrases set forth on Annex A
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hereto, and the capitalized words and phrases defined elsewhere in this
Agreement, have the indicated meanings for purposes of this Agreement.
1.2 Other References. Unless otherwise provided, all references to
"Articles" and "Sections" are to Articles and Sections of this Agreement, and
all references to "Exhibits" are to Exhibits attached to this Agreement, each of
which is made a part of this Agreement for all purposes. References to any
gender include all others if applicable in the context. Terms defined in the
singular shall have the corresponding meaning when used in the plural and vice
versa. All uses of "include" or "including" mean without limitation. References
to a law, rule, regulation, contract, agreement, or other document mean that
law, rule, regulation, contract, agreement, or document as amended, modified, or
supplemented, if applicable. Any definition of one part of speech of a word,
such as definition of the noun form of that word, shall have a comparable
meaning when used as a different part of speech, such as the verb form of that
word.
1.3 Governing Language. The governing language of this Agreement shall be
the English language; provided, however, that with respect to the Organizational
Documents, their governing language shall be Spanish. Except as otherwise
required by applicable law, all notices, correspondence, information,
literature, reports, data, manuals, procedures and other documents required
under this Agreement shall be in the English language.
ARTICLE II
BASIC STRUCTURE OF COMPANY
2.1 Formation of the Company. The Members agree to form the Company within
fifteen (15) days following the date of this Agreement, and the Company shall be
governed by the Organizational Documents attached hereto as Exhibit E; provided,
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however, that the Company shall not be formed unless and until Xxx River Inc.
obtains any consent or waiver relating to this Agreement that is required under
that certain Credit Agreement among Xxx River Inc., First Union National Bank
and other parties thereto. DRI shall use its best efforts to cause Xxx River
Inc. to secure any such waiver or consent. In the case that such consent or
waiver is not obtained, Xxx River Inc. agrees to pay Zaga any expenses made
after the signature of this Agreement related to this Agreement.
2.2 Name. Subject to the approval from the Ministry of Foreign Affairs
(Secretaria de Relaciones Exteriores), the name of the Company shall be DanZa
Textil, S. de X.X. de C.V.
2.3 Place of Business. The corporate domicile and principal place of
business of the Company shall be located in Tepeji del Rio de Ocampo, Hidalgo,
Mexico or such other place as the Members may from time to time designate.
2.4 Purpose. The purposes for which the Company shall be organized
include, but are not limited to, the following:
(a) to develop, finance, build, own and operate a manufacturing plant at a
location to be selected by the Board of Managers in Mexico primarily
for the manufacture of woven fabrics for sale to apparel manufacturers
and other sectors, including, without limitation, the manufacture of
greige sheeting fabric; and
(b) such other activities as are lawful and approved by an Extraordinary
Resolution of the Members.
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ARTICLE III
CAPITAL, CAPITAL INTERESTS AND FUNDING
3.1 Capital of the Company. The Company shall have a minimum fixed capital
of 3,000 Pesos. Each Member shall own one capital interest (parte social)
("Capital Interest"), which initially shall have the value set forth in Exhibit
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F. All additional equity contributions in excess of the minimum fixed capital
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amount shall constitute the variable capital of the Company and shall cause an
increase in the Value of the Capital Interest of such contributing Member by the
amount of equity so contributed. The Value of a Capital Interest shall always
represent a multiple of one Peso. The Capital Interests shall be of free
subscription.
3.2 Mandatory Member Funding.
(a) Each Member shall be required, severally and not jointly, to make
equity contributions to provide its pro rata portion of the funds
necessary to fund the Project; provided that in no event shall any
Member be required to make equity contributions in excess of $25
million Dollars. Each time that such equity contributions are to be
made, they shall be made by all Members on the same day pro rata in
accordance with their Ownership Percentages. The timing for the making
of the equity contributions shall be governed by a separate agreement
among the Members.
(b) The Members shall authorize and cause the Company to increase the
capital of the Company to correspond to the amounts required to be
contributed from time to time in accordance with Section 3.2(a). The
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Company shall register in its books any increase in the Value of a
Member's Capital Interest based on and corresponding to the amounts so
contributed.
(c) If one Member fails or refuses to provide funds as required by this
Section 3.2, and such failure or refusal continues for five Business
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Days after receipt by such Member of notice thereof from the other
Member, the other Member may at its option provide such funds, and the
Member providing such funds shall have the Value of its Capital
Interest increased accordingly.
3.3 Priority Subscription Rights. Upon any decision of the Members to
increase the capitalization of the Company, except for increases pursuant to
Section 3.2, each Member shall have the right to subscribe for such increase pro
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rata based on such Member's Ownership Percentage. If any Member fails to
subscribe or pay for the pro rata portion to which it is entitled, the other
Member may take up the unsubscribed or unpaid portion.
3.4 Subscription. The funding needs of the Company to be provided by the
Members shall be denominated in Dollars, and the commitment of the Members to
fund such needs shall be made in Dollars (the "Commitment Amounts").
Notwithstanding the foregoing, the amount of any equity contributions to the
Company, and the subscriptions of the Members in respect thereof, shall be
denominated and paid in Pesos (the "Subscriptions"), it being understood that
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foreign capital contributed by the Members shall be converted to Pesos at the
prevailing rate of exchange published by the Banco de Mexico in the Official
Daily Gazette (Diario Oficial). Equity capital thus paid to the Company shall
then be converted to Dollars (the "Dollar Amounts"). To the extent that any
Dollar Amount realized by the Company in connection with any Subscription shall
be less than the relevant Commitment Amount, additional equity increases shall
be made and the Members shall subscribe for such increases and effect payment in
connection therewith until the Company shall have realized Dollar Amounts that
are not less than the Commitment Amounts.
ARTICLE IV
BOARD OF MANAGERS
4.1 Board of Managers. The Company shall be governed by a Board of
Managers consisting of six managers. The managers shall not be required to be
nationals of Mexico. DRI shall be entitled to designate three persons to the
Board of Managers, and to the extent permitted by applicable law, DRI shall have
the right to cause such managers to be removed. Zaga shall be entitled to
designate three persons to the Board of Managers, and to the extent permitted by
applicable law, Zaga shall have the right to cause such managers to be removed.
Each Member agrees to vote its Capital Interest so as to achieve the results
referred to in this Section 4.1. DRI shall appoint a manager to serve as
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chairman of the Board of Managers during the first year, after which control of
the chairmanship of the Board of Managers will alternate annually between Zaga
and DRI appointed managers.
4.2 Alternate Manager Each Member entitled to nominate a manager pursuant
to Section 4.1 shall be entitled to designate an alternate manager for each of
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its nominees (an "Alternate Manager"). Each Alternate Manager shall be entitled
to receive notice of all meetings of the Board of Managers and to attend and
vote at any such meeting at which the manager for whom he is the Alternate
Manager is not personally present, and generally to perform all functions of the
manager for whom he is the alternate as a manager in his absence. An Alternate
Manager shall cease to be an Alternate Manager if the manager for whom he is the
alternate ceases to be a manager; provided, however, that if a manager retires
and is immediately reappointed, any appointment of an Alternate Manager for such
manager that was in force immediately prior to his retirement shall continue
after his reappointment. An Alternate Manager shall be deemed for all purposes a
manager and shall alone be responsible for his own acts and defaults and he
shall not be deemed to be the agent of the manager for whom he is the alternate.
4.3 Term and Vacancies. The managers shall be elected for a term of office
of one year. A manager whose term of office expires may be reelected. Any
vacancy on the Board of Managers shall be filled by the Member that nominated
the manager whose departure created such vacancy.
4.4 Meetings and Agenda. The Board of Managers shall meet at least
quarterly ("Regular Meetings"), and additional meetings may be convened by call
of the chairman or by
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any manager at any time ("Special Meetings"). Regular Meetings shall be held at
the Company's head office or at such other location as may be agreed by the
Board of Managers. Unless otherwise agreed upon by the Board of Managers,
Special Meetings shall be held on an alternating basis at the Company's head
office and at the offices of Xxx River Inc. in Danville, Virginia, U.S.A.
Managers shall receive not less than ten Business Days' written notice of any
meeting, with such written notice also provided to each Member. Managers may, by
unanimous written consent, waive the notice requirement for meetings, and any
manager that attends a meeting of the Board of Managers shall be deemed to have
waived any requirement for notice thereof. The agenda of each meeting shall be
included in the notice for such meeting and shall be established in accordance
with the requirements of the Code and the Organizational Documents, but shall
include any matter submitted to the Company by any manager at least three
Business Days prior to the sending of the notice for such meeting. Managers may
attend meetings of the Board of Managers by telephone or videoconference.
4.5 Quorum and Decisions. A quorum for meetings of the Board of Managers
shall require the presence of at least four managers. All decisions of the Board
of Managers shall be taken by the affirmative vote of at least four managers.
The chairman of the Board of Managers shall not be entitled to any vote in
addition to his vote as a manager. In the event of a deadlock among the
managers, the matters shall be decided by vote of the Members as set forth in
Article V. The proceedings of meetings of the Board of Managers will be in
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English. Unless otherwise required by applicable law, the official minutes of
meetings and resolutions taken therein shall be kept in English and Spanish,
shall be circulated to all managers before finalization and shall be kept in the
minute books of the Company. If permitted by applicable law, decisions may be
taken by the Board of Managers without a meeting if a proposal for action is
submitted in writing to each of the managers and each such manager consents in
writing to such action.
4.6 Powers of the Board of Managers. Except as otherwise expressly
provided by applicable law or this Agreement, the Board of Managers shall,
consistent with any resolution of the Members Meeting, administer the business
and property of the Company and manage the affairs of the Company and shall have
full authority to do so, provided that its resolutions and acts are consistent
with the Code, this Agreement and the Organizational Documents. Subject to the
foregoing, the functions and powers of the Board of Managers shall include, but
not be limited to:
(a) The appointment or removal of the general manager of the Project;
(b) The approval of the Annual Business Plan;
(c) The approval of the annual audited financial statements;
(d) The approval of any acquisition or Transfer of assets or capital
expenditures having a value in excess of $2,000,000;
(e) The approval of any loans or the issuance of any credits in the
ordinary course of business in excess of $1,000,000 in the aggregate
to any one Person or its Affiliates;
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(f) Any material amendment or modification of any Project Contract or
Financing Agreement;
(g) Any declaration by the Company of a default under, any exercise by the
Company of remedies under, or any termination or cancellation by the
Company of, any Project Contract or Financing Agreement; and
(h) The performance of any other acts necessary or appropriate for a Board
of Managers under this Agreement, the Organizational Documents or the
Code.
4.7 Execution of Documents. To be valid and binding, all notes, offers
and acceptances, powers of attorney, commitments, deeds, transfers, assignments,
contracts, obligations, certificates and other instruments of the Company must
be authorized by the Board of Managers. Subject to the Code, this Agreement and
the Organizational Documents, the Board of Managers may delegate such of this
authority and power as it considers appropriate to the general manager and other
executives of the Company (subject to authorization and spending limits to be
specified by the Board of Managers).
4.8 Compliance. The Members hereby expressly covenant and agree to cause
each manager elected from nominees nominated by it to comply in full with the
provisions of this Agreement, the Organizational Documents, and the Code.
4.9 Remuneration. Remuneration, if any, of the managers shall be as
stipulated by the Members. The reasonable out-of-pocket expenses of such
managers incurred with respect to attendance at meetings of the Board of
Managers shall be reimbursed by the Company.
ARTICLE V
MEETING OF MEMBERS
5.1 Members Meeting. The Members Meeting is the supreme authority of the
Company. The Members Meeting may be ordinary (an "Ordinary Members Meeting") or
extraordinary (an "Extraordinary Members Meeting"), depending on the matters to
be discussed at each meeting. Members Meetings shall be held at the corporate
domicile of the Company and Members may attend such meetings by telephone or
videoconference. According to the Code, resolutions may be adopted outside of
Members Meetings by unanimous written consent of all of the Members. An Ordinary
Members Meeting shall be held at least once a year within the four (4) months
following the closing of each fiscal period. Ordinary Members Meetings may be
those called to discuss any of the matters that are not expressly reserved by
this Agreement to the Extraordinary Members Meeting. The matters reserved for
Extraordinary Members Meetings are any matters that are identified as
Extraordinary Resolutions pursuant to Section 5.7 below.
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5.2 Calling a Members Meeting; Agenda. A Members Meeting shall be called
by any Member, the Board of Managers or any other Person authorized under the
Organizational
Documents or applicable law. Notice of a Members Meeting shall be provided in
writing by the Company or other applicable Person to each Member at least 15
Business Days prior to such Members Meeting, unless a longer period is required
by applicable law or unless such requirement is waived by all Members, and any
Member that attends a Members Meeting shall be deemed to have waived any
requirement for notice thereof. The agenda of each meeting shall be included in
the notice for such meeting and shall be established in accordance with the
requirements of the Code and the Organizational Documents, but shall include any
matter submitted to the Company by any Member at least three Business Days prior
to the sending of the notice for such Members Meeting. Unless approved by all
Members of the Company, no matter may be considered at a Members Meeting unless
such matter was set forth in the notice for such Members Meeting.
5.3 Related Matters. The chairman of the Board of Managers shall act as
the chairman of the Members Meeting, and the secretary of the Company shall
serve as secretary of the Members Meeting. In the event that either the chairman
of the Board of Managers or the secretary of the Company are unavailable to so
act, then the chairman and the secretary shall be elected by the Members (or
their representatives) by a majority vote of the total votes of the Members
represented at the relevant meeting. In all instances, the vote collector shall
be elected from among the Members (or their representatives) by a majority vote
of the total votes of the Members represented at the relevant meeting. Unless
otherwise required by applicable law, each Members Meeting shall be conducted in
English, and the minutes of each Members Meeting shall be prepared in English
and Spanish promptly after each meeting, shall be circulated to all Members
before finalization and shall be kept in the minute books of the Company.
5.4 Quorum for Members Meeting. Unless a higher number is required by
applicable law, a quorum for any Members Meeting shall consist of Members
present or represented by proxy holding more than 75% of the total votes of the
Members, provided that the presence of a quorum shall not modify or lessen the
affirmative vote required by Sections 5.6 and 5.7; and provided, further, that a
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quorum for a Members Meeting that is held with notice at least five Business
Days following the date that a Members Meeting was properly called pursuant to
Section 5.2 but was not held due to the failure of a quorum shall consist of
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Members present or represented by proxy holding any number of the total votes of
the Members.
5.5 Voting Generally. Each Member shall have one vote for each one Peso
contributed by the Member and its predecessors to the equity of the Company.
Votes shall be cast by written ballot. Members may be represented at Members
Meetings by proxies, the holders of which need not be Members. Proxy holders
that are Members shall be entitled to vote based on the number of votes of the
Members they represent separately, in addition to voting based on their own
number of votes. Proxies shall be issued in accordance with the Code.
Resolutions may be approved by the Members without a meeting if the resolution
is submitted in writing to each Member and each such Member consents in writing
to such resolution.
5.6 Ordinary Resolutions. Resolutions, actions and decisions of the
Members shall be adopted, taken or made at an Ordinary Members Meeting by the
affirmative vote of Members (or their representatives) representing more than
50% of the total votes of the Members ("Ordinary Resolutions").
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5.7 Extraordinary Resolutions. Resolutions, actions and decisions of the
Members shall be adopted, taken or made at an Extraordinary Members Meeting
by the affirmative vote of Members (or their representatives) representing 75%
or more of the total votes of the Members with respect to the following matters
("Extraordinary Resolutions"), unless such matters shall have been approved by
the Board of Managers or are required by law to be approved of by the Members:
(a) Any merger, consolidation or similar amalgamation of the Company, or
the Transfer during any fiscal year, exceeding an aggregate of more
than 20% of the Fair Market Value of the Company's total assets;
(b) The appointment or removal of auditors;
(c) Any proposal for additional contributions of capital, other than with
respect to the contributions made pursuant to Section 3.2;
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(d) Any proposals for the Company to accept contributions of or
conversions of debt-to-capital from third parties in exchange for
Capital Interests;
(e) Any proposals by a Member to Transfer all of its Capital Interests or
a portion of the Value of its Capital Interest other than as permitted
by this Agreement;
(f) The dissolution of the Company;
(g) Any acquisitions or capital expenditures during any fiscal year
exceeding an aggregate of more than 20% of the Fair Market Value of
the Company's total assets;
(h) The amendment of the Organizational Documents;
(i) Entering into a transaction or series of transactions with any
Affiliate (or any Person in which a Member or its Affiliate has a 10%
or greater equity interest), member of the Board of Managers, officer,
or executive of the Company or a Member (or any individual who is a
member of the immediate family of such manager, officer or executive)
that in the aggregate will have a value during any fiscal year in
excess of $100,000;
(j) Incurring additional indebtedness if the ratio of debt to total
capitalization of the Company would exceed 60% after giving effect to
such borrowing;
(k) Borrowing for the purpose of accomplishing any matter listed in
Section 5.7; and
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(l) Making payments of liquidating or partially liquidating dividends.
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ARTICLE VI
BUY-SELL
6.1 Buy-Sell Notice. If (a) at any time any Member desires to adopt one
or more Extraordinary Resolutions, but approval of the other Member for the
passing of such Extraordinary Resolutions cannot be obtained in accordance with
Article V and (b) such situation continues without resolution for at least 90
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days (during which period the Members shall conduct good faith negotiations and
discussions, which shall include, without limitation, a requirement of a face to
face meeting of the chief executive officers of the respective Member's Ultimate
Parents), then any Member (the "Triggering Member") may, at any time thereafter
while such situation continues without resolution, send a notice (the "Buy-Sell
Notice") to the other Member (the "Receiving Member"). The Buy-Sell Notice shall
constitute an offer by the Triggering Member either (i) to sell the Capital
Interest of the Triggering Member or (ii) to purchase the Capital Interest of
the Receiving Member, in either case for a cash price in Dollars equal to the
price per one Peso contributed to the equity of the Company (the "Capital
Interest Price") set forth in the Buy-Sell Notice. The Buy-Sell Notice shall be
accompanied by an irrevocable letter of credit issued by a reputable financial
institution in favor of the Receiving Member in the amount of 10% of the Capital
Interest Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Receiving Member, which letter of credit shall provide
that in the event the Receiving Member elects to sell its Capital Interest and
the Triggering Member for any reason (other than due to the fault of the
Receiving Member or the failure, through no fault of the Receiving Member, to
obtain the consent, if required, of the Lenders) fails to complete the closing
of the transaction within the time period set forth in Section 6.3, then the
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Receiving Member shall have the right (without limitation to any other remedy
available), for a period of 10 Business Days after the expiration of such
period, to draw on the letter of credit and retain the proceeds thereof.
6.2 Actions by Receiving Member. Not later than 30 days after the giving
of the Buy-Sell Notice to the Receiving Member, the Receiving Member shall
notify (the "Response Notice") the other Member whether such Receiving Member
elects (a) to sell or (b) to purchase, in either case at the Capital Interest
Price. Failure to give the Response Notice within such 30-day period shall be
deemed to be an election to sell by the Receiving Member. If the Receiving
Member elects to purchase, the Receiving Member shall be required to purchase
all of the Capital Interest of the Triggering Member and shall include with its
Response Notice the original letter of credit it received from the Triggering
Member and a letter of credit in favor of the Triggering Member substantially as
described in Section 6.1 above (except that the amount of the letter of credit
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shall be measured by reference to the Triggering Member's equity contributions).
If the Receiving Member does not elect to purchase, the Receiving Member shall
sell its Capital Interest to the Triggering Member. In each case, the sale or
purchase of the Capital Interest shall be at the Capital Interest Price
multiplied by the number of whole Pesos contributed to the equity of the Company
by the Member who is selling its Capital Interest.
6.3 Closing. The closing of the sale and purchase in accordance with this
Article VI shall be consummated no later than the first Business Day after 90
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days after the giving of the Response Notice or the deemed election (pursuant to
Section 6.2) to sell. Such closing shall
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occur at the head office of the Company unless otherwise agreed, and at the
closing, the Closing Actions shall occur. Any tax withholding obligations with
respect to the Transfers of the Capital Interests imposed by the laws of Mexico
shall be complied with.
ARTICLE VII
COMPETITION
7.1 Competition. The objectives of the Company, in general terms, are the
development, financing, building, ownership and operation of the Project. Except
as set forth below in Section 7.2 and in the Letter Agreements, no Member or
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Affiliate of a Member, by reason of the Member's participation in the ownership
of the Company or the election of any representative of that Member to the Board
of Managers, shall be precluded in any manner whatsoever from engaging in any
other similar or related activities (including, without limitation, the
manufacture of non-apparel fabrics such as bedding products for home fashions
and all types of knittings) in Mexico, the United States, or anywhere else, nor
shall any Member or Affiliate of a Member have any obligation, by reason of its
participation in the ownership of the Company or the election of any
representative of that Member to the Board of Managers, to make available to the
Company or any of the other Members or their Affiliates any other opportunity
that such Member or its Affiliates may have to develop, construct, finance or
operate any other project.
7.2 Restrictions on Competition. Notwithstanding the provisions in Section
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7.1, no Member or Affiliate of a Member shall directly or indirectly engage in
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the manufacture of woven apparel fabrics or its finishing in Mexico.
ARTICLE VIII
TRANSFERS
8.1 Restrictions on Capital Interest Transfers and Encumbrances and New
Issues.
(a) Notwithstanding any other provision of this Agreement, a Transfer or
Encumbrance of Capital Interests or an issuance of new Capital
Interests of the Company may only be made in accordance with the
provisions of this Agreement, the Code, the Organizational Documents
and the Financing Agreements, and any other attempted Transfer,
Encumbrance or issuance shall be void. It shall be a condition to the
Transfer or issuance of Capital Interests to any Person under any
provision hereof that such Person shall agree in writing (i) to be
bound by the provisions of this Agreement and (ii) to assume all
liabilities and obligations of the transferring Member (and Affiliates
thereof) under or with respect to any agreement between or among any
of the Members (or Affiliates thereof) in relation to the Project; and
any Transfer or subscription in respect of which such conditions have
not been satisfied shall be void.
10
(b) No Member may Transfer or Encumber its Capital Interest or its Value
in a Capital Interest unless (i) such Transfer is to an Affiliate of
the transferor, (ii) such action is approved by the Board of Managers
in accordance with Section 4.5 herein, or (iii) if such action is not
-----------
so approved by the Board of Managers, such action is approved by an
Extraordinary Resolution.
(c) Any Transfer of a Capital Interest or of a Member's Value in a Capital
Interest hereunder shall take effect as of the date of registration of
such Transfer in the books of the Company, and the Company shall not
register any Transfer that does not comply with this Article VIII, but
------------
the Members and the Board of Managers agree promptly to take and cause
to be taken any action necessary under the Organizational Documents,
this Agreement and applicable law to effectuate and register any such
Transfer that does so comply.
(d) The certificates representing the Capital Interests shall all bear the
following legend in English and in Spanish:
"The transfer or encumbrance in any manner of the Capital
Interest represented by this certificate are restricted by
and subject to the provisions of the Estatutos of the Company,
as well as a certain Members Agreement, dated January 5, 2000,
copies of which may be reviewed at the Company's head office
during business hours."
8.2 Preferential Purchase Right.
(a) If DRI or any of its Affiliates desires to Transfer its Capital
Interest and such Transfer has been approved in accordance with the
provisions of Section 8.1, DRI must first offer Zaga, in accordance
-----------
with the terms of Section 8.2(b), the right to purchase from DRI a
--------------
portion of DRI's Capital Interest in an amount sufficient to provide
Zaga with a 50%, but no more and no less than a 50%, Ownership
Percentage in accordance with Section 8.2(b); provided, however, that
--------------
this preferential purchase right shall not apply if Zaga's Ownership
Percentage at the time of the Transfer is less than 37%.
(b) Should DRI or any of its Affiliates desire to Transfer its Capital
Interest pursuant to an Offer from another Person (the "Potential
Acquirer") and such Transfer is permitted pursuant to the provisions
of Section 8.1, DRI shall promptly give notice thereof (the "Transfer
-----------
Notice") to the Company and Zaga. The Transfer Notice shall include a
copy of the Offer and shall set forth in reasonable detail all
relevant information with respect to the proposed Transfer, including
the name and address of the Potential Acquirer, the cash purchase
price (expressed in Dollars) per Peso contributed to the equity of the
Company by DRI (the "Preferential Purchase Price"), the Capital
Interests that are to be the subject of the Transfer (the "Subject
Capital Interests"), and any other terms and conditions of the
proposed Transfer. Zaga shall have the preferential right to purchase
from DRI a portion of DRI's Capital Interest in an amount sufficient
to provide Zaga
11
with a 50% Ownership Percentage at the Preferential Purchase Price and
on the same material terms and conditions set forth in the Transfer
Notice. Zaga shall have 20 Business Days following the giving of the
Transfer Notice in which to notify DRI whether it desires to exercise
its preferential right. A notice in which Zaga exercises such right is
referred to herein as an "Exercise Notice." The Exercise Notice shall
be accompanied by an irrevocable letter of credit issued by a
reputable financial institution in favor of DRI (or such other
instrument or arrangement reasonably satisfactory to DRI) in the
amount of the Preferential Purchase Price multiplied by the number of
whole Pesos contributed to the equity of the Company by DRI times (y)
the percentage amount equal to the positive difference between 50% and
the Ownership Percentage of Zaga immediately prior to the exercise of
the preferential purchase, times (z) 10%, which letter of credit shall
provide that in the event Zaga fails for any reason (other than due to
the fault of DRI or the failure, through no fault of Zaga, to obtain
any required consent of the Lenders) to complete the closing of the
transaction within the time period set forth in Section 8.2(c), then
---------------
DRI shall have the right (without limitation to any other remedy
available), for a period of 10 Business Days after the expiration of
such period, to draw on the letter of credit and to retain the
proceeds thereof. If Zaga does not duly exercise such right during the
applicable period, it shall be deemed to have waived such right.
(c) If the preferential right is exercised in accordance with Section
-------
8.2(b), the closing of such purchase shall occur at the head office of
------
the Company on the first Business Day 120 days after the expiration of
the preferential right period. At the closing, the Closing Actions
shall occur.
(d) If Zaga does not deliver an Exercise Notice or if for any reason
(other than due to the fault of DRI or the failure of the Lenders,
other than the failure to grant any required consent, to take any
action that prevented the preferential purchase transaction to close
within the time period set forth in Section 8.2(c)) the preferential
--------------
purchase transaction does not close within the time period set forth
in Section 8.2(c), DRI shall have the right, subject to compliance
with the other provisions of this Article VIII, to Transfer the
------------
Subject Capital Interests to the Potential Acquirer in accordance with
the terms of the Transfer Notice for a period of 90 days after the
expiration of the preferential right period. If, however, DRI fails to
Transfer the Subject Capital Interests within such period, the
proposed Transfer shall again become subject to the preferential right
set forth in this Section 8.2.
-----------
12
ARTICLE IX
MANAGEMENT
9.1 Management. The Board of Managers shall appoint the general manager of
the Company, who shall be the chief executive officer of the Company and
responsible for the day-to-day management and conduct of the operations of the
Company in accordance with powers granted by the Members Meeting and the Board
of Managers from time to time. The Board of Managers shall appoint a deputy
general manager. The general manager shall report to the Board of Managers. The
duration of the terms of the general manager, deputy general manager and other
officers having authority to sign and execute documents on behalf of the Company
shall not be limited to the term of the managers.
9.2 Operation of the Project.
(a) DRI or an Affiliate will determine the product mix for the Project.
Zaga will provide its help and expertise on all local matters,
including, but not limited to, issues associated with locating and
constructing the Project in Mexico, complying with any governmental
authorities or regulations, and addressing labor issues. The layout,
xxxxxxx and equipping of the Project will be approved by the Board of
Managers. The efforts of the Members in regard to the foregoing
matters will be subject to the provisions of Section 12.2.
------------
(b) The Project will be managed and operated on a day-to-day basis by a
team hired by the Company, located on site and headed by the general
manager, in accordance with guidelines and reporting authority
established by the Board of Managers.
(c) The Members shall create a task force consisting of one individual
selected by each Member (the "Representatives"). The Representatives
shall be directly responsible for working with the general manager to
supervise the construction, equipping and initial operations of the
Project during construction and the first year of the Project's full
operation. The Representatives will work closely with the general
manager and will have significant approval authority on behalf of the
Members whom they represent. In the event it becomes necessary to
replace the general manager, a separate task force will be formed by
the Board of Managers in the manner provided above to recommend
candidates to the Board of Managers.
ARTICLE X
REPORTING AND INFORMATION
10.1 Accounting; Fiscal Year; Tax Information. The Members shall cause the
Company to keep, in addition to any books and accounts required under the Code,
books and
13
records in accordance with US GAAP and Mexico GAAP applied on a consistent
basis. The Members shall cause the Company to make and keep books, records, and
accounts that, in reasonable detail, accurately and fairly reflect all of its
transactions. The records shall include monthly unaudited financial reports
(including an income statement, balance sheet and statement of cash flows)
prepared in accordance with US GAAP and Mexico GAAP by or under the supervision
of the Company's chief financial officer, which shall be furnished to each of
the Members. The fiscal year of the Company shall be the year ending December
31. The Members shall cause the Company to furnish to each Member such
information concerning the Company and its operations as is required for each
Member and its Affiliates to prepare their tax returns on a timely basis.
10.2 Annual Financial Statements and Auditing. The books and records of
the Company maintained under Section 10.1 shall be audited annually by Ernst &
------------
Young. The Board of Managers shall direct that the audit be completed on or
before the 90th day following the end of each fiscal year of the Company and
that the auditors provide drafts of the annual financial statements and their
report thereon to each Member prior to finalization thereof. The audit shall be
in accordance with US GAAP and Mexico GAAP applied on a consistent basis. The
audit under this Section 10.2 is in addition to any audit required under the
------------
Code.
10.3 Inspection and Other Information.
(a) Each Member, through its authorized representatives, shall have, from
time to time upon reasonable advance notice, (i) full and complete
access to the managers, officers and employees of the Company, and
(ii) the right, at such Member's expense, (A) to inspect, copy, audit
and retain copies of any Company books and records, (B) to cause the
Company to provide such financial and support information or
information about Project operations in such detail and with such
frequency as such Member reasonably may require, (C) to have the
Company prepare financial statements of the Company, in such manner
and by such date as such Member may reasonably request (in addition to
the financial statements provided for in Sections 10.1 and 10.2), and
-----------------------
(D) to inspect the plants, properties and physical assets of the
Company.
(b) All inspection, auditing or other activities conducted by a Member
pursuant to this Section 10.3 shall be conducted so as to not
------------
unreasonably interfere with the conduct of the business of the
Company.
(c) Without limitation, the provisions of Section 12.2 shall be complied
------------
with in connection with actions undertaken pursuant to this Section
-------
10.3.
----
10.4 Reports. In addition to the reports provided for in Sections 10.6 and
-----------------
10.7, the general manager of the Project shall furnish the following monthly
----
reports to the Board of Managers and to the Members:
(a) income statement, balance sheet and statement of cash flows as
compared to the Annual Business Plan; and
14
(b) analysis of variances from the then current Annual Business Plan.
On a quarterly basis, the general manager of the Project shall furnish the
foregoing information as well as the following information:
(a) Marketing overview -- current and anticipated product mix, current
market conditions, strategy, organization, competitive position and
unfilled order position;
(b) Manufacturing review -- capital expenditure status, plans and needs,
status of cost reduction programs, variance analysis, safety,
management issues and running conditions;
(c) Financial review -- sales, operating income, working capital
management, and status of systems implementation. The actual and
forecast is to be compared to the Annual Business Plan;
(d) Forecast covering the current and three succeeding quarters;
(e) Analysis of developments in governmental relations concerning the
Project;
(f) Matters requiring action in the immediate future and an analysis of
the status of such matters listed in prior monthly reports;
(g) An overall statement as to the status of the Project, including with
particularity any matters that the general manager determines should
be brought to the attention of the Managers or Members; and
(h) Any other report reasonably requested by any manager or Member.
10.5 Tax Returns and Partnership Status. Each Member, through its
authorized representatives and at its expense, may review all Mexican income and
other tax returns filed by the Company to comply with Mexican laws. The Members
shall cause the Company to provide to each Member a preliminary copy of all
income tax returns on or before the 30th day prior to the due date of the
returns. Promptly after the filing of any such return with the appropriate
governmental authority, the Members shall cause the Company to provide each
Member with a copy of the return, along with copies of proof of payment remitted
in connection with the return. Each Member agrees that the Company will be
treated as a partnership for United States federal income tax purposes and that
it will not take any action or omit to take any action that would cause the
Company to be treated differently. For US federal tax purposes, each Member
agrees that it will take such actions as may be requested by DRI from time to
time, including the execution and delivery of a United States Internal Revenue
Service Form 8832, in order to achieve the classification of the Company for
such purposes as a partnership, pursuant to United States Treasury Regulations
xx.xx. 301.7701-1 through 301.7701-3.
15
10.6 Submission of Annual and Three-Year Business Plans. At least ninety
(90) days prior to the end of the calendar year beginning with December 31,
1999, the general manager of the Company shall prepare a report on the Company's
working capital requirements and operating budget for the succeeding calendar
year, which will substantially contain an estimate or projection of (a) working
capital requirements, including breakout of accounts receivable, inventory, and
accounts payable, (b) sources of revenue (by geographic area, product type,
trade areas, or established areas of distribution), (c) the cost of goods sold,
(d) selling, general, and administrative expense detail, (e) interest expense,
(f) an income statement, balance sheet, and statement of cash flows, all on a
quarterly basis, (g) funding requirements, capital expenditures, and repairs and
maintenance expense, (h) manufacturing objectives, including yield objectives by
product type and planned capacity, (i) distribution objectives, (j) information
technology objectives, (k) engineering objectives, (l) sales plan, (m) marketing
plan, including marketing programs, (n) finance goals, (o) general
administrative goals, and (p) all expenditures proposed to be undertaken by the
Company for such year (the "Annual Business Plan"). Upon preparation of the
Annual Business Plan, the general manager shall promptly submit the Annual
Business Plan to the Board of Managers for consideration. Approximately mid-
year, beginning in 2000, the general manager shall prepare a three year business
plan containing essentially the same elements as are contained in the Annual
Business Plan (the "Three-Year Business Plan").
10.7 Approval of Annual Business Plan and Three-Year Business Plan.
Promptly after receipt of the Annual Business Plan, but in any event not less
than thirty (30) days prior to the end of the fiscal year, the Board of Managers
shall meet to review the Annual Business Plan. Upon such review, the Board of
Managers will vote on the Annual Business Plan. If the Annual Business Plan is
approved, the Annual Business Plan shall become the Company's operating budget
for the succeeding calendar year. If the Annual Business Plan is not approved,
the general manager will revise the Annual Business Plan as soon as possible and
resubmit it to the Board of Managers for consideration. The operating budget for
the previous calendar year shall continue to govern the operations of the
Company until such time as an Annual Business Plan is approved by the Board of
Managers. Similarly, the Three Year Business Plan shall be in a form and shall
contain information satisfactory to the Board of Managers.
ARTICLE XI
RESOLUTION OF DISPUTES
11.1 Conciliation. No Claim (as defined below) shall be submitted to
arbitration until 60 days have passed (without mutual agreement having been
reached) following the first written notice from a Disputing Party to the other
Disputing Party that sets forth the subject matter of the Claim and that states
that it is being given pursuant to this Section 11.1. Each Disputing Party
------------
shall, if requested by another Disputing Party, select and appoint a senior
executive (not concerned with the day-to-day performance of the appointor's
obligations under this Agreement) to serve on a panel seeking to reach mutual
agreement with respect to the applicable Claim. Each such appointment shall be
made by the giving of notice by the appointor to the other Disputing Parties
within ten Business Days of the request for the appointment. The appointees
shall meet and shall endeavor to reach such mutual agreement as soon as
practicable.
16
11.2 Agreement to Arbitrate. Any and all disputes, including claims,
counterclaims, demands, causes of action, controversies, and other matters in
question arising out of or relating to this Agreement, or the alleged breach
hereof, or in any way relating to the subject matter of this Agreement or the
relationship between the parties created by this Agreement (all of which are
referred to herein as "Claims"), between the Members (each a "Disputing Party")
that are not resolved during the 60 day period provided in Section 11.1 shall be
------------
resolved by binding arbitration.
11.3 Appointment of Arbitrators. If no such mutual agreement has been
reached within such 60 day period, then any Disputing Party may refer the claim
to arbitration under the following provisions:
(a) To refer a claim to arbitration, a Disputing Party must submit its
Request for Arbitration to the ICC and the other Disputing Parties in
accordance with the ICC Rules.
(b) The Disputing Parties shall endeavor to agree promptly on a panel of
three arbitrators. One (1) arbitrator shall be nominated by each
Disputing Party in accordance with ICC Rules, and the third arbitrator
shall be nominated by the two (2) ICC-confirmed party-nominated
arbitrators or, failing agreement, shall be appointed by the ICC in
accordance with ICC Rules. Each Disputing Party shall be permitted to
nominate an arbitrator that is of the same nationality as the
Disputing Party making the nomination.
11.4 Authority of the Arbitrators. The validity, construction, and
interpretation of this agreement to arbitrate, and all procedural aspects of the
arbitration conducted pursuant to this agreement to arbitrate, including, but
not limited to, the determination of the issues that are subject to arbitration
(i.e., arbitrability), the scope of the arbitrable issues, allegations of "fraud
in the inducement" to enter into this agreement to arbitrate, allegations of
waiver, laches, delay or other defenses to arbitrability, and the rules
governing the conduct of the arbitration (including the time for filing an
answer, the time for the filing of counterclaims, the times for amending the
pleadings, the specificity of the pleadings, the extent and scope of discovery,
the issuance of subpoenas, the times for the designation of experts, whether the
arbitration is to be stayed pending resolution of related litigation involving
third parties not bound by this agreement to arbitrate, the receipt of evidence,
and the like) shall be decided in accordance with the ICC Rules. However, the
arbitrators shall have absolutely no authority to award treble, exemplary or
punitive damages of any type under any circumstances, regardless of whether such
damages may be available under applicable law; in addition, the arbitrators
shall have no authority to amend, modify, supplement or otherwise change any of
the terms of this Agreement. The Award shall fix the costs of the arbitration
and decide which of the Disputing Parties shall bear them or in what proportion
they shall be borne by the Disputing Parties; provided that each Disputing Party
shall bear its own attorneys' fees, and the arbitrators shall have no authority
to award attorneys' fees.
17
11.5 Place of Arbitration. The arbitration proceeding shall be conducted
in New York, New York.
11.6 Conduct of the Arbitration. The arbitration shall be conducted by the
arbitrators as expeditiously as possible. The arbitration proceedings and the
award or decision (the "Award") of the arbitrators shall be in English.
11.7 ICC Rules. The arbitration shall be conducted under the ICC Rules.
11.8 Payment of Award. The Award shall be payable in cash in Dollars.
11.9 Finality of the Arbitrators' Award.The arbitrators' Award shall, as
between the Disputing Parties and those in privity with them, be final and
entitled to all of the protections and benefits of a final judgment, e.g., res
judicata (claim preclusion) and collateral estoppel (issue preclusion), as to
all Claims, including compulsory counterclaims, that were or could have been
presented to the arbitrators. The arbitrators' Award shall not be reviewable by
or appealable to any court; provided, however, the Award may be corrected or
interpreted pursuant to the ICC Rules.
11.10 Use of the Courts. It is the intent of the parties that the
arbitration proceeding shall be conducted expeditiously, without initial
recourse to the courts and without interlocutory appeals of the arbitrators'
decisions to the courts. However, if a Disputing Party refuses to honor its
obligations under this agreement to arbitrate, any other Disputing Party may
obtain appropriate relief compelling arbitration in any court having
jurisdiction over the Disputing Parties; the order compelling arbitration shall
require that the arbitration proceedings take place in New York, New York as
specified above. The Disputing Parties may apply to any court having
jurisdiction for orders requiring witnesses to obey subpoenas issued by the
arbitrators. Moreover, any and all of the arbitrators' orders and decisions may
be enforced if necessary by any court having jurisdiction. The arbitrators'
Award may be confirmed in, and judgment upon the Award entered by, any court
having jurisdiction. For purposes of COMPELLING A MEMBER TO HONOR ITS OBLIGATION
TO ARBITRATE, each of the Members irrevocably consents and submits
unconditionally to the non-exclusive jurisdiction of any state or federal court
of competent jurisdiction in the State of New York, and irrevocably waives any
present or future objection to such venue for such purposes.
11.11 Confidentiality. To the fullest extent permitted by applicable law,
the arbitration proceeding and the arbitrators' Award shall be maintained in
confidence by the Disputing Parties. However, a violation of this covenant shall
not affect the enforceability of this agreement to arbitrate or of the
arbitrators' Award.
11.12 Arbitration Provision Enforceable. A Disputing Party's breach of this
Agreement shall not affect this agreement to arbitrate. Moreover, the parties'
obligations under this arbitration provision are enforceable even after this
Agreement has terminated. The invalidity or unenforceability of any provision of
this agreement to arbitrate shall not affect the
18
validity or enforceability of the Disputing Parties' obligation to submit their
Claims to binding arbitration or the other provisions of this agreement to
arbitrate.
ARTICLE XII
OBLIGATIONS OF THE PARTIES
12.1 Observance of Laws.
(a) With respect to all matters and activities relating to the Project and
the Company, each Member shall comply with and shall cause its
Affiliates that are involved in the Project as well as the Company to
comply with all applicable laws, rules, or regulations of Mexico, and
any other jurisdiction that is applicable to the Company's business
and the Members' and their such Affiliates' activities in connection
with the Project. In particular, each Member agrees that it and its
Affiliates, in connection with their activities in connection with the
Company and the Project, will comply with the United States Foreign
Corrupt Practices Act (the "FCPA"), and the Members shall cause the
Company and its employees to comply with the Xxx River Inc. Code of
Business Conduct. Each Member shall comply with, and shall cause its
Affiliates and the Company to comply with all laws applicable to its
or their performance under this Agreement dealing with improper or
illegal payment, gifts, or gratuities. Furthermore, each Member agrees
that it, its Affiliates and the Company will not take any action or
fail to take any action, which act or failure to act would subject any
other Member or any of its Affiliates to liability under the laws of
its country of domicile dealing with improper payments as described in
this Section 12.1.
------------
(b) Each Member agrees that it, its Affiliates or the Company will obtain
the agreement of each consultant or contractor it or, if applicable,
its Affiliates employs in conducting activities for, related to or on
behalf of the Project to comply with the FCPA, and if the employment
cost exceeds $100,000 in the aggregate, shall obtain written agreement
to that effect.
(c) Each Member warrants and represents to the other Members and the
Company that prior to the execution of this Agreement it and its
Affiliates have not taken any action, or failed to take any action,
with respect to the Project that would have violated this Section 12.1
------------
had this Section 12.1 then been in effect.
------------
12.2 Confidentiality.
(a) Subject to the provisions of Section 12.2(c), any and all data, plans,
---------------
customer lists, fabric specifications, proposals, or other material
related to the Company, including the design, construction,
configuration, operation, or financing of the Project, provided to a
Member or any of its Affiliates by or on behalf of the Company or
another Member or Affiliate of a Member in writing and identified
19
as being confidential shall be used only with regard to the Project
and not for any other purpose and shall be held in confidence and
shall not be disclosed to any third party, except to attorneys or
other consultants or representatives with respect to the business of
the Company who are bound by a comparable confidentiality agreement or
who are bound by a duty of non-disclosure of confidential information
and except as reasonably may be required in the fulfillment of this
Agreement or in connection with the procurement of financing or the
Financing Agreements. Notwithstanding the foregoing, the obligation of
confidentiality shall not apply to any disclosure (i) of information
that is in or enters the public domain through no fault of the
receiving Person, (ii) of information that was in the possession of
the receiving Person prior to receipt under this Agreement, or (iii)
required by law, regulation, legal process, stock exchange, or order
of any court or governmental body having jurisdiction.
(b) Notwithstanding Section 12.2(a), in the course of an offer to a third
---------------
party to sell its Capital Interest, a Member may disclose information
concerning the Company to the third party, provided:
(i) the Member informs the Company and the other Member of all
information disclosed, and
(ii) information is disclosed only after the third party has
delivered to the Company a written agreement to comply with and
be bound by the provisions of this Section 12.2 as if it were a
------------
Member.
(c) The provisions of this Section 12.2 are intended to benefit, and to be
------------
enforceable by, the Company, each Member and its Affiliates.
(d) The Members recognize that the Company may enter into more detailed
and encompassing confidentiality agreements with third parties. Each
Member waives any right it may have to examine information subject to
any such agreement unless and until it enters into an agreement to be
bound by the same restrictions that bind the Company.
12.3 Publicity. To the fullest extent possible in light of any applicable
legal requirements, each Member shall provide the other Member and the Company
with a copy of each public announcement or filing with or notification to any
governmental authority regarding the Company or the Project or identifying any
Member or Affiliate of a Member by name in connection with the Project that the
Company or a Member or Affiliate of a Member, as applicable, intends to make
prior to making it, and shall entertain in good faith suggestions from each
receiving Member and, if applicable, the Company regarding the announcement,
filing or notification. Such announcement, filing or notification shall not be
made without the approval of the Members; provided, that the approval of the
Members shall not be required in the case of announcements, filings or
notifications that are required to be made by applicable stock exchange rules,
or any law or regulation.
20
ARTICLE XIII
REPRESENTATIONS, WARRANTIES, AND LIABILITIES
13.1 Representations and Warranties. Each Member represents and warrants to
the other Member that:
(a) It is a duly organized, validly existing entity of the type described
in the introductory paragraph of this Agreement and is in good
standing under the laws of the jurisdiction of its formation. It has
all requisite corporate or other applicable power and authority to own
its Capital Interest and to enter into and to perform its obligations
under this Agreement and has obtained (to the extent applicable law
permits the obtaining of same at this point in time) all permits and
approvals from applicable governmental authorities necessary for it to
enter into and to perform its obligations under this Agreement.
(b) Its execution, delivery, and performance of this Agreement have been
authorized by all necessary action on its part and that of its equity
owners (if required), and do not and will not (i) violate any law,
rule, regulation, order, or decree applicable to it or (ii) violate
its organizational documents.
(c) This Agreement is a legal and binding obligation of that Member,
enforceable against that Member in accordance with its terms, except
to the extent enforceability is modified by bankruptcy, reorganization
and other similar laws affecting the rights of creditors generally and
by general principles of equity.
(d) There is no litigation pending or, to the best of its knowledge,
threatened to which that Member or any of its Affiliates is a party
that could reasonably be expected to have a material adverse effect on
the financial condition, prospects, or business of that Member or its
ability to perform its obligations under this Agreement.
(e) The execution, delivery and performance of this Agreement will not
conflict with, violate or breach the terms of any agreement of that
Member or of any agreement to which its properties are subject.
(f) That Member has provided to other Member, concurrently with the
execution hereof, (i) a balance sheet of that Member as of the date
there indicated (which date is not more than 60 days prior to the date
of this Agreement), and such balance sheet has been prepared in
accordance with US GAAP or Mexico GAAP (except to the extent, if any,
therein otherwise specifically indicated) and presents fairly the
financial condition of that Member as of the date thereof, and (ii) a
certificate setting forth a description in reasonable detail of all
Projects, if any, in existence or in the developmental or planning
phase (A) that may reasonably be considered to be competitive with the
Project and (B) in which that Member or its Affiliates own an equity
interest.
21
(g) The information set forth in Exhibit G concerning the equity owners of
---------
that Member is true and correct.
13.2 Limitation on Liability. Notwithstanding any other provision of this
Agreement, but without prejudice to the provisions of any other agreement
entered into in connection with the Project, neither a Member nor any of its
Affiliates shall be liable, whether in contract, tort, warranty, negligence,
strict liability, or otherwise, for any special, indirect, incidental, or
consequential damages arising out of or in connection with this Agreement or its
status as a Member or an Affiliate of a Member; provided, however, that
liabilities arising under any of the Project Contracts to which a Member or an
Affiliate of a Member is a party shall be determined in accordance with those
contracts.
ARTICLE XIV
TERMINATION
The rights and obligations of the Members shall terminate upon the written
agreement of all the Members hereto. In addition, notwithstanding the provisions
of Article XI herein, either Member may terminate this Agreement in the event of
----------
a dispute under Section 2 of the letter agreement attached hereto as Exhibit C
---------
upon providing the other Member with written notice of its desire to terminate.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 Notices. All notices, requests, or consents provided for or permitted
to be given under this Agreement must be in writing and are effective (a) on
actual receipt by the addressee if personally delivered (including delivery
against a written receipt by an internationally recognized courier) to the
address below or (b) on transmission (with written confirmation of receipt,
whether from the transmitter's machine or otherwise) to the addressee if
transmitted by facsimile to the number below during normal business hours of the
addressee on a Business Day (or if transmitted outside such hours, as of the
opening of business of the addressee on the next Business Day):
22
To: Zaga at:
Grupo Industrial Zaga
Antigua Xxxxxxxxx Xxxxxx-Xxxxxxxxx Xx. 0000
Xxxxxxxx A-P.B.: Interior 19
Colonia San Mateo 2nd Secc.
Tepeji del Rio de Ocampo, Hidalgo, Mexico
C.P. 42850
Attn: Xxxxxx Xxxx
Fax: (000) 000-0000
To: DRI at:
Xxx River International Ltd.
c/o Xxx River Inc.
1065 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000 XXX
Attn: President, Apparel Fabrics Division
Fax: (000) 000-0000
With copy to:
Xxx River Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: General Counsel
Telecopy: (000) 000-0000
To: The Company at:
Aut. Mexico-Queretaro Km. 84
San Xxxxxxxx la Loma, Xxxx xx Xxxxxx
Tepeji del Rio de Ocampo, Hidalgo, Mexico
C.P. 42850
Any Member may change the address or facsimile number to which notices are to be
directed to it by notice to the other Members and the Company in the manner
specified above.
15.2 Governing Law. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE MEMBERS
ARISING OUT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK, U.S.A. (WITHOUT REFERENCE TO CONFLICTS OF
LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION), EXCEPT TO
THE EXTENT THAT ANY OF THE MATTERS COVERED HEREIN ARE
23
MANDATORILY GOVERNED BY THE LAWS OF MEXICO IN WHICH CASE SUCH MATTERS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF MEXICO (WITHOUT
REFERENCE TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER
JURISDICTION).
15.3 Interest. If any amount payable under this Agreement is not paid on or
before the date due, the Person liable for the payment also must pay interest on
the amount not paid from and including the date it was due to but excluding the
date actually paid at a rate per annum equal to the Specified Rate.
15.4 Further Assurances. Each Member shall take all additional actions and
shall execute all other and further deeds and documents as are necessary or
appropriate to give full effect to the provisions of this Agreement. In
addition, the Members shall cause the Company to take all additional actions as
are necessary or appropriate to give full effect to the provisions of this
Agreement.
15.5 No Further Relationship. The Members agree that no Member is the
agent of any other Member and no such Person is authorized to take any action on
behalf of the other, except as expressly provided in this Agreement or a Project
Contract.
15.6 Conflict of Terms. If the terms of this Agreement and the terms of
the Organizational Documents shall conflict, the Members shall endeavor to amend
the Organizational Documents so as to reflect the terms of this Agreement, so
far as permitted by applicable law.
15.7 Assignment. All the terms of this Agreement shall be binding on and
inure to the benefit of the parties, their permitted assigns and successors-in-
interests. Rights under this Agreement may be assigned only in conjunction with
a Transfer of Capital Interests permitted under this Agreement and the
Organizational Documents. It is expressly understood that DRI intends to assign
its interest in this Agreement to Xxx River B.V., a newly formed corporation
organized under the laws of the Netherlands, and that such assignment is
permitted under this Agreement without Zaga's consent. If a Member ceases to own
its Capital Interest in a transaction permitted by this Agreement, it shall
cease to be a party to this Agreement and to have any liability to the other
Member and the Company (except as may be otherwise provided in the documentation
with respect to such transaction); provided, however, that it shall continue to
be bound by the provisions of Sections 12.2, 12.3 and 13.2 and Article XI, and
---------------------------- ----------
it shall continue to remain liable for matters accruing prior to its ceasing to
be a Member.
15.8 Specific Performance. The Members acknowledge that the harm that would
be caused by a breach of this Agreement, including, without limitati on Articles
--------
VII and XII, would be difficult, if not impossible, to calculate, and
-----------
accordingly the Company, each Member, and its Affiliates shall be entitled to
injunctive relief to compel compliance with the provisions of this Agreement,
but nothing in this Section 15.8 shall amend or modify Article XII in any
------------ -----------
respect.
24
15.9 Entire Agreement. This Agreement, the Marketing Agreement, the Letter
Agreements and the Agency Agreement constitute the entire agreement among the
Members with respect to the subject matter of this Agreement and supersede all
prior agreements and undertakings, oral or written, between the Members with
respect to the subject matter of this Agreement, including the letter of intent
between Xxx River Inc. and Zaga dated March 9, 1999.
15.10 Amendment. An amendment or modification of this Agreement shall be
effective or binding on the parties only if it is in writing and signed by
Members having the vote to pass an Extraordinary Resolution; provided, however,
that an amendment or modification that alters the voting power of Members under
Article V shall be effective only if signed by all Members; and provided further
---------
that a Member's right to receive payments in its capacity as such may be reduced
only with that Member's consent.
15.11 Waivers. Any waiver, express or implied, by any of the Members of any
right under this Agreement or of any breach by another Member shall not
constitute or be deemed as a waiver of any other right or any other breach,
whether of a similar or dissimilar nature to the right or breach being waived. A
waiver of a Member's rights under this Agreement shall be effective only if that
Member agrees.
15.12 No Third Party Beneficiaries. Except as provided in Section 12.2,
------------
this Agreement is solely for the benefit of the Members and their respective
successors and permitted assigns, and this Agreement shall not otherwise be
deemed to confer upon or give to any other third party, including any Lender or
other creditor, any remedy, claim, liability, reimbursement, cause of action or
other right.
15.13 Severability. If any of the provisions of this Agreement are held to
be invalid or unenforceable under the applicable law of any jurisdiction, the
remaining provisions shall not be affected, and any such invalidity or
unenforceability shall not invalidate or render unenforceable that provision in
any other jurisdiction. In that event, the Members agree that the provisions of
this Agreement shall be modified and reformed so as to effect the original
intent of the Members as closely as possible with respect to those provisions
that were held to be invalid or unenforceable.
15.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
constitute but one agreement.
15.15 Interpretation. This Agreement shall be construed without regard to
the identity of the Member or Person who drafted the Agreement, and any rule of
construction that a document is to be construed against the drafting party shall
not be applicable.
15.16 Force Majeure. Neither Member shall be liable or deemed to be in
default on account of any breach of the terms of this Agreement due to a force
majeure event. For purposes of this Agreement, force majeure shall include the
following: acts of God; strikes, lockouts or similar industrial disturbances;
acts of public enemies; orders or restraints of any kind by the government of
Mexico or the United States, or any of their departments, agencies, political
subdivisions or officials, or any civil or military authority; war;
insurrections; civil disturbances;
25
riots; lightning; earthquakes; hurricanes; washouts; arrests; restraints of
government and people; explosions; change in government standards and
regulations; or any other cause, circumstance or event not reasonably within the
control of either Member.
[Rest of page purposely left blank]
26
IN WITNESS WHEREOF, the Members have entered into this Agreement as of the
day and year first above written.
GRUPO INDUSTRIAL ZAGA, S.A. de C.V.
By:__________________________________
Name: Xxxxx Xxxx
Title: President
XXX RIVER INTERNATIONAL LTD.
By:__________________________________
Name:________________________________
Title:_______________________________
27
ANNEX A
-------
DEFINITIONS
"Affiliate" means, with respect to any Person, any other Person that (a)
owns or controls the first Person, (b) is owned or controlled by the first
Person, or (c) is under common ownership or control with the first Person, where
"own" means ownership of 50% or more of the equity interests or rights to
distributions on account of equity of the Person and "control" means the power
to direct the management or policies of the Person, whether through the
ownership of voting securities, by contract, or otherwise; provided, however,
that the Company shall not be considered to be an Affiliate of a Member or of an
Affiliate of a Member.
"Agreement" has the meaning set forth in the introductory paragraph.
"Agency Agreement" has the meaning given that term in the Recitals section
of this Agreement.
"Annual Business Plan" has the meaning given that term in Section 10.6.
------------
"Award" has the meaning given that term in Section 11.6.
------------
"Board of Managers" means the Board of Managers (consejo de gerentes) of
the Company.
"Business Day" means any day other than a Saturday, a Sunday, or a day on
which banks in Xxx Xxxx, Xxx Xxxx, xx Xxxxxx Xxxx, Xxxxxx are authorized or
required by law to be closed.
"Buy-Sell Notice" has the meaning given that term in Section 6.1.
-----------
"Capital Interest" has the meaning given that term in Section 3.1.
-----------
"Capital Interest Price" has the meaning given that term in Section 6.1.
-----------
"Claims" has the meaning given that term in Section 11.2.
------------
"Closing Actions" means (a) the taking by the applicable selling Members of
all necessary or appropriate actions to Transfer the applicable Capital
Interests to the applicable purchasing Members, with such selling Members
warranting against all Encumbrances against such Capital Interests, except for
this Agreement and the Encumbrances provided for in Section 8.1(b), and (b) the
--------------
payment by such purchasing Members to such selling Members of the applicable
purchase price in Dollars in immediately available funds.
Annex A
Page 1
"Code" means the General Law of Mercantile Companies of Mexico (Ley General
de Sociedades Mercantiles).
"Commitment Amounts" has the meaning given that term in Section 3.5.
-----------
"Company" means the limited liability company (sociedad de responsabilidad
limitada de capital variable) formed by the Members pursuant to Article II.
----------
"Xxx River Inc. Code of Business Conduct" means the code of business
conduct of Xxx River Inc. and its Affiliates, as such code may be amended or
modified from time to time.
"Disputing Party" has the meaning given that term in Section 11.2.
------------
"Dollars" or "$" means freely transferable lawful money of the United
States of America.
"Dollar Amounts" has the meaning given that term in Section 3.4.
-----------
"DRI" has the meaning given such term in the introductory paragraph of this
Agreement.
"Encumbrance" means a security interest, charge, lien, pledge, mortgage or
similar encumbrance.
"Exercise Notice" has the meaning given that term in Section 8.2(b).
--------------
"Extraordinary Resolutions" has the meaning given that term in Section 5.7.
-----------
"Extraordinary Members Meeting" has the meaning given that term in Section
-------
5.1.
---
"Fair Market Value" means the value that would be obtained in an arm's-
length transaction between an informed and willing buyer and an informed and
willing seller, determined by mutual agreement or pursuant to Article VIII.
------------
"Financing Agreement" means any of:
(a) the Company's agreements with Persons (other than the Members and
their Affiliates) for the making available to the Company of loans, credit
facilities, or other funds (other than by way of equity or quasi-equity
participation); and
(b) the security documents, direct agreements, and other ancillary
undertakings in favor of Lenders required pursuant to the agreements
referred to in clause (a) above.
2
"FCPA" has the meaning given that term in Section 12.1.
------------
"US GAAP" means generally accepted accounting principles in the United
States.
"ICC" means the Court of Arbitration of the International Chamber of
Commerce.
"ICC Rules" means the Rules of Arbitration of the International Chamber of
Commerce.
"Lenders" means the Persons providing loans or credit under the Financing
Agreements.
"Letter Agreements" has the meaning given that term in the Recitals section
of this Agreement.
"Marketing Agreement" has the meaning given that term in the Recitals
section of this Agreement.
"Member" means any registered owner of a Capital Interest.
"Members Meeting" means any meeting of Members of the Company, conducted
pursuant to this Agreement, the Organizational Documents and the Code, including
any Ordinary Members Meeting and Extraordinary Members Meeting.
"Mexico" means the United Mexican States.
"Mexico GAAP" means generally accepted accounting principles in Mexico.
"Offer" means a bona fide written offer.
"Ordinary Resolutions" has the meaning given that term in Section 5.6.
-----------
"Ordinary Members Meeting" has the meaning given that term in Section 5.1.
-----------
"Organizational Documents" means the Company's charter/bylaws (estatutos)
as further described in Section 2.1. Upon formation of the Company, the
-----------
Ownership Percentage of each Member shall be as set forth in Exhibit D.
---------
"Ownership Percentage" of any Member means at the time in question the
ratio (expressed as a percentage) that the Value of a Capital Interest then
owned by such Member bears to the aggregate amount of all equity contributions
made by the Members.
"Person" means any natural person, corporation, company, partnership
(general or limited), limited liability company, business trust, or other entity
or association.
3
"Pesos" means freely transferable lawful money of Mexico.
"Potential Acquirer" has the meaning given that term in Section 8.2(b).
--------------
"Preferential Purchase Price" has the meaning given that term in Section
-------
8.2(b).
------
"Project" means the construction and operation of a manufacturing plant at
a location to be selected by the Board of Managers in Mexico primarily for the
manufacture of woven fabrics for sale to apparel manufacturers and other
sectors, including, without limitation, the manufacture of greige sheeting
fabric, and the development, financing, construction, ownership, maintenance,
and operation of such facility by or on behalf of the Company.
"Project Contract" means any of the following agreements to which the
Company will be a party:
(a) the Marketing Agreement;
(b) the Agency Agreement;
(c) the Letter Agreements;
(d) the agreement or agreements under which the Company will acquire
title to the sites for the Project or will be granted leasehold title to
those sites; and
(e) any other agreement material to the completion of the Project.
"Receiving Members" has the meaning given that term in Section 6.1.
-----------
"Regular Meetings" has the meaning given that term in Section 4.4.
-----------
"Representatives" has the meaning given that term in Section 9.2(c).
--------------
"Request for Arbitration" has the meaning given that term in Section
-------
11.3(a).
-------
"Response Notice" has the meaning given that term in Section 6.2.
-----------
"Special Meetings" has the meaning given that term in Section 4.4.
-----------
"Specified Rate" means, for any period for which interest is to be
calculated, a rate of interest per annum for each day during that period equal
to 4% per annum over the three-month London Interbank Offered Rate for Dollars
quoted in The Wall Street Journal for that day (or if not published that day,
the next preceding day on which it is published), or if a range is quoted, the
midpoint of that range.
4
"Subscriptions" has the meaning given that term in Section 3.4.
-----------
"Subject Capital Interests" has the meaning given that term in Section
-------
8.2(b).
------
"Three-Year Business Plan" has the meaning given that term in Section 10.6.
------------
"Transfer" means to sell, transfer, assign, or otherwise dispose of, or the
act of doing any of the foregoing, but not the act of granting or imposing an
Encumbrance.
"Transfer Notice" has the meaning given that term in Section 8.2(b).
--------------
"Ultimate Parent" means the Affiliate of the applicable Member that
controls, directly or indirectly, such Member and all of such Member's other
Affiliates; thus, as of the date hereof the Ultimate Parent of Zaga is Zaga (as
no Affiliate controls Zaga) and the Ultimate Parent of DRI is Xxx River Inc.
"United States" or "US" means the United States of America.
"Value of a Capital Interest" means the aggregate amount of equity
contributions expressed in multiples of one Peso made by a Member and its
predecessors to the Company.
"Zaga" has the meaning given such term in the introductory paragraph of
this Agreement.
5
EXHIBIT A
---------
MARKETING AGREEMENT
This Marketing Agreement (this "Agreement"), dated as of January 5, 2000,
is entered into by and between DanZa Textil, S. de X.X. de C.V., a sociedad de
responsabilidad limitada de capital variable organized under the laws of the
United Mexican States ("Manufacturer") and Xxx River Inc., a corporation
organized under the laws of the State of Georgia, United States of America
("DRI").
RECITALS
A subsidiary of DRI and Grupo Industrial Zaga, S.A. de C.V., a sociedad
anonima de capital variable organized under the laws of the United Mexican
States ("Zaga"), are parties to a Members Agreement dated as of January 5, 2000
(the "Members Agreement") whereby Zaga and a subsidiary of DRI are the sole
members, and thus own in the aggregate 100% of the corporate capital, of the
Manufacturer. Pursuant to the Members Agreement, Manufacturer is to develop,
build, own and operate a manufacturing plant at a location to be selected in
Mexico primarily for the manufacture of woven fabrics for sale to apparel
manufacturers and other sectors, including, without limitation, the manufacture
of greige sheeting fabric (the "Plant"). The Members Agreement provides that
Manufacturer shall enter into this Agreement, the purpose of which is to set
forth the terms and conditions upon which DRI will be the sole and exclusive
worldwide marketer of the products manufactured at the Plant (the "Products").
NOW THEREFORE, intending to be legally bound, Manufacturer and DRI agree as
follows:
Exhibit A
Page 1
1. Definitions. Capitalized words and phrases used in this Agreement
-----------
shall have the meanings set forth in the Members Agreement, unless such words
and phrases are otherwise defined herein.
2. Grant of Marketing Rights. During the term of this Agreement, DRI
-------------------------
shall have the exclusive right to market, promote and sell the Products on
behalf of Manufacturer throughout the world. DRI's responsibilities shall
include, but shall not be limited to the following:
(a) utilizing DRI's existing marketing personnel and sales force to
determine where and to whom to market the Products;
(b) determining the terms and conditions of sale of the Products including
pricing and discounts;
(c) designing fabrics in cooperation with Manufacturer's customers
utilizing DRI's in-house design staff to meet Manufacturer's customer's needs
(including fabric specifications as well as artistic matters); and
(d) selecting trademarks and style names under which the fabrics produced
by the Plant will be marketed.
3. Best Efforts. DRI agrees to use its commercially reasonable best
------------
efforts to solicit orders for the Products from customers and to promote and
market the sale of the Products; it is understood, however, that DRI shall not
be liable for decisions made in good faith and in the absence of gross
negligence with regard to the marketing of the Products, specifically including,
without limitation, decisions made in respect of the creditworthiness of the
Manufacturer's customers. Manufacturer will use its commercially reasonable best
efforts to produce fabrics in a timely fashion in types and constructions
requested by DRI from time to time to fill approved orders solicited by DRI.
2
4. Cooperation. DRI and the Manufacturer will work closely together to
-----------
help insure that delivery schedules and other production parameters are feasible
and are achieved as planned. DRI agrees to provide Manufacturer with all
marketing and customer information reasonably required by the general manager to
prepare the Annual Business Plan and Three Year Business Plan and other monthly
and quarterly reports pursuant to the Members Agreement.
5. Orders. Customer orders solicited by DRI will be forwarded to
------
Manufacturer for confirmation and acceptance by Manufacturer, which confirmation
and acceptance shall be reasonable. Order allocation, running schedules and
profitability of product mix for Manufacturer and DRI's remaining U.S. apparel
fabrics facilities will be reviewed quarterly. The parties will work in good
faith to identify the cause of any discrepancies between the plants, and
remedial action will be taken, if appropriate, to adjust for such discrepencies.
6. Trademarks, Copyrights and Other Intellectual Property.
------------------------------------------------------
(a) For purposes of this Agreement, the term "Intellectual Property" shall
mean trademarks, style names, copyrights and any other proprietary rights in and
to fabrics, fabric products, fabric designs and any packaging and marketing
materials.
(b) DRI hereby grants to the Manufacturer a non-exclusive license to use
the Intellectual Property of DRI which DRI, in its sole discretion, shall
determine from time to time to be useful in the performance of DRI's obligations
under this Agreement, such Intellectual Property to be used by Manufacturer
solely for the purposes of manufacturing Products at the Plant and marketing and
selling such Products as permitted by this Agreement. Manufacturer shall have no
right to sublicense these rights. All use of DRI's Intellectual Property shall
inure to DRI's sole benefit, shall immediately cease upon termination of this
Agreement, and Manufacturer shall acquire no rights therein, except as
specifically provided herein.
3
(c) Intellectual Property which is created for Manufacturer and used
initially by Manufacturer on and in connection with Products shall be the
property of Manufacturer. Manufacturer hereby grants a non-exclusive worldwide
license to DRI to use such Intellectual Property on and in connection with its
products and those of its subsidiaries so long as this Agreement is in effect.
(d) Manufacturer and DRI each agrees that the quality of the products sold
by either of them utilizing the Intellectual Property of the other will be of
good quality and in no event less than the quality of goods using the
Intellectual Property sold by the owner of the Intellectual Property, that each
of them shall have the right to require delivery of a reasonable number of
sample products in order to verify the quality of such products, and that each
party will promptly correct any quality deficiencies which are called to its
attention by the owner of the Intellectual Property. In the event that any
quality deficiencies are not corrected to the reasonable satisfaction of the
owner of the Intellectual Property, such owner may terminate the license to such
Intellectual Property granted herein.
(e) The parties agree to cooperate reasonably in all of the efforts of the
owner of the Intellectual Property (at the sole cost and expense of the owner of
the Intellectual Property, and subject to its sole approval) to perfect and
protect all rights in and to the Intellectual Property.
7. Compensation. In consideration for the services and use of the
------------
Intellectual Property to be provided by the parties herein, the parties shall be
compensated as provided in that certain letter agreement dated as of January 5,
2000 between Zaga and DRI regarding the allocation of selling, general and
administrative expenses; provided, however, that it is understood that
reasonable commissions payable to third party sales agents shall be payable by
the Manufacturer.
4
8. Sales Forecast: DRI will use reasonable commercial efforts to try to
--------------
achieve at least $65 million U.S. dollars in sales of Danza's products. This
means that, over time, DRI will use its reasonable commercial efforts to cause
Danza's net sales to be not less than 46% of total net sales of DRI's Apparel
Fabrics Division when the Danza plant is fully operational. It is understood
that the sales and percent allocation numbers are targets that the parties will
work diligently to achieve but are not guarantees. In the event of deviations
from the target allocation, the parties will work in good faith to identify the
cause of such discrepancies and remedial action will be taken, if appropriate,
to adjust for such discrepancies.
9. Term of the Agreement.
---------------------
(a) Unless earlier terminated as provided below, this Agreement shall be
effective upon execution by both parties for an initial term of five years. The
Agreement shall automatically continue on a month-to-month basis thereafter
unless and until terminated by either party with or without cause upon written
notice given at least one year prior to the effective date of termination.
(b) Notwithstanding the foregoing, this Agreement shall automatically
terminate in the event of (i) passage or implementation of any law or regulation
which materially and adversely impedes the parties' rights under the Agreement,
(ii) the withdrawal or suspension of any license or approval necessary in order
for the parties to perform their obligations under the Agreement or (iii) the
other party shall become the subject of any bankruptcy petition, or of a
compulsory or voluntary liquidation, compound with creditors generally,
appointment of receiver for all or a part of a parties' assets, the taking or
suffering any similar action to be taken in the consequence of debt, or becoming
unable to pay debts when they fall due.
5
(c) Either party shall have the right to terminate the Agreement upon
written notice to the other party in the event of a material breach of the
Agreement; provided, however, the breaching party shall be given a reasonable
period of time (not to exceed ninety (90) days) within which to cure such
breach.
10. Independent Contractors. Neither party's employees shall be considered
-----------------------
the employees of the other party, nor shall any action taken by one party be
deemed to bind the other party unless and until accepted or acknowledged by the
other party in writing. Nothing in this Agreement shall be construed to require
DRI to indemnify Manufacturer against claims for injury or damage arising out of
or related to defects in the Products or otherwise relating in any way to
Manufacturer's operations.
11. Complaints. The parties shall cooperate fully in the resolution of any
----------
claims or disputes which may arise from complaints made by customers. DRI shall
have no authority to settle or adjust claims or disputes without Manufacturer's
consent.
12. Government Approvals. In the event this Agreement needs to be approved
--------------------
by any governmental authority, the parties agree to cooperate reasonably in
securing the necessary approvals.
13. Force Majeure. Neither party shall be liable or deemed to be in
-------------
default of this Agreement on account of any breach of the terms of this
Agreement due to a force majeure event. For purposes of this Agreement force
majeure shall include the following: acts of God; strikes, lockouts or similar
industrial disturbances; acts of public enemies; orders or restraints of any
kind by the government of Mexico or the United States, or any of their
departments, agencies, political subdivisions or officials, or any civil or
military authority; war; insurrections; civil disturbances; riots; lightning;
earthquakes; hurricanes; washouts; arrests; restraints of
6
government and people; explosions; change in government standards and
regulations; or any other cause, circumstance or event not reasonably within the
control of either party.
14. Corrupt Practices. The parties understand and agree that no payment to
-----------------
be made hereunder shall be made for any purpose or in any manner prohibited by
applicable law.
15. Assignment. This Agreement may be assigned by either party to an
----------
Affiliate; no other assignment or assumption of this Agreement is permissible,
and no such assignment and assumption shall be valid until and unless approved
by the other party in writing. Subject of the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties, their successors and
assigns.
16. Notices. All notices, requests, or consents provided for or permitted
-------
to be given under this Agreement must be in writing and are effective (a) on
actual receipt by the addressee if personally delivered (including delivery
against a written receipt by an internationally recognized courier) to the
address below or (b) on transmission (with written confirmation of receipt,
whether from the transmitter's machine or otherwise) to the addressee if
transmitted by facsimile to the number below during normal business hours of the
addressee on a business day (or if transmitted outside such hours, as of the
opening of business of the addressee on the next business day):
Grupo Industrial Zaga, S.A. de C.V.
Antigua Xxxxxxxxx Xxxxxx-Xxxxxxxxx Xx. 0000
Xxxxxxxx A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Xxx xx Xxxxxx, Xxxxxxx
X.X. 00000
Xxxxxx
Attention: Xxxxxx Xxxx
Telecopy: 000-000-0000
7
Xxx River Inc.
1065 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: President, Apparel Fabrics Division
Telecopy: 000-000-0000
with copy to:
Xxx River Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: General Counsel
DanZa Textil, S. de X.X. de C.V.
Aut. Mexico-Queretaro Km. 84
San Xxxxxxxx la Loma, Xxxx de Xxxxxx
Xxxxxx xxx Xxx xx Xxxxxx, Xxxxxxx, Xxxxxx
Any party may change the address or facsimile number to which notices are to be
directed to it by notice to the other party in the manner specified above.
17. Indemnification.
---------------
(a) Manufacturer hereby agrees to defend, indemnify and hold harmless DRI,
its directors, trustees, officers, employees and agents from and against any
liability associated with the Products for bodily injury (including death at any
time resulting therefrom) and property damage, whether based on theories of
contract, tort, strict liability or otherwise, and Manufacturer shall pay any
and all claims, damages, costs, expenses (including without limitation
reasonable attorneys' fees), and any other damages arising or resulting from any
such claim, suit or demand.
(b) Each of the parties agrees to defend and indemnify the other with
respect to any claim, suit or demand associated with the alleged infringement of
any third party's intellectual
8
property rights associated with either party's use of any Intellectual Property
of the other in accordance with the terms and conditions of this Agreement.
18. Party's Obligation Upon Termination. Upon termination of this
-----------------------------------
Agreement each of the parties shall return to the other any samples, price
lists, promotional materials or other confidential information pertaining to
such other party's business. Each party agrees not to utilize or disclose to any
third party during or after the termination of this Agreement, in competition
with or in any way to the detriment of the other party, any information or data
furnished to such party. All such information shall be kept confidential for a
period of five years after the termination of this Agreement.
19. Governing Law; Submission to Jurisdiction; Resolution of Disputes. THE
-----------------------------------------------------------------
PROVISIONS OF SECTION 15.2 AND ARTICLE XI OF THE MEMBERS AGREEMENT ARE HEREBY
INCORPORATED BY REFERENCE MUTATIS MUTANDI.
20. Language of the Agreement. This Agreement has been originally drafted
-------------------------
and negotiated in English, and the English language version shall be controlling
in all matters of interpretation of this Agreement.
21. Severability. If any portion of this Agreement shall be deemed
------------
unenforceable by a court of competent jurisdiction, then such portion shall be
deemed separate, and the remainder hereof shall be enforceable in accordance
with its terms.
22. Captions. Captions in this Agreement are for convenience only and
--------
shall not be considered in the construction and interpretation hereof.
23. Integrated Agreement; Previous Agreements. This Agreement constitutes
-----------------------------------------
the complete integrated agreement between the parties concerning the subject
matter hereof. All
9
former agreements, understandings, negotiations or representations, whether oral
or in writing, relating to the subject matter of this Agreement are superseded
and canceled in their entirety.
10
IN WITNESS WHEREOF the parties have hereunto caused this Agreement to be signed
by their duly authorized representatives as of the date set forth in the first
paragraph hereof.
XXX RIVER INC. DANZA TEXTIL, S. DE X.X. DE C.V.
By:____________________________ By:_______________________________
Title:_________________________ Title:____________________________
By:_______________________________
Title:____________________________
11
EXHIBIT B
---------
January 5, 2000
Grupo Industrial Zaga
Antigua Xxxxxxxxx Xxxxxx-Xxxxxxxxx Xx. 0000
Xxxxxxxx A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Xxx xx Xxxxxx, Xxxxxxx
X.X. 00000
Xxxxxx
Gentlemen:
This letter ("Letter Agreement") will confirm and set forth the terms and
conditions under which Grupo Industrial Zaga, S.A. de C.V., a sociedad anonima
de capital variable, organized and existing under the laws of the United Mexican
States ("you," "your," "Zaga") is appointed and authorized as the independent
sales representatives to solicit orders for DanZa Textil, S. de X.X. de C.V.
(the "Company") in Mexico (the "Territory"). Notwithstanding any of the terms of
this Letter Agreement, Xxx River Inc. (hereinafter "we," "us," "our," "Xxx
River") shall have the exclusive worldwide right to market the products
manufactured by the Company (the "Products") pursuant to a Marketing Agreement
of even date herewith (the "Marketing Agreement").
Details concerning the arrangements generally described above are as
follows:
1. Term:
-----
This Agreement shall have the exact term provided for in Section 9 of the
Marketing Agreement, unless earlier terminated by mutual agreement of the
parties or pursuant to Section 15 below. Xxx River shall give Zaga prompt notice
of any termination or anticipated termination of the Marketing Agreement.
2. Territory and Products:
----------------------
The rights granted pursuant hereto shall only be exercised in the
Territory, unless otherwise agreed by the parties hereto in writing, and shall
apply only to the Products. We will consider in good faith any requests made by
you for solicitations of orders outside of the Territory.
Exhibit B
Page 1
3. Best Efforts:
-------------
You hereby agree to use your commercially reasonable best efforts to
solicit orders for the Products from customers in the Territory and to cooperate
generally with us in promoting the sale of the Products. You shall promptly
submit all inquiries and orders to Xxx River. It is hereby acknowledged and
understood that you shall have no authority to undertake or enter into any
obligations, contractual or otherwise, on our behalf or on behalf of the
Company. You will supply at your own cost and expense all facilities and
services essential in fulfilling your duties hereunder.
4. Use of Trademarks; Copyright Protection:
---------------------------------------
(a) This letter Agreement does not grant any rights to the use of any of
Xxx River's or the Company's trademarks, trade names, copyrights or other
intellectual property, except as used by us or the Company on and in connection
with the Products, and you shall not use any such trademarks, trade names,
copyrights or other intellectual property in your business name, your business
forms, in advertising material or otherwise without prior written approval and
permission from us or the Company, as the case may be. Any use by you of such
trademarks, trade names, copyrights or other intellectual property shall inure
solely to the benefit of the owner thereof, and you agree that you acquire no
rights therein, except as expressly provided herein. You agree to cease all
permitted use of such trademarks, trade names or other intellectual property
upon termination of this Agreement or upon the owner's earlier request.
(b) You will provide to us assistance generally in connection with the
sale of Products to customers in the Territory, including for example, keeping
us informed as to textile product activities generally and any improper or
wrongful use of any of the Xxx River or the Company trademarks, trade names,
logos or designs which may come to your attention from time to time. You agree
to cooperate fully in any effort to maintain registration of the trademarks or
copyrights in the Territory or in any effort to terminate an infringement of any
such intellectual property in the Territory.
5. Taxes:
------
You shall be responsible for payment of any taxes arising out of your
activities arising under this Letter Agreement (except for taxes which may be
imposed on Xxx River's or the Company's net income, or sales taxes and the
like).
6. Compensation:
-------------
In consideration for the services provided for herein, you shall be
compensated as provided in that certain letter dated as of January 5, 2000
between Zaga and Xxx River regarding the allocation of selling, general and
administrative expenses; provided, however, that it is understood that
reasonable commissions payable to third party sales agents shall be payable by
the Company.
2
7. Orders:
-------
Each order that we receive from you shall be subject to approval by us and
acceptance by the Company in Mexico.
8. Independent Representative:
--------------------------
Neither you nor any of your employees shall be considered our employees or
employees of the Company, and neither their actions nor your actions shall bind
Xxx River or the Company to any agreement, nor shall you or your employees make
any representation or warranty concerning the Products or in any manner assume
or create any obligations or responsibility whatsoever in our name or in the
name of the Company. You agree to indemnify and hold us and the Company harmless
against any and all claims, actions, and damages whatsoever arising directly
from any unauthorized obligations or responsibility which you or your employees
may assume without proper authorization from us or the Company, or otherwise
arising directly or indirectly from your breach of this Letter Agreement or from
your acts or omissions. The parties agree that you shall function under this
Letter Agreement as independent sales representatives, and the manner and means
by which you perform your obligations hereunder shall be determined solely by
you. You will undertake to acquire at your cost any licenses or permission
necessary to your operations and to comply with all applicable laws or
registration requirements. NOTHING CONTAINED HEREIN SHALL BE CONSTRUED TO
REQUIRE YOU TO INDEMNIFY US OR THE COMPANY AGAINST CLAIMS FOR INJURY OR DAMAGE
ARISING OUT OF OR RELATED TO DEFECTS IN THE PRODUCTS.
9. Complaints:
-----------
You will promptly inform us and the Company of all complaints made by
customers and will assist us and the Company in adjusting any claims or disputes
which may arise, but you are not authorized to make any settlements or to adjust
any claims or disputes without the Company's or our prior written consent.
10. Governmental Approvals:
----------------------
If this Letter Agreement needs to be approved by any governmental entity in
the Territory, or any filings or registrations need to be made with the
governmental entity in connection herewith, you shall submit the Agreement to
the appropriate authorities for the purpose of securing such necessary approvals
and shall use your best efforts to obtain all necessary approvals. If approvals
are required and no such approval has been secured within ninety (90) days of
the date of this Letter Agreement, either party may give notice to the other
terminating this Letter Agreement without incurring any obligation in respect
thereto. All approvals contemplated in this Letter Agreement shall be obtained
at your expense, and you shall be solely responsible for and indemnify and hold
us and the Company harmless with respect to any fines, payments, costs and
expenses incurred in connection therewith. You warrant and represent that your
activities pursuant hereto shall not violate any law of any
3
political entity or subdivision in the Territory and that your activities
pursuant hereto shall be conducted at all times in accordance with any law, rule
or regulation applicable in the Territory.
11. Competition:
-----------
During the term hereof, you agree not to sell or offer for sale, or to be
directly or indirectly interested in the sale in the Territory of any products
competitive to the Products, unless the prior written consent of Xxx River and
the Company has first been secured.
12. Force Majeure:
--------------
Neither you, we, nor the Company shall be liable or deemed to be in default
on account of any breach of the terms of this Letter Agreement due to a force
majeure event. For purposes of this Agreement, force majeure shall include the
following: acts of God; strikes, lockouts or similar industrial disturbances;
acts of public enemies; orders or restraints of any kind by the government of
Mexico or the United States, or any of their departments, agencies, political
subdivisions or officials, or any civil or military authority; war;
insurrections; civil disturbances; riots; lightning; earthquakes; hurricanes;
washouts; arrests; restraints of government and people; explosions; change in
government standards and regulations; or any other cause, circumstance or event
not reasonably within the control of either party.
13. Corrupt Practices:
-----------------
You understand and agree that no part of any payment we make to you is to
be used by you, or by any other person, for any purpose prohibited by applicable
law. If we learn or have reason to believe that any payments being made to you
by us or the Company hereunder are being used for such prohibited purposes, we
reserve the right to immediately terminate this Letter Agreement notwithstanding
any provisions hereof to the contrary, and to receive prompt reimbursement of
any funds so used.
14. Assignment; Notices:
-------------------
This Letter Agreement may be assigned to your affiliate with written notice
to us and to the Company; otherwise, this Letter Agreement is nonassignable and
nontransferable by you. All notices, requests, or consents provided for or
permitted to be given under this Agreement must be in writing and are effective
(a) on actual receipt by the addressee if personally delivered (including
delivery against a written receipt by an internationally recognized courier) to
the address below or (b) on transmission (with written confirmation of receipt,
whether from the transmitter's machine or otherwise) to the addressee if
transmitted by facsimile to the number below during normal business hours of the
addressee on a business day (or if transmitted outside such hours, as of the
opening of business of the addressee on the next business day):
4
Grupo Industrial Zaga, S.A. de C.V.
Antigua Xxxxxxxxx Xxxxxx-Xxxxxxxxx Xx. 0000
Xxxxxxxx A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Xxx xx Xxxxxx, Xxxxxxx
X.X. 00000
Xxxxxx
Attention: Xxxxxx Xxxx
Telecopy: 000-000-0000
Xxx River Inc.
1065 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: President, Apparel Fabrics Division
Telecopy: 000-000-0000
with copy to:
Xxx River Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: General Counsel
DanZa Textil, S. de X.X. de C.V.
Aut. Mexico-Queretaro Km. 84
San Xxxxxxxx la Loma, Xxxx de Xxxxxx
Xxxxxx xxx Xxx xx Xxxxxx, Xxxxxxx, Xxxxxx
00. Termination:
-----------
In addition to those circumstances set forth in Sections 1 and 10 above,
this Agreement shall also be subject to early termination in the following
circumstances:
(a) Upon occurrence of the following events, this Letter Agreement shall
automatically terminate:
(i) The passage or implementation of any laws or regulations which
materially and adversely change our rights or those of the Company under
this Letter Agreement; and
(ii) The withdrawal or suspension of any license or approval
necessary for you to operate under this Letter Agreement.
5
(b) Upon occurrence of the following events, Xxx River shall have the
right to terminate this Letter Agreement after notice to you and completion of a
thirty day period in which you may cure any defect:
(i) Your engaging in unauthorized sales of competing products;
(ii) Your repeated and/or gross negligence in promoting or marketing
the products;
(iii) Your refusal to comply with our reasonable, legitimate
instructions;
(iv) Your entry into bankruptcy, compulsory or voluntary liquidation,
or compound with your creditors generally, or the appointment of
a receiver for all or any part of your assets, or the taking or
suffering any similar action in consequence of debt or becoming
unable to pay your debts as they fall due; and
(v) Any other material breach of this Letter Agreement.
16. Waiver of Indemnification and Damages:
-------------------------------------
In the event of an early termination of this Letter Agreement or in the
event that this Letter Agreement is not renewed, you hereby agree to waive any
and all claims you may otherwise have under any law, rule, regulation, decree,
etc., whether of Mexico or any other country to receive indemnification and/or
damages from Xxx River or the Company. This limitation shall not apply to those
claims arising directly out of the substantive law of the United States.
17. Your Obligations Upon Termination:
---------------------------------
After termination, you shall return to us all samples, price lists, any
promotional materials and other things furnished by us. You agree not to utilize
or disclose to any third party during or after termination of this Letter
Agreement, in competition with us or in any way to our detriment, any
information or data furnished by us pertaining to our business or that of the
Company.
18. Severability:
------------
If any portion of this Letter Agreement shall be deemed unenforceable by a
court of competent jurisdiction, then such portion shall be deemed separate, and
the remainder hereof shall be enforceable in accordance with its terms.
19. Governing Law; Resolution of Disputes:
-------------------------------------
THE PROVISIONS OF SECTION 15.2 AND ARTICLE XI OF THE MEMBERS AGREEMENT
DATED JANUARY 5, 2000 BETWEEN ZAGA AND XXX RIVER
6
INTERNATIONAL LTD. (the "Members Agreement") ARE HEREBY INCORPORATED BY
REFERENCE MUTATIS MUTANDI.
20. Language of the Agreement:
-------------------------
This Agreement was originally drafted and negotiated in English, and the
English language version shall be controlling in all matters of interpretation
of the Agreement.
21. Authorization:
-------------
Each of the parties hereto represents that it is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, and that it is duly authorized and empowered to
enter into, deliver and perform this Agreement, and that such delivery and
performance will not violate its charter, bylaws or other similar governing
documents, or result in any violation of law. Each of the parties represents
that the person signing this Agreement on its behalf is authorized to do so.
22. Entire Agreement:
----------------
This Letter Agreement supersedes and cancels all existing agreements and
understandings between us which pertain to the matters covered in this Letter
Agreement. This letter Agreement and Attachment hereto will hereafter constitute
our entire agreement and may be amended only in an instrument in writing signed
by both parties.
If the foregoing correctly states our complete understanding, please sign
both copies of this letter Agreement, evidencing your intention to be legally
bound, and return one copy to us. We look forward to continuing a beneficial
relationship for you and for us.
Very truly yours,
XXX RIVER INC.
By:______________________
Title:___________________
7
Agreed:
GRUPO INDUSTRIAL ZAGA, S.A. DE C.V.
By:____________________________
Title:_________________________
DANZA TEXTIL, S. DE X.X. DE C.V.
By:____________________________
Title:_________________________
By:____________________________
Title:_________________________
EXHIBIT C
---------
[Xxx River Letterhead]
January 5, 2000
Grupo Industrial Zaga, S.A. de C.V.
Antigua Xxxxxxxxx Xxxxxx-Xxxxxxxxx Xx. 0000
Xxxxxxxx A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Xxx xx Xxxxxx, Xxxxxxx
X.X. 00000
Dear Sirs:
Reference is made to the Members Agreement dated as of January 5, 2000
(the "Members Agreement") between Grupo Industrial Zaga, S.A. de C.V. ("Zaga")
and Xxx River International Ltd. ("DRIL") with respect to the ownership and
management of DanZa Textil, S. de X.X. de C.V. ("Danza"). The purpose of this
letter agreement (the "Agreement") is to set out the understanding between Zaga
and Xxx River Inc. ("Xxx River") regarding (i) the transfer of certain
manufacturing capacity from Xxx River's U.S. facilities to Danza, (ii) the
purchase or lease by Danza of certain equipment from Xxx River's U.S.
facilities, (iii) the procurement of yarn and finishing services by Danza from
outside sources (including, as appropriate, Zaga and Xxx River), (iv) certain
restrictions on competition and (v) finishing services. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Members
Agreement. Zaga and Xxx River are hereunder also referred to collectively as the
"Parties."
1. Xxx River and Zaga hereby agree that manufacturing capacity
substantially equivalent to the apparel fabrics yardage currently
produced at Xxx River's Division II shall be transferred to Danza.
2. Xxx River shall sell or lease (or cause an Affiliate thereof to do
so) to Danza the looms, warping, drawing-in and other support equipment
from certain of Xxx River's U.S. facilities (the "Equipment"). Xxx
River will provide Zaga with a detailed list of the Equipment six
months following the date this Agreement is executed. As consideration
for the Equipment, Danza hereby agrees to purchase or lease the
Equipment from Xxx River on a basis that will enable Xxx River to
recover the appraised value of the Equipment over a five-year period,
plus interest at a market rate on the unpaid balance. The Equipment
shall be appraised pursuant to the mechanism set forth on the attached
EXHIBIT A; provided, however, that if the two appraisals referenced in
---------
EXHIBIT A differ by more than 10% and Xxx River and Zaga cannot, in a
---------
good faith effort, agree upon a fair value for the Equipment, either
Zaga or DRIL may terminate the Members Agreement in accordance with
Article XIV thereof; provided, however, that neither Member shall be
able to terminate the Members Agreement 90 Days or more after the
second appraisal is rendered. The Members shall cause Danza to bear the
cost of
Exhibit C
Page 1
shipping and installing the Equipment in Mexico; however, Xxx
River shall be responsible, at its sole expense, for packing the
equipment for shipment to Mexico, supervising its installation and
ensuring that the Equipment is operational when installed in Mexico.
The Members agree that Danza shall not be required to pay for Equipment
that is not operational in Mexico. Once the appraisal referred to
herein has been agreed upon, the Parties shall agree on whether the
Equipment is to be purchased or leased and shall agree on the
definitive documents for the sale or lease thereof.
3. Xxx River, through DRIL, its Affiliate, and Zaga hereby shall cause
Danza to purchase yarn from the most advantageous sources based on,
among other factors, price, quality and delivery schedules. However,
the Members shall cause Danza to purchase yarn from Xxx River or its
Affiliate for a transition period that will end six months after the
manufacturing plant for the Project is fully operational (the
"Transition Period"). Yarn sold to Danza during the Transition Period
shall be at the market price for comparable yarns sold by U.S.
manufacturers. After the Transition Period is over, Zaga shall have the
right to sell substantially the same quantities and mix of yarns to
Danza as was sold by Xxx River or its Affiliates during the Transition
Period at the market price for comparable yarns sold by Mexican
manufacturers (provided the yarn specifications, quality, weaving
performance, etc., meet Danza's requirements).
4. Neither Xxx River nor its Affiliates shall add any additional
weaving capacity in the United States for apparel fabrics; however,
neither Xxx River nor any Affiliate thereof shall be restricted from:
(i) modernizing existing facilities, as long as the weaving capacity is
not increased as a result of such modernization; (ii) adding capacity
to weave fabrics which are required by any U.S. law to be manufactured
in the United States (e.g., government and military fabrics); or (iii)
acquiring textile manufacturing businesses in the United States that
include apparel fabrics operations, so long as the apparel fabrics
sales of such acquired business do not represent more than 50% of total
sales of the acquired business.
Should Xxx River or any Affiliate acquire a business (the "New
Business") in the United States that includes an apparel fabrics
business which manufactures fabrics manufactured by Danza (the
"Competing Apparel Fabrics Business"), Xxx River shall, after the
closing of the acquisition, offer to sell the Competing Apparel Fabrics
Business to Danza (the "Offer") at a price equal to the price actually
paid by Xxx River or its Affiliate for the New Business times a
fraction equal to the earnings before interest, taxes, depreciation and
amortization ("EBITDA") of the Competing Apparel Fabrics Business
divided by the EBITDA of the New Business, in each case for the most
recently completed fiscal year of the New Business. If Danza rejects
any such Offer, Xxx River or its Affiliates shall be free of
restrictions to run the Competing Apparel Fabrics Business.
For purposes of this section 4, the definition of apparel fabrics
shall include any fabric scheduled into the Danza plant by Xxx River on
a consistent basis for a period of three months or more, with the
exception of fabrics for home fashion products, which shall not be
restricted in any way.
2
5. Xxx River agrees to provide finishing to Danza at its manufacturing
cost (excluding selling, general and administrative expenses). However,
the Members agree that Danza shall not be restricted from acquiring
finishing from any source that provides acceptable quality, delivery
schedules and prices.
This Agreement shall be binding upon and shall inure to the benefit of
the Parties hereto and their respective successors and assigns; provided, that
it is understood that in the event the Members Agreement is terminated as
provided herein and therein, each of the obligations set forth herein shall be
terminated, and no party shall have any further obligation to the other
thereafter, other than with respect to any obligations that have accrued to the
date of termination. The provisions of Articles XI and 15.2 of the Members
Agreement are hereby incorporated mutatis mutandi. This Agreement may be
modified or supplemented only by written agreement of the Parties hereto.
Signed:
Xxx River Inc.
By:_____________________________________
Name: _______________________________
Title: ______________________________
Acknowledged and agreed to:
Grupo Industrial Zaga, S.A. de C.V.
By: _______________________________
Xxxxx Xxxx
President
DanZa Textil, S.A. de C.V.
By: _________________________
Name:________________________
Title:_______________________
By: _________________________
Name:________________________
Title:_______________________
3
[Intentionally Left Blank]
4
EXHIBIT D
---------
[Xxx River Letterhead]
January 5, 2000
Grupo Industrial Zaga, S.A. de C.V.
Antigua Xxxxxxxxx Xxxxxx-Xxxxxxxxx Xx. 0000
Xxxxxxxx A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Rio de Ocampo, Hidalgo, Mexico
C.P. 42850
Re: Allocation of Selling, General and Administrative Expenses
Dear Sirs:
Reference is made to that certain Members Agreement dated as of January
5, 2000 between Grupo Industrial Zaga, S.A. de C.V. ("Zaga") and Xxx River
International Ltd. ("DRIL") with respect to the ownership and management of
DanZa Textil, S. de X.X. de C.V. ("Danza") and that certain Members Agreement
dated as of January 5. 2000 between Zaga and DRIL with respect to the ownership
and management of Zadar, S. de X.X. de C.V. ("Zadar"). The purpose of this
letter agreement (the "Agreement") is to set out the understanding between Zaga
and Xxx River Inc. ("DR") regarding the allocation of the selling, general and
administrative ("S, G & A") expenses of DR and Zaga, and their respective
affiliates, that are chargeable to Danza and Zadar. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
aforementioned Members Agreements.
The S, G & A expenses of DR and its Affiliates will be allocated to and
paid by Danza and Zadar to DR with respect to any fiscal year of DR in an amount
equal to: 10% of Danza's annual net sales, plus 0.5% of Zadar's annual net
sales, the total of which shall not exceed an amount equal to the product of
DR's actual annual divisional S, G & A expenses for its Apparel Fabrics Division
(excluding sample layout, dye lab and color matching expense) times a percentage
-----
equal to Danza's annual net sales divided by total Apparel Fabrics Division
----------
annual net sales plus an allocation of $2.4 million Dollars for DR's corporate
----
S, G & A/1/; provided, however, to the extent Danza's annual operating income
-------- -------
(earnings before interest and taxes) exceeds 10% of its annual net sales, DR may
charge an additional amount of corporate S G & A expenses up to an additional
$1.1 million Dollars, to the extent that such additional allocation does not
cause Danza's annual operating income as a percentage of its annual net sales to
drop below 10%. An example of the foregoing calculation is attached.
Notwithstanding the foregoing, it is understood that the allocation of
divisional S, G & A expenses shall not be increased based upon reductions in
DR's U.S. apparel fabrics sales, unless such reductions result
__________________
/1/ DR will allocate corporate S,G & A to the Apparel Fabrics Division based on
its cost of sales compared to DR's total cost of sales, calculated on a basis
consistent with prior practice. Danza will receive a proportionate part of that
allocation based on Danza's sales compared to total Apparel Fabrics Division's
sales, not to exceed $2.4 million Dollars or $3.5 million Dollars, as determined
herein.
Exhibit D
Page 1
primarily from transfer of DR's production capacity to Danza. DR agrees that it
will make reasonable commercial efforts to limit increases in the Apparel
Fabrics Division's S, G & A expense over time.
It is further agreed that the S, G & A expenses of Zaga will be
allocated to and paid by Zadar and Danza with respect to any fiscal year of Zaga
in an amount equal to 3.5% of Zadar's annual net sales, plus 0.7% of Danza's
annual net sales, provided that the total amount of such allocation shall not
exceed $1.5 million Dollars. Examples of the calculations described above are
attached.
The amounts owed will be paid to DR and Zaga, as the case may be, as
soon as practicable following the end of each of Danza's and Zadar's fiscal
quarters, and in any event within 30 Days thereof. All payments shall be made in
U.S. Dollars.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns; provided, that
it is understood that in the event either Members Agreement referenced above is
terminated as provided therein, each of the obligations set forth herein shall
be terminated, and no party shall have any further obligation to the other
thereafter, other than with respect to any obligations that have accrued to the
date of termination. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, U.S.A.,
without reference to the conflicts of laws principles that would apply the laws
of another jurisdiction. In addition, the provisions of Article XI of the
aforementioned Members Agreements are hereby incorporated mutatis mutandi. This
Agreement may be modified or supplemented only by written agreement of the
parties hereto.
Signed:
Xxx River Inc.
By:___________________________
Name:_________________________
Title:________________________
Acknowledged and agreed to:
Grupo Industrial Zaga, S.A. de C.V.
By:___________________________
Xxxxx Xxxx
President
2
CALCULATION OF THE ALLOCATION OF XXX RIVER (US)
CORPORATE & DIVISIONAL SG&A
EXAMPLE 1 $ MILLIONS
Danza Sales 65.0
Zadar Sales 15.0
Danza Operating Inc. (EBIT) 5.0
Xxx River AF Sales 140.0
Xxx River AF Divisional SG&A 14.2
Sample, layout, dye lab & color matching 2.6
Danza Sales 65 = 46.4% Allocable %
--
Xxx River AF Sales 140
Xxx River AF Divisional SG&A 14.2 MM
Less Sample Layout etc. 2.6 MM
-------------
Actual Xxx River Divisional SG&A 11.6 MM
(Allocable %) X 46.4 %
-------------
5.38 MM
Corp. SG&A + 2.40 MM
--------------
7.78 MM
vs.
65.0 MM
Danza Sales X 10.0 %
--------------
6.5 MM
15.0 MM
Zadar Sales X 0.5 %
--------------
0.075MM
Xxx River SG & A allocated to Danza and Zadar is $6.575 MM because $7.78 MM is
greater than the sum of 10.0% of Danza sales and 0.5% of Zadar sales.
Page 3
CALCULATION OF THE ALLOCATION OF XXX RIVER (US)
CORPORATE & DIVISIONAL SG&A
EXAMPLE 2 $ MILLIONS
Danza Sales 150.0
Zadar Sales 50.0
Danza Operating Inc. (EBIT) 14.5
Xxx River AF Sales 250.0
Xxx River AF Divisional SG&A 14.2
Sample, layout expense 2.6
Danza Sales 150 = 60.0% Allocable %
---
Xxx River AF Sales 250
Xxx River AF Divisional SG&A 14.2 MM
Less Sample Layout etc. 2.6 MM
-------------
Actual Xxx River Divisional SG&A 11.6 MM
(Allocable %) X 60.0 %
-------------
8.52 MM
Corp. SG&A + 2.40 MM
--------------
10.92 MM
Total 10.92 MM
10.92 SG&A = 7.28% (less than 10.0% of Danza sales
-----
150 Danza Sales and 0.5% of Zadar sales so full
so full amount allowed)
4
EXHIBIT E
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DANZA TEXTIL, S. DE X.X. DE C.V.
CHAPTER I
NAME, DOMICILE, PURPOSE AND DURATION
FIRST.- The name of the Company is DANZA TEXTIL. This denomination
shall always be followed by the words "SOCIEDAD DE RESPONSABILIDAD LIMITADA DE
CAPITAL VARIABLE" or their abbreviation "S. DE X.X. DE C.V."
SECOND.- The domicile of the Company is Tepeji del Xxx xx Xxxxxx, Xxxxx
xx Xxxxxxx, Xxxxxx, but the Company may establish agencies or branches elsewhere
in Mexico and designate conventional domiciles for the execution of specific
acts and contracts.
THIRD.- The purposes of the Company are:
(a) To develop, finance, build, own and operate a manufacturing plant
at a location to be selected by the Board of Managers in Mexico primarily for
the manufacture of woven fabrics for sale to apparel manufacturers and other
sectors, including, without limitation, the manufacture of greige sheeting
fabric.
(b) To establish agencies or branches in Mexico.
(c) To render technical, professional, administrative and consultant
services related to the purpose, as well as to hire workers, technicians,
distributors and administrative personnel.
(d) To acquire, hold and dispose of, in any legal manner, all kinds of
shares, capital interests or participations in other corporations or
associations, whether of a civil or mercantile nature, consistent with these
corporate purposes.
(e) To acquire, own, lease, encumber and transfer in any legal manner
such real or personal properties as may be required by or convenient for the
corporate purpose.
(f) To represent all kinds of companies and individuals within or
outside of Mexico as agent, commission agent, representative or
attorney-in-fact.
(g) To lend and borrow money with or without mortgage or pledge
security or in any other legal manner and to guarantee the obligations of third
persons by means of bond, mortgage, pledge, or otherwise.
(h) To sign and grant all kinds of credit instruments and other
documents and contracts of indebtedness and to guarantee the payment thereof in
any legal manner.
Exhibit E
Page 1
(i) To acquire and dispose of in any legal manner such patents, patent
rights, inventions, trade-marks, copyrights and trade names as may be required
or convenient for attainment of the corporate purpose.
(j) To render any and all services whether of a civil, administrative
or mercantile nature relating to the corporate purpose.
(k) Such other activities as are lawful and approved by an
Extraordinary Resolution of the Members.
(l) In general, to carry out and perform any and all business or
activities relating to the corporate purpose.
FOURTH.- The term of duration of the Company shall be undefined from
the date of these by-laws.
CHAPTER II
CAPITAL AND CAPITAL INTERESTS
FIFTH.- The capital of the Company shall be variable. The Company shall
have a minimum fixed capital of $3,000 (THREE THOUSAND PESOS 00/100). Each
Member shall own one capital interest (parte social) ("Capital Interest"), which
initially shall have the value set forth in the transitory clauses. All
additional equity contributions in excess of the minimum fixed capital amount
shall constitute the variable capital of the Company, which shall have an
unlimited maximum and shall cause an increase in the Value of the Capital
Interest of such contributing Member by the amount of equity so contributed. The
Value of a Capital Interest shall always represent a multiple of one Peso.
(a) Subject to the Equity Contribution Agreement signed by the Members,
each Member shall be required, severally and not jointly, to make equity
contributions to provide its pro rata portion of the funds necessary to fund the
Company; provided that in no event shall any Member be required to make equity
contributions in excess of US$25,000,000 (TWENTY FIVE MILLION DOLLARS 00/100).
Each time that such equity contributions are to be made, they shall be made by
all Members on the same day pro rata in accordance with their Ownership
Percentages.
(b) The Members shall authorize and cause the Company to increase the
capital of the Company to correspond to the amounts required to be contributed
from time to time in accordance with paragraph (a) above. The Company shall
register in its books any increase in the Value of a Member's Capital Interest
based on and corresponding to the amounts so contributed.
(c) If one Member fails or refuses to provide funds as required by this
Clause Fifth, and such failure or refusal continues for five Business Days after
receipt by such Member of
2
notice thereof from the other Member, the other Member may at its option provide
such funds, and the Member providing such funds shall have the Value of its
Capital Interest increased accordingly.
(d) Upon any decision of the Members to increase the capitalization of
the Company, except for increases pursuant to paragraphs (a), (b) and (c) above,
each Member shall have the right to subscribe for such increase pro rata based
on such Member's Ownership Percentage. If any Member fails to subscribe or pay
for the pro rata portion to which it is entitled, the other Member may take up
the unsubscribed or unpaid portion.
The funding needs of the Company to be provided by the Members shall be
denominated in Dollars, and the commitment of the Members to fund such needs
shall be made in Dollars (the "Commitment Amounts"). Notwithstanding the
foregoing, the amount of any equity contributions to the Company, and the
subscriptions of the Members in respect thereof, shall be denominated and paid
in Pesos (the "Subscriptions"), it being understood that foreign capital
contributed by the Members shall be converted to Pesos at the prevailing rate of
exchange published by the Banco de Mexico in the Official Daily Gazette (Diario
Oficial). Equity capital thus paid to the Company shall then be converted to
Dollars (the "Dollar Amounts"). To the extent that any Dollar Amount realized by
the Company in connection with any Subscription shall be less than the relevant
Commitment Amount, additional equity increases shall be made and the Members
shall subscribe for such increases and effect payment in connection therewith
until the Company shall have realized Dollar Amounts that are not less than the
Commitment Amounts.
SIXTH.- The Capital Interests which represent the capital shall be of
free subscription and may be subscribed or acquired by Mexican or foreign
individuals, companies or economic entities. The Capital Interests shall be
represented by certificates, which shall not be negotiable instruments.
The certificates shall be printed and cover one Capital Interest; they
shall be numbered consecutively and shall bear the autograph signatures of the
chairman and of the secretary of the Board of Managers. The certificates shall
contain the name, nationality and domicile of the Member, all the information
regarding the incorporation of the Company, the total capital and the capital
contribution. In addition, Clauses Fifth, Sixth, Seventh and Thirty-fourth of
these by-laws shall be transcribed on the certificates. Save in the case of
legal issuance of more than one series for reasons of preferential rights of
different participation in dividends or other reasons, Capital Interests will
confer on their holders the same rights and impose the same obligations.
SEVENTH.- The Company shall deem as owner of Capital Interests any
person who is registered as such in the Capital Interest register to be kept by
the Company.
(a) Notwithstanding any other provision of these by-laws, a Transfer or
Encumbrance of Capital Interests or an issuance of new Capital Interests of the
Company may only be made in accordance with the provisions of these by-laws, the
General Law of Commercial Companies and the Financing Agreements, and any other
attempted Transfer, Encumbrance or issuance shall be void. It shall be a
condition to the Transfer or issuance of Capital Interests to any Person
3
under any provision hereof that such Person shall agree in writing (i) to be
bound by the provisions of these by-laws and (ii) to assume all liabilities and
obligations of the transferring Member (and Affiliates thereof) under or with
respect to any agreement between or among any of the Members (or Affiliates
thereof) in relation to the Project; and any Transfer or subscription in respect
of which such conditions have not been satisfied shall be void.
(b) No Member may Transfer or Encumber its Capital Interest or its
Value in a Capital Interest unless (i) such Transfer is to an Affiliate of the
transferor, (ii) such action is approved by the Board of Managers in accordance
with Clause Twenty-third herein, or (iii) if such action is not so approved by
the Board of Managers, such action is approved by an Extraordinary Resolution.
(c) Any Transfer of a Capital Interest or of a Member's Value in a
Capital Interest hereunder shall take effect as of the date of registration of
such Transfer in the books of the Company, and the Company shall not register
any Transfer that does not comply with this Clause Seventh, but the Members and
the Board of Managers agree promptly to take and cause to be taken any action
necessary under these by-laws and applicable law to effectuate and register any
such Transfer that does so comply.
(d) The certificates representing the Capital Interests shall all bear
the following legend in English and in Spanish:
"The transfer or encumbrance in any manner of the Capital Interest
represented by this certificate are restricted by and subject to the
provisions of the Estatutos of the Company, as well as a certain
Members Agreement, dated January 5, 2000, copies of which may be
reviewed at the Company's head office during business hours."
EIGHTH.-
(a) If a Member owning more than 50% of the capital of the Company or
any of its Affiliates desires to Transfer its Capital Interest (the
"Transferor") and such Transfer has been approved in accordance with the
provisions of Clause Seventh, the Transferor must first offer to the other
Member (the "Transferee"), in accordance with the terms of paragraph (b) below,
the right to purchase from the Transferor a portion of the Transferor's Capital
Interest in an amount sufficient to provide the Transferee with a 50%, but no
more and no less than a 50%, Ownership Percentage in accordance with paragraph
(b) below; provided, however, that this preferential purchase right shall not
apply if the Transferee's Ownership Percentage at the time of the Transfer is
less than 37%.
(b) Should a Member owning more than 50% of the capital of the Company
or any of its Affiliates desire to Transfer its Capital Interest (the
"Transferor") pursuant to an Offer from another Person (the "Potential
Acquirer") and such Transfer is permitted pursuant to the provisions of Clause
Seventh, the Transferor shall promptly give notice thereof (the "Transfer
Notice") to the Company and the Transferee. The Transfer Notice shall include a
copy of the Offer and shall set forth in reasonable detail all relevant
information with respect to the proposed
4
Transfer, including the name and address of the Potential Acquirer, the cash
purchase price (expressed in Dollars) per Peso contributed to the equity of the
Company by the Transferor (the "Preferential Purchase Price"), the Capital
Interests that are to be the subject of the Transfer (the "Subject Capital
Interests"), and any other terms and conditions of the proposed Transfer. The
Transferee shall have the preferential right to purchase from the Transferor a
portion of the Transferor's Capital Interest in an amount sufficient to provide
the Transferee with a 50% Ownership Percentage at the Preferential Purchase
Price and on the same material terms and conditions set forth in the Transfer
Notice. The Transferee shall have 20 Business Days following the giving of the
Transfer Notice in which to notify the Transferor whether it desires to exercise
its preferential right. A notice in which the Transferee exercises such right is
referred to herein as an "Exercise Notice." The Exercise Notice shall be
accompanied by an irrevocable letter of credit issued by a reputable financial
institution in favor of the Transferor (or such other instrument or arrangement
reasonably satisfactory to the Transferor) in the amount of the Preferential
Purchase Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Transferor times (y) the percentage amount equal to the
positive difference between 50% and the Ownership Percentage of the Transferee
immediately prior to the exercise of the preferential purchase, times (z) 10%,
which letter of credit shall provide that in the event the Transferee fails for
any reason (other than due to the fault of the Transferor or the failure,
through no fault of the Transferor, to obtain any required consent of the
Lenders) to complete the closing of the transaction within the time period set
forth in paragraph (c) below, then the Transferor shall have the right (without
limitation to any other remedy available), for a period of 10 Business Days
after the expiration of such period, to draw on the letter of credit and to
retain the proceeds thereof. If the Transferee does not duly exercise such right
during the applicable period, it shall be deemed to have waived such right.
(c) If the preferential right is exercised in accordance with paragraph
(b) above, the closing of such purchase shall occur at the head office of the
Company on the first Business Day 120 days after the expiration of the
preferential right period. At the closing, the Closing Actions shall occur.
(d) If the Transferee does not deliver an Exercise Notice or if for any
reason (other than due to the fault of the Transferor or the failure of the
Lenders, other than the failure to grant any required consent, to take any
action that prevented the preferential purchase transaction to close within the
time period set forth in paragraph (c) above) the preferential purchase
transaction does not close within the time period set forth in paragraph (c)
above, the Transferor shall have the right, subject to compliance with the other
provisions of these by-laws, to Transfer the Subject Capital Interests to the
Potential Acquirer in accordance with the terms of the Transfer Notice for a
period of 90 days after the expiration of the preferential right period. If,
however, the Transferor fails to Transfer the Subject Capital Interests within
such period, the proposed Transfer shall again become subject to the
preferential right set forth in this Clause Eighth.
NINTH.- The variable capital of the Company may be increased or reduced
without need of amending these by-laws. The only formality required for said
increase or reduction will be the approval by the Members in an Extraordinary
Meeting other than with respect to contributions made
5
pursuant to Clause Fifth (a), (b) and (c). Every increase or reduction of the
capital of the Company shall be recorded in a Capital Interest register kept for
such purpose by the Company.
(a) Capital increases. In a capital increase the Members shall have the
preferential right to subscribe in accordance with Clause Fifth. No capital
increase may be declared until the previous increase has been fully paid for.
(b) Capital reductions. Reductions of the capital of the Company shall
be carried out by reimbursement to the Members.
The Members shall have the right to withdraw all or any part of their
contributions, and obtain reimbursement, in accordance with Articles 220 and 221
of the General Law of Commercial Companies, provided they so notify the Company
five years in advance, unless the Members agree to a shorter notice.
Reimbursement shall be made in proportion to the net worth of the Company in
accordance with the last approved balance sheet.
CHAPTER III
MEMBERS MEETINGS
TENTH.- The Members Meeting is the supreme authority of the Company.
Subject to the terms of the by-laws, the Members Meeting may adopt all kinds of
resolutions and appoint and remove any officer. Its resolutions shall be
enforced by the Board of Managers or the person or persons expressly designated
therefore by the Members.
Every Member as such submits and is subject to the stipulations of
these by-laws and the resolutions duly adopted by the Members in a Members
Meeting or by the Board of Managers.
The resolutions of the Members shall be binding even on absentees or
dissenters except for the right of opposition provided in the General Law of
Commercial Companies.
The Members Meeting may be ordinary (an "Ordinary Members Meeting") or
extraordinary (an "Extraordinary Members Meeting"), depending on the matters to
be discussed at each meeting. Members Meetings shall be held at the corporate
domicile of the Company and Members may attend such meetings by telephone or
videoconference. According to the General Law of Commercial Companies,
resolutions may be adopted outside of Members Meetings by unanimous written
consent of all of the Members. An Ordinary Members Meeting shall be held at
least once a year within the four (4) months following the closing of each
fiscal period. Ordinary Members Meetings may be those called to discuss any of
the matters that are not expressly reserved by these by-laws to the
Extraordinary Members Meeting. The matters reserved for Extraordinary Members
Meetings are any matters that are identified as Extraordinary Resolutions
pursuant to Clause Fifteenth below.
ELEVENTH.- A Members Meeting shall be called by any Member, the Board
of Managers or any other Person authorized under applicable law. Notice of a
Members Meeting
6
shall be provided in writing by the Company or other applicable Person to each
Member at least 15 Business Days prior to such Members Meeting, unless a longer
period is required by applicable law or unless such requirement is waived by all
Members, and any Member that attends a Members Meeting shall be deemed to have
waived any requirement for notice thereof. The notice shall be published in a
newspaper of wide circulation in the Company's domicile and by means of a notice
sent by fax and confirmed by air mail confirmed receipt or courier addressed to
each Member at his domicile or to the place that he may have designated for such
purpose. The notice shall set forth the hour, date and place of the Meeting and
the agenda, and shall be signed by the person issuing the notice. The notice
shall include any matter submitted to the Company by any Member at least three
Business Days prior to the sending of the notice for such Members Meeting.
Unless approved by all Members of the Company, no matter may be considered at a
Members Meeting unless such matter was set forth in the notice for such Members
Meeting.
No notice shall be required in the case that a duly convened Members
Meeting is to be continued, provided that when the Members Meeting was
postponed, the date and hour for its continuation were determined.
TWELFTH.- The chairman of the Board of Managers shall act as the
chairman of the Members Meeting, and the secretary of the Company shall serve as
secretary of the Members Meeting. In the event that either the chairman of the
Board of Managers or the secretary of the Company are unavailable to so act,
then the chairman and the secretary shall be elected by the Members (or their
representatives) by a majority vote of the total votes of the Members
represented at the relevant meeting. In all instances, the vote collector shall
be elected from among the Members (or their representatives) by a majority vote
of the total votes of the Members represented at the relevant meeting. Unless
otherwise required by applicable law, each Members Meeting shall be conducted in
English, and the minutes of each Members Meeting shall be prepared in English
and Spanish promptly after each meeting, shall be circulated to all Members
before finalization and shall be kept in the minute books of the Company.
THIRTEENTH.- Unless a higher number is required by applicable law, a
quorum for any Members Meeting shall consist of Members present or represented
by proxy holding more than 75% of the total votes of the Members, provided that
the presence of a quorum shall not modify or lessen the affirmative vote
required by Clauses Fourteenth and Fifteenth; and provided, further, that a
quorum for a Members Meeting that is held with notice at least five Business
Days following the date that a Members Meeting was properly called pursuant to
Clause Eleventh but was not held due to the failure of a quorum shall consist of
Members present or represented by proxy holding any number of the total votes of
the Members.
Each Member shall have one vote for each one Peso contributed by the
Member and its predecessors to the equity of the Company. Votes shall be cast by
written ballot. Members may be represented at Members Meetings by proxies, the
holders of which need not be Members. Proxy holders that are Members shall be
entitled to vote based on the number of votes of the Members they represent
separately, in addition to voting based on their own number of votes. Proxies
shall be issued in accordance with the General Law of Commercial Companies.
7
Resolutions may be approved by the Members without a meeting if the resolution
is submitted in writing to each Member and each such Member consents in writing
to such resolution.
FOURTEENTH.- Resolutions, actions and decisions of the Members shall be
adopted, taken or made at an Ordinary Members Meeting by the affirmative vote of
Members (or their representatives) representing more than 50% of the total votes
of the Members ("Ordinary Resolutions").
FIFTEENTH.- Resolutions, actions and decisions of the Members shall be
adopted, taken or made at an Extraordinary Members Meeting by the affirmative
vote of Members (or their representatives) representing 75% or more of the total
votes of the Members with respect to the following matters ("Extraordinary
Resolutions"), unless such matters shall have been approved by the Board of
Managers or are required by law to be approved of by the Members:
(a) Any merger, consolidation or similar amalgamation of the Company,
or the Transfer during any fiscal year, exceeding an aggregate of more than 20%
of the Fair Market Value of the Company's total assets;
(b) The appointment or removal of auditors;
(c) Any proposal for additional contributions of capital, other than
with respect to the contributions made pursuant to Clause Fifth (a), (b) and
(c);
(d) Any proposals for the Company to accept contributions of or
conversions of debt-to- capital from third parties in exchange for Capital
Interests;
(e) Any proposals by a Member to Transfer all of its Capital
Interests or a portion of the Value of its Capital Interest other than as
permitted by these by-laws;
(f) The dissolution of the Company;
(g) Any acquisitions or capital expenditures during any fiscal year
exceeding an aggregate of more than 20% of the Fair Market Value of the
Company's total assets;
(h) The amendment of these by-laws;
(i) Entering into a transaction or series of transactions with any
Affiliate (or any Person in which a Member or its Affiliate has a 10% or greater
equity interest), member of the Board of Managers, officer, or executive of the
Company or a Member (or any individual who is a member of the immediate family
of such manager, officer or executive) that in the aggregate will have a value
during any fiscal year in excess of US$100,000 (ONE HUNDRED THOUSAND DOLLARS
00/100);
(j) Incurring additional indebtedness if the ratio of debt to total
capitalization of the Company would exceed 60% after giving effect to such
borrowing;
8
(k) Borrowing for the purpose of accomplishing any matter listed in
this Clause; and
(l) Making payments of liquidating or partially liquidating
dividends.
SIXTEENTH.- If (a) at any time any Member desires to adopt one or more
Extraordinary Resolutions, but approval of the other Member for the passing of
such Extraordinary Resolutions cannot be obtained in accordance with Clause
Fifteenth and (b) such situation continues without resolution for at least 90
days (during which period the Members shall conduct good faith negotiations and
discussions, which shall include, without limitation, a requirement of a face to
face meeting of the chief executive officers of the respective Member's Ultimate
Parents), then any Member (the "Triggering Member") may, at any time thereafter
while such situation continues without resolution, send a notice (the "Buy-Sell
Notice") to the other Member (the "Receiving Member"). The Buy-Sell Notice shall
constitute an offer by the Triggering Member either (i) to sell the Capital
Interest of the Triggering Member or (ii) to purchase the Capital Interest of
the Receiving Member, in either case for a cash price in Dollars equal to the
price per one Peso contributed to the equity of the Company (the "Capital
Interest Price") set forth in the Buy-Sell Notice. The Buy-Sell Notice shall be
accompanied by an irrevocable letter of credit issued by a reputable financial
institution in favor of the Receiving Member in the amount of 10% of the Capital
Interest Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Receiving Member, which letter of credit shall provide
that in the event the Receiving Member elects to sell its Capital Interest and
the Triggering Member for any reason (other than due to the fault of the
Receiving Member or the failure, through no fault of the Receiving Member, to
obtain the consent, if required, of the Lenders) fails to complete the closing
of the transaction within the time period set forth in Clause Eighteenth, then
the Receiving Member shall have the right (without limitation to any other
remedy available), for a period of 10 Business Days after the expiration of such
period, to draw on the letter of credit and retain the proceeds thereof.
SEVENTEENTH.- Not later than 30 days after the giving of the Buy-Sell
Notice to the Receiving Member, the Receiving Member shall notify (the "Response
Notice") the other Member whether such Receiving Member elects (a) to sell or
(b) to purchase, in either case at the Capital Interest Price. Failure to give
the Response Notice within such 30-day period shall be deemed to be an election
to sell by the Receiving Member. If the Receiving Member elects to purchase, the
Receiving Member shall be required to purchase all of the Capital Interest of
the Triggering Member and shall include with its Response Notice the original
letter of credit it received from the Triggering Member and a letter of credit
in favor of the Triggering Member substantially as described in Clause Sixteenth
above (except that the amount of the letter of credit shall be measured by
reference to the Triggering Member's equity contributions). If the Receiving
Member does not elect to purchase, the Receiving Member shall sell its Capital
Interest to the Triggering Member. In each case, the sale or purchase of the
Capital Interest shall be at the Capital Interest Price multiplied by the number
of whole Pesos contributed to the equity of the Company by the Member who is
selling its Capital Interest.
9
EIGHTEENTH.- The closing of the sale and purchase in accordance with
Clauses Sixteenth and Seventeenth shall be consummated no later than the first
Business Day after 90 days after the giving of the Response Notice or the deemed
election (pursuant to Clause Seventeenth) to sell. Such closing shall occur at
the head office of the Company unless otherwise agreed, and at the closing, the
Closing Actions shall occur. Any tax withholding obligations with respect to the
Transfers of the Capital Interests imposed by the laws of Mexico shall be
complied with.
CHAPTER IV
ADMINISTRATION
NINETEENTH.- The Company shall be governed by a Board of Managers
consisting of six managers. The managers shall not be required to be nationals
of Mexico. Any Member shall be entitled to designate three persons to the Board
of Managers, and to the extent permitted by applicable law, shall have the right
to cause such managers to be removed. The appointment of the chairman and the
secretary of the Board of Managers will alternate annually between the managers
appointed by each Member.
The managers may but need not be Members of the Company.
The chairman of the Board of Managers shall not have the deciding vote
in case of a tie in the voting of the Board.
The chairman and the secretary of the Board shall have exclusively
those powers conferred upon them by these by-laws.
TWENTIETH.- Each Member entitled to nominate a manager pursuant to
Clause Nineteenth shall be entitled to designate an alternate manager for each
of its nominees (an "Alternate Manager"). Each Alternate Manager shall be
entitled to receive notice of all meetings of the Board of Managers and to
attend and vote at any such meeting at which the manager for whom he is the
Alternate Manager is not personally present, and generally to perform all
functions of the manager for whom he is the alternate as a manager in his
absence. An Alternate Manager shall cease to be an Alternate Manager if the
manager for whom he is the alternate ceases to be a manager; provided, however,
that if a manager retires and is immediately reappointed, any appointment of an
Alternate Manager for such manager that was in force immediately prior to his
retirement shall continue after his reappointment. An Alternate Manager shall be
deemed for all purposes a manager and shall alone be responsible for his own
acts and defaults and he shall not be deemed to be the agent of the manager for
whom he is the alternate.
TWENTY-FIRST.- The managers shall be elected for a term of office of
one year. A manager whose term of office expires may be reelected. Any vacancy
occurring in the managership of the Board of Managers shall be filled by the
Member that nominated the manager whose departure created such vacancy.
10
TWENTY-SECOND.- The Board of Managers shall meet at least quarterly
("Regular Meetings"), and additional meetings may be convened by notice of the
chairman or by any manager at any time ("Special Meetings"). Regular Meetings
shall be held at the Company's head office or at such other location as may be
agreed by the Board of Managers. Unless otherwise agreed upon by the Board of
Managers, Special Meetings shall be held on an alternating basis at the
Company's head office and in Danville, Virginia, U.S.A. Managers shall receive
not less than ten Business Days' written notice of any meeting, with such
written notice also provided to each Member. Managers may, by unanimous written
consent, waive the notice requirement for meetings, and any manager that attends
a meeting of the Board of Managers shall be deemed to have waived any
requirement for notice thereof. The agenda of each meeting shall be included in
the notice for such meeting and shall be established in accordance with the
requirements of the General Law of Commercial Companies and these by-laws, but
shall include any matter submitted to the Company by any manager at least three
Business Days prior to the sending of the notice for such meeting. Managers may
attend meetings of the Board of Managers by telephone.
TWENTY-THIRD.- A quorum for meetings of the Board of Managers shall
require the presence of at least four managers. All decisions of the Board of
Managers shall be taken by the affirmative vote of at least four managers. The
chairman of the Board of Managers shall not be entitled to any vote in addition
to his vote as a manager. In the event of a deadlock among the managers, the
matters shall be decided by vote of the Members as set forth in Chapter III. The
proceedings of meetings of the Board of Managers will be in English. Unless
otherwise required by applicable law, the official minutes of meetings and
resolutions taken therein shall be kept in English and Spanish, shall be
circulated to all managers before finalization and shall be kept in the minute
books of the Company. If permitted by applicable law, decisions may be taken by
the Board of Managers without a meeting if a proposal for action is submitted in
writing to each of the managers and each such manager consents in writing to
such action.
TWENTY-FOURTH.-. Except as otherwise expressly provided by applicable
law or these by-laws, the Board of Managers shall, consistent with any
resolution of the Members Meeting, administer the business and property of the
Company and manage the affairs of the Company and shall have full authority to
do so, provided that its resolutions and acts are consistent with the General
Law of Commercial Companies and these by-laws. Subject to the foregoing, the
functions and powers of the Board of Managers shall include, but not be limited
to:
(a) The appointment or removal of the general manager of the Project;
(b) The approval of the Annual Business Plan;
(c) The approval of the annual audited financial statements;
(d) The approval of any acquisition or Transfer of assets or
capital expenditures having a value in excess of US$2,000,000 (TWO MILLION
DOLLARS 00/100);
11
(e) The approval of any loans or the issuance of any credits in the
ordinary course of business in excess of US$1,000,000 (ONE MILLION DOLLARS
00/100) in the aggregate to any one Person or its Affiliates;
(f) Any material amendment or modification of any Project Contract or
Financing Agreement;
(g) Any declaration by the Company of a default under, any exercise
by the Company of remediesunder, or any termination or cancellation by the
Company of, any Project Contract or Financing Agreement;
(h) General power of attorney for lawsuits and collections, in the
terms of the first paragraph of Article 2554 of the Civil Code for the Federal
District, with all general and such special powers as are mentioned in Article
2587 of said Code, including but not limited to the following:
To exercise all types of rights and actions before any and all
authorities and boards of conciliation and arbitration; to submit to any
jurisdiction; to desist from injunction (xxxxxx) proceedings; to file charges
and complaints as aggrieved party and assist the District Attorney; and to sign
such documents as may be required in the exercise of this power of attorney;
(i) General power of attorney for acts of administration, in the
terms of the second paragraph of said Article 2554, with powers to carry out all
operations inherent in the corporate purpose;
(j) General power of attorney for acts of dominion, in the terms of
the third paragraph of said Article 2554;
(k) Power to grant and sign credit instruments in accordance with
Article 9 of the General Law of Credit Instruments and Operations;
(l) Power to carry out and enforce the resolutions adopted in Members
Meetings;
(m) Power to revoke and confer general and special powers of attorney
within the scope of the aforementioned powers; and
(n) The performance of any other acts necessary or appropriate for a
Board of Managers under these by-laws or the General Law of Commercial
Companies.
TWENTY-FIFTH.- To guarantee the faithful discharge of their duties, the
managers shall give the guaranty determined by the Ordinary Members Meeting
which appointed them, and it may consist of a cash deposit or bond.
12
TWENTY-SIXTH.- The Board of Managers shall appoint the general manager
of the Company, who shall be the chief executive officers of the Company and
responsible for the day-to-day management and conduct of the operations of the
Company in accordance with powers granted by the Members Meeting and the Board
of Managers from time to time. The Board of Managers shall appoint a deputy
general manager. The general manager shall report to the Board of Managers. The
duration of the terms of the general manager, the deputy general manager and
other officers having authority to sign and execute documents on behalf of the
Company shall not be limited to the term of the managers.
CHAPTER V
FISCAL YEAR, BALANCE SHEET, PROFITS AND LOSSES
TWENTY-SEVENTH.- The fiscal year of the Company shall be a calendar
year.
TWENTY-EIGHTH.- A balance sheet shall be prepared within three months
following the close of the fiscal year and kept in the principal offices of the
Company, available to the Company Members and officers, together with its
supporting documents, one month before the respective Ordinary Members Meeting
is held.
TWENTY-NINTH.- The profits obtained in each fiscal year shall be
applied as follows:
(a) First the amount agreed upon by the Ordinary Members Meeting will
be set aside for the establishment or reconstitution, as the case may be, of the
legal reserve fund, an amount that at minimum will be 5% of the net profit,
until an amount equal to one fifth of the capital is accumulated.
(b) Such sum as may be determined by the Members shall be set aside for
creating or increasing reinvestment, contingency or such special reserves as may
be deemed advisable;
(c) Such sum as may be determined by the Members shall be distributed
to the Members in proportion to the Value of their Capital Interests;
(d) The remainder, if any, shall be passed to the undistributed profits
account.
THIRTY.- The Members shall be liable for the Company losses but their
liability shall be limited to payment of the unpaid portion of their Capital
Interests; hence, the owners of fully-paid Capital Interests shall have no
liability whatsoever.
CHAPTER VI
DISSOLUTION AND LIQUIDATION
THIRTY-FIRST.- The Company shall be dissolved:
13
(a) If continued execution of the corporate purposes shall become
impossible;
(b) By resolution of the Members adopted in accordance with these by-
laws and the General Law of Commercial Companies; or
(c) In case of loss of two-thirds of the corporate capital unless the
Members restore or reduce same.
THIRTY-SECOND.-
(a) Upon dissolution, the Company shall be placed in liquidation which
shall be entrusted to one or more receivers, as determined by the Members in an
Extraordinary Meeting.
(b) The Board of Managers shall continue in the discharge of their
duties until the appointment of the receivers shall have been recorded in the
Public Registry of Commerce and the receivers shall have taken office.
(c) The liquidation shall be conducted as prescribed in the General Law
of Commercial Companies but the Members, upon determining to liquidate, shall
establish the rules which, in addition to the provisions of the General Law of
Commercial Companies and these by-laws, shall govern all action taken by the
receivers.
(d) The Extraordinary Members Meeting wherein the final balance sheet
is approved must be presided over by one of the receivers. The receivers shall
have the authority vested in the Board of Managers and the duties and
obligations granted to the receivers by the General Law of Commercial Companies.
CHAPTER VII
GENERAL PROVISIONS
THIRTY-THIRD.- The founding Members do not reserve to themselves any
special participation in the Company profits.
THIRTY-FOURTH..- Any foreigner who upon incorporation or at any time
thereafter acquires an interest or participation in the Company and/or the
property rights, concessions, participations or interests owned by such
companies or the rights and obligations derived from the agreements to which
such companies are parties with Mexican authorities, shall be considered ipso
facto as a Mexican citizen with respect to such interest, participation,
concession, right, obligation and agreement and it shall be understood that he
agrees not to seek the protection of his government under penalty, in case of
breaching said agreement, of forfeiting such interest or participation to the
Mexican Nation.
THIRTY-FIFTH.- In all matters not specifically provided for herein, the
provisions of the General Law of Commercial Companies shall govern.
14
THIRTY-SIXTH.- No Claim (as defined below) shall be submitted to
arbitration until 60 days have passed (without mutual agreement having been
reached) following the first written notice from a Disputing Party to the other
Disputing Party that sets forth the subject matter of the Claim and that states
that it is being given pursuant to this Clause. Each Disputing Party shall, if
requested by another Disputing Party, select and appoint a senior executive (not
concerned with the day-to-day performance of the appointor's obligations under
these by-laws) to serve on a panel seeking to reach mutual agreement with
respect to the applicable Claim. Each such appointment shall be made by the
giving of notice by the appointor to the other Disputing Parties within ten
Business Days of the request for the appointment. The appointees shall meet and
shall endeavor to reach such mutual agreement as soon as practicable.
THIRTY-SEVENTH.- Any and all disputes, including claims, counterclaims,
demands, causes of action, controversies, and other matters in question arising
out of or relating to these by-laws, or the alleged breach hereof, or in any way
relating to the subject matter of these by-laws or the relationship between the
parties created by these by-laws (all of which are referred to herein as
"Claims") between the Members (each a "Disputing Party") that are not resolved
during the 60 day period provided in Clause Thirty-sixth shall be resolved by
binding arbitration.
THIRTY-EIGHTH.- If no such mutual agreement has been reached within
such 60 day period, then any Disputing Party may refer the claim to arbitration
under the following provisions:
(a) To refer a claim to arbitration, a Disputing Party must submit its
Request for Arbitration to the ICC and the other Disputing Parties in accordance
with the ICC Rules.
(b) The Disputing Parties shall endeavor to agree promptly on a panel
of three arbitrators. One (1) arbitrator shall be nominated by each Disputing
Party in accordance with ICC Rules, and the third arbitrator shall be nominated
by the two (2) ICC-confirmed party-nominated arbitrators or, failing agreement,
shall be appointed by the ICC in accordance with ICC Rules. Each Disputing Party
shall be permitted to nominate an arbitrator that is of the same nationality as
the Disputing Party making the nomination.
THIRTY-NINTH.- The validity, construction, and interpretation of this
agreement to arbitrate, and all procedural aspects of the arbitration conducted
pursuant to this agreement to arbitrate, including, but not limited to, the
determination of the issues that are subject to arbitration (i.e.,
arbitrability), the scope of the arbitrable issues, allegations of "fraud in the
inducement" to enter into this agreement to arbitrate, allegations of waiver,
laches, delay or other defenses to arbitrability, and the rules governing the
conduct of the arbitration (including the time for filing an answer, the time
for the filing of counterclaims, the times for amending the pleadings, the
specificity of the pleadings, the extent and scope of discovery, the issuance of
subpoenas, the times for the designation of experts, whether the arbitration is
to be stayed pending resolution of related litigation involving third parties
not bound by this agreement to arbitrate, the receipt of evidence, and the like)
shall be decided in accordance with the ICC Rules. However, the arbitrators
shall have absolutely no authority to award treble, exemplary or
15
punitive damages of any type under any circumstances, regardless of whether such
damages may be available under applicable law; in addition, the arbitrators
shall have no authority to amend, modify, supplement or otherwise change any of
the terms of these by-laws. The Award shall fix the costs of the arbitration and
decide which of the Disputing Parties shall bear them or in what proportion they
shall be borne by the Disputing Parties; provided that each Disputing Party
shall bear its own attorneys' fees, and the arbitrators shall have no authority
to award attorneys' fees.
FOURTIETH.- The arbitration proceeding shall be conducted in New York,
New York USA. The arbitration shall be conducted by the arbitrators as
expeditiously as possible. The arbitration proceedings and the award or decision
(the "Award") of the arbitrators shall be in English. The arbitration shall be
conducted under the ICC Rules. The Award shall be payable in cash in Dollars.
The arbitrators' Award shall, as between the Disputing Parties and
those in privity with them, be final and entitled to all of the protections and
benefits of a final judgment, e.g., res judicata (claim preclusion) and
collateral estoppel (issue preclusion), as to all Claims, including compulsory
counterclaims, that were or could have been presented to the arbitrators. The
arbitrators' Award shall not be reviewable by or appealable to any court;
provided, however, the Award may be corrected or interpreted pursuant to the ICC
Rules.
It is the intent of the parties that the arbitration proceeding shall
be conducted expeditiously, without initial recourse to the courts and without
interlocutory appeals of the arbitrators' decisions to the courts. However, if a
Disputing Party refuses to honor its obligations under this agreement to
arbitrate, any other Disputing Party may obtain appropriate relief compelling
arbitration in any court having jurisdiction over the Disputing Parties; the
order compelling arbitration shall require that the arbitration proceedings take
place in New York, New York, USA as specified above. The Disputing Parties may
apply to any court having jurisdiction for orders requiring witnesses to obey
subpoenas issued by the arbitrators. Moreover, any and all of the arbitrators'
orders and decisions may be enforced if necessary by any court having
jurisdiction. The arbitrators' Award may be confirmed in, and judgment upon the
Award entered by, any court having jurisdiction. FOR PURPOSES OF COMPELLING A
MEMBER TO HONOR ITS OBLIGATION TO ARBITRATE, EACH OF THE MEMBERS IRREVOCABLY
CONSENTS AND SUBMITS UNCONDITIONALLY TO THE NON-EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, USA
AND IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO SUCH VENUE FOR SUCH
PURPOSES.
To the fullest extent permitted by applicable law, the arbitration
proceeding and the arbitrators' Award shall be maintained in confidence by the
Disputing Parties. However, a violation of this covenant shall not affect the
enforceability of this agreement to arbitrate or of the arbitrators' Award.
A Disputing Party's breach of these by-laws shall not affect this
agreement to arbitrate. Moreover, the parties' obligations under this
arbitration provision are enforceable even after
16
these by-laws have terminated. The invalidity or unenforceability of any
provision of this agreement to arbitrate shall not affect the validity or
enforceability of the Disputing Parties' obligation to submit their Claims to
binding arbitration or the other provisions of this agreement to arbitrate.
FOURTY-FIRST.- For purposes of these by-laws:
"Affiliate" means, with respect to any Person, any other Person that
(a) owns or controls the first Person, (b) is owned or controlled by the first
Person, or (c) is under common ownership or control with the first Person, where
"own" means ownership of 50% or more of the equity interests or rights to
distributions on account of equity of the Person and "control" means the power
to direct the management or policies of the Person, whether through the
ownership of voting securities, by contract, or otherwise; provided, however,
that the Company shall not be considered to be an Affiliate of a Member or of an
Affiliate of a Member.
"Alternate Manager" has the meaning given that term in Clause
Twentieth.
"Award" has the meaning given that term in Clause Fourtieth.
"Board of Managers" means the Board of Managers (consejo de gerentes)
of the Company.
"Business Day" means any day other than a Saturday, a Sunday, or a day
on which banks in New York, New York USA, or Mexico City, Mexico are authorized
or required by law to be closed.
"Buy-Sell Notice" has the meaning given that term in Clause Sixteenth.
"Capital Interest" has the meaning given that term in Clause Fifth.
"Capital Interest Price" has the meaning given that term in Clause
Sixteenth.
"Claims" has the meaning given that term in Clause Thirty-seventh.
"Closing Actions" means (a) the taking by the applicable selling
Members of all necessary or appropriate actions to Transfer the applicable
Capital Interests to the applicable purchasing Members, with such selling
Members warranting against all Encumbrances against such Capital Interests,
except for these by-laws and the Encumbrances provided for in Clause Seventh
(b), and (b) the payment by such purchasing Members to such selling Members of
the applicable purchase price in Dollars in immediately available funds.
"Commitment Amounts" has the meaning given that term in Clause Fifth.
"Company" means the limited liability company (sociedad de
responsabilidad limitada de capital variable) formed by the Members.
17
"Disputing Party" has the meaning given that term in Clause
Thirty-seventh.
"Dollars" means freely transferable lawful money of the United States
of America.
"Dollar Amounts" has the meaning given that term in Clause Fifth.
"Equity Contribution Agreement" means the agreement signed by the
Members on January 5, 2000.
"Encumbrance" means a security interest, charge, lien, pledge, mortgage
or similar encumbrance.
"Exercise Notice" has the meaning given that term in Clause Eighth.
"Extraordinary Resolutions" has the meaning given that term in Clause
Fifteenth.
"Extraordinary Members Meeting" has the meaning given that term in
Clause Tenth.
"Fair Market Value" means the value that would be obtained in an
arm's-length transaction between an informed and willing buyer and an informed
and willing seller, determined by mutual agreement.
"Financing Agreement" means any of:
(a) the Company's agreements with Persons (other than the Members and
their Affiliates) for the making available to the Company of loans, credit
facilities, or other funds (other than by way of equity or quasi-equity
participation); and
(b) the security documents, direct agreements, and other ancillary
undertakings in favor of Lenders required pursuant to the agreements referred to
in clause (a) above.
"General Law of Commercial Companies" means the Ley General de
Sociedades Mercantiles.
"ICC" means the International Chamber of Commerce.
"ICC Rules" means the Rules of Arbitration of the International Chamber
of Commerce.
"Lenders" means the Persons providing loans or credit under the
Financing Agreements.
"Member" means any registered owner of a Capital Interest.
"Members Meeting" means any meeting of Members of the Company,
conducted pursuant to these by-laws, and the General Law of Commercial
Companies, including any Ordinary Members Meeting and Extraordinary Members
Meeting.
18
"Mexico" means the United Mexican States.
"Offer" means a bona fide written offer.
"Ordinary Resolutions" has the meaning given that term in Clause
Fourteenth.
"Ordinary Members Meeting" has the meaning given that term in Clause
Tenth.
"Ownership Percentage" of any Member means at the time in question the
ratio (expressed as a percentage) that the Value of a Capital Interest then
owned by such Member bears to the aggregate amount of all equity contributions
made by the Members.
"Person" means any natural person, corporation, company, partnership
(general or limited), limited liability company, business trust, or other entity
or association.
"Pesos" means freely transferable lawful money of Mexico.
"Potential Acquirer" has the meaning given that term in Clause Eighth.
"Preferential Purchase Price" has the meaning given that term in Clause
Eighth.
"Project" means the construction and operation of a manufacturing plant
at a location to be selected by the Board of Managers in Mexico primarily for
the manufacture of woven fabrics for sale to apparel manufacturers and other
sectors, including, without limitation, the manufacture of greige sheeting
fabric, and the development, financing, construction, ownership, maintenance,
and operation of such facility by or on behalf of the Company.
"Project Contract" means any of the following agreements to which the
Company will be a party:
(a) the Marketing Agreement;
(b) the Agency Agreement;
(c) the Letter Agreements;
(d) the agreement or agreements under which the Company will acquire
title to the sites for the Project or will be granted leasehold
title to those sites; and
(e) any other agreement material to the completion of the Project.
"Receiving Members" has the meaning given that term in Clause
Sixteenth.
"Regular Meetings" has the meaning given that term in Clause Twenty-
second.
19
"Request for Arbitration" has the meaning given that term in Clause
Thirty-eighth.
"Response Notice" has the meaning given that term in Clause
Seventeenth.
"Special Meetings" has the meaning given that term in Clause
Twenty-second.
"Subscriptions" has the meaning given that term in Clause Fifth.
"Subject Capital Interests" has the meaning given that term in Clause
Eighth.
"Transfer" means to sell, transfer, assign, or otherwise dispose of, or
the act of doing any of the foregoing, but not the act of granting or imposing
an Encumbrance.
"Transferee" has the meaning given that term in Clause Eighth.
"Transferor" has the meaning given that term in Clause Eighth.
"Transfer Notice" has the meaning given that term in Clause Eighth.
"Triggering Member" has the meaning given that term in Clause
Sixteenth.
"Ultimate Parent" means the Affiliate of the applicable Member that
controls, directly or indirectly, such Member and all of such Member's other
Affiliates.
"United States" or "US" means the United States of America.
"Value of a Capital Interest" means the aggregate amount of equity
contributions expressed in multiples of one Peso made by a Member and its
predecessors to the Company.
TRANSITORY CLAUSES
FIRST. The issuers subscribe to and pay for in cash the total value of the
minimum fixed capital of the Company of $3,000.00 (THREE THOUSAND PESOS 00/100),
which amount shall be allocated in the following way and proportion:
-----------------------------------------------------------------------------
Member Value Capital Interest Votes
-----------------------------------------------------------------------------
Xxx River International Ltd. $1,501.00 1 1,501
-----------------------------------------------------------------------------
Grupo Industrial Zaga, S.A.
de C.V. $1,499.00 2 1,499
-----------------------------------------------------------------------------
SECOND. The issuers, pursuant to the meeting for the execution of these by-laws
that is the first Ordinary Members Meeting of the Company, adopt the following
by unanimous vote:
20
RESOLUTION
FIRST. It is agreed to that the Company shall be managed by a Board of
Managers, which shall be comprised of the of the following individuals:
On behalf of Grupo Industrial Zaga, S.A. de C.V.
Managers Alternates
-------- ----------
Xxxxxx Xxxx Xxxxxxx Xxxxxx Xxxx Xxxxxx
Xxxxx Xxxx Xxxxxxx Xxxxxxx Xxxx Xxxxxx
Xxxxxx Xxxxxx Xxxx Xxxxxx Xxxxxx Xxxx
On behalf of Xxx River International Ltd.
Managers Alternates
-------- ----------
Xxxxxx X. Xxxxxx, Xx. Xxxxxxx X. Xxxxxxxx
Xxxxx X. Xxxx G. Xxxxxx Xxxxxxxx
Xxxxx X. Xxxxxx Xxxx X. Xxxxxx
21
EXHIBIT F
-------------------------------------------------------------------------------
MEMBER AMOUNT OF CAPITAL OWNERSHIP
CONTRIBUTION PERCENTAGE
-------------------------------------------------------------------------------
Zaga 1,499 49.9%
-------------------------------------------------------------------------------
DRI 1,501 50.1%
-------------------------------------------------------------------------------
Exhibit F
Page 1
EXHIBIT G
Chain of
Member Equity Ownership
------ ----------------
Xxx River International Ltd. 100 % owned by Xxx River Inc., a
publicly held company organized
under the laws of the State of
Georgia, U.S.A.
Exhibit G
Page 1
