10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM              TO             .

COMMISSION FILE NO. 1-13683

REMY INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	35-1909253
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2902 Enterprise Drive Anderson, Indiana	46013
(Address of principal executive offices)	(Zip Code)

(765) 778-6499

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.    Yes  x    No  ¨

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, OR A NON-ACCELERATED FILER. SEE DEFINITION OF “ACCELERATED FILER AND LARGE ACCELERATED FILER” IN RULE 12B-2 OF THE EXCHANGE ACT. (CHECK ONE):

LARGE ACCELERATED FILER  ¨    ACCELERATED FILER  ¨    NON-ACCELERATED FILER  x

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).    YES  ¨    NO  x

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

	Outstanding as of May 1, 2006
Common Stock – Class B	2,503,024.48

Remy International, Inc. and Subsidiaries

INDEX

			Page
PART I		FINANCIAL INFORMATION
	Item 1	Financial Statements
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4	Controls and Procedures	30
PART II		OTHER INFORMATION
	Item 1	Legal Proceedings	31
	Item 1A	Risk Factors	33
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	33
	Item 3	Defaults Upon Senior Securities	33
	Item 4	Submission of Matters to a Vote of Security Holders	33
	Item 5	Other Information	33
	Item 6	Exhibits	33
SIGNATURES			34
EXHIBIT INDEX			35

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Remy International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

IN THOUSANDS, At	March 31, 2006			December 31, 2005
	(unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	21,587		$	20,022
Trade accounts receivable, net		207,310			184,818
Other receivables		21,704			13,537
Inventories		272,034			261,821
Deferred income taxes		1,139			1,155
Assets of discontinued operations		15			16
Other current assets		8,569			5,784
Total current assets		532,358			487,153
Property, plant and equipment		374,443			364,841
Less accumulated depreciation		196,957			190,310
Property, plant and equipment, net		177,486			174,531
Deferred financing costs, net		12,956			13,962
Goodwill, net		156,650			156,650
Investments in unconsolidated subsidiaries		5,972			5,917
Other assets		32,376			32,962
Total assets	$	917,798		$	871,175
Liabilities and Stockholders’ Deficit:
Current liabilities:
Accounts payable	$	218,173		$	194,123
Accrued interest		20,173			8,906
Accrued restructuring		5,881			12,669
Liabilities of discontinued operations		270			443
Other liabilities and accrued expenses		117,192			114,824
Current maturities of long-term debt		28,305			27,501
Total current liabilities		389,994			358,466
Long-term debt, net of current portion		734,240			714,181
Post-retirement benefits other than pensions		16,021			15,850
Accrued pension benefits		13,381			13,140
Accrued restructuring		481			481
Deferred income taxes		10,935			10,390
Other non-current liabilities		48,400			51,420
Commitments and contingencies
Minority interest		12,698			11,558
Stockholders’ deficit:
Common stock:
Class B shares		3			3
Paid-in capital		334,336			334,336
Retained deficit		(636,220	)		(628,120	)
Accumulated other comprehensive loss		(6,471	)		(10,530	)
Total stockholders’ deficit		(308,352	)		(304,311	)
Total liabilities and stockholders’ deficit	$	917,798		$	871,175

See notes to the condensed consolidated financial statements.

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Remy International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

IN THOUSANDS, For the three months ended March 31,	2006			2005
Net sales	$	351,589		$	281,568
Cost of goods sold		301,623			236,209
Gross profit		49,966			45,359
Selling, general and administrative expenses		33,355			31,257
Restructuring charge (credit)		945			(799	)
Operating income		15,666			14,901
Interest expense		20,491			15,392
Loss from continuing operations before income taxes, minority interest and income from unconsolidated subsidiaries		(4,825	)		(491	)
Income tax expense		2,263			1,350
Minority interest		1,106			1,093
Income from unconsolidated subsidiaries		(56	)		(83	)
Net loss from continuing operations		(8,138	)		(2,851	)
Discontinued operations:
Loss from discontinued operations, net of tax		(70	)		(201	)
Gain on disposal of discontinued operations, net of tax		108			155
Net income (loss) from discontinued operations, net of tax		38			(46	)
Net loss attributable to common stockholders	$	(8,100	)	$	(2,897	)

See notes to the condensed consolidated financial statements.

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Remy International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

IN THOUSANDS, For the three months ended March 31,	2006			2005
Cash Flows from Operating Activities:
Net loss attributable to common stockholders	$	(8,100	)	$	(2,897	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Discontinued operations		(38	)		46
Depreciation and amortization		7,352			6,534
Non-cash interest expense		1,778			852
Minority interest and loss from unconsolidated subsidiaries, net		1,050			1,010
Deferred income taxes		590			(427	)
Accrued pension and post-retirement benefits, net		413			555
Restructuring charge (credit)		945			(799	)
Cash payments for restructuring charges		(7,733	)		(509	)
Changes in operating assets and liabilities, net of acquisitions and restructuring charges:
Accounts receivable		(22,493	)		(11,182	)
Inventories		(10,213	)		(11,816	)
Accounts payable		26,151			17,944
Other current assets and liabilities		1,910			7,031
Other non-current assets and liabilities, net		(164	)		(3,775	)
Net cash (used in) provided by operating activities of continuing operations		(8,552	)		2,567
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired		(2,101	)		(56,014	)
Net proceeds on sale of businesses		108			156
Purchases of property, plant and equipment		(6,499	)		(10,860	)
Net cash used in investing activities of continuing operations		(8,492	)		(66,718	)
Cash Flows from Financing Activities:
Net borrowings under revolving line of credit and other		18,605			25,176
Net cash provided by financing activities of continuing operations		18,605			25,176
Effect of exchange rate changes on cash		239			(252	)
Cash flows of discontinued operations – operating activities		(235	)		(233	)
Net increase (decrease) in cash and cash equivalents		1,565			(39,460	)
Cash and cash equivalents at beginning of year		20,022			62,545
Cash and cash equivalents at end of period	$	21,587		$	23,085

See notes to the condensed consolidated financial statements.

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REMY INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AMOUNTS IN THOUSANDS, EXCEPT AS INDICATED

Quarters Ended March 31, 2006 and 2005 and Year Ended December 31, 2005

(Unaudited)

1. Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Remy International, Inc., (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2005. The unaudited, condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

Operating results for the three-month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the full year. The balance sheet at December 31, 2005 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The Company has not materially changed its significant accounting policies from those disclosed in its Form 10-K for the year ended December 31, 2005. For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 2005.

2. Business, Industry, General Economic Conditions and Liquidity

Remy International, Inc. is a leading global vehicular parts designer, manufacturer, remanufacturer, marketer and distributor of aftermarket and original equipment electrical components and aftermarket powertrain components for automobiles, light trucks, heavy-duty trucks and other vehicles. The Company also provides core exchange services. The Company sells its products worldwide primarily under the “Delco Remy” brand name, the “Remy” brand name, the “World Wide Automotive” brand name and our customers’ widely recognized private label brand names. The Company’s products include starters, alternators, remanufactured engines, and fuel systems which are principally sold or distributed to original equipment manufacturers (“OEMs”) for both original equipment manufacture and aftermarket operations, as well as to warehouse distributors and retail automotive parts chains. The Company sells its products principally in North America, Europe, Latin America and Asia-Pacific.

The Company believes it is the largest producer in the world of remanufactured starters and alternators for the aftermarket. The Company’s remanufacturing operations obtain failed products, commonly known as cores, from its customers as returns. These cores are an essential material needed for the remanufacturing operations. The Company also provides exchange services for cores for third party aftermarket remanufacturers. At the time of the Company’s separation from General Motors Corporation (“GM”) in August 1994, the Company was predominantly a North American original equipment manufacturer with a majority of the 1995 sales derived from GM. Through strategic capital investments, acquisitions, divestitures and facility and workforce rationalization, the Company has become a low cost, global manufacturer and remanufacturer with a more balanced business and

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product mix between the aftermarket and the original equipment market. Since fiscal year 1995, the Company has increased sales, broadened its product line, expanded manufacturing and remanufacturing capabilities, diversified its customer base and end markets, lowered its cost base and extended its participation in international markets.

In general, the Company’s business is influenced by the underlying trends in the automobile, light truck, and heavy-duty truck, construction and industrial markets. However, the Company has been able to balance the cyclical nature of some of its businesses with the diversity of original equipment manufacturing markets between the automotive, heavy duty truck and industrial markets by focusing on its remanufacturing capabilities and its aftermarket business.

The automotive parts market is highly competitive. Competition is based primarily on quality of products, service, delivery, technical support and price. Most OEMs and aftermarket distributors source parts from one or two suppliers and the Company competes with a number of companies who supply automobile manufacturers throughout the world.

The Company’s operating results for 2005 were significantly below 2004. While net sales increased to $1,228,950 in 2005 from $1,051,165 in 2004, gross margin percentage decreased to approximately 12% in 2005. This decrease in gross margin percentage, coupled with impairment and restructuring charges in 2005 led to an operating loss of $10,749 and a net loss (from continuing operations) of $96,579. The decrease in gross margin percentage was driven by decreasing sales prices, commodity price increases, start up and launch costs in transferring certain manufacturing and remanufacturing production to Mexico and unfavorable foreign currency exchange fluctuations (primarily in the US dollar vs. the Korean Won). The Company’s operating results for the first quarter of 2006 improved as compared to the first quarter of 2005 and the fourth quarter of 2005. Net sales increased to $351,589 in the first quarter of 2006 from $281,568 in the first quarter of 2005. The gross margin percentage of 14.2% in the first quarter of 2006 compares with 16.1% in the first quarter of 2005 primarily due to price reductions, product mix and higher commodity and fuel costs. Selling General and Administrative expenses decreased as a percentage of sales in the first quarter of 2006 as compared with the first quarter of 2005.

In 2005, the Company used $46,887 of cash for operating activities and $41,382 of cash for capital expenditures. In December 2005, the Company obtained an additional $80,000 term loan. In the first quarter of 2006 cash used in operating activities was $8,552 compared with $2,567 of cash provided by operating activities in the first quarter of 2005. Cash required to service the Company’s substantial indebtedness places significant demands on the Company’s liquidity.

In order to improve its 2006 cash flow from operations as well as its overall liquidity, the Company has taken specific actions to improve its margins and overall cost structure. These actions include certain customer price increases, supplier price concessions, headcount reductions and price reductions on freight. Further, the Company plans to complete the integration of the acquisition of Unit Parts Company (“UPC”) in 2006.

The Company’s $145,000, 8 5/8% Senior Notes are due December 15, 2007. In anticipation of this due date and in consideration of the Company’s substantial indebtedness, the Company is exploring various strategic alternatives, including, but not limited to, refinancing some or all of its debt. In addition, the Board of Directors has authorized management to explore restructuring alternatives including the engagement of investment bankers to advise the Company and analyze the disposition of certain non-core businesses.

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The Company believes that the actions discussed above provide the foundation for improved operating performance in 2006 and future periods and that the Company’s expected future operating results and liquidity are sufficient to satisfy its operating and liquidity requirements during 2006. The Company is prepared to take actions to maintain sufficient liquidity in the event of any unforeseen downturns or other circumstances. For more information see the Company’s 2005 Form 10-K.

3. Additional Balance Sheet Information

Cash and Cash Equivalents

All cash balances and highly liquid investments with maturity of ninety days or less when acquired are considered cash and cash equivalents. The carrying amount of cash equivalents approximates fair value.

Book overdrafts of approximately $4,300 and $5,600 at March 31, 2006 and December 31, 2005, respectively, are reflected in accounts payable.

As of December 31, 2005 and March 31, 2006, approximately $1,800 of cash at Remy Korea Limited, a wholly owned non guarantor subsidiary, is being held in escrow until the bi-lateral advanced pricing agreement between Remy Korea Limited and Remy International, Inc. is resolved. The Company expects the United States and Korean authorities to finalize this transfer pricing matter in 2006. This $1,800 is included in cash and cash equivalents on the accompanying condensed consolidated balance sheets.

Inventories

The components of inventory were as follows:

	March 31, 2006		December 31, 2005
Raw material	$	131,344	$	127,677
Work-in-process		10,606		9,474
Finished goods		130,084		124,670
Total	$	272,034	$	261,821

Warranty

The Company provides an allowance for the estimated future cost of product warranties and other defective product returns based on management’s estimate of product failure rates and customer eligibility. If these factors differ from management’s estimates, revisions to the estimated warranty liability may be required. The specific terms and conditions of the warranties vary depending upon the customer and the product sold. The Company’s warranty liability is reflected in “Other liabilities and

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accrued expenses” in the accompanying condensed consolidated balance sheets. Changes to the Company’s warranty liability, excluding discontinued operations, are summarized as follows:

	March 31, 2006			December 31, 2005
Balance at beginning of period	$	21,189		$	17,633
Provision for warranty		15,808			54,308
Payments and charges against the accrual		(15,384	)		(55,285	)
Other (including acquisitions)		—			4,533
Balance at end of period	$	21,613		$	21,189

4. Acquisitions

For the three months ended March 31, 2006, the Company made cash payments totaling $2,101 relative to the acquisition of Delphi Corporation’s (“Delphi”) light vehicle alternator business.

During the three months ended March 31, 2005, the Company acquired substantially all of the assets and assumed certain liabilities of Unit Parts Company (“UPC”). The acquisition accounting has been finalized and no purchase price allocation adjustments were necessary in the three months ended March 31, 2006. For further information on the acquisition of UPC, please see the Company’s 2005 Form 10-K.

UPC’s results of operations are included in the Company’s condensed consolidated statement of operations beginning March 18, 2005. The Company recorded approximately $5,000 in incremental revenue and approximately $300 in incremental operating income during the quarter ended March 31, 2005.

5. Discontinued Operations

Selected financial information for discontinued operations for the three months ended March 31 is as follows:

	2006			2005
Net sales	$	—		$	625
Interest expense		—			3
Loss before tax		(70	)		(201	)
Income tax expense		—			—
Net loss	$	(70	)	$	(201	)

6. Restructuring Charges

The Company’s restructuring activities are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”) and the Emerging Issues Task Force (“EITF”) Issue 95-03, Recognition of Liabilities in Connection with a Purchase Business Combination (“EITF 95-03”).

Continuing Operations

A total charge of $945 was recorded for the first quarter of 2006. This charge consisted of employee termination benefits mainly relating to the following actions undertaken in 2005:

• A reduction in force, including early retirements and involuntary terminations, at its headquarters operations in Anderson, Indiana.

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• Closure of certain manufacturing facilities in Europe.

• Closure of two distribution centers in it core service operations.

There were no new restructuring actions taken in the first quarter of 2006.

Cash payments during the first quarter of 2006 consisted of $5,565 for the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America (“UAW”) settlement reached in January 2006 and $2,168 for other previously announced restructuring actions. For more information on the UAW settlement see note 11.

The following table summarizes the activity in the restructuring accrual of continuing operations in the first quarter of 2006:

	Termination Benefits			Exit/ Impairment Costs			Total
Reserve at December 31, 2005	$	11,618		$	1,532		$	13,150
Provision		945			—			945
Payments		(7,270	)		(463	)		(7,733	)
Reserve at March 31, 2006	$	5,293		$	1,069		$	6,362

7. Other Liabilities and Accrued Expenses

The other liabilities and accrued expenses consist of the following:

	March 31, 2006		December 31, 2005
Customer obligation	$	13,658	$	13,814
Accrued warranty		21,613		21,189
Accrued core liability		15,840		17,322
Accrued wages and benefits		21,099		17,189
Other		44,982		45,310
Total other liabilities and accrued expenses	$	117,192	$	114,824

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8. Employee Benefit Plans

The components of expense for the plans as of March 31 are as follows:

	Pension Benefits						Post-Retirement Health Care and Life Insurance Plans
Components of expense	2006			2005			2006		2005
Service costs	$	487		$	499		$	93	$	90
Interest costs		672			631			275		268
Expected return on plan assets		(530	)		(482	)		—		—
Amortization of prior service cost		56			56			—		—
Recognized net actuarial loss		101			101			29		17
Curtailments		—			—			—		—
Net periodic pension cost	$	786		$	805		$	397	$	375

Cash Flows

The Company contributed $839 in the first quarter of 2006 and plans to contribute approximately $1,200 to $4,200 to its pension plans for all of 2006. The post-retirement health care plan is funded as benefits are paid.

9. Income Taxes

Income tax expense of $2,263 in the first quarter of 2006 consisted of a $547 provision for U.S. federal and state deferred income taxes, domestic state and local taxes of $290 and taxes in various foreign jurisdictions of $1,426. Income tax expense of $1,350 in the first quarter of 2005 consisted of provision for U.S. federal alternative minimum tax of $27, domestic state and local taxes of $134 and taxes in various foreign jurisdictions of $1,189. In accordance with SFAS No. 109, Accounting for Income Taxes, the Company established a valuation allowance for the majority of its domestic U.S. deferred tax assets in 2003. In 2005, the Company, recorded a deferred tax valuation allowance for the remaining unreserved domestic income tax assets. Accordingly, the Company has recorded a valuation allowance related to the domestic net operating loss generated in the three months ended March 31, 2006.

10. Accumulated Other Comprehensive Income (Loss)

The Company’s other comprehensive income (loss) consists of unrealized net gains and losses on the translation of the assets and liabilities of its foreign operations, currency derivative instruments that qualify as hedges and minimum pension liability adjustments. The before tax income, related income tax effect and accumulated balance for the first quarter of 2006 are as follows:

	Foreign Currency Translation Adjustment			Unrealized Gains on Derivative Instruments			Minimum Pension Liability Adjustments			Accumulated Other Comprehensive Income (Loss)
Balances at December 31, 2005	$	(2,720	)	$	837		$	(8,647	)	$	(10,530	)
Before tax income		2,648			2,018			—			4,666
Income tax effect		—			(607	)		—			(607	)
Other comprehensive income		2,648			1,411			—			4,059
Balances at March 31, 2006	$	(72	)	$	2,248		$	(8,647	)	$	(6,471	)

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The Company’s total comprehensive income (loss) was as follows:

Three months ended March 31, 2006	$	(4,041	)
Three months ended March 31, 2005	$	(7,102	)

11. Other Commitments and Contingencies

The Company is party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business, including those relating to commercial transactions, product liability, safety, health, taxes, environmental and other matters. The Company believes that the ultimate liability, if any, in excess of amounts already provided for in the financial statements or covered by insurance on the disposition of these matters and the matters discussed below will not have a material adverse effect on the financial position, results of operations or cash flows of the Company except as otherwise indicated.

HCS Pay Litigation

On January 16, 2006, the Company initiated litigation in the Circuit Court of Oakland County, Michigan against Hennessey Capital, LLC; HCSPay, LLC; and SurGen, LLC (the preceding three entities collectively are referred to as Hennessey) and against Surge Capital; Lancelot Investors Fund LP; Lancelot Investment Management, LLC; AGM II, LLC; and John Maselli (the preceding five entities collectively are referred to as Surge). This litigation seeks the return of approximately $6,083 that the Company believes is owed to it under a factoring agreement that it entered into with Hennessey plus punitive damages and costs. The Company alleges claims against Hennessey for breach of contract and breach of fiduciary duty. The Company alleges claims against Surge for conversion, unjust enrichment, declaratory judgment, and constructive trust and seek the return of the Company’s funds plus punitive damages and costs. This matter is ongoing and the Company is pursuing its claims vigorously. At March 31, 2006, the Company had a receivable recorded of $6,083 related to this matter.

UAW Litigation

On April 16, 2003, UAW and its Local Union 662 filed suit against the Company and Remy, Inc. (“RI”), in Federal District Court in the Southern District of Indiana, Indianapolis Division. The lawsuit was filed under Section 301 of the Labor Management Relations Act, 29 U.S.C. Sec. 185, seeking enforcement of an expired Supplemental Unemployment Benefits plan (“SUB plan”). The plaintiffs alleged that the SUB plan provided supplemental unemployment benefits for 52 weeks and separation pay in an amount exceeding $20,000 for employees who were terminated as a result of the closure of RI’s Anderson, Indiana production facilities at the end of March 2003. The plaintiffs also sought to enforce terminated provisions of a health care program, which the plaintiffs alleged that the plan provided the terminated employees with 25 months of continued hospital, surgical, medical, hearing aid, prescription drug, mental health, substance abuse and vision insurance coverage. The terminated employees were represented by the UAW and its Local Union 662 under various agreements, which expired on March 31, 2003. The lawsuit was filed shortly after the UAW membership failed to ratify RI’s last, best and final offer for a Shutdown Agreement. The UAW filed an amended complaint on July 8, 2003, to which the Company filed an answer on July 24, 2003. Motions for summary judgment filed by the parties were denied by the court in September 2005. On January 31, 2006, a final settlement agreement and release was entered into by the parties which fully resolved all of the allegations of the complaint. Under the terms of the settlement agreement, the Company and RI agreed

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to contribute approximately $5,250 to the SUB plan in return for a release of all claims alleged in the lawsuit, including any further obligations to fund the SUB plan. The Company paid the $5,250 and associated payroll taxes of $315 in the first quarter of 2006.

Prison Labor Matter

In January 2004, a class action on behalf of all prisoners who worked in a South Carolina Department of Corrections (“SCDC”) Services Training Program at Lieber Correctional Institute was brought against the SCDC and our former subsidiary Williams Technologies, Inc. (“Williams”), which was sold to Caterpillar, Inc., in September 2004. The Plaintiffs claim that (a) they should have been paid industry prevailing wages under a South Carolina prison industries authorization statute, (b) the SCDC and Williams violated the Payment of Wages Act and (c) the SCDC and Williams committed a tort under the South Carolina Tort Claims Act. Under the terms of the sale, the Company retained liability and responsibility for this claim. The Circuit Court for Dorchester County granted summary judgment to the Company on April 21, 2005, and decertified the Plaintiff class. On January 24, 2006, the Plaintiff filed an appellate brief and Williams responded to this brief in March 2006. We continue to deny the material allegations of the complaint and any wrongdoing. We intend to defend ourselves vigorously.

Import/Export Matters

We continue to expand globally to take advantage of global economic conditions and related cost structures. We are subject to various duties and import/export taxes. We actively review our import/export processes in North America, Europe and Asia to verify the appropriate import duty classification, value and duty rate, including import value added tax. As part of this review process, we identified a potential exposure related to customs duties in the United States. Upon resolution of these interpretations, duties due from us could range from $0 to $12,200. We paid $1,000 in 2005 and as of March 31, 2006, we have accrued approximately $7,100 related to this matter.

Franklin Power Products Facility

In September 2000, one of Franklin Power Products, Inc.’s Indiana facilities received a Finding of Violation and Order for Compliance (the “Order”) from the EPA requiring the facility to correct violations of its wastewater discharge permits. Franklin Power Products, Inc. installed wastewater treatment equipment and is in compliance with the terms of the Order and has eliminated the discharge. In July 2004, we and Franklin Power Products, Inc. entered into an agreement with the U.S. Department of Justice on behalf of the EPA, which tolled the statute of limitations on the EPA’s potential claim for penalties. Since that time, we have been cooperating with the EPA by providing additional information and have entered into settlement negotiations with the EPA and the Department of Justice. On April 12, 2006, the EPA and the Company reached a settlement for $851 and entered into a consent decree to resolve this matter. The accompanying condensed consolidated financial statements reflect a liability of $851 related to this issue.

12. Finanancial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries

The Company conducts a significant portion of its business through its subsidiaries. The Company’s 8 5/8% Senior Notes Due 2007, 11% Senior Subordinated Notes Due 2009, Second Priority Senior Floating Rate Notes, and the 9 3/8% Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally, by certain direct and indirect subsidiaries of the

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Company (the “Subsidiary Guarantors”). Certain of the Company’s subsidiaries do not guarantee the notes (the “Non-Guarantor Subsidiaries”). The claims of creditors of Non-Guarantor Subsidiaries have priority over the rights of the Company to receive dividends or distributions from such subsidiaries.

Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at March 31, 2006, and December 31, 2005, and for the three-month periods ended March 31, 2006 and 2005.

The equity method has been used by the Company with respect to investments in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in Non-Guarantor Subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented.

The following table sets forth the Subsidiary Guarantors and direct Non-Guarantor Subsidiaries:

Subsidiary Guarantors	Non-Guarantor Subsidiaries
•      Ballantrae Corporation	•      Central Precision Limited
•      Franklin Power Products, Inc.	•      Remy Automotive Germany GmbH
•      International Fuel Systems, Inc.	•      Electro Diesel Rebuild BVBA
•      M & M Knopf Auto Parts, L.L.C.	•      Electro-Rebuild Tunisia S.A.R.L.
•      Marine Corporation of America	•      Magnum Power Products, L.L.C.
•      Nabco, Inc.	•      Publitech, Inc.
•      Power Investments, Inc.	•      Remy Automotive Brasil Ltda.
•      Power Investments Marine, Inc.	•      Remy Automotive Europe BVBA
•      Powrbilt Products, Inc.	•      Remy Automotive Poland, Sp.zo.o.
•      Reman Holdings, L.L.C.	•      Remy Automotive UK Limited
•      Remy Inc.	•      Remy Componentes S. de R. L. de C. V.
•      Remy International Holdings, Inc.	•      Remy Automotive Hungary kft
•      Remy Powertrain, L.P.	•      Remy India Holdings, Inc.
•      Remy Reman, L.L.C.	•      Remy Korea Holdings, Inc.
•      Unit Parts Company	•      Remy Remanufacturing de Mexico, S. de R.L. de C.V.
•      World Wide Automotive, L.L.C.	•      World Wide Automotive Distributors, Inc.
	•      Remy Electricals Hubei Company Limited
	•      QAPI, S.A. deC.V.
	•      Unit Parts Coahuilla, S.A. de C.V
	•      Remy Korea, Ltd.

14

REMY INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

(Unaudited)

IN THOUSANDS, At March 31, 2006	Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS:
Current assets:
Cash and cash equivalents	$	1,531		$	—		$	20,056		$	—		$	21,587
Trade accounts receivable, net		—			155,919			51,391			—			207,310
Other receivables		37			10,233			11,434			—			21,704
Inventories		—			202,292			70,552			(810	) (c)		272,034
Deferred income taxes		—			—			1,139			—			1,139
Assets of discontinued operations		—			—			15			—			15
Other currents assets		1,084			1,923			5,562			—			8,569
Total current assets		2,652			370,367			160,149			(810	)		532,358
Property, plant and equipment		25,724			172,548			176,171			—			374,443
Less accumulated depreciation		21,945			100,846			74,166			—			196,957
Property, plant and equipment, net		3,779			71,702			102,005			—			177,486
Deferred financing costs, net		12,956			—			—			—			12,956
Goodwill, net		—			144,506			12,144			—			156,650
Investments in unconsolidated subsidiaries		525,678			—			—			(519,706	) (a)		5,972
Other assets		1,680			21,951			8,745			—			32,376
Total assets	$	546,745		$	608,526		$	283,043		$	(520,516	)	$	917,798
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY:
Current liabilities:
Accounts payable	$	1,186		$	149,475		$	67,512		$	—		$	218,173
Intercompany accounts		70,364			(40,260	)		(30,044	)		(60	) (c)		—
Accrued interest		20,028			—			145			—			20,173
Accrued restructuring		1,038			4,432			411			—			5,881
Liabilities of discontinued operations		—			4			266			—			270
Other liabilities and accrued expenses		10,057			85,693			21,442			—			117,192
Current maturities of long-term debt		559			1,543			26,203			—			28,305
Total current liabilities		103,232			200,887			85,935			(60	)		389,994
Long-term debt, net of current portion		714,202			11,972			8,066			—			734,240
Post-retirement benefits other than pensions		16,021			—			—			—			16,021
Accrued pension benefits		11,582			—			1,799			—			13,381
Accrued restructuring		—			481			—			—			481
Deferred income taxes		9,037			—			1,898			—			10,935
Other non-current liabilities		1,632			45,568			1,200			—			48,400
Minority interest		—			3,630			9,068			—			12,698
Stockholders’ (deficit) equity:
Common stock:
Class B Shares		3			—			—			—			3
Paid-in capital		334,336			—			—			—			334,336
Retained (deficit) earnings		(636,220	)		53,290			(1,312	)		(51,978	) (b)		(636,220	)
Subsidiary investment		—			292,698			175,780			(468,478	) (a)		—
Accumulated other comprehensive loss		(7,080	)		—			609			—			(6,471	)
Total stockholders’ (deficit) equity		(308,961	)		345,988			175,077			(520,456	)		(308,352	)
Total liabilities and stockholders’ (deficit) equity	$	546,745		$	608,526		$	283,043		$	(520,516	)	$	917,798

(a) Elimination of investments in subsidiaries.

(b) Elimination of investments in subsidiaries’ earnings.

(c) Elimination of intercompany profit in inventory.

15

REMY INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

IN THOUSANDS, At December 31, 2005	Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS:
Current assets:
Cash and cash equivalents	$	302		$	634		$	19,086		$	—		$	20,022
Trade accounts receivable, net		—			137,756			47,062			—			184,818
Other receivables		37			2,045			11,455			—			13,537
Inventories		—			192,563			70,104			(846	)(c)		261,821
Deferred income taxes		—			—			1,155			—			1,155
Assets of discontinued operations		—			—			16			—			16
Other currents assets		1,443			1,698			2,643			—			5,784
Total current assets		1,782			334,696			151,521			(846	)		487,153
Property, plant and equipment		26,670			166,197			171,974			—			364,841
Less accumulated depreciation		21,754			98,540			70,016			—			190,310
Property, plant and equipment, net		4,916			67,657			101,958			—			174,531
Deferred financing costs, net		13,962			—			—			—			13,962
Goodwill, net		—			144,506			12,144			—			156,650
Investments in unconsolidated subsidiaries		506,432			—			—			(500,515	)(a)		5,917
Other assets		1,947			22,018			8,997			—			32,962
Total assets	$	529,039		$	568,877		$	274,620		$	(501,361	)	$	871,175
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY:
Current liabilities:
Accounts payable	$	1,401		$	128,694		$	64,028		$	—		$	194,123
Intercompany accounts		75,778			(52,582	)		(23,100	)		(96	)(c)		—
Accrued interest		8,755			—			151			—			8,906
Accrued restructuring		1,793			10,398			478			—			12,669
Liabilities of discontinued operations		—			25			418			—			443
Other liabilities and accrued expenses		9,355			86,618			18,851			—			114,824
Current maturities of long-term debt		1,053			414			26,034			—			27,501
Total current liabilities		98,135			173,567			86,860			(96	)		358,466
Long-term debt, net of current portion		694,171			11,001			9,009			—			714,181
Post-retirement benefits other than pensions		15,841			—			9			—			15,850
Accrued pension benefits		11,574			—			1,566			—			13,140
Accrued restructuring		—			481			—			—			481
Deferred income taxes		8,490			—			1,900			—			10,390
Other non-current liabilities		1,689			48,516			1,215			—			51,420
Minority interest		—			2,689			8,869			—			11,558
Stockholders’ (deficit) equity:
Common stock:
Class B Shares		3			—			—			—			3
Paid-in-capital		334,336			—			—			—			334,336
Retained (deficit) earnings		(628,120	)		40,400			(4,084	)		(36,316	)(b)		(628,120	)
Subsidiary investment		—			292,698			172,251			(464,949	)(a)		—
Accumulated other comprehensive loss		(7,080	)		(475	)		(2,975	)		—			(10,530	)
Total stockholders’ (deficit) equity		(300,861	)		332,623			165,192			(501,265	)		(304,311	)
Total liabilities and stockholders’ (deficit) equity	$	529,039		$	568,877		$	274,620		$	(501,361	)	$	871,175

(a) Elimination of investments in subsidiaries.

(b) Elimination of investments in subsidiaries’ earnings.

(c) Elimination of intercompany profit in inventory.

16

REMY INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Statement of Operations

(Unaudited)

IN THOUSANDS, For the three months Ended March 31, 2006	Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	315,543		$	153,242		$	(117,196	)(a)	$	351,589
Cost of goods sold		—			279,640			139,179			(117,196	)(a)		301,623
Gross profit		—			35,903			14,063			—			49,966
Selling, general and administrative expenses		4,769			20,294			8,292			—			33,355
Restructuring charges		342			550			53			—			945
Operating (loss) income		(5,111	)		15,059			5,718			—			15,666
Interest expense		18,792			1,152			547			—			20,491
Income (loss) from continuing operations before income taxes (benefit), minority interest, income from unconsolidated subsidiaries and equity in earnings of subsidiaries		(23,903	)		13,907			5,171			—			(4,825	)
Income tax (benefit) expense		(141	)		135			2,269			—			2,263
Minority interest		—			942			164			—			1,106
Income from unconsolidated subsidiaries		—			—			(56	)		—			(56	)
Equity in earnings of subsidiaries		(15,662	)		—			—			15,662	(b)		—
Net (loss) income from continuing operations		(8,100	)		12,830			2,794			(15,662	)		(8,138	)
Discontinued operations:
Loss from discontinued operations, net of tax		—			(48	)		(22	)		—			(70	)
Gain on disposal of discontinued operations, net of tax		—			108			—			—			108
Income (loss) from discontinued operations, net of tax		—			60			(22	)		—			38
Net (loss) income attributable to common stockholders	$	(8,100	)	$	12,890		$	2,772		$	(15,662	)	$	(8,100	)

(a) Elimination of intercompany sales and cost of sales.

(b) Elimination of equity in net loss of consolidated subsidiaries.

17

REMY INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Statement of Operations

(Unaudited)

IN THOUSANDS, For the three months Ended March 31, 2005	Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	259,301		$	125,476		$	(103,209	)(a)	$	281,568
Cost of goods sold		(377	)		226,592			113,203			(103,209	) (a)		236,209
Gross profit		377			32,709			12,273			—			45,359
Selling, general and administrative expenses		5,224			19,467			6,566			—			31,257
Restructuring charges (credits)		28			(976	)		149			—			(799	)
Operating (loss) income		(4,875	)		14,218			5,558			—			14,901
Interest expense		14,392			579			421			—			15,392
Income (loss) from continuing operations before income taxes, minority interest, income from unconsolidated subsidiaries and equity in earnings of subsidiaries		(19,267	)		13,639			5,137			—			(491	)
Income tax expense		261			167			922			—			1,350
Minority interest		—			1,071			22			—			1,093
Income from unconsolidated subsidiaries		—			—			(83	)		—			(83	)
Equity in earnings of subsidiaries		(16,631	)		—			—			16,631	(b)		—
Net (loss) income from continuing operations		(2,897	)		12,401			4,276			(16,631	)		(2,851	)
Discontinued operations:
Income (loss) from discontinued operations, net of tax		—			34			(235	)		—			(201	)
Gain on disposal of discontinued operations, net of tax		—			155			—			—			155
Income (loss) from discontinued operations, net of tax		—			189			(235	)		—			(46	)
Net (loss) income attributable to common stockholders	$	(2,897	)	$	12,590		$	4,041		$	(16,631	)	$	(2,897	)

(a) Elimination of intercompany sales and cost of sales.

(b) Elimination of equity in net loss of consolidated subsidiaries.

18

REMY INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Statement of Cash Flows

(Unaudited)

IN THOUSANDS, For the three months Ended March 31, 2006	Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities:
Net (loss) income attributable to common stockholders	$	(8,100	)	$	12,890		$	2,772		$	(15,662	)(a)	$	(8,100	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Discontinued operations		—			(60	)		22			—			(38	)
Depreciation and amortization		615			3,204			3,533			—			7,352
Non-cash interest expense		1,006			772			—			—			1,778
Minority interest and loss from unconsolidated subsidiaries, net		—			941			109			—			1,050
Equity in earnings of subsidiaries		(15,662	)		—			—			15,662	(a)		—
Deferred income taxes		547			—			43			—			590
Accrued pension and post-retirement benefits, net		189			—			224			—			413
Restructuring charges		342			550			53			—			945
Cash payments for restructuring charges		(1,100	)		(6,514	)		(119	)		—			(7,733	)
Changes in operating assets and liabilities, net of acquisitions and restructuring charges:
Accounts receivable		—			(18,164	)		(4,329	)		—			(22,493	)
Inventories		—			(9,755	)		(458	)		—			(10,213	)
Accounts payable		(216	)		22,883			3,484			—			26,151
Intercompany accounts		(5,414	)		12,349			(6,935	)		—			—
Other current assets and liabilities		12,334			(10,109	)		(315	)		—			1,910
Other non-current assets and liabilities, net		(2,799	)		(2,561	)		5,196			—			(164	)
Net cash (used in) provided by operating activities of continuing operations		(18,258	)		6,426			3,280			—			(8,552	)
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired		—			(2,101	)		—			—			(2,101	)
Net proceeds on sale of businesses		—			108			—			—			108
Purchases of property, plant and equipment		(49	)		(4,822	)		(1,628	)		—			(6,499	)
Net cash used in investing activities of continuing operations		(49	)		(6,815	)		(1,628	)		—			(8,492	)
Cash Flows from Financing Activities:
Net borrowings (repayments) under revolving line of credit and other		19,536			(157	)		(774	)		—			18,605
Net cash provided by (used in) financing activities of continuing operations		19,536			(157	)		(774	)		—			18,605
Effect of exchange rate changes on cash		—			—			239			—			239
Cash flows of discontinued operations – operating activities		—			(88	)		(147	)		—			(235	)
Net increase (decrease) in cash and cash equivalents		1,229			(634	)		970			—			1,565
Cash and cash equivalents at beginning of year		302			634			19,086			—			20,022
Cash and cash equivalents at end of period	$	1,531		$	—		$	20,056		$	—		$	21,587

(a) Elimination of equity in earnings of consolidated subsidiaries.

19

REMY INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidating Statement of Cash Flows

(Unaudited)

IN THOUSANDS, For the three months Ended March 31, 2005	Remy International, Inc. (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities:
Net (loss) income attributable to common stockholders	$	(2,897	)	$	12,590		$	4,041		$	(16,631	) (a)	$	(2,897	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Discontinued operations		—			(189	)		235			—			46
Depreciation and amortization		500			2,792			3,242			—			6,534
Non-cash interest expense		852			—			—			—			852
Minority interest and loss from unconsolidated subsidiaries, net		—			1,071			(61	)		—			1,010
Equity in earnings of subsidiaries		(16,631	)		—			—			16,631	(a)		—
Deferred income taxes		—			(144	)		(283	)		—			(427	)
Accrued pension and post-retirement benefits, net		(27	)		—			582			—			555
Restructuring charges (credits)		28			(976	)		149			—			(799	)
Cash payments for restructuring charges		(28	)		(379	)		(102	)		—			(509	)
Changes in operating assets and liabilities, net of acquisitions and restructuring charges:
Accounts receivable		—			(12,079	)		897			—			(11,182	)
Inventories		—			(11,000	)		(816	)		—			(11,816	)
Accounts payable		315			13,854			3,775			—			17,944
Intercompany accounts		4,951			1,130			(6,081	)		—			—
Other current assets and liabilities		14,355			(5,116	)		(2,208	)		—			7,031
Other non-current assets and liabilities, net		(5,441	)		5,182			(3,516	)		—			(3,775	)
Net cash (used in) provided by operating activities of continuing operations		(4,023	)		6,736			(146	)		—			2,567
Cash Flows from Investing Activities:
Acquisitions, net of cash required		(56,014	)		—			—			—			(56,014	)
Net proceeds on sale of business		—			156			—			—			156
Purchases of property, plant and equipment		(596	)		(6,403	)		(3,861	)		—			(10,860	)
Net cash used in investing activities of continuing operations		(56,610	)		(6,247	)		(3,861	)		—			(66,718	)
Cash Flows from Financing Activities:
Net borrowings (repayments) under revolving line of credit and other		20,166			(326	)		5,336			—			25,176
Net cash provided by (used in) financing activities of continuing operations		20,166			(326	)		5,336			—			25,176
Effect of exchange rate changes on cash		—			—			(252	)		—			(252	)
Cash flows of discontinued operations– operating activities		—			(178	)		(55	)		—			(233	)
Net (decrease) increase in cash and cash equivalents		(40,467	)		(15	)		1,022			—			(39,460	)
Cash and cash equivalents at beginning of year		40,740			689			21,116			—			62,545
Cash and cash equivalents at end of period	$	273		$	674		$	22,138		$	—		$	23,085

(a) Elimination of equity in earnings of consolidated subsidiaries.

20

Item 2. REMY INTERNATIONAL, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AMOUNTS IN MILLIONS, EXCEPT AS INDICATED

For the three month periods ended March 31, 2006 and 2005

Introduction

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with Remy International, Inc.’s (the “Company,” “we,” “us” or “our”) Annual Report on Form 10-K for the year ended December 31, 2005, including the financial statements and accompanying notes.

On March 18, 2005, we acquired substantially all of the assets and assumed certain liabilities of Unit Parts Company, which we refer to as UPC (see Note 4 to our financial statements in Item 1). The operating results of UPC for the period March 18 through March 31, 2005, are included in our condensed consolidated statements of operations and cash flows for the quarter ended March 31, 2005, and are reflected in the Electrical Aftermarket discussion of net sales and gross profit below. The operating results of UPC did not have a material effect on our results of operations and cash flows in the first quarter of 2005.

General

We are a leading global vehicular parts designer, manufacturer, remanufacturer, marketer and distributor of aftermarket and original equipment electrical components and aftermarket powertrain components for automobiles, light trucks, heavy-duty trucks and other vehicles. We also provide core exchange services. We sell our products worldwide primarily under the “Delco Remy” brand name, the “Remy” brand name, the “World Wide Automotive” brand name and our customers’ widely recognized private label brand names. Our products include starters, alternators, remanufactured engines, and fuel systems which are principally sold or distributed to original equipment manufacturers (“OEMs”) for both original equipment manufacture and aftermarket operations, as well as to warehouse distributors and retail automotive parts chains. We sell our products principally in North America, Europe, Latin America and Asia-Pacific.

We believe we are the largest producer in the world of remanufactured starters and alternators for the aftermarket. Our remanufacturing operations obtain failed products, commonly known as cores, from our customers as returns. These cores are an essential material needed for the remanufacturing operations. We also provide exchange services for cores for third party aftermarket remanufacturers. At the time of our separation from General Motors Corporation (“GM”) in August 1994, we were predominantly a North American original equipment manufacturer with a majority of our 1995 sales derived from GM. Through strategic capital investments, acquisitions, divestitures and facility and workforce rationalization, we have become a low cost, global manufacturer and remanufacturer with a more balanced business and product mix between the aftermarket and the original equipment market. Since fiscal year 1995, we have increased sales, broadened our product line, expanded manufacturing and remanufacturing capabilities, diversified our customer base and end markets, lowered our cost base and extended our participation in international markets.

21

In general, our business is influenced by the underlying trends in the automobile, light truck, and heavy-duty truck, construction and industrial markets. However, we have been able to balance the cyclical nature of some of our businesses with the diversity of original equipment manufacturing markets between the automotive, heavy duty truck and industrial markets by focusing on our remanufacturing capabilities and aftermarket business.

The automotive parts market is highly competitive. Competition is based primarily on quality of products, service, delivery, technical support and price. Most OEMs and aftermarket distributors source parts from one or two suppliers and we compete with a number of companies who supply automobile manufacturers throughout the world.

Our operating results for 2005 were significantly below 2004. While net sales increased to $1,229.0 million in 2005 from $1,051.2 million in 2004, gross margin percentage decreased to approximately 12% in 2005. This decrease in gross margin percentage, coupled with impairment and restructuring charges in 2005 led to an operating loss of $10.7 million and a net loss (from continuing operations) of $96.6 million. The decrease in gross margin percentage was driven by decreasing sales prices, commodity price increases, start up and launch costs in transferring certain manufacturing and remanufacturing production to Mexico and unfavorable foreign currency exchange fluctuations (primarily in the US dollar vs. the Korean Won). Our operating results for the first quarter of 2006 improved as compared to the first quarter of 2005 and the fourth quarter of 2005. Net sales increased to $351.6 million in the first quarter of 2006 from $281.6 million in the first quarter of 2005. The gross margin percentage of 14.2% in the first quarter of 2006 compares with 16.1% in the first quarter of 2005 primarily due to price reductions, product mix and higher commodity and fuel costs. Selling General and administrative expenses decreased as a percentage of sales in the first quarter of 2006 as compared with the first quarter of 2005.

In 2005, we used $46.9 million of cash for operating activities and $41.4 million of cash for capital expenditures. In December 2005, we obtained an additional $80.0 million term loan. In the first quarter of 2006 cash used in operating activities was $8.6 million compared with $2.6 million of cash provided by operating activities in the first quarter of 2005. Cash required to service our substantial indebtedness places significant demands on our liquidity.

In order to improve our 2006 cash flow from operations as well as our overall liquidity, we have has taken specific actions to improve our margins and overall cost structure. These actions include certain customer price increases, supplier price concessions, headcount reductions and price reductions on freight. Further, we plan to complete the integration of the acquisition of UPC in 2006.

Our $145.0 million, 8 5/8% Senior Notes are due December 15, 2007. In anticipation of this due date and in consideration of our substantial indebtedness, we are exploring various strategic alternatives, including, but not limited to, refinancing some or all of our debt. In addition, the Board of Directors has authorized management to explore restructuring alternatives including the engagement of investment bankers to advise us and analyze the disposition of certain non-core businesses.

We believe that the actions discussed above provide the foundation for improved operating performance in 2006 and future periods and that our expected future operating

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results and liquidity are sufficient to satisfy our operating and liquidity requirements during 2006. We are prepared to take actions to maintain sufficient liquidity in the event of any unforeseen downturns or other circumstances. For more information see our 2005 Form 10-K.

Results of Operations

Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005

Product Categories	2006		2005		Increase/ (Decrease)			%Change
Automotive OEM	$	98.7	$	72.6	$	26.1		35.9	%
Heavy duty OEM		53.1		51.1		2.0		3.9
Electrical aftermarket		136.1		107.6		28.5		26.4
Powertrain		48.4		34.7		13.7		39.4
Core services		15.3		15.6		(0.3	)	(1.9	)
Total Net Sales	$	351.6	$	281.6	$	70.0		24.8	%

Net Sales

Net sales to Automotive Original Equipment Manufacturers, which we refer to as OEMs, increased primarily due to the continued ramp up of the alternator business and the impact of new business awards received offset in part by price reductions. Heavy-duty OEM sales increased slightly due to volume. OEM sales quarter over quarter also increased due to the North American industry practice of passing on the costs of fluctuations from the contractual price of copper and aluminum to certain of our customers. Electrical aftermarket sales increased mainly due to the full quarter effect of the acquisition of UPC on March 18, 2005, partially offset by soft market conditions and lower volume from General Motors Service Parts Organization. Net Sales at UPC during the three months ended March 31, 2005 were approximately $5.0 million. Powertrain sales increased due to higher diesel engine and parts volume. Third party sales in the core services business declined primarily relating to softening demand for new parts.

Gross Profit

Gross profit of $50.0 million in the first quarter of 2006 increased $4.6 million, or 10.1%, compared with the first quarter of 2005, and as a percentage of net sales was 14.2% in 2006 compared with 16.1% in 2005. Automotive OEM gross profit declined $1.7 million due to price reductions, higher fuel costs, and product mix. Heavy-duty OEM gross profit declined $2.1 million primarily due to fuel costs. Electrical aftermarket gross profit increased $6.7 million primarily due to the increase in sales volume and cost savings synergies associated with the acquisition of UPC. Powertrain gross profit increased $2.0 million as a result of higher sales. Gross profit on core services decreased $0.3 million due to higher material prices.

Selling, General and Administrative Expenses

Selling, general and administrative, which we refer to as SG&A, expenses of $33.4 million in the first quarter of 2006 increased $2.1 million, or 6.7%, from $31.3 million in the first quarter of 2005. As a percentage of net sales, SG&A expenses were 9.5% in the first quarter of 2006 compared with 11.1% in the first quarter of 2005. The year over year increase in SG&A expenses reflects the addition of UPC in 2005 offset by costs savings associated with restructuring activities undertaken in 2005.

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Restructuring Charge (Credit)

A restructuring charge of $0.9 million in the first quarter of 2006 consisted of charges recorded relative to actions undertaken in 2005 for the closure of two distributions centers, the consolidation of certain electrical aftermarket operations, the reduction in force at our headquarters and the consolidation of operations in Europe.

A restructuring credit of $0.8 million in the first quarter of 2005 consisted of a $1.1 million credit for the reversal of accrued maintenance expenses reflecting our utilization of a previously idled Anderson, Indiana facility and the renegotiation of other maintenance agreements. In addition, charges totaling $0.3 million were recorded relative to the closure of our starter and alternator manufacturing operations in Anderson, Indiana in 2003 and the consolidation of operations in Europe.

Operating Income

Operating income of $15.7 million in the first quarter of 2006 compares with operating income of $14.9 million in the first quarter of 2005 and reflects the net sales, gross profit, SG&A expense and restructuring charge factors discussed above.

Interest Expense

Interest expense of $20.5 million in the first quarter of 2006 increased $5.1 million from $15.4 million in the first quarter of 2005. The increase is primarily related to additional borrowings under our senior credit facility and the impact of interest rate increases on our $125.0 million Second Priority Senior Secured Floating Rate Notes.

Income Taxes

Income tax expense of $2.3 million in the first quarter of 2006 consisted of a $0.6 million provision for U.S. federal and state deferred income taxes, domestic state and local taxes of $0.3 million and taxes in various foreign jurisdictions of $1.4 million. Income tax expense of $1.4 million in the first quarter of 2005 consisted of provisions for U.S. federal alternative minimum tax of $0.02 million, domestic state and local taxes of $0.13 million and taxes in various foreign jurisdictions of $1.2 million. In 2003, we established a valuation allowance for substantially all domestic U.S. deferred tax assets. In 2005, we recorded a valuation allowance for the remaining domestic deferred tax assets. Accordingly, we recorded a valuation allowance related to the domestic net operating loss generated in the three months ended March 31, 2006

Minority Interest

Minority interest in income of subsidiaries of $1.1 million in the first quarter of 2006 consisted of minority shareholder’s interest in the earnings of our joint venture with International Truck and Engine Corporation and earnings of Hubei Delphi Automotive Generators Company, Ltd., which we refer to as Hubei. The minority interest in income of subsidiaries for the comparable period of first quarter of 2005 remains approximately the same at $1.1 million.

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Income From Unconsolidated Subsidiaries

The income from unconsolidated subsidiaries of $ 0.1 million in the first quarter of 2006 consisted of our share of income recorded by Shaney Paris Rhone Ltd., which we refer to as SPR. The income from unconsolidated subsidiaries for the comparable period of first quarter of 2005 remains approximately the same at $0.1 million.

Discontinued Operations

The loss from discontinued operations of $0.1 million and $0.2 million in the first quarter of 2006 and 2005, respectively, consisted of losses recorded by our remanufactured transmission and retail gas engine businesses. We recorded an additional gain of $0.1 million in 2006 and $0.2 million in 2005 relative to the sale of Tractech, Inc. and Kraftube, Inc. in 2003.

Liquidity and Capital Resources

Our short-term liquidity needs include required debt service (including capital lease payments), day-to-day operating expenses, working capital requirements, the payment of customer obligations and the funding of capital expenditures and restructuring actions. Long-term liquidity requirements consist primarily of principal payments of long-term debt and payments for contingent earn out arrangements relative to the acquisition of UPC. These contingent earn out payments are based on incremental financial performance objectives above the current performance of the combined electrical aftermarket business and are to be paid over a four-year period. The first measurement year of the earn out did not result in the recording of any liability and the amount of future contingent consideration, if any, is not currently determinable. Our contractual obligations are provided in the table under the section “Contractual Obligations, Contingent Liabilities and Commitments” appearing below. Our principal payments on long-term capital lease obligations are presented in Note 11 to our consolidated financial statements under Item 8 of our 2005 Form 10-K.

Our principal sources of cash to fund our short-term liquidity needs consist of cash generated by operations and borrowings under our senior credit facility. The senior credit facility is collateralized by liens on substantially all of our assets and substantially all of the assets of our domestic and certain of our foreign subsidiaries and by the capital stock of such subsidiaries. At March 31, 2006, the borrowings under the revolving credit facility were comprised of $50.0 million at a LIBOR rate of 6.99%, $1.3 million at a prime rate of 7.75% and letters of credit totaled $7.0 million. Based on the collateral supporting the senior credit facility at March 31, 2006, $86.6 million was available, net of letters of credit. At March 31, 2006, borrowings outstanding under the term loan of the Senior Credit Facility were $80 million, reflected on the condensed consolidated balance sheet net of the unamortized portion of the original issue discount of $2.1 million. The interest rate on borrowings outstanding under the term loan portion of the credit facility at March 31, 2006 was 10.96%.

We participate in programs that accelerate the collection of accounts receivable. Under these programs, we sell the accounts of certain aftermarket customers to banks, on a non-recourse basis, at a discount. At March 31, 2006 and December 31, 2005, the increase in receivables in the U.S. that would occur if these programs were discontinued would be approximately $41.3 million and $47.2 million, respectively. Additionally, at March 31, 2006 and December 31, 2005, we had approximately $11.7 million and $10.6 million, respectively, factored in Europe.

We believe that cash generated from operations, together with the amounts available under the senior credit facilities and other borrowings, will be adequate to meet our debt service, capital expenditure, restructuring and working capital requirements for at least the next twelve months, although no assurance can be given in this regard.

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Cash used by operating activities of continuing operations of $8.6 million in the first quarter of 2006 reflected a $4.6 million increase in net working capital (consisting of accounts receivable, inventory, accounts payable and other current assets and liabilities) from year end 2005. Accounts receivable increased $22.5 million and accounts payable increased $26.2 million in the first quarter of 2006 due primarily to higher sales volume. Inventories increased $10.2 million in the first quarter of 2006 due primarily to anticipated higher demand in the second quarter of 2006 for our aftermarket product lines. The net increase in other current assets and liabilities of $1.9 million primarily reflected timing of interest payments. Cash restructuring payments of $7.7 million in the first quarter of 2006 consisted primarily of settlement of the UAW matter and employee termination payments. Depreciation and amortization and non-cash interest expense was $9.1 million. All other items totaled $2.8 million.

Cash provided by operating activities of continuing operations of $2.6 million in the first quarter of 2005 reflected a $2.0 million decrease in net working capital (consisting of accounts receivable, inventory, accounts payable and other current assets and liabilities) from year end 2004 and cash restructuring payments of $0.5 million. Accounts receivable increased $11.2 million in the first quarter of 2005 due primarily to stronger first quarter heavy duty OEM, diesel engine and locomotive shipments, partially offset by an increase in accelerated collections under the receivables programs discussed above. Inventories increased $11.8 million in the first quarter of 2005 due primarily to builds in support of anticipated higher Electrical Aftermarket sales in the second and third quarters. The $18.0 million increase in accounts payable reflected timing of vendor payments. The net increase in other current assets and liabilities of $7.0 million primarily reflected timing of interest payments. Cash restructuring payments of $0.5 million in the first quarter of 2005 consisted of $0.3 million of employee termination benefits relative to the 2003, 2004 and 2005 restructuring actions and $0.2 million of other items. All other non-cash and reconciling items totaled $1.1 million.

Cash used in investing activities of continuing operations of $8.5 million in the first quarter of 2006 compares with cash used of $66.7 million in the first quarter of 2005. Acquisition payments in the first quarter of 2006 consisted of payments for the purchase of machinery and equipment relating to the acquisition of Delphi Corporation’s light vehicle alternator business. Acquisition payments in the first quarter of 2005 consisted entirely of payments and costs associated with the acquisition of UPC. Cash proceeds on the sale of Tractech and Kraftube of $0.1 million and $0.2 million were recorded in the first quarter of 2006 and 2005, respectively. Capital expenditures in both 2006 and 2005 were primarily for production, engineering and distribution equipment and include investments associated with the launch of new products.

Cash provided by financing activities of continuing operations of $18.6 million and $25.2 million in the first quarter of 2006 and 2005, respectively, consisted primarily of borrowings under our senior credit facility.

Contingencies

We are a party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business, including those relating to commercial transactions, product liability, safety, health, taxes, environmental and other matters. For a description of certain of our legal proceedings, see Note 11 to the Condensed Consolidated Financial Statements in Item 1 of Part I.

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Contractual Obligations, Contingent Liabilities and Commitments

Our contractual obligations as of March 31, 2006 are provided in the following table (dollars in millions):

	Payments Due by Period
Contractual Obligations	Total		Balance of 2006			2007- 2009			2010- 2011		After 2011
Long-Term Debt, including current portion (1)	$	754	$	9	(2)	$	591	(2)	$	4	$	150
Long-Term Capital Lease Obligations		9		—			3			1		5
Customer Obligations		55		11			26			12		6
Pension Funding (3)		3		3			—			—		—
Other Post Retirement Benefits Funding		11		1			3			2		5
Operating Leases		46		7			22			8		9
Acquisition Payments (4)		1		1			—			—		—
Employee Termination Benefits		6		6			—			—		—
Other		6		2			3			—		1
Total Contractual Cash Obligations	$	891	$	40		$	648		$	27	$	176

(1) These amounts include indebtedness outstanding under our senior notes, senior subordinated notes, senior secured floating rate notes and other debt.

(2) Includes $3 million for the balance of 2006 and 19 million for 2007 related to foreign revolving credit agreements which normally will be renewed in 2006 and 2007 with maturity dates of one year or less.

(3) Amounts beyond 2006 are not currently estimable.

(4) Payments in connection with the acquisition of Delphi Corporation’s light vehicle alternator business, including purchasing its machinery and equipment.

In addition to the contractual obligations disclosed above, we have a variety of other contractual agreements related to the procurement of materials and other commitments. With respect to these agreements, we are not subject to any contracts that commit us to significant non-cancelable commitments. With respect to agreements related to the procurement of inventory used in our manufacturing and remanufacturing processes, we had approximately $70 million to $90 million of open purchase orders at March 31, 2006.

Seasonality

Our business is seasonal, as our major OEM customers historically have one to two week shutdowns of operations during July and December. Our sales results in the third and fourth quarters reflect the effects of these shutdowns. Our working capital requirements also are affected by seasonality, as we build inventory for the summer sales months in the aftermarket. Typically our working capital requirements are highest from April through August and the change from the highest month to the lowest month (typically December) for accounts receivable, inventory and accounts payable has averaged approximately $45.9 million over the past three years, excluding UPC.

Foreign Operations

Approximately 21% of our net sales in the three months ending March 31, 2006 were derived from net sales made in foreign countries. We also have manufacturing and other operations located in certain foreign countries. Because of these foreign sales and operations, our business is subject to the risks of doing business abroad, including currency exchange rate fluctuations, limits on repatriation of funds, transportation and delivery risks, compliance with foreign laws and other economic and political uncertainties.

Forward-Looking Statements

From time to time, we make oral and written statements that may constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, which we refer to as the Act, or by the Securities and Exchange Commission, which we refer to as the SEC, in its rules,

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regulations and releases. We desire to take advantage of the “safe harbor” provisions in the Act for forward-looking statements made from time to time, including, but not limited to, the forward-looking statements relating to our future performance contained in this Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2005, and in other filings with the SEC. Any statements set forth in writing or orally by us, other than statements of current or historical fact, may constitute forward-looking statements. These statements relate to our future plans, objectives, expectations and intentions and may be identified by words like “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “will” and similar expressions. We caution readers that forward-looking statements involve risks, uncertainties, and other factors that may cause our actual results and performance to differ materially from any future results or performance expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include, among others, the following:

• uncertainty of future financial results;

• acquisitions;

• additional financing requirements;

• development of new products and services;

• the effect of competitive products or pricing;

• costs and difficulties related to integrations of acquired businesses;

• pending and future legal proceedings, including environmental regulatory matters;

• reliance upon or loss of a major customer;

• international operating and supply risks;

• weather conditions, including their impact on demand for our aftermarket products;

• foreign exchange rate changes;

• transportation and related fuel costs;

• effectiveness of restructuring and cost saving initiatives;

• labor relations;

• the ability to obtain and maintain adequate prices for our products;

• our substantial indebtedness and limitations under debt agreements;

• costs for pension and post retirement benefit plans;

• the effect of economic conditions and other uncertainties, including the current conditions in the Light-Duty OEM Market and Electrical Aftermarket;

• customs duties claims;

• costs and risks relative to enterprise resource planning implementations;

• costs related to re-sourcing and outsourcing products;

• bankruptcy filings, financial uncertainties and labor disruptions affecting suppliers and customers;

• the incremental liquidity provided by the term loan is subject to borrowing base and other limitations on our ability to borrow under our revolving credit facilities or otherwise;

• acquisitions and integration costs;

• dispositions;

• the effect of commodity, raw material prices and energy costs;

• the impact of supply chain cost management initiatives; and

• the effect of economic conditions and other uncertainties detailed from time to time in our filings with the SEC.

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Due to these uncertainties, we cannot assure readers that any forward-looking statements will prove to have been correct. Our forward-looking statements speak only as of the date made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Factors that May Affect Future Results

We believe that results for the remainder of 2006 will continue to be negatively impacted by year over year softness in the North American car and truck market, pricing pressures, higher commodity, including but not limited to copper and aluminum, and fuel costs, adverse currency fluctuations and investments in engineering and systems.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2006, there have been no material changes in our market risk exposure as described in Item 7A contained in our Annual Report on Form 10-K for the year ended December 31, 2005.

Item 4. Controls and Procedures

(a) The Company carried out an evaluation, under the supervision and with the participation of its principal executive officer and principal financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting it to material information required to be included in the Company’s periodic SEC reports.

(b) In addition, the Company reviewed its internal controls, and, other than as described below, there have been no significant changes during the quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company is currently implementing a global Enterprise Resource Planning system.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are a party to various legal actions in the normal course of our business, including those related to commercial transactions, product liability, safety, health, taxes, environmental and other matters.

HCSPay Litigation

On January 16, 2006, we initiated litigation in the Circuit Court of Oakland County, Michigan against Hennessey Capital, LLC; HCSPay, LLC; and SurGen, LLC (we refer to the preceding three entities collectively as “Hennessey”) and against Surge Capital; Lancelot Investors Fund LP; Lancelot Investment Management, LLC; AGM II, LLC; and John Maselli (we refer to the preceding five entities collectively as “Surge”). This litigation seeks the return of approximately $6.1 million that we believe is owed to us under a factoring agreement that we entered into with Hennessey plus punitive damages and costs. We allege claims against Hennessey for breach of contract and breach of fiduciary duty. We allege claims against Surge for conversion, unjust enrichment, declaratory judgment, and constructive trust and seek the return of our funds plus punitive damages and costs. This matter is ongoing, and we are pursuing our claims vigorously. At March 31, 2006, we had a receivable recorded of approximately $6.1 million related to this matter.

UAW Litigation

On April 16, 2003, the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America (“UAW”) and its Local Union 662 filed suit against us and Remy, Inc. (“RI”), in Federal District Court in the Southern District of Indiana, Indianapolis Division. The lawsuit was filed under Section 301 of the Labor Management Relations Act, 29 U.S.C. Sec. 185, seeking enforcement of an expired Supplemental Unemployment Benefits plan (“SUB plan”). The plaintiffs alleged that the SUB plan provided supplemental unemployment benefits for 52 weeks and separation pay in an amount exceeding $20.0 million for employees who were terminated as a result of the closure of RI’s Anderson, Indiana production facilities at the end of March 2003. The plaintiffs also sought to enforce terminated provisions of a health care program, which the plaintiffs alleged provided the terminated employees with 25 months of continued hospital, surgical, medical, hearing aid, prescription drug, mental health, substance abuse and vision insurance coverage. The terminated employees were represented by the UAW and its Local Union 662 under various agreements, which expired on March 31, 2003. The lawsuit was filed shortly after the UAW membership failed to ratify RI’s last, best and final offer for a Shutdown Agreement. The UAW filed an amended complaint on July 8, 2003, to which we filed an answer on July 24, 2003. Motions for summary judgment filed by the parties were denied by the court in September 2005. On January 31, 2006, a final settlement agreement and release was entered into by the parties which fully resolved all of the allegations of the complaint. Under the terms of the settlement agreement, we and RI agreed to contribute approximately $5.3 million to the SUB plan in return for a release of all claims alleged in the lawsuit, including any further obligations to fund the SUB plan. We paid the $5.3 million and associated payroll taxes of $0.3 million in first quarter of 2006.

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Prison Labor Matter

In January 2004, a class action on behalf of all prisoners who worked in a South Carolina Department of Corrections (“SCDC”) Services Training Program at Lieber Correctional Institute was brought against the SCDC and our former subsidiary Williams Technologies, Inc. (“Williams”), which was sold to Caterpillar, Inc., in September 2004. The Plaintiffs claim that (a) they should have been paid industry prevailing wages under a South Carolina prison industries authorization statute, (b) the SCDC and Williams violated the Payment of Wages Act and (c) the SCDC and Williams committed a tort under the South Carolina Tort Claims Act. Under the terms of the sale, we retained liability and responsibility for this claim. The Circuit Court for Dorchester County granted summary judgment to us on April 21, 2005, and decertified the Plaintiff class. On January 24, 2006, the Plaintiff filed an appellate brief and Williams responded to this brief in March 2006. We continue to deny the material allegations of the complaint and any wrongdoing. We intend to defend ourselves vigorously.

Import/Export Matters

We continue to expand globally to take advantage of global economic conditions and related cost structures. We are subject to various duties and import/export taxes. We actively review our import/export processes in North America, Europe and Asia to verify the appropriate import duty classification, value and duty rate, including import value added tax. As part of this review process, we identified a potential exposure related to customs duties in the United States. Upon resolution of these interpretations, duties due from us could range from $0 to $12.2 million. We paid $1.0 million in 2005 and at March 31, 2006 had accrued approximately $7.1 million related to this matter.

Franklin Power Products Facility

In September 2000, one of Franklin Power Products, Inc.’s Indiana facilities received a Finding of Violation and Order for Compliance (the “Order”) from the EPA requiring the facility to correct violations of its wastewater discharge permits. Franklin Power Products, Inc. installed wastewater treatment equipment and is in compliance with the terms of the Order and has eliminated the discharge. In July 2004, we and Franklin Power Products, Inc. entered into an agreement with the U.S. Department of Justice on behalf of the EPA, which tolled the statute of limitations on the EPA’s potential claim for penalties. Since that time, we have been cooperating with the EPA by providing additional information and have entered into settlement negotiations with the EPA and the Department of Justice. On April 12, 2006, we and the EPA reached a settlement for $0.9 million and entered into a consent decree to resolve this matter. The accompanying condensed consolidated financial statements reflect a liability of approximately $0.9 million related to this issue.

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Item 1A. Risk Factors

For information regarding risk factors, refer to Part I, Item A as presented in the 2005 Annual Report on Form 10-K. There has been no material changes in the Company’s risk factors during the three months ended March 31, 2006.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

10.1	Collateral Agreement dated as of April 23, 2004, among Delco Remy International, Inc., the Subsidiaries of Delco Remy International, Inc., identified herein and Deutsche Bank National Trust Company as Collateral Agent.
10.2	Intercreditor Agreement dated as of April 23, 2004, among Congress Financial Corporation, as Credit Agent, Deutsche Bank National Trust Company, as Trustee, Deutsche Bank National Trust Company, as Collateral Agent, Delco Remy International, Inc. and each Subsidiary Guarantor.
31.1	Certification by John H. Weber, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Rajesh K. Shah, Interim Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by John H. Weber, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by Rajesh K. Shah, Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	REMY INTERNATIONAL, INC.
	(Registrant)
Date: May 11, 2006	By:	/s/ Rajesh K. Shah
		Rajesh K. Shah
		Executive Vice President and
		Interim Chief Financial Officer
Date: May 11, 2006	By:	/s/ Amitabh Rai
		Amitabh Rai
		Vice President and Corporate Controller
		Chief Accounting Officer

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Collateral Agreement dated as of April 23, 2004, among Delco Remy International, Inc., the Subsidiaries of Delco Remy International, Inc., identified herein and Deutsche Bank National Trust Company as Collateral Agent.
10.2	Intercreditor Agreement dated as of April 23, 2004, among Congress Financial Corporation, as Credit Agent, Deutsche Bank National Trust Company, as Trustee, Deutsche Bank National Trust Company, as Collateral Agent, Delco Remy International, Inc. and each Subsidiary Guarantor.
31.1	Certification by John H. Weber, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Rajesh K. Shah, Interim Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by John H. Weber, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by Rajesh K. Shah, Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EX-10.1

Exhibit 10.1

COLLATERAL AGREEMENT

dated as of

April 23, 2004,

among

DELCO REMY INTERNATIONAL, INC.

THE SUBSIDIARIES OF

DELCO REMY INTERNATIONAL, INC.

IDENTIFIED HEREIN

and

DEUTSCHE BANK NATIONAL TRUST COMPANY

as Collateral Agent

TABLE OF CONTENTS

ARTICLE I
Definitions
SECTION 1.01.	Indenture	2
SECTION 1.02.	Other Defined Terms	2
SECTION 1.03.	Rules of Interpretation	6
ARTICLE II
Pledge of Securities
SECTION 2.01.	Pledge	6
SECTION 2.02.	Delivery of the Pledged Collateral	7
SECTION 2.03.	Representations, Warranties and Covenants	8
SECTION 2.04.	Certification of Limited Liability Company and Limited Partnership Interests	9
SECTION 2.05.	Registration in Nominee Name; Denominations	10
SECTION 2.06.	Voting Rights; Dividends and Interest	10
ARTICLE III
Security Interests in Personal Property
SECTION 3.01.	Security Interest	12
SECTION 3.02.	Representations and Warranties	14
SECTION 3.03.	Covenants	15
SECTION 3.04	Other Actions	19
SECTION 3.05.	Covenants Regarding Patent, Trademark and Copyright Collateral	22
ARTICLE IV
Remedies
SECTION 4.01.	Remedies Upon Default	24
SECTION 4.02.	Application of Proceeds	26
SECTION 4.03.	Grant of License to Use Intellectual Property	26
SECTION 4.04.	Securities Act	26
SECTION 4.05.	Registration	27

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ARTICLE V

[This Article and SECTION intentionally left blank]

ARTICLE VI

Miscellaneous

SECTION 6.01.	Notices	28
SECTION 6.02.	Waivers; Amendment	28
SECTION 6.03.	Collateral Agent’s Fees and Expenses; Indemnification	29
SECTION 6.04.	Successors and Assigns	32
SECTION 6.05.	Survival of Agreement	32
SECTION 6.06.	Counterparts; Effectiveness; Several Agreement	32
SECTION 6.07.	Severability	33
SECTION 6.08.	Right of Set-Off	33
SECTION 6.09.	Governing Law; Jurisdiction; Consent to Service of Process	33
SECTION 6.10.	WAIVER OF JURY TRIAL	34
SECT1ON 6.11.	Headings	34
SECTION 6.12.	Security Interest Absolute	34
SECTION 6.13.	Termination or Release	35
SECTION 6.14.	Additional Subsidiaries	35
SECTION 6.15.	Subject to Intercreditor Agreement	35
Schedules
Schedule I	Subsidiary Parties
Schedule II	Capital Stock; Debt Securities
Schedule III	Intellectual Property
Schedule IV	Mortgaged Properties
Schedule V	Commercial Tort Claims
Exhibits
Exhibit I	Form of Supplement
Exhibit II	Form of Assignment of Security (Trademarks)
Exhibit III	Form of Assignment of Security (Patents)
Exhibit IV	Form of Assignment of Security (Copyrights)
Exhibit V	Perfection Certificate

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COLLATERAL AGREEMENT dated as of April 23, 2004, among DELCO REMY INTERNATIONAL, INC., the Subsidiary Parties identified herein and Deutsche Bank National Trust Company, as Collateral Agent.

WHEREAS pursuant to the terms, conditions and provisions of (a) the Indenture dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Indenture”), among Delco Remy International, Inc. (the “Company”), the Subsidiary Parties (as defined below) and Deutsche Bank National Trust Company, as trustee (the “Trustee”), and (b) the Purchase Agreement dated as of April 8, 2004, (the “Purchase Agreement”) among the Company, the Subsidiary Parties, Credit Suisse First Boston LLC, Deutsche Bank AG and Wachovia Securities. LLC (the “Initial Purchasers”), the Company is issuing $125,000,000 aggregate principal amount of Second Priority Senior Secured Notes due 2009 (the “Notes”), which will be guaranteed on a senior secured basis by each of the Subsidiaries Parties;

WHEREAS, pursuant to the Amended and Restated Loan and Security Agreement, dated as of October 3, 2003 (as further amended, supplemented or otherwise modified from time to time), among the Company, certain of its subsidiaries party thereto or which become a party thereto (collectively with the Company, the “Credit Party Grantors”), certain lenders, Congress Financial Corporation (Central), as administrative agent and U.S. collateral agent, and Wachovia Bank, National Association, as documentation agent, (the “Credit Agreement”), the Credit Party Grantors have granted to the Credit Agent (as defined below) a first-priority lien and security interest in the Collateral (as defined below);

WHEREAS the Company, the Subsidiary Parties, the Collateral Agent and the Credit Agent have entered into an Intercreditor Agreement, dated as of the date hereof (the “Intercreditor Agreement”), pursuant to which the lien upon and security interest in the Collateral granted by this Agreement are and shall be subordinated in all respects to the lien upon and security interest in the Collateral granted pursuant to, and subject to the terms and conditions of, the Senior Lender Documents (as defined below);

WHEREAS each Grantor (as defined below) is executing and delivering this Agreement, pursuant to the terms of the Indenture to induce the Trustee to enter into the Indenture and, pursuant to the terms of the Purchase Agreement to induce the Initial Purchasers to purchase the Notes; and

WHEREAS each Grantor has duly authorized the execution, delivery and performance of this Agreement.

NOW, THEREFORE, for and in consideration of the premises, and of the mutual covenants herein contained, and in order to induce the Trustee to enter into the Indenture and the Initial Purchasers to purchase the Notes, each Grantor and the Collateral Agent, on behalf of itself and each Secured Party (and each of their respective successors or assigns), hereby agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Indenture. Capitalized terms used in this Agreement and not otherwise defined herein have the meanings specified in the Indenture. All terms defined in the New York UCC (as defined herein) and not defined in this Agreement have the meanings specified therein; the term “instrument” shall have the meaning specified in Article 9 of the New York UCC.

SECTION 1.02. Other Defined Terms. As used in this Agreement, the following terms have the meanings specified below:

“Account Debtor” means any Person who is or who may become obligated to any Grantor under, with respect to or on account of an Account.

“Article 9 Collateral” has the meaning assigned to such term in Section 3.01.

“Collateral” means Article 9 Collateral and Pledged Collateral.

“Collateral Agent” means the party named as such in this Agreement until a successor replaces it and, thereafter, means the successor.

“Company” means Delco Remy International, Inc. and its successors.

“Copyright License” means any written agreement, now or hereafter in effect, granting any right to any third party under any copyright now or hereafter owned by any Grantor or that such Grantor otherwise has the right to license, or granting any right to any Grantor under any copyright now or hereafter owned by any third party, and all rights of such Grantor under any such agreement.

“Copyrights” means all of the following now owned or hereafter acquired by any Grantor: (a) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise, and (b) all registrations and applications for registration of any such copyright in the United States or any other country, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office, including those listed on Schedule III.

“Credit Agent” has the meaning assigned to such term in the Intercreditor Agreement.

“Credit Agreement” has the meaning assigned to such term in the recitals of this Agreement.

“Discharge of Senior Lender Claims” has the meaning assigned to such term in the Intercreditor Agreement.

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“Effective Date” means April 23, 2004.

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person.

“Federal Securities Laws” has the meaning assigned to such term in Section 4.04.

“First-Lien Termination Date” means, subject to Section 5.6 of the Intercreditor Agreement, the date on which the Discharge of Senior Lender Claims occurs.

“General Intangibles” means all choses in action and causes of action and all other intangible personal property of every kind and nature (other than Accounts) now owned or hereafter acquired by any Grantor, including corporate or other business records, indemnification claims, contract rights (including rights under leases, whether entered into as lessor or lessee, Hedging Obligations and other agreements), goodwill, registrations, franchises, tax refund claims and any letter of credit, guarantee, claim, security interest or other security held by or granted to any Grantor to secure payment by an Account Debtor of any of the Accounts.

“Grantors” means the Company and the Subsidiary Parties.

“Indenture” has the meaning assigned to such term in the recitals of this Agreement.

“Indenture Documents” means (a) the Indenture, the Notes, and the Security Documents and (b) any other related documents or instruments executed and delivered pursuant to the Indenture or any Security Document.

“Indenture Parties” means the Company and the Subsidiary Guarantors.

“Initial Purchaser” has the meaning assigned to such term in the recitals of this Agreement.

“Intellectual Property” means all intellectual and similar property of every kind and nature now owned or hereafter acquired by any Grantor, including inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets, confidential or proprietary technical and business information, know-how, show-how or other data or information, software and databases and all embodiments or fixations thereof and related documentation, registrations and franchises, and all additions, improvements and accessions to, and books and records describing or used in connection with, any of the foregoing.

“Intercreditor Agreement” has the meaning assigned to such term in the recitals of this Agreement.

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“License” means any Patent License, Trademark License, Copyright License or other license or sublicense agreement to which any Grantor is a party, including those listed on Schedule III.

“Mortgaged Property” means, initially, each parcel of real property and the improvements thereto owned by any Indenture Party and identified on Schedule IV hereto, and includes each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 4.16 of the Indenture.

“New York UCC” means the Uniform Commercial Code as from time to time in effect in the State of New York.

“Notes” has the meaning assigned to such term in the recitals of this Agreement.

“Patent License” means any written agreement, now or hereafter in effect, granting to any third party any right to make, use or sell any invention on which a patent, now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, is in existence, or granting to any Grantor any right to make, use or sell any invention on which a patent, now or hereafter owned by any third party, is in existence, and all rights of any Grantor under any such agreement to the extent that the grant of a security interest does not cause a breach or termination thereof.

“Patents” means all of the following now owned or hereafter acquired by any Grantor: (a) all letters patent of the United States or the equivalent thereof in any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or the equivalent thereof in any other country, including registrations, recordings and pending applications in the United States Patent and Trademark Office or any similar offices in any other country, including those listed on Schedule III, and (b) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein.

“Perfection Certificate” means the certificates included as Exhibit V, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by an Officer of the Company.

“Pledged Collateral” has the meaning assigned to such term in Section 2.01.

“Pledged Debt Securities” has the meaning assigned to such term in Section 2.01.

“Pledged Securities” means any promissory notes, stock certificates or other securities now or hereafter included in the Pledged Collateral, including all certificates, instruments or other documents representing or evidencing any Pledged Collateral.

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“Pledged Stock” has the meaning assigned to such term in Section 2.01.

“Proceeds” has the meaning specified in Section 9-102 of the New York UCC.

“Secured Parties” means (a) the Trustee, (b) the Collateral Agent, (c) each Holder, (d) the beneficiaries of each indemnification obligation undertaken by any Indenture Party under any Indenture Document and (e) the successors and assigns of each of the foregoing.

“Security Documents” means this Agreement, the Mortgages, the Assignment of Security (Trademarks), the Assignment of Security (Patents), the Assignment of Security (Copyright), any agreements pursuant to which assets are added to the Collateral and any other instruments or documents entered into and delivered in connection with any of the foregoing, as such agreements, instruments or documents may from time to time be amended.

“Security Interest” has the meaning assigned to such term in Section 3.01.

“Security Obligations” has the meaning assigned to such term in the Indenture.

“Senior Lenders” has the meaning assigned to such term in the Intercreditor Agreement.

“Senior Lender Claims” has the meaning assigned to such term in the Intercreditor Agreement.

“Senior Lender Documents” has the meaning assigned to such term in the Intercreditor Agreement.

“Subsidiary Parties” means (a) the Subsidiaries identified on Schedule I and (b) each other Subsidiary that becomes a party to this Agreement as a Subsidiary Party after the Effective Date.

“Trademark License” means any written agreement, now or hereafter in effect, granting to any third party any right to use any trademark now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, or granting to any Grantor any right to use any trademark now or hereafter owned by any third party, and all rights of any Grantor under any such agreement.

“Trademarks” means all of the following now owned or hereafter acquired by any Grantor: (a) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, other source or business identifiers, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark

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Office or any similar offices in any State of the United States or any other country or any political subdivision thereof, and all extensions or renewals thereof, including those listed on Schedule III, (b) all goodwill associated therewith or symbolized thereby and (c) all other assets, rights and interests that uniquely reflect or embody such goodwill.

SECTION 1.03. Rules of Interpretation. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. If the First-Lien Termination Date has occurred, a reference in this Agreement to the Credit Agent shall, unless the context requires otherwise, be construed as a reference to the Collateral Agent and this agreement shall be interpreted accordingly.

ARTICLE II

Pledge of Securities

SECTION 2.01. Pledge. As security for the payment or performance, as the case may be, in full of the Security Obligations, each Grantor hereby assigns and pledges to the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, a security interest in, all of such Grantor’s right, title and interest in, to and under (a) the shares of capital stock and other Equity Interests owned by it and listed on Schedule II and any other Equity Interests obtained in the future by such Grantor and, if such capital stock or Equity Interest is certificated, the certificates representing all such capital stock or Equity Interests (the “Pledged Stock”); provided, however, that the Pledged Stock shall not include more than 65% of the issued and outstanding voting Equity Interests of any Foreign Subsidiary; provided, further, however, that (i) shares of capital stock and other Equity Interests will constitute Pledged Stock only to the extent that such Capital Stock and securities can secure the Securities without Rule 3-10 or Rule 3-16 of Regulation S-X under the Securities Act (“Rule 3-10” and “Rule 3-16,” respectively) (or any other law, rule or regulation) requiring separate financial statements of such Subsidiary to be filed with the SEC (or any other

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governmental agency); (ii) in the event that either Rule 3-10 or Rule 3-16 requires or is amended, modified or interpreted by the SEC to require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC (or any other governmental agency) of separate financial statements of any Subsidiary due to the fact that such Subsidiary’s capital stock or other Equity Interests constitute Pledged Stock, then such capital stock or other Equity Interests shall automatically be deemed not to be Pledged Stock, but only to the extent necessary to not be subject to such requirement; and (iii) in the event that either Rule 3-10 or Rule 3-16 is amended, modified or interpreted by the SEC to permit (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would permit) such capital stock or other Equity Interests to constitute Pledged Stock without the filing with the SEC (or any other governmental agency) of separate financial statements of such Subsidiary, then such capital stock and other Equity Interests shall automatically be deemed to be Pledged Stock but only to the extent necessary to not be subject to any such financial statement requirement.

(b) (i) the debt securities listed opposite the name of such Grantor on Schedule II, (ii) any debt securities in the future issued to such Grantor and (iii) the promissory notes and any other instruments evidencing such debt securities (the “Pledged Debt Securities”);

(c) all other property that may be delivered to and held by the Collateral Agent pursuant to the terms of this Section 2.01;

(d) subject to Section 2.06, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of, and all other Proceeds received in respect of, the securities referred to in clauses (a) and (b) above;

(e) subject to Section 2.06, all rights and privileges of such Grantor with respect to the securities and other property referred to in clauses (a), (b), (c) and (d) above; and

(f) all Proceeds of any of the foregoing (the items referred to in clauses (a) through (f) above being collectively referred to as the “Pledged Collateral”).

TO HAVE AND TO HOLD, to the extent consistent with the terms of the Intercreditor Agreement, the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, forever; subject, however, to the terms, covenants and conditions hereinafter set forth.

SECTION 2.02. Delivery of the Pledged Collateral. (a) Each Grantor agrees promptly to deliver or cause to be delivered to the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent) any and all Pledged Securities, and any and all certificates or other instruments or documents representing the Collateral,

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unless such Pledged Securities, certificates or other instruments or documents have previously been delivered to the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent).

(b) Upon delivery to the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent), (i) any Pledged Securities shall be accompanied by stock powers duly executed in blank or other instruments of transfer reasonably satisfactory to the Credit Agent and by such other instruments and documents as the Credit Agent may reasonably request and (ii) all other property comprising part of the Pledged Collateral shall be accompanied by proper instruments of assignment duly executed by the applicable Grantor and such other instruments or documents as the Credit Agent may reasonably request. Each delivery of Pledged Securities shall be accompanied by a schedule describing the securities, which schedule shall be attached hereto as Schedule II and made a part hereof; provided that failure to attach any such schedule hereto shall not affect the validity of such pledge of such Pledged Securities. Each schedule so delivered shall supplement any prior schedules so delivered.

SECTION 2.03. Representations, Warranties and Covenants. The Grantors jointly and severally represent, warrant and covenant to the Collateral Agent, for the benefit of the Secured Parties, that:

(a) Schedule II correctly sets forth the percentage of the issued and outstanding shares of each class of the Equity Interests of the issuer thereof represented by such Pledged Stock and includes all Equity Interests, debt securities and promissory notes required to be pledged hereunder;

(b) the Pledged Stock and Pledged Debt Securities have been duly and validly authorized and issued by the issuers thereof and (i) in the case of Pledged Stock, are fully paid and nonassessable, (ii) in the case of Pledged Debt Securities issued to a Grantor by Affiliates of any Grantor, are legal, valid and binding obligations of the issuers thereof and (iii) in the case of Pledged Debt Securities issued to a Grantor by Persons other than Affiliates of any Grantor, are, to the knowledge of any Grantor, legal, valid and binding obligations of the issuers thereof;

(c) except for the security interests granted hereunder and except as permitted by the Indenture, each of the Grantors (i) is and, subject to any transfers permitted under the Indenture, will continue to be the direct owner, beneficially and of record, of the Pledged Securities indicated on Schedule II as owned by such Grantor, (ii) holds the same free and clear of all Liens, other than Liens created by this Agreement, Specified Permitted Liens and transfers permitted under the Indenture, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than Liens created by this Agreement, Specified Permitted Liens and transfers permitted under the Indenture, and (iv) will defend its title or interest thereto or therein against any and all Liens (other than the Lien

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created by this Agreement and Specified Permitted Liens), however arising, of all Persons whomsoever;

(d) except for restrictions and limitations imposed by the Intercreditor Agreement, the Indenture Documents, the Senior Lender Documents or securities laws generally, the Pledged Collateral is and will continue to be freely transferable and assignable, and none of the Pledged Collateral is or will be subject to any option, right of first refusal, shareholders agreement, charter or by-law provisions or contractual restriction of any nature that would prohibit, impair, delay or otherwise affect the pledge of such Pledged Collateral hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Collateral Agent of rights and remedies hereunder;

(e) each of the Grantors has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby done or contemplated;

(f) no consent or approval of any Governmental Authority, any securities exchange or any other Person was or is necessary to the validity of the pledge effected hereby (other than such as have been obtained and are in full force and effect);

(g) by virtue of the execution and delivery by the Grantors of this Agreement and the Intercreditor Agreement, upon delivery to the Credit Agent of the certificates or instruments representing or evidencing the Pledged Securities or other Collateral constituting certificated securities or instruments, certificates or other documents representing or evidencing the Collateral in accordance with this Agreement (or in the case of certificates or instruments representing or evidencing Collateral which are then in the possession of the Credit Agent, upon the execution and delivery of the Intercreditor Agreement) and, in the case of Collateral not constituting certificated securities or instruments, the filing of UCC financing statements in the appropriate filing office, the Collateral Agent will, in accordance with the laws of the United States and the states thereof, obtain a valid and perfected second-priority lien upon and security interest in all right, title and interest of the applicable pledgor in such Pledged Securities as security for the payment and performance of the Security Obligations (subject to any and all Permitted Liens); and

(h) in accordance with the laws of the United States and the states thereof, the pledge effected hereby is effective to vest in the Collateral Agent, for the benefit of the Secured Parties, the rights of the Collateral Agent in the Pledged Collateral as set forth herein.

SECTION 2.04. Certification of Limited Liability Company and Limited Partnership Interests. To the extent that the Collateral Agent reasonably requests and provided that such request is consistent with the Collateral Agent’s protection of its security interest in the Pledged Collateral, each interest in any domestic limited liability company or domestic limited partnership controlled by any Grantor and pledged

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hereunder shall be represented by a certificate, shall be a “security” within the meaning of Article 8 of the New York UCC and shall be governed by Article 8 of the New York UCC.

SECTION 2.05. Registration in Nominee Name; Denominations. Upon the occurrence of an Event of Default, the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent), on behalf of the Secured Parties, shall have the right, in accordance with the Senior Lender Documents (or, if the First-Lien Termination Date has occurred, the Indenture Documents), in its reasonable discretion, to hold the Pledged Securities in its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the name of the applicable Grantor, endorsed or assigned in blank or in favor of the Collateral Agent. Each Grantor will promptly give to the Collateral Agent copies of any material notices or other material communications received by it with respect to Pledged Securities registered in the name of such Grantor. The Collateral Agent shall at all times have the right to exchange the certificates representing Pledged Securities for certificates of smaller or larger denominations for any purpose consistent with this Agreement.

SECTION 2.06. Voting Rights; Dividends and Interest. (a) In accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, unless and until an Event of Default shall have occurred and be continuing and the Collateral Agent shall have notified the Grantors that their rights under this Section 2.06 are being suspended:

(i) Each Grantor shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Securities or any part thereof for any purpose consistent with the terms of this Agreement, the Indenture and the other Indenture Documents; provided that such rights and powers shall not be exercised in any manner that could materially and adversely affect the rights inuring to a holder of any Pledged Securities or the rights and remedies of any of the Collateral Agent or the other Secured Parties under this Agreement or the Indenture or any other Indenture Document or the ability of the Secured Parties to exercise the same.

(ii) The Collateral Agent shall execute and deliver to each Grantor, or cause to be executed and delivered to such Grantor, all such proxies, powers of attorney and other instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above.

(iii) Each Grantor shall be entitled to receive and retain any and all dividends, interest, principal and other distributions paid on or distributed in respect of the Pledged Securities to the extent and only to the extent that such dividends, interest, principal and other distributions are permitted by, and otherwise paid or distributed in accordance with, the terms and conditions of the Indenture, the other Indenture Documents and applicable laws; provided that any noncash dividends, interest, principal or other distributions that would constitute

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Pledged Stock or Pledged Debt Securities, whether resulting from a subdivision, combination or reclassification of the outstanding Equity Interests of the issuer of any Pledged Securities or received in exchange for Pledged Securities or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by any Grantor, shall not be commingled by such Grantor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Credit Agent, the Collateral Agent and the other Secured Parties) and shall be forthwith delivered to the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent) in the same form as so received (with any necessary endorsement).

(b) In accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, upon the occurrence and during the continuance of an Event of Default, all rights of any Grantor to dividends, interest, principal or other distributions that such Grantor is authorized to receive pursuant to paragraph (a)(iii) above shall cease, and all such rights shall thereupon become vested in the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent), which shall have the sole and exclusive right and authority to receive and retain such dividends, interest, principal or other distributions. All dividends, interest, principal or other distributions received by the Grantor contrary to the provisions of this Section 2.06 shall be held in trust for the benefit of the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent), shall be segregated from other property or funds of such Grantor and shall be forthwith delivered to the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent) upon demand in the same form as so received (with any necessary endorsement). Any and all money and other property paid over to or received by the Credit Agent, the Collateral Agent and the other Secured Parties) pursuant to the provisions of this paragraph (b) shall, subject to the provisions of the Intercreditor Agreement, be retained by the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent) in an account to be established by the Credit Agent (or, if the First-Lien Termination Date has occurred, the Collateral Agent) upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 4.02. After all Events of Default have been cured or waived, the Collateral Agent shall, within five Business Days after all such Events of Default have been cured or waived, repay to each Grantor all cash dividends, interest, principal or other distributions (without interest), that such Grantor would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) above and which remain in such account.

(c) In accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, upon the occurrence and during the continuance of an Event of Default, all rights of any Grantor to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 2.06, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 2.06, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers, provided that, and to the extent consistent with the Intercreditor Agreement,

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unless the Collateral Agent shall have received written objections from Holders of at least 25% in principal amount of the Notes, the Collateral Agent shall have the right from time to time following and during the continuance of an Event of Default to permit the Grantors to exercise such rights. After all Events of Default have been cured or waived, such Grantor will have the right to exercise the voting and consensual rights and powers that it would otherwise be entitled to exercise pursuant to the terms of paragraph (a)(i) above.

(d) Any notice given by the Collateral Agent to the Grantors suspending their rights under paragraph (a) of this Section 2.06 (i) may be given by telephone if promptly confirmed in writing, (ii) may be given to one or more of the Grantors at the same or different times and (iii) may suspend the rights of the Grantors under paragraph (a)(i) or paragraph (a)(iii) in part without suspending all such rights (as specified by the Collateral Agent in its sole and absolute discretion) and without waiving or otherwise affecting the Collateral Agent’s rights to give additional notices from time to time suspending other rights so long as an Event of Default has occurred and is continuing.

ARTICLE III

Security Interests in Personal Property

SECTION 3.01. Security Interest. (a) As security for the payment or performance, as the case may be, in full of the Security Obligations, each Grantor hereby assigns and pledges to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, a security interest (the “Security Interest”) in, all right, title or interest in or to any and all of the following assets and properties now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Article 9 Collateral”):

(i) all Accounts;

(ii) all Chattel Paper;

(iii) all Deposit Accounts, all cash and all other property from time to time deposited and the monies and property in the possession or under the control of the Credit Agent, the Collateral Agent or any affiliate, representative, agent or correspondent of the Credit Agent or Collateral Agent;

(iv) all Documents;

(v) all Equipment;

(vi) all Fixtures;

(vii) all General Intangibles (including all Payment Intangibles);

(viii) all Goods;

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(ix) all Instruments;

(x) all Intellectual Property;

(xi) all Inventory;

(xii) all Investment Property;

(xiii) Letter-of-Credit rights;

(xiv) the Commercial Tort Claims described on Schedule V hereto;

(xv) all books and records pertaining to the Article 9 Collateral;

(xvi) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing; and

(xvii) all cash or cash equivalents received by the Trustee or the Collateral Agent on behalf of the Trustee pursuant to Article 12 of the Indenture.

(b) Each Grantor hereby irrevocably authorizes the Collateral Agent at any time and from time to time to file or cause to be filed in any relevant jurisdiction any initial financing statements (including fixture filings) with respect to the Article 9 Collateral or any part thereof and amendments thereto that (i) indicate the Collateral as all assets of such Grantor or words of similar effect as being of an equal or lesser scope or with greater detail, and (ii) contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment, including (a) whether such Grantor is an organization, the type of organization and any organizational identification number issued to such Grantor and (b) in the case of a financing statement filed as a fixture filing or covering Article 9 Collateral constituting minerals or the like to be extracted or timber to be cut, a sufficient description of the real property to which such Article 9 Collateral relates. Each Grantor agrees to provide such information to the Collateral Agent promptly upon request.

Each Grantor also ratifies its authorization for the Collateral Agent to file or cause to be filed in any relevant jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof.

The Collateral Agent is further authorized to file or cause to be filed with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country) such documents as may be necessary (or, in the reasonable opinion of the Collateral Agent, advisable, including, the Assignment of Security (Trademarks), the Assignment of Security (Patents) and the Assignment of Security (Copyright)) for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interest granted by each Grantor, without the signature of any Grantor, and naming any Grantor or the Grantors as debtors and the Collateral Agent as secured party.

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(c) The Security Interest is granted as security only and shall not subject the Collateral Agent or any other Secured Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Article 9 Collateral.

SECTION 3.02. Representations and Warranties. The Grantors jointly and severally represent and warrant to the Collateral Agent and the Secured Parties that:

(a) Each Grantor has good and valid rights in and title to the Article 9 Collateral with respect to which it has purported to grant a Security Interest hereunder and has full power and authority to grant to the Collateral Agent the Security Interest in such Article 9 Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other Person other than any consent or approval that has been obtained.

(b) The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein, including the exact legal name of each Grantor, is correct and complete as of the Effective Date. The Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations prepared and filed, recorded or registered by the Collateral Agent based upon the information provided to the Collateral Agent in the Perfection Certificate for filing in each governmental, municipal or other office specified in the Perfection Certificate are all the filings, recordings and registrations (other than filings required to be made in the United States Patent and Trademark Office and the United States Copyright Office in order to perfect the Security Interest in Article 9 Collateral consisting of United States Patents, Trademarks and Copyrights) that are necessary to publish notice of and protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent (for the benefit of the Secured Parties) in respect of all Article 9 Collateral in which the Security Interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements. Each Grantor represents and warrants that a fully executed agreement in the form hereof, together with a fully executed version of the Assignment of Security (Trademarks), Assignment of Security (Patents) and Assignment of Security (Copyright) attached hereto as Exhibits II, III and IV, respectively, containing a description of all Article 9 Collateral consisting of Intellectual Property shall have been delivered to the Collateral Agent on or before the Effective Date with respect to United States Patents and United States registered Trademarks (and Trademarks for which United States registration applications are pending) and with respect to United States registered Copyrights for recording by the United States Patent and Trademark Office and the United States Copyright Office pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or 17 U.S.C. § 205 and the regulations thereunder, as applicable, and otherwise as may be required pursuant to the laws of any other necessary jurisdiction, to protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent (for the benefit of the Secured Parties) in respect of all Article 9 Collateral consisting of Patents, Trademarks and

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Copyrights in which a security interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary (other than such actions as are necessary to perfect the Security Interest with respect to any Article 9 Collateral consisting of Patents, Trademarks and Copyrights (or registration or application for registration thereof) acquired or developed after the date hereof).

(c) The Security Interest constitutes (i) a legal and valid security interest in all the Article 9 Collateral securing the payment and performance of the Security Obligations, (ii) subject to the filings described in Section 3.02(b), a perfected security interest in all Article 9 Collateral in which a security interest may be perfected by filing, recording or registering a financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Uniform Commercial Code or other applicable law in such jurisdictions and (iii) a security interest that shall be perfected in all Article 9 Collateral in which a security interest may be perfected upon the receipt and recording of this Agreement or each of the respective Assignment of Security Interests (attached as Exhibit II, III and IV) with the United States Patent and Trademark Office and the United States Copyright Office, as applicable, within the three-month period (commencing as of the date hereof) pursuant to 35 U.S.C. § 261 or 15 U.S.C. § 1060 or the one month period (commencing as of the date hereof) pursuant to 17 U.S.C. § 205 and otherwise as may be required pursuant to the laws of any other necessary jurisdiction. The Security Interest is and shall be a second-priority Security Interest, prior to any other Lien on any of the Article 9 Collateral, other than Liens in respect of Senior Lender Claims, subject to Specified Permitted Liens.

(d) The Article 9 Collateral is owned by the Grantors free and clear of any Lien, except for Specified Permitted Liens. None of the Grantors has filed or consented to the filing of (i) any financing statement or analogous document under the Uniform Commercial Code or any other applicable laws covering any Article 9 Collateral, (ii) any assignment in which any Grantor assigns any Collateral or any security agreement or similar instrument covering any Article 9 Collateral with the United States Patent and Trademark Office or the United States Copyright Office or (iii) any assignment in which any Grantor assigns any Article 9 Collateral or any security agreement or similar instrument covering any Article 9 Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect, except, in each case, for Specified Permitted Liens.

SECTION 3.03. Covenants. (a) Each Grantor agrees promptly to notify the Collateral Agent in writing of any change (i) in its corporate name, (ii) in its identity or type of organization or corporate structure, (iii) in its organizational identification number and, if applicable, its Federal Taxpayer Identification Number or (iv) in its jurisdiction of organization. Each Grantor agrees to promptly provide the Collateral Agent with certified organizational documents reflecting any of the changes described in the first sentence of this paragraph. Each Grantor agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made by such

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Grantor under the Uniform Commercial Code or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected first priority security interest in all the Article 9 Collateral. Each Grantor agrees promptly to notify the Collateral Agent if any material portion of the Article 9 Collateral owned or held by such Grantor is damaged or destroyed.

(b) Each Grantor agrees to maintain, at its own cost and expense, such complete and accurate records with respect to the Article 9 Collateral owned by it as is consistent with its current practices and in accordance with such prudent and standard practices used in industries that are the same as or similar to those in which such Grantor is engaged, but in any event to include complete accounting records indicating all payments and proceeds received with respect to any part of the Article 9 Collateral, and, at such time or times as the Collateral Agent may reasonably request, promptly to prepare and deliver to the Collateral Agent a duly certified schedule or schedules in form and detail reasonably satisfactory to the Collateral Agent showing the identity, amount and location of any and all Article 9 Collateral.

(c) Each year, on or before the time of filing of the Company’s Annual Report on Form 10-K with the SEC with respect to the preceding fiscal year, the Company shall deliver to the Collateral Agent an Officers’ Certificate of the Company setting forth the information required pursuant to the Perfection Certificate or confirming that there has been no change in such information since the date of such certificate or the date of the most recent certificate delivered pursuant to this Section 3.03(c) and (b) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (a) of this Section 3.03 to the extent necessary to protect and perfect the Security Interest for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period). Each certificate delivered pursuant to this Section 3.03(c) shall identify in the format of Schedule III all Intellectual Property of any Grantor in existence on the date thereof and not then listed on such Schedules or previously so identified to the Collateral Agent.

(d) Each Grantor shall, at its own expense, take any and all actions necessary to defend title to the Article 9 Collateral against all Persons and to defend the Security Interest of the Collateral Agent in the Article 9 Collateral and the priority thereof against any Lien other than those Specified Permitted Liens.

Each Grantor agrees, at its own expense, to execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all actions, including such actions as the Collateral Agent, in accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, may from time to time reasonably request, to better assure, create, preserve, protect, perfect and enforce the Security Interest and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this

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Agreement, the granting of the Security Interest and the filing of any financing statements (including fixture filings) or other documents in connection herewith or therewith. If any amount payable under or in connection with any of the Article 9 Collateral shall be or become evidenced by any promissory note or other instrument, such note or instrument shall be promptly pledged and delivered to the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent), duly endorsed in a manner satisfactory to the Credit Agent or Collateral Agent, as applicable. To the extent that any Grantor fails to take any action required in the preceding sentence, the Collateral Agent is irrevocably authorized and empowered, to the extent consistent with the terms of the Intercreditor Agreement, with full power of substitution, to execute, acknowledge and deliver such security documents, instruments, certificates, notices and other documents and, subject to the provisions of the Security Documents, take such other actions in the name, place and stead of such Grantor; provided that the Collateral Agent will have no obligation to act in the foregoing manner and no liability for any action taken or omitted by it in good faith in connection therewith.

Without limiting the generality of the foregoing, each Grantor hereby authorizes the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent), with prompt notice thereof to the Grantors, to supplement this Agreement by supplementing Schedule III or adding additional schedules hereto to specifically identify any asset or item that may constitute Copyrights, Licenses, Patents or Trademarks; provided that any Grantor shall have the right, exercisable within 10 days after it has been notified by the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent) of the specific identification of such Collateral, to advise the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent) in writing of any inaccuracy of the representations and warranties made by such Grantor hereunder with respect to such Collateral. Each Grantor agrees that it will use its reasonable best efforts to take such action as shall be necessary in order that all representations and warranties hereunder shall be true and correct with respect to such Collateral within 30 days after the date it has been notified by the Collateral Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent) of the specific identification of such Collateral.

(e) Upon reasonable prior notice, the Collateral Agent and such Persons as the Collateral Agent may reasonably designate shall have, at such reasonable times and as often as reasonably requested, the right to inspect the Article 9 Collateral (provided that only one inspection during each fiscal year of the Company shall be at the Grantors’ own cost and expense, provided, however, that if an Event of Default has occurred and is continuing, all inspections during the continuance of such Event of Default shall be at the Grantors’ own cost and expense), all records related thereto (and to make extracts and copies from such records) and the premises upon which any of the Article 9 Collateral is located, to discuss the Grantors’ affairs with the officers of the Grantors and their independent accountants (provided that the Grantors shall have been afforded the opportunity to participate in any such discussion with their independent accountants) and to verify under reasonable procedures, the validity, amount, quality, quantity, value, condition and status of, or any other matter relating to, the Article 9 Collateral, including, in the case of Accounts or Article 9 Collateral in the possession of any third person, by

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contacting Account Debtors or the third person possessing such Article 9 Collateral for the purpose of making such a verification. The Collateral Agent shall have the absolute right to share any information it gains from such inspection or verification with any Secured Party.

(f) In accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, at its option, during the continuance of an Event of Default, the Collateral Agent may discharge past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Article 9 Collateral and not permitted under the Indenture, and may pay for the maintenance and preservation of the Article 9 Collateral to the extent any Grantor fails to do so as required by the Indenture or this Agreement, and each Grantor jointly and severally agrees to reimburse the Collateral Agent on demand for any payment made or any expense incurred by the Collateral Agent pursuant to the foregoing authorization; provided that nothing in this paragraph shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Collateral Agent or any Secured Party to cure or perform, any covenants or other promises of any Grantor with respect to taxes, assessments, charges, fees, Liens, security interests or other encumbrances and maintenance as set forth herein or in the other Indenture Documents.

(g) Each Grantor shall remain liable to observe and perform all the conditions and obligations to be observed and performed by it under each contract, agreement or instrument relating to the Article 9 Collateral, all in accordance with the terms and conditions thereof, and each Grantor jointly and severally agrees to indemnify and hold harmless the Collateral Agent and the Secured Parties from and against any and all liability for such performance.

(h) None of the Grantors shall make or permit to be made an assignment, pledge or hypothecation of the Article 9 Collateral or shall grant any other Lien in respect of the Article 9 Collateral, except as permitted by the Indenture. Unless and until (in accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement) the Collateral Agent shall notify the Grantors (which notice may be given by telephone if promptly confirmed in writing) that an Event of Default shall have occurred and be continuing (and during the continuance thereof the Grantors shall not sell, convey, lease, assign, transfer or otherwise dispose of any Collateral), the Grantors may use and dispose of the Collateral in any lawful manner not inconsistent with the provisions of this Agreement, the Indenture, any other Indenture Document or the Intercreditor Agreement.

(i) None of the Grantors will, without the prior written consent of the Collateral Agent), grant any extension of the time of payment of any Accounts included in the Article 9 Collateral, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any Person liable for the payment thereof or allow any credit or discount whatsoever thereon, other than extensions, compromises, settlements, releases, credits or discounts granted or made in the ordinary course of business and consistent with its current practices and in accordance with such prudent and standard practice used in industries that are the same as or similar to those in which such Grantor is engaged.

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(j) The Grantors, at their own expense, shall maintain or cause to be maintained insurance covering physical loss or damage to the Inventory and Equipment with financially sound and reputable insurance companies in such amounts (with no greater risk retention) and against such risks as are customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar location. Subject to the Intercreditor Agreement, each Grantor irrevocably makes, constitutes and appoints the Collateral Agent (and all officers, employees or agents designated by the Collateral Agent) as such Grantor’s true and lawful agent (and attorney-in-fact) for the purpose, during the continuance of an Event of Default, of making, settling and adjusting claims in respect of Article 9 Collateral under policies of insurance, endorsing the name of such Grantor on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect thereto. Subject to the Intercreditor Agreement, in the event that any Grantor at any time or times shall fail to obtain or maintain any of the policies of insurance required hereby or to pay any premium in whole or part relating thereto, the Collateral Agent may, without waiving or releasing any obligation or liability of the Grantors hereunder or any Event of Default, in its sole discretion, obtain and maintain such policies of insurance and pay such premium and take any other actions with respect thereto as the Collateral Agent deems advisable. Subject to the Intercreditor Agreement, all sums disbursed by the Collateral Agent in connection with this paragraph, including reasonable attorneys’ fees, court costs, expenses and other charges relating thereto, shall be payable, upon demand, by the Grantors to the Collateral Agent and shall be additional Security Obligations secured hereby.

(k) Each Grantor shall maintain, in form and manner reasonably satisfactory to the Collateral Agent, records of its Chattel Paper and its books, records and documents evidencing or pertaining thereto.

(l) The Company shall, within 60 days of the Effective Date, deliver to the Collateral Agent a pledge and security agreement with respect to the pledge of 65% of the equity interests of the Subsidiaries listed in Schedule VI hereto, duly executed by the Company, as pledgor, and including all necessary endorsements thereon and including all necessary endorsements thereon together with an opinion of counsel qualified under the jurisdiction of organization of the pledged entity to the effect that such pledge and security agreement creates in favor of the Collateral Agent for the benefit of the Secured Parties a valid and enforceable security interest in the equity interests pledged thereby.

SECTION 3.04. Other Actions. In order to further ensure the attachment, perfection and priority of, and the ability of the Collateral Agent to enforce, the Security Interest, each Grantor agrees, in each case at such Grantor’s own expense, to take the following actions, to the extent that such actions will not constitute a breach of the Senior Lender Documents nor are inconsistent with the terms of the Intercreditor Agreement, with respect to the following Article 9 Collateral:

(a) Instruments. If any Grantor shall at any time hold or acquire any Instruments, in an amount in excess of $100,000, such Grantor shall forthwith endorse, assign and deliver the same to the Credit Agent (or, if the First-Lien

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Termination Date has already occurred, the Collateral Agent), accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time reasonably request;

(b) Deposit Accounts. For each deposit account that any Grantor at any time opens or maintains, such Grantor shall, either (i) cause the depositary bank to agree to comply with instructions from the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent) to such depositary bank directing the disposition of funds from time to time credited to such deposit account, without further consent of such Grantor or any other Person, pursuant to an agreement satisfactory to the Credit Agent or Collateral Agent, as applicable, or (ii) arrange for the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent) to become the customer of the depositary bank with respect to the deposit account, with the Grantor being permitted, only with the consent of the Credit Agent or Collateral Agent, as applicable, to exercise rights to withdraw funds from such deposit account; provided, however, that if the First Lien Termination Date has not occurred and the Credit Agent does not provide such instructions or become a customer as permitted hereunder, then the Grantor shall not be deemed to have violated this paragraph, the Grantor shall not have any obligations pursuant to this sentence and the Collateral Agent shall not have any rights under this sentence. The Collateral Agent agrees with each Grantor that it shall not give any such instructions or withhold any withdrawal rights from any Grantor unless an Event of Default has occurred and is continuing, or, after giving effect to any withdrawal would occur. The provisions of this paragraph shall not apply to (A) any deposit account for which any Grantor, the depositary bank and the Collateral Agent have entered into a cash collateral agreement specially negotiated among such Grantor, the depositary bank and the Collateral Agent for the specific purpose set forth therein and (B) deposit accounts for which the Collateral Agent is the depositary.

(c) Investment Property. Except to the extent otherwise provided in Article II, if any Grantor shall at any time hold or acquire any certificated securities, such Grantor shall forthwith endorse, assign and deliver the same to the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent), accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time specify. If any securities now or hereafter acquired from an issuer by any Grantor are uncertificated, are issued to such Grantor or its nominee directly by such issuer, such Grantor shall promptly notify the Collateral Agent thereof and, at the Collateral Agent’s request and option, pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent and in accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, either (i) cause the issuer to agree to comply with instructions from the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent), as to such securities, without further consent of any Grantor or such nominee, or (ii) arrange for the Credit Agent to become the registered owner of the securities (or, if the First-Lien Termination Date has already occurred, the Collateral

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Agent). If any securities, whether certificated or uncertificated, or other investment property now or hereafter acquired by any Grantor are held by such Grantor or its nominee through a securities intermediary or commodity intermediary, such Grantor shall promptly notify the Collateral Agent thereof and, at the Collateral Agent’s request and option, pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent, either (i) cause such securities intermediary or (as the case may be) commodity intermediary to agree to comply with entitlement orders or other instructions from the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent), to such securities intermediary as to such security entitlements, or (as the case may be) to apply any value distributed on account of any commodity contract as directed by the Collateral Agent to such commodity intermediary, in each case without further consent of any Grantor or such nominee, or (ii) in the case of financial assets or other investment property held through a securities intermediary, arrange for the Credit Agent (or, if the First-Lien Termination Date has already occurred, the Collateral Agent), to become the entitlement holder with respect to such investment property, with the Grantor being permitted to exercise rights to withdraw or otherwise deal with such investment property unless an Event of Default has occurred and is continuing. The Collateral Agent agrees with each of the Grantors that the Collateral Agent shall not give any such entitlement orders or instructions or directions to any such issuer, securities intermediary or commodity intermediary, and shall not withhold its consent to the exercise of any withdrawal or dealing rights by any Grantor, unless an Event of Default has occurred and is continuing, or, after giving effect to any such investment and withdrawal rights, would occur. The provisions of this paragraph shall not apply to any financial assets credited to a securities account for which the Collateral Agent or Credit Agent is the securities intermediary.

(d) Electronic Chattel Paper and Transferable Records. If any Grantor at any time holds or acquires an interest in any electronic chattel paper or any “transferable record,” as that term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, such Grantor shall promptly notify the Collateral Agent thereof and, at the request of the Collateral Agent, shall take such action as the Collateral Agent may reasonably request to vest in the Credit Agent control under New York UCC Section 9-105 of such electronic chattel paper or control under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record. The Collateral Agent agrees with such Grantor that the Collateral Agent will arrange, pursuant to procedures reasonably satisfactory to the Credit Agent and so long as such procedures will not result in the Credit Agent’s loss of control, for the Grantor to make alterations to such electronic chattel paper or transferable record permitted under UCC Section 9-105 or, as the case may be, Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a party in control to allow without loss

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of control, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by such Grantor with respect to such electronic chattel paper or transferable record.

(e) Letter-of-Credit Rights. If any Grantor is at any time a beneficiary under a letter of credit now or hereafter issued in favor of such Grantor with an undrawn face amount exceeding $100,000, such Grantor shall promptly notify the Collateral Agent thereof and, at the request and option of the Collateral Agent, such Grantor shall, pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to the Credit Agent of the proceeds of any drawing under the letter of credit or (ii) arrange for the Credit Agent to become the transferee beneficiary of the letter of credit, with the Collateral Agent agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be paid to the applicable Grantor unless an Event of Default has occurred or is continuing.

(f) Commercial Tort Claims. No Grantor holds any material Commercial Tort Claim excepted as described in the Perfection Certificate. If any Grantor shall at any time hold or acquire a commercial tort claim, the Grantor shall promptly notify the Collateral Agent thereof in a writing signed by such Grantor including a summary description of such claim and grant to the Credit Agent and the Collateral Agent, for the benefit of the Secured Parties, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Collateral Agent.

SECTION 3.05. Covenants Regarding Patent, Trademark and Copyright Collateral. (a) Each Grantor agrees that it will not, do any act or omit to do any act (and will exercise commercially reasonable efforts to prevent its licensees from doing any act as omitting to do any act) whereby any Patent that is material to the conduct of such Grantor’s business may become invalidated or dedicated to the public, and agrees that it shall continue to mark any products covered by a Patent with the relevant patent number as necessary and sufficient to establish and preserve its rights under applicable patent laws.

(b) Each Grantor (either itself or through its licensees or its sublicensees) will, for each Trademark material to the conduct of such Grantor’s business, (i) maintain such Trademark in full force free from any claim of abandonment or invalidity for non-use, (ii) maintain the quality of products and services offered under such Trademark, (iii) display such Trademark with notice of Federal or foreign registration to the extent necessary and sufficient to establish and preserve its rights under applicable law and (iv) not knowingly use or knowingly permit the use of such Trademark in violation of any third party rights.

(c) Each Grantor (either itself or through its licensees or sublicensees) will, for each work covered by a material Copyright, continue to publish, reproduce, display,

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adopt and distribute the work with appropriate copyright notice as necessary and sufficient to establish and preserve its rights under applicable copyright laws.

(d) Each Grantor shall notify the Collateral Agent promptly if it knows or has reason to know that any Patent, Trademark or Copyright material to the conduct of its business may become abandoned, lost or dedicated to the public, or of any materially adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, United States Copyright Office or any court or similar office of any country) regarding such Grantor’s ownership of any Patent, Trademark or Copyright, its right to register the same, or its right to keep and maintain the same.

(e) In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for any Patent, Trademark or Copyright (or for the registration of any Trademark or Copyright) with the United States Patent and Trademark Office, United States Copyright Office or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof, unless it promptly informs the Collateral Agent, and executes and delivers any and all agreements, instruments, documents and papers, including such documents and papers as the Collateral Agent may reasonably request, to evidence the Collateral Agent’s security interest in such Patent, Trademark or Copyright, and each Grantor hereby agrees to execute such writings for the foregoing purposes, and also appoints the Collateral Agent as its attorney-in-fact to execute and file such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power, being coupled with an interest, is irrevocable.

(f) Each Grantor will take all necessary steps that are consistent with the practice in any proceeding before the United States Patent and Trademark Office, United States Copyright Office or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof, to maintain and pursue each material application relating to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant or registration) and to maintain each issued Patent and each registration of the Trademarks and Copyrights that is material to the conduct of any Grantor’s business, including timely filings of applications for renewal, affidavits of use, affidavits of incontestability and payment of maintenance fees, and, if consistent with good business judgment, to initiate opposition, interference and cancelation proceedings against third parties.

(g) In the event that any Grantor has reason to believe that any Article 9 Collateral consisting of a Patent, Trademark or Copyright material to the conduct of any Grantor’s business has been or is about to be infringed, misappropriated or diluted by a third party in a manner which could adversely affect the conduct of such Grantor’s business, such Grantor promptly shall notify the Collateral Agent and shall, if consistent with good business judgment, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and take such other actions as are appropriate under the circumstances to protect such Article 9 Collateral.

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(h) Upon and during the continuance of an Event of Default, each Grantor shall use its reasonable best efforts to obtain all requisite consents or approvals by the licensor of each Copyright License, Patent License or Trademark License to effect the assignment of all such Grantor’s right, title and interest thereunder to the Credit Agent.

ARTICLE IV

Remedies

SECTION 4.01. Remedies Upon Default. In accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, upon the occurrence and during the continuance of an Event of Default, each Grantor agrees to deliver each item of Collateral to the Collateral Agent on demand, and it is agreed that the Collateral Agent shall have the right to take any of or all the following actions at the same or different times: (a) with respect to any Article 9 Collateral consisting of Intellectual Property, on demand, to cause the Security Interest to become an assignment, transfer and conveyance of any of or all such Article 9 Collateral by the applicable Grantors to the Collateral Agent, or to license or sublicense, whether general, special or otherwise, and whether on an exclusive or nonexclusive basis, any such Article 9 Collateral throughout the world on such terms and conditions and in such manner as the Collateral Agent shall determine (other than in violation of any applicable law or any then-existing licensing arrangements to the extent that waivers cannot be obtained), and (b) with or without legal process and with or without prior notice or demand for performance, to take possession of the Article 9 Collateral and without liability for trespass to enter any premises where the Article 9 Collateral may be located for the purpose of taking possession of or removing the Article 9 Collateral and, generally, to exercise any and all rights afforded to a secured party under the Uniform Commercial Code or other applicable law. Without limiting the generality of the foregoing, and in accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, each Grantor agrees that the Collateral Agent shall have the right, subject to the mandatory requirements of applicable law, to sell or otherwise dispose of all or any part of the Collateral at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate. The Collateral Agent shall be authorized at any such sale of securities (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any sale of Collateral shall hold the property sold absolutely, free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which such Grantor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.

The Collateral Agent shall give the applicable Grantors 10 days’ written notice (which each Grantor agrees is reasonable notice within the meaning of Section 9-611 of the New York UCC or its equivalent in other jurisdictions) of the

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Collateral Agent’s intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public (or, to the extent permitted by law, private) sale made pursuant to this Agreement, any Secured Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all said rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Grantor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to any Grantor therefor. For purposes hereof, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and no Grantor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Security Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section 4.01 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the New York UCC or its equivalent in other jurisdictions.

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SECTION 4.02. Application of Proceeds. In accordance with, and to the extent consistent with the Intercreditor Agreement and subject to Article 12 of the Indenture, the Collateral Agent shall apply the proceeds of any collection or sale of Collateral, including any Collateral consisting of cash, as follows:

FIRST, to the payment of all costs and expenses incurred by the Collateral Agent in connection with such collection or sale or otherwise in connection with this Agreement, any other Indenture Document or any of the Security Obligations, including all court costs and the fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent hereunder or under any other Indenture Document on behalf of any Grantor and any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Indenture Document;

SECOND, to the payment in full of the Security Obligations in the manner provided in the Indenture; and

THIRD, to the Grantors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct.

In accordance with, and to the extent consistent with the Intercreditor Agreement and the Indenture, the Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof.

SECTION 4.03. Grant of License to Use Intellectual Property. In accordance with, and to the extent consistent with, the Intercreditor Agreement, for the purpose of enabling the Collateral Agent to exercise rights and remedies under this Agreement at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Collateral Agent an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to the Grantors) to use, license or sublicense any of the Article 9 Collateral consisting of Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. The use of such license by the Collateral Agent may be exercised, at the option of the Collateral Agent, upon the occurrence and during the continuation of an Event of Default; provided that any license, sublicense or other transaction entered into by the Collateral Agent in accordance herewith shall be binding upon the Grantors notwithstanding any subsequent cure of an Event of Default.

SECTION 4.04. Securities Act. In view of the position of the Grantors in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such

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similar statute as from time to time in effect being called the “Federal Securities Laws”) with respect to any disposition of the Pledged Collateral permitted hereunder. Each Grantor understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. Each Grantor recognizes that in light of such restrictions and limitations the Collateral Agent may, with respect to any sale of the Pledged Collateral, limit the purchasers to those who will agree, among other things, to acquire such Pledged Collateral for their own account, for investment, and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that in light of such restrictions and limitations, the Collateral Agent, in its sole and absolute discretion and in accordance with, and to the extent consistent with, the Intercreditor Agreement, (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws and (b) may approach and negotiate with a single potential purchaser to effect such sale. Each Grantor acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions. In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Collateral at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached. The provisions of this Section 4.04 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells.

SECTION 4.05. Registration. Each Grantor agrees that, upon the occurrence and during the continuance of an Event of Default, if, in accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, for any reason the Collateral Agent desires to sell any of the Pledged Collateral at a public sale, it will, at any time and from time to time, upon the written request of the Collateral Agent, use its reasonable best efforts to take or to cause the issuer of such Pledged Collateral to take such action and prepare, distribute and/or file such documents, as are required or advisable in the reasonable opinion of counsel for the Collateral Agent to permit the public sale of such Pledged Collateral. Each Grantor further agrees to indemnify, defend and hold harmless the Collateral Agent, each other Secured Party, any underwriter and their respective officers, directors, affiliates and controlling persons from and against all loss, liability, expenses, costs of counsel (including, without limitation, reasonable fees and expenses to the Collateral Agent of legal counsel), and claims (including the costs of investigation) that they may incur insofar as such loss, liability, expense or claim arises out of or is based upon any alleged untrue statement of a material fact contained in any prospectus (or any amendment or supplement thereto) or in any notification or offering

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circular, or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements in any thereof not misleading, except insofar as the same may have been caused by any untrue statement or omission based upon information furnished in writing to such Grantor or the issuer of such Pledged Collateral by the Collateral Agent or any other Secured Party expressly for use therein. Each Grantor further agrees, upon such written request referred to above, to use its reasonable efforts to qualify, file or register, or cause the issuer of such Pledged Collateral to qualify, file or register, any of the Pledged Collateral under the Blue Sky or other securities laws of such states as may be requested by the Collateral Agent and keep effective, or cause to be kept effective, all such qualifications, filings or registrations. Each Grantor will bear all costs and expenses of carrying out its obligations under this Section 4.05. Each Grantor acknowledges that there is no adequate remedy at law for failure by it to comply with the provisions of this Section 4.05 and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements contained in this Section 4.05 may be specifically enforced.

ARTICLE V

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ARTICLE VI

Miscellaneous

SECTION 6.01. Notices. All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 13.02 of the Indenture. All communications and notices hereunder to any Subsidiary Party shall be given to it in care of the Company as provided in Section 13.02 of the Indenture.

SECTION 6.02. Waivers; Amendment. (a) No failure or delay by the Collateral Agent, the Trustee or any Holder in exercising any right or power hereunder or under any other Indenture Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent, the Trustee and the Holders hereunder and under the other Indenture Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Indenture Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 6.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Indenture Party in any case shall entitle any Indenture Party to any other or further notice or demand in similar or other circumstances.

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(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except (i) in accordance with the Indenture, pursuant to an agreement or agreements in writing entered into by the Collateral Agent and the Indenture Party or Indenture Parties with respect to which such waiver, amendment or modification is to apply, subject to the limitations in the Intercrediter Agreement, or (ii) as otherwise provided in the Intercrediter Agreement.

SECTION 6.03. Collateral Agent’s Fees and Expenses; Indemnification. (a) In accordance with, and to the extent consistent with, the terms of the Intercreditor Agreement, each Grantor jointly and severally agrees to pay upon demand to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees, disbursements and other charges of its counsel and of any experts or agents, which the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from or other realization upon any of the Collateral, (iii) the exercise, enforcement or protection of any rights of the Collateral Agent hereunder or (iv) the failure of any Grantor to perform or observe any of the provisions hereof applicable to it.

(b) Without limitation of its indemnification obligations under the other Indenture Documents, each Grantor jointly and severally agrees to indemnify the Collateral Agent, the Trustee, the Holders and each Affiliate of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of, the execution, delivery or performance of this Agreement or any claim, litigation, investigation or proceeding relating to any other agreement or instrument contemplated hereby, or to the Collateral, whether or not any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee.

(c) Any such amounts payable as provided hereunder shall be additional Security Obligations secured hereby and by the other Security Documents. The provisions of this Section 6.03 shall remain operative and in full force and effect regardless of the termination of this Agreement or any other Indenture Document, the consummation of the transactions contemplated hereby, the repayment of any of the Security Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Indenture Document, or any investigation made by or on behalf of the Collateral Agent or any other Secured Party. All amounts due under this Section 6.03 shall be payable on written demand therefor.

(d) The Collateral Agent shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties contained herein. The Collateral Agent makes no representation as to the value or condition of the Collateral or any part thereof, as to the title of any Grantor to the

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Collateral, as to the security afforded by this Agreement or any other Security Document or as to the validity, execution, enforceability, legality or sufficiency of this Agreement or any Security Document, and the Collateral Agent shall incur no liability or responsibility in respect of any such matters. Except as may be expressly provided in any Security Document, the Collateral Agent shall not be responsible for insuring the Collateral, for the payment of taxes, charges, assessments or liens upon the Collateral or otherwise as to the maintenance of the Collateral, except as provided in the immediately following sentence when the Collateral Agent has possession of the Collateral. The Collateral Agent shall have no duty to the Grantors or to the holders of the Notes as to any Collateral in its possession or control or in the possession or control of any agent or nominee of the Collateral Agent or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto, except the duty to accord such of the Collateral as may be in its possession substantially the same care as it accords its own assets and the duty to account for monies received by it. The Collateral Agent shall have no obligations to file any UCC financing statements or UCC continuation statements except at the written direction of the Grantors or the Trustee and upon receipt of such statements completed and in a proper form for filing provided to the Collateral Agent at least five Business Days in advance of any requested filing date. The Collateral Agent shall have no obligations to file any document with any foreign or domestic patent, trademark or copyright office, or any foreign governmental, municipal or other office. The Collateral Agent shall not be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Collateral Agent shall be liable for losses due to its wilful misconduct, gross negligence or bad faith. The Collateral Agent shall not be required to ascertain or inquire as to the performance by any Grantor of any of the covenants or agreements contained herein or in the Indenture, the Notes or the Security Documents. Neither the Collateral Agent nor any officer, agent or representative thereof shall be personally liable for any action taken or omitted to be taken by any such person in connection with this Agreement or any other Security Document except for such person’s own gross negligence, willful misconduct or bad faith. The Collateral Agent may execute any of the powers granted under this Agreement or any of the other Security Documents and perform any duty hereunder or thereunder either directly or by or through agents or attorneys-in-fact, and shall not be responsible for the misconduct of any agents or attorneys-in-fact selected by it with due care.

(e) Subject to any additional requirements provided herein or in the Indenture, if in the performance of its duties under this Collateral Agreement the Collateral Agent shall deem it necessary or desirable that a matter be proved or established with respect to any Person in connection with the taking, suffering or omitting of any action hereunder by the Collateral Agent, such matter may be conclusively deemed to be proved or established by a certificate executed by an officer of such Person, and absent gross negligence, wilful misconduct or bad faith, the Collateral Agent shall have no liability with respect to any action taken, suffered or omitted in reliance thereon.

(f) The Collateral Agent may consult with counsel and, in the absence of bad faith, shall be fully protected in taking any action hereunder in accordance with any advice of such counsel. The Collateral Agent shall have the right but not the obligation at

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any time to seek instructions concerning the administration of this Agreement, the duties created hereunder or any of the Collateral from any court of competent jurisdiction.

(g) The Collateral Agent shall be fully protected in relying upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order or other paper or document which it believes to be genuine and to have been signed or presented by the proper party or parties. In the absence of its gross negligence, willful misconduct or bad faith the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificate or opinions furnished to the Collateral Agent in connection with this Agreement and the other Security Documents.

(h) The Collateral Agent shall not be deemed to have actual, constructive, direct or indirect notice or knowledge of the occurrence of any Event of Default unless and until the Collateral Agent shall have received a written notice of Event of Default. The Collateral Agent shall have no obligation whatsoever either prior to or after receiving such a notice of Event of Default to inquire whether an Event of Default has, in fact, occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any certificate so furnished to it and shall have no obligation to take or omit to take any action with respect to such notice of Event of Default.

(i) If any dispute or disagreement shall arise as to the allocation of any sum of money received by the Collateral Agent hereunder, under the Indenture or under any Security Document, the Collateral Agent shall have the right to deliver such sum to a court of competent jurisdiction and therein commence an action for interpleader.

(j) A resignation or removal of the Collateral Agent and appointment of a successor Collateral Agent shall become effective only upon the successor Collateral Agent’s acceptance of appointment as provided in this Section 6.03.

(i) If the Collateral Agent resigns or is removed or if a vacancy exists in the office of Collateral Agent for any reason, the Trustee shall promptly appoint a successor Collateral Agent.

(ii) If a successor Collateral Agent does not take office within 60 days after the retiring Collateral Agent resigns or is removed, the retiring Collateral Agent may petition any court of competent jurisdiction for the appointment of a successor Collateral Agent.

(iii) A successor Collateral Agent shall deliver a written acceptance of its appointment to the retiring Collateral Agent, the Indenture Trustee and the Grantors. Thereupon, the resignation or removal of the retiring Collateral Agent shall become effective, and the successor Collateral Agent shall have all the rights, powers and duties of the Collateral Agent under this Collateral Agreement. The successor Collateral Agent shall mail a notice of its succession to the Indenture Taistee. The retiring Collateral Agent shall promptly transfer all property held by it as Collateral Agent to the successor Collateral Agent, provided

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all sums owing to the Collateral Agent hereunder have been paid. Notwithstanding replacement of the Collateral Agent pursuant to this Section 6.03, the Grantor’s obligations under Sections 6.03(a), (b) and (c) hereof shall continue for the benefit of the retiring Collateral Agent, and the Grantors shall pay to any such replaced or removed Collateral Agent all amounts owed to such replaced or removed Collateral Agent under Sections 6.03(a), (b) and (c) hereof upon such replacement or removal.

SECTION 6.04. Successors and Assigns. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Grantor or the Collateral Agent that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns.

SECTION 6.05. Survival of Agreement. All covenants, agreements, representations and warranties made by the Indenture Parties in the Indenture Documents and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Indenture Document shall be considered to have been relied upon by the Secured Parties and shall survive the execution and delivery of the Indenture Documents and the purchase of the Notes by the Initial Purchasers, regardless of any investigation made by any Secured Party or on its behalf and notwithstanding that the Collateral Agent, the Trustee or any Secured Party may have had notice or knowledge of any Default or incorrect representation or warranty and shall continue in full force and effect as long as any Obligation remains unpaid.

SECTION 6.06. Counterparts; Effectiveness; Several Agreement. This Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute single contract, and shall become effective as provided in this Section 6.06. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. This Agreement shall become effective as to any Indenture Party when a counterpart hereof executed on behalf of such Indenture Party shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Indenture Party and the Collateral Agent and their respective permitted successors and assigns, and shall inure to the benefit of such Indenture Party, the Collateral Agent and the other Secured Parties and their respective successors and assigns, except that no Indenture Party shall have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by this Agreement or the Indenture. This Agreement shall be construed as a separate agreement with respect to each Indenture Party and may be amended, modified, supplemented, waived or released with respect to any Indenture Party without the approval of any other Indenture Party and without affecting the obligations of any other Indenture Party hereunder.

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SECTION 6.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 6.08. Right of Set-Off. If an Event of Default shall have occurred and be continuing, and in accordance with, and to the extent consistent with the terms of the Intercreditor Agreement, each Holder is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Holder to or for the credit or the account of any Subsidiary Party against any of and all the obligations of such Subsidiary Party now or hereafter existing under this agreement owed to such Holder, irrespective of whether or not such Holder shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Holder under this Section 6.08 are in addition to other rights and remedies (including other rights of set-off) which such Holder may have.

SECTION 6.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) The validity, interpretation and enforcement of this Agreement and any dispute arising out of the relationship between parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of New York.

(b) Each of the Indenture Parties hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Indenture Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Indenture Document shall affect any right that the Collateral Agent, the Trustee or any Holder may otherwise have to bring any action or proceeding relating to this Agreement or any other Indenture Document against any Grantor, or its properties in the courts of any jurisdiction.

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(c) Each of the Indenture Parties hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Indenture Document in any court referred to in paragraph (b) of this Section 6.09. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 6.01. Nothing in this Agreement or any other Indenture Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 6.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER INDENTURE DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.10.

SECTION 6.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 6.12. Security Interest Absolute. All rights of the Collateral Agent hereunder, the Security Interest, the grant of a security interest in the Pledged Collateral and all obligations of each Grantor hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Indenture, any other Indenture Document, any agreement with respect to any of the Security Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Security Obligations, or any other amendment or waiver of or any consent to any departure from the Indenture, any other Indenture Document or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Security Obligations, or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Grantor in respect of the Security Obligations or this Agreement.

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SECTION 6.13. Termination or Release. (a) This Agreement, the Security Interest and all other security interests granted hereby shall terminate only in accordance with the Indenture and consistent with the Intercreditor Agreement.

SECTION 6.14. Additional Subsidiaries. If, pursuant to the Indenture, the Company is required to cause any Subsidiary that is not a Subsidiary Party to become a Subsidiary Party, upon execution and delivery by the Collateral Agent and a Subsidiary of an instrument in the form of Exhibit I hereto, such Subsidiary shall become a Subsidiary Party hereunder with the same force and effect as if originally named as a Subsidiary Party herein. The execution and delivery of any such instrument shall not require the consent of any other Indenture Party hereunder. The rights and obligations of each Indenture Party hereunder shall remain in full force and effect notwithstanding the addition of any new Indenture Party as a party to this Agreement.

SECTION 6.15. Additional Grantors. If, pursuant to Sections 4.16 or 5.01(b) of the Indenture, the Company is required to cause any Subsidiary of the Company that is not a Subsidiary Grantor to become a Subsidiary Grantor, upon execution and delivery by the Collateral Agent and such Subsidiary of an instrument in the form of Schedule III, such Subsidiary shall become a Subsidiary Grantor hereunder with the same force and effect as if originally named as a Subsidiary Grantor herein. The execution and delivery of such instrument shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Grantor as a party to this Agreement.

SECTION 6.16. Subject to Intercreditor Agreement. Notwithstanding anything herein to the contrary, (i) the liens and security interests granted to the Trustee pursuant to this Agreement are expressly subject and subordinate to the liens and security interests granted to Congress Financial Corporation (Central), as agent, for the benefit of the lenders referred to below, pursuant to the Second Amended and Restated Loan and Security Agreement, dated as of April 23, 2004 (as restated, amended, modified or supplemented) by and among Delco Remy International, Inc., the other “Borrowers” named therein, Congress Financial Corporation (Central), as Administrative Agent and US Collateral Agent, and the lenders party thereto and (ii) the exercise of any right or remedy by the Trustee hereunder is subject to the limitations and provisions of the Intercreditor Agreement, dated as of April 23, 2004 (as amended, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), by and among Congress Financial Corporation Central (Central), as Credit Agent, Deutsche Bank National Trust Company, as Trustee, Delco Remy International, Inc. and the subsidiary guarantors party thereto. In the event of any conflict between the terms of the Intercreditor Agreement and the terms of this Agreement, the terms of the Intercreditor Agreement shall govern.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Collateral Agreement as of the day and year first above written.

DELCO REMY INTERNATIONAL, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
Address:
DELCO REMY AMERICA, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President & Secretary
NABCO, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
POWER INVESTMENTS, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
FRANKLIN POWER PRODUCTS, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
INTERNATIONAL FUEL SYSTEMS, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary

POWER INVESTMENTS MARINE, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Treasurer & Secretary
MARINE CORPORATION OF AMERICA,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Treasurer & Secretary
POWRBILT PRODUCTS, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
WORLD WIDE AUTOMOTIVE, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
BALLANTRAE CORPORATION,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
WILLIAMS TECHNOLOGIES, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
REMY POWERTRAIN, L.P.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Finance & Secretary

M & M KNOPF AUTO PARTS, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
REMAN HOLDINGS, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
REMY INTERNATIONAL, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
JAX REMAN, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Assistant Secretary
REMY REMAN, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary

DEUTSCHE BANK NATIONAL TRUST COMPANY, AS COLLATERAL AGENT
by:	/s/ Safet Kalabovic
	Name:	Safet Kalabovic
	Title:	Vice President

EX-10.2

Exhibit 10.2

INTERCREDITOR AGREEMENT

INTERCREDITOR AGREEMENT, dated as of April 23, 2004, among CONGRESS FINANCIAL CORPORATION (CENTRAL) (“Congress”), as Credit Agent, DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee, DEUTSCHE BANK NATIONAL TRUST COMPANY, as Collateral Agent, DELCO REMY INTERNATIONAL, INC. and each SUBSIDIARY GUARANTOR listed on Schedule I hereto.

W I T N E S S E T H :

WHEREAS, the Company (such term and each other capitalized term used herein having the meanings set forth in Section 1 below), certain of the Company’s Subsidiaries, certain lenders and Congress, as administrative agent, are parties to the Second Amended and Restated Loan and Security Agreement dated as of April 23, 2004 (as further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”);

WHEREAS, the Obligations of the Company under the Credit Agreement are secured by various assets of the Company and certain Subsidiaries thereof;

WHEREAS, the Company, certain Subsidiaries of the Company and the Trustee have entered into the Indenture dated as of April 23, 2004 (as amended, supplemented or otherwise modified from time to time, the “Indenture”), pursuant to which the Notes shall be governed; and

WHEREAS, the Company, certain subsidiaries of the Company, the Trustee and the Credit Agent are entering into this Agreement to set forth, among other things, certain rights and priorities with respect to the Senior Lender Collateral and the Noteholder Collateral;

Now, THEREFORE, in consideration of the foregoing, the mutual covenants and obligations herein set forth and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

Section 1. (a) Definitions. As used in this Agreement, the following terms have the meanings specified below:

“Agreement” means this Agreement, as amended, renewed, extended, supplemented or otherwise modified from time to time in accordance with the terms hereof.

“Bankruptcy Law” means Title 11 of the United States Code and any similar Federal, state or foreign law for the relief of debtors.

“Business Day” means any day other than a Saturday, a Sunday or a day that is a legal holiday under the laws of the State of New York or on which banking institutions in the State of New York are required or authorized by law or other governmental action to close.

“Cash Management Obligations” means, with respect to any Person, all obligations, whether now owing or hereafter arising, of such Person in respect of overdrafts and related liabilities owed to any other Person that arise from treasury, depositary or cash management services, including any automated clearing house transfers of funds or any similar transactions.

“Common Collateral” means all of the assets of any Grantor, whether real, personal or mixed, constituting both Senior Lender Collateral and Noteholder Collateral.

“Company” means Delco Remy International, Inc., a Delaware corporation, and its successors.

“Comparable Noteholder Collateral Document” means, in relation to any Common Collateral subject to any Lien created under any Senior Collateral Document, that Noteholder Collateral Document that creates a Lien on the same Common Collateral, granted by the same Grantor.

“Credit Agent” means Congress, in its capacity as administrative agent under the Credit Agreement, and its successors as collateral agent for the Senior Lenders (or if there is more than one such successor agent, such agent as is designated as “Credit Agent” by Senior Lenders holding a majority of the Senior Lender Claims then outstanding) under the Senior Credit Agreement exercising substantially the same rights and powers.

“Deposit Account” has the meaning set forth in the Uniform Commercial Code.

“Deposit Account Collateral” means that part of the Common Collateral comprised of or contained in Deposit Accounts or Securities Accounts.

“DIP Financing” has the meaning set forth in Section 6.1.

“Discharge of Senior Lender Claims” means, except to the extent otherwise provided in Section 5.6, payment in full in cash of (a) all Obligations in respect of all outstanding First-Lien Indebtedness and, with respect to letters of credit outstanding thereunder, delivery of cash collateral or backstop letters of credit in respect thereof in compliance with the Senior Credit Agreement, in each case after or concurrently with termination of all commitments to extend credit thereunder and (b) any other Senior Lender Claims that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid.

“First-Lien Indebtedness” means (a) all Indebtedness incurred by the Company and its Subsidiaries pursuant to the Credit Agreement and secured by a Permitted Lien (as defined in the Indenture) described in clause (7) of the definition thereof, (b) all other Obligations (not constituting Indebtedness) of the Company and its Subsidiaries under the agreements governing such Indebtedness and (c) all other Obligations of Parent, the Company and its Subsidiaries in respect of Hedging Obligations or Obligations in respect of cash management services in connection with such first-lien Indebtedness.

“Future First-Lien Indebtedness” means any First-Lien Indebtedness other than Indebtedness incurred pursuant to the Credit Agreement.

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“Grantors” means the Company and each of the Subsidiaries that has executed and delivered a Noteholder Collateral Document or a Senior Collateral Document.

“Hedging Obligations” means, with respect to any Person, all obligations and liabilities, whether now owing or hereafter arising, of such Person in respect of (a) interest rate, commodity or currency swap agreements, interest rate, commodity or currency cap agreements, interest rate, commodity or currency collar agreements or (b) other agreements or arrangements designed to protect such Person against fluctuations in interest rates, commodity prices and/or currency exchange rates.

“Indebtedness” means and includes all obligations that constitute “Indebtedness” within the meaning of the Indenture or the Senior Credit Agreement.

“Indenture” has the meaning set forth in the recitals hereto.

“Insolvency or Liquidation Proceeding” means (a) any voluntary or involuntary case or proceeding under any Bankruptcy Law with respect to any Grantor, (b) any other voluntary or involuntary insolvency, reorganization or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding with respect to any Grantor or with respect to any of its assets, (c) any liquidation, dissolution, reorganization or winding up of any Grantor whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (d) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Grantor.

“Lien” means, with respect to any asset, any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset.

“Noteholder Claims” means all Obligations in respect of the Notes or arising under the Noteholder Documents or any of them, including all fees and expenses of the Trustee thereunder.

“Noteholder Collateral” means all of the assets of any Grantor, whether real, personal or mixed, with respect to which a Lien is granted as security for any Noteholder Claim.

“Noteholder Collateral Documents” means the Noteholder Security Agreement, the Noteholder Mortgages and any other document or instrument pursuant to which a Lien is granted by any Grantor to secure any Noteholder Claims or under which rights or remedies with respect to any such Lien are governed.

“Noteholder Documents” means (a) the Indenture, the Notes, the Noteholder Collateral Documents and (b) any other related document or instrument executed and delivered pursuant to any Noteholder Document described in clause (a) above evidencing or governing any Obligations thereunder.

“Noteholder Mortgages” means a collective reference to each mortgage, deed of trust and any other document or instrument under which any Lien on real property owned by any Grantor is granted to secure any Noteholder Claims or under which rights or remedies with respect o any such Liens are governed.

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“Noteholder Security Agreement” means the Collateral Agreement dated as of April 23, 2004, among the Company, certain other domestic Grantors and the Trustee.

“Noteholders” means the Persons holding Noteholder Claims.

“Notes” means (a) the initial $125.0 million in aggregate principal amount of second-priority senior secured floating rate notes due 2009 to be issued by the Company pursuant to the Indenture, (b) the exchange notes issued in exchange therefor as contemplated by the Registration Rights Agreement dated as of April 23, 2004, among the Company, certain Subsidiaries of the Company and the initial purchasers party thereto and (c) any additional notes issued under the Indenture by the Company, to the extent permitted by the Indenture and the Credit Agreement.

“Obligations” means, with respect to any Indebtedness, any and all obligations, whether now owing or hereafter arising, with respect to the payment of (a) any principal of or interest (including interest accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for post-filing interest is allowed in such proceeding) or premium on any Indebtedness, including any reimbursement obligation in respect of any letter of credit, (b) any fees, indemnification obligations, expense reimbursement obligations or other liabilities payable under the documentation governing such Indebtedness, (c) any obligation to post cash collateral in respect of letters of credit and any other obligations and (d) any Cash Management Obligations or Hedging Obligations owing to any of the Senior Lenders or any affiliates thereof.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, entity or other party, including any government and any political subdivision, agency or instrumentality thereof.

“Pledged Collateral” means (a) the Common Collateral in the possession of the Credit Agent (or its agents or bailees), to the extent that possession thereof is necessary to perfect a Lien thereon under the Uniform Commercial Code and (b) the “Pledged Collateral” under, and as defined in, the Noteholder Security Agreement that is Common Collateral.

“Recovery” has the meaning set forth in Section 6.4.

“Required Lenders” means, with respect to any Senior Credit Agreement, those Senior Lenders the approval of which is required to approve an amendment or modification of, termination or waiver of any provision of or consent or departure from the Senior Credit Agreement (or would be required to effect such consent under this Agreement if such consent were treated as an amendment of the Senior Credit Agreement).

“Securities Account” has the meaning set forth in the Uniform Commercial Code.

“Senior Collateral Documents” means the Credit Agreement and any other agreement, document or instrument pursuant to which a Lien is now or hereafter granted securing any Senior Lender Claims or under which rights or remedies with respect to such Liens are at any time governed.

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“Senior Credit Agreement” means the Credit Agreement and any other agreement governing Future First-Lien Indebtedness.

“Senior Lender Cash Management Obligations” means any Cash Management Obligations secured by any Common Collateral under the Senior Collateral Documents.

“Senior Lender Claims” means (a) all First-Lien Indebtedness outstanding, including any Future First-Lien Indebtedness and (b) all other Obligations (not constituting Indebtedness under any such First-Lien Indebtedness), including all Senior Lender Hedging Obligations and Senior Lender Cash Management Obligations. Senior Lender Claims shall include all interest and expenses accrued or accruing (or that would, absent the commencement of an Insolvency or Liquidation Proceeding, accrue) after the commencement of an Insolvency or Liquidation Proceeding in accordance with and at the rate specified in the relevant Senior Lender Document whether or not the claim for such interest or expenses is allowed as a claim in such Insolvency or Liquidation Proceeding.

“Senior Lender Collateral” means all of the assets of any Grantor, whether real, personal or mixed, with respect to which a Lien is granted as security for any Senior Lender Claim.

“Senior Lender Documents” means the Senior Credit Agreement, the Senior Collateral Documents and each of the other agreements, documents and instruments (including each agreement, document or instrument providing for or evidencing a Senior Lender Hedging Obligation or Senior Lender Cash Management Obligation) providing for, evidencing or securing any Obligation under the Credit Agreement or any Future First-Lien Indebtedness and any other related document or instrument executed or delivered pursuant to any Senior Lender Document at any time or otherwise evidencing or securing any Indebtedness arising under any Senior Lender Document.

“Senior Lender Hedging Obligations” means any Hedging Obligations secured by any Common Collateral under the Senior Collateral Documents.

“Senior Lenders” means the Persons holding Senior Lender Claims, including the Credit Agent.

“Subsidiary” means any “Subsidiary” of the Company as defined in the Indenture.

“Trustee” means Deutsche Bank National Trust Company, in its capacity as trustee under the Indenture and collateral agent under the Noteholder Collateral Documents, and its permitted successors.

“Uniform Commercial Code” or “UCC” means the Uniform Commercial Code as from time to time in effect in the State of New York.

(b) Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without

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limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified in accordance with this Agreement, (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Sections shall be construed to refer to Sections of this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

Section 2. Lien Priorities.

2.1 Subordination. Notwithstanding the date, time, manner or order of filing or recordation of any document or instrument or grant, attachment or perfection of any Liens granted to the Trustee or the Noteholders on the Common Collateral or of any Liens granted to the Credit Agent or the Senior Lenders on the Common Collateral and notwithstanding any provision of the UCC, or any applicable law or the Noteholder Documents or the Senior Lender Documents or any other circumstance whatsoever, the Trustee, on behalf of itself and the Noteholders, hereby agrees that: (a) any Lien on the Common Collateral securing any Senior Lender Claims now or hereafter held by or on behalf of the Credit Agent or any Senior Lenders or any agent or trustee therefor regardless of how acquired, whether by grant, statute, operation of law, subrogation or otherwise, shall have priority over and be senior in all respects and prior to any Lien on the Common Collateral securing any of the Noteholder Claims and (b) any Lien on the Common Collateral securing any Noteholder Claims now or hereafter held by or on behalf of the Trustee or any Noteholders or any agent or trustee therefor regardless of how acquired, whether by grant, statute, operation of law, subrogation or otherwise, shall be junior and subordinate in all respects to all Liens on the Common Collateral securing any Senior Lender Claims. All Liens on the Common Collateral securing any Senior Lender Claims shall be and remain senior in all respects and prior to all Liens on the Common Collateral securing any Noteholder Claims for all purposes, whether or not such Liens securing any Senior Lender Claims are subordinated to any Lien securing any other obligation of the Company, any other Grantor or any other Person.

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2.2 Prohibition on Contesting Liens. Each of the Trustee, for itself and on behalf of each Noteholder, and the Credit Agent, for itself and on behalf of each Senior Lender, agrees that it shall not (and hereby waives any right to) contest or support any other Person in contesting, in any proceeding (including any Insolvency or Liquidation Proceeding), the validity, perfection, priority, validity or enforceability of (a) a Lien securing any Senior Lender Claims held (or purported to be held) by or on behalf of the Credit Agent or any of the Senior Lenders in any Senior Lender Collateral or (b) a Lien securing any Noteholder Claims held (or purported to be held) by or on behalf of any of the Noteholders in the Common Collateral, as the case may be; provided, however, that nothing in this Agreement shall be construed to prevent or impair the rights of the Credit Agent or any Senior Lender to enforce this Agreement, including the priority of the Liens securing the Senior Lender Claims as provided in Section 2.1.

2.3 No New Liens. Subject to Section 11.03 of the Indenture, so long as the Discharge of Senior Lender Claims has not occurred, the parties hereto agree that, after the date hereof, if the Trustee shall hold any Lien on any assets of the Company or any other Grantor securing any Noteholder Claims that are not also subject to the first-priority Lien in respect of the Senior Lender Claims under the Senior Lender Documents, the Trustee, upon demand by the Credit Agent or the Company, will assign such Lien to the Credit Agent as security for the Senior Lender Claims (in which case the Trustee may retain a junior lien on such assets subject to the terms hereof).

2.4 Perfection of Liens. Neither the Credit Agent nor the Senior Lenders shall be responsible for perfecting and maintaining the perfection of Liens with respect to the Common Collateral for the benefit of the Trustee and the Noteholders. The provisions of this Intercreditor Agreement are intended solely to govern the respective Lien priorities as between the respective Senior Lenders and the Noteholders and shall not impose on the Credit Agent, the Trustee, the Noteholders or the Senior Lenders any obligations in respect of the disposition of proceeds of any Common Collateral which would conflict with prior perfected claims therein in favor of any other Person or any order or decree of any court or governmental authority or any applicable law.

Section 3. Enforcement.

3.1 Exercise of Remedies.

(a) So long as the Discharge of Senior Lender Claims has not occurred, whether or not any Insolvency or Liquidation Proceeding has been commenced by or against the Company or any other Grantor, (i) the Trustee and the Noteholders will not (x) exercise or seek to exercise any rights or remedies (including set-off) with respect to any Common Collateral in respect of any Noteholder Claims, institute any action or proceeding with respect to such rights or remedies (including any action of foreclosure), (y) contest, protest or object to any foreclosure proceeding or action brought with respect to the Common Collateral by the Credit Agent or any Senior Lender in respect of Senior Lender Claims, the exercise of any right under any lockbox agreement, control agreement, landlord waiver or bailee’s letter or similar agreement or arrangement to which the Trustee or any Noteholder either is a party or may have rights as a third party beneficiary, or any other exercise by any such party, of any rights and remedies relating to the Common Collateral under the Senior Lender Documents or otherwise in respect of

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Senior Lender Claims, or (z) object to the forbearance by the Senior Lenders from bringing or pursuing any foreclosure proceeding or action or any other exercise of any rights or remedies relating to the Common Collateral in respect of Senior Lender Claims and (ii) except as otherwise provided herein, the Credit Agent and the Senior Lenders shall have the exclusive right to enforce rights, exercise remedies (including set-off and the right to credit bid their debt) and make determinations regarding the release, disposition, or restrictions with respect to the Common Collateral without any consultation with or the consent of the Trustee or any Noteholder; provided, however, that (A) in any Insolvency or Liquidation Proceeding commenced by or against the Company, the Trustee may file a claim or statement of interest with respect to the Noteholder Claims and (B) the Trustee may take any action (not adverse to the prior Liens on the Common Collateral securing the Senior Lender Claims, or the rights of the Credit Agent or the Senior Lenders to exercise remedies in respect thereof) in order to preserve or protect the perfection and priority (vis-a-vis Persons other than the Senior Lenders) of its Lien on the Common Collateral. In exercising rights and remedies with respect to the Senior Lender Collateral, the Credit Agent and the Senior Lenders may enforce the provisions of the Senior Lender Documents and exercise remedies thereunder, all in such order and in such manner as they may determine in the exercise of their sole discretion. Such exercise and enforcement shall include the rights of an agent appointed by them to sell or otherwise dispose of Common Collateral upon foreclosure, to incur expenses in connection with such sale or disposition, and to exercise all the rights and remedies of a secured lender under the Uniform Commercial Code of any applicable jurisdiction and of a secured creditor under Bankruptcy Laws of any applicable jurisdiction.

(b) So long as the Discharge of Senior Lender Claims has not occurred, the Trustee, on behalf of itself and the Noteholders, agrees that it will not, in the context of its role as secured creditor, take or receive any Common Collateral or any proceeds of Common Collateral in connection with the exercise of any right or remedy (including set-off) with respect to any Common Collateral in respect of Noteholder Claims. Without limiting the generality of the foregoing, unless and until the Discharge of Senior Lender Claims has occurred, except as expressly provided in the proviso in clause (ii) of Section 3.1 (a), the sole right of the Trustee and the Noteholders with respect to the Common Collateral is to hold a Lien on the Common Collateral in respect of Noteholder Claims pursuant to the Noteholder Documents for the period and to the extent granted therein and to receive a share of the proceeds thereof, if any, after the Discharge of the Senior Lender Claims has occurred.

(c) Subject to the proviso in clause (ii) of Section 3.l(a), (i) the Trustee, for itself and on behalf of the Noteholders, agrees that the Trustee and the Noteholders will not take any action that would hinder any exercise of remedies undertaken by the Credit Agent or the Senior Lenders with respect to the Common Collateral under the Senior Loan Documents, including any sale, lease, exchange, transfer or other disposition of the Common Collateral, whether by foreclosure or otherwise, and (ii) the Trustee, for itself and on behalf of the Noteholders, hereby waives any and all rights it or the Noteholders may have as a junior lien creditor or otherwise to object to the manner in which the Credit Agent or the Senior Lenders seek to enforce or collect the Senior Lender Claims or the Liens granted in any of the Common Collateral in respect of Senior Lender Claims, regardless of whether any action or failure to act by or on behalf of the Credit Agent or Senior Lenders is adverse to the interest of the Noteholders.

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(d) The Trustee hereby acknowledges and agrees that no covenant, agreement or restriction contained in any Noteholder Document shall be deemed to restrict in any way the rights and remedies of the Credit Agent or the Senior Lenders with respect to the Common Collateral as set forth in this Agreement and the Senior Lender Documents.

3.2 Cooperation. Subject to the proviso in clause (ii) of Section 3. l(a), the Trustee, on behalf of itself and the Noteholders, agrees that, unless and until the Discharge of Senior Lender Claims has occurred, it will not commence, or join with any Person (other than the Senior Lenders and the Credit Agent upon the request thereof) in commencing, any enforcement, collection, execution, levy or foreclosure action or proceeding with respect to any Lien held by it in the Common Collateral under any of the Noteholder Documents or otherwise in respect of the Noteholder Claims.

Section 4. Payments.

4.1 Application of Proceeds. After an event of default under the First-Lien Indebtedness has occurred with respect to which the Credit Agent has provided written notice to the Trustee, and until such event of default is cured or waived, so long as the Discharge of Senior Lender Claims has not occurred, the Common Collateral or proceeds thereof received in connection with the sale or other disposition of, or collection on, such Common Collateral upon the exercise of remedies, shall be applied by the Credit Agent to the Senior Lender Claims in such order as specified in the relevant Senior Lender Documents until the Discharge of Senior Lender Claims has occurred. Upon the Discharge of the Senior Lender Claims, the Credit Agent shall deliver promptly to the Trustee any proceeds of Common Collateral held by it in the same form as received, with any necessary endorsements or as a court of competent jurisdiction may otherwise direct to be applied by the Trustee to the Noteholder Claims in such order as specified in the relevant Noteholder Documents.

4.2 Payments Over. Any Common Collateral or proceeds thereof received by the Trustee or any Noteholder in connection with the exercise of any right or remedy (including set-off) relating to the Common Collateral in contravention of this Agreement shall be segregated and held for the benefit of and forthwith paid over to the Credit Agent for the benefit of the Senior Lenders in the same form as received, with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. The Credit Agent is hereby authorized to make any such endorsements as agent for the Trustee or any such Noteholder. This authorization is coupled with an interest and is irrevocable.

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Section 5. Other Agreements.

5.1 Releases.

(a) If, at any time any Grantor or the holder of any Senior Lender Claim delivers notice to the Trustee that any specified Common Collateral (including, without limitation all or substantially all of the equity interests of a Grantor or any of its Subsidiaries) is sold, transferred or otherwise disposed of:

(i) by the owner of such Common Collateral in a transaction permitted under the Senior Credit Agreement and the Indenture; or

(ii) during the existence of any Event of Default under (and as defined in) the Senior Credit Agreement to the extent the Credit Agent has consented to such sale, transfer or disposition:

then (whether or not any Insolvency or Liquidation Proceeding is pending at the time) the Liens in favor of the Trustee upon such Collateral will automatically be released and discharged as and when and to the extent such Liens on such Collateral securing Senior Lender Claims are released and discharged. Upon delivery to the Trustee of a notice from the Credit Agent stating that any release of Liens securing or supporting the Senior Lender Claims has become effective, the Trustee will promptly execute and deliver such instruments, releases, termination statement or other documents confirming such release on customary terms. In the case of the sale of all or substantially all of the capital stock of a Grantor or any of its Subsidiaries, the guarantee in favor of the Noteholders, if any, made by such Grantor or Subsidiary will automatically be released and discharged as and when, but only to the extent the guarantee by such Grantor or Subsidiary of Senior Lender Claims is released and discharged.

(b) The Trustee, for itself and on behalf of the Noteholders, hereby irrevocably constitutes and appoints the Credit Agent and any officer or agent of the Credit Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Trustee or such holder or in the Credit Agent’s own name, from time to time in the Credit Agent’s discretion, for the purpose of carrying out the terms of this Section 5.1, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Section 5.1, including any termination statements, endorsements or other instruments of transfer or release.

(c) Unless and until the Discharge of Senior Lender Claims has occurred, the Trustee, for itself and on behalf of the Noteholders, hereby consents to the application, whether prior to or after default, of Deposit Account Collateral or proceeds of Common Collateral to the repayment of Senior Lender Claims pursuant to the Senior Credit Agreement; provided that nothing in this Section 5.1(c) shall be construed to prevent or impair the rights of the Trustee or the Noteholders to receive proceeds in connection with the Noteholder Claims not otherwise in contravention of this agreement.

5.2 Insurance. Unless and until the Discharge of Senior Lender Claims has occurred, the Credit Agent and the Senior Lenders shall have the sole and exclusive right, subject

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to the rights of the Grantors under the Senior Lender Documents, to adjust settlement for any insurance policy covering the Common Collateral in the event of any loss thereunder and to approve any award granted in any condemnation or similar proceeding affecting the Common Collateral. Unless and until the Discharge of Senior Lender Claims has occurred, all proceeds of any such policy and any such award if in respect of the Common Collateral shall be paid to the Credit Agent for the benefit of the Senior Lenders to the extent required under the Senior Lender Documents in respect of the Senior Lender Claims and thereafter to the Trustee for the benefit of the Noteholders to the extent required under the applicable Noteholder Documents and then to the owner of the subject property or as a court of competent jurisdiction may otherwise direct. If the Trustee or any Noteholder shall, at any time, receive any proceeds of any such insurance policy or any such award in contravention of this Agreement, it shall pay such proceeds over to the Credit Agent in accordance with the terms of Section 4.2.

5.3 Amendments to Noteholder Collateral Documents.

(a) Without the prior written consent of the Credit Agent and the Required Lenders, no Noteholder Collateral Document may be amended, supplemented or otherwise modified or entered into to the extent such amendment, supplement or modification, or the terms of any new Noteholder Collateral Document, would be prohibited by or inconsistent with any of the terms of this Agreement. The Trustee agrees that each Noteholder Collateral Document shall include the following language (or language to similar effect approved by the Credit Agent):

“Notwithstanding anything herein to the contrary, (i) the liens and security interests granted to the Trustee pursuant to this Agreement are expressly subject and subordinate to the liens and security interests granted to Congress Financial Corporation (Central), as agent, for the benefit of the lenders referred to below, pursuant to the Second Amended and Restated Loan and Security Agreement, dated as of April 23, 2004 (as restated, amended, modified or supplemented) by and among Delco Remy International, Inc., the other “Borrowers” named therein, Congress Financial Corporation (Central), as Administrative Agent and US Collateral Agent, and the lenders party thereto and (ii) the exercise of any right or remedy by the Trustee hereunder is subject to the limitations and provisions of the Intercreditor Agreement, dated as of April 23, 2004 (as amended, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), by and among Congress Financial Corporation Central (Central), as Credit Agent, Deutsche Bank National Trust Company, as Trustee, Delco Remy International, Inc. and the subsidiary guarantors party thereto. In the event of any conflict between the terms of the Intercreditor Agreement and the terms of this Agreement, the terms of the Intercreditor Agreement shall govern.”

(b) In the event that the Credit Agent or the Senior Lenders enter into any amendment, waiver or consent in respect of any of the Senior Collateral Documents for the purpose of adding to, or deleting from, or waiving or consenting to any departures from any provisions of, any Senior Collateral Document or changing in any manner the rights of the Credit Agent, the Senior Lenders, the Company or any other Grantor thereunder (including, without limitation, the release of any Liens in Senior Lender Collateral), then such amendment, waiver or consent shall apply automatically to any comparable provision of the Comparable Noteholder Collateral Document without the consent of the Trustee or the Noteholders and without any

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action by the Trustee or the Company; provided, however, that (A) if any such amendment, waiver or consent could reasonably be expected to be adverse to the Noteholders or the interest of the Noteholders in the Noteholder Collateral, such amendment, waiver or consent shall not apply to any Noteholder Collateral Document unless, at the time of such amendment, waiver or consent, Bank Indebtedness (as defined in the Indenture) (including commitments in respect thereof to the extent that such commitments are subject only to borrowing base requirements or other reasonable and customary funding conditions and are then available to be funded at the election of the Company) of no less than $35.0 million (after giving effect to all borrowing base calculations, as reasonably determined by the Credit Agent) is then outstanding and (B) written notice of such amendment, waiver or consent shall have been given to the Trustee. Notwithstanding the foregoing, no such amendment, waiver or consent shall have the effect of releasing assets subject to the Lien of the Noteholder Collateral Document, except to the extent that a release of such Lien is permitted by Section 11.03 of the Indenture.

5.4 Rights As Unsecured Creditors. Notwithstanding anything to the contrary in this Agreement, the Trustee and the Noteholders may exercise rights and remedies as an unsecured creditor against the Company or any Subsidiary that has guaranteed the Noteholder Claims in accordance with the terms of the Noteholder Documents and applicable law. Nothing in this Agreement shall prohibit the receipt by the Trustee or any Noteholders of the required payments of interest and principal so long as such receipt is not the direct or indirect result of the exercise by the Trustee or any Noteholder of rights or remedies as a secured creditor in respect of Common Collateral or enforcement in contravention of this Agreement of any Lien in respect of Noteholder Claims held by any of them. In the event the Trustee or any Noteholder becomes a judgment lien creditor in respect of Common Collateral as a result of its enforcement of its rights as an unsecured creditor in respect of Noteholder Claims, such judgment lien shall be subordinated to the Liens securing Senior Lender Claims on the same basis as the other Liens securing the Noteholder Claims are so subordinated to such Liens securing Senior Lender Claims under this Agreement. Nothing in this Agreement impairs or otherwise adversely affects any rights or remedies the Credit Agent or the Senior Lenders may have with respect to the Senior Lender Collateral.

5.5 Bailee for Perfection.

(a) The Credit Agent agrees to hold the Pledged Collateral that is part of the Common Collateral in its possession or control (or in the possession or control of its agents or bailees) as bailee for the Trustee and any assignee solely for the purpose of perfecting the security interest granted in such Pledged Collateral pursuant to the Noteholder Security Agreement, subject to the terms and conditions of this Section 5.5.

(b) The Credit Agent agrees to hold the Deposit Account Collateral that is part of the Common Collateral and controlled by the Credit Agent for the Trustee and any assignee solely for the purpose of perfecting the security interest granted in such Deposit Account Collateral pursuant to the Noteholder Security Agreement, subject to the terms and conditions of this Section 5.5.

(c) Except as otherwise specifically provided herein (including, without limitation, Sections 3.1 and 4.1), until the Discharge of Senior Lender Claims has occurred, the

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Credit Agent shall be entitled to deal with the Pledged Collateral in accordance with the terms of the Senior Lender Documents as if the Liens under the Noteholder Collateral Documents did not exist. The rights of the Trustee and the Noteholders with respect to such Pledged Collateral shall at all times be subject to the terms of this Agreement.

(d) The Credit Agent shall have no obligation whatsoever to the Trustee or any Noteholder to assure that the Pledged Collateral is genuine or owned by the Grantors or to protect or preserve rights or benefits of any Person or any rights pertaining to the Common Collateral except as expressly set forth in this Section 5.5. The duties or responsibilities of the Credit Agent under this Section 5.5 shall be limited solely to holding the Pledged Collateral as bailee for the Trustee for purposes of perfecting the Lien held by the Trustee.

(e) The Credit Agent shall not have by reason of the Noteholder Collateral Documents or this Agreement or any other document a fiduciary relationship in respect of the Trustee or any Noteholder and the Trustee and the Noteholders hereby waive and release the Credit Agent from all claims and liabilities arising pursuant to the Credit Agent’s role under this Section 5.5, as agent and bailee with respect to the Common Collateral.

(f) Upon the Discharge of Senior Lender Claims, the Credit Agent shall deliver to the Trustee, to the extent that it is legally permitted to do so, the remaining Pledged Collateral (if any) and the Deposit Account Collateral (if any) together with any necessary endorsements (or otherwise allow the Trustee to obtain control of such Pledged Collateral and Deposit Account Collateral) or as a court of competent jurisdiction may otherwise direct. The Company shall take such further action as is required to effectuate the transfer contemplated hereto and shall indemnify the Credit Agent for loss or damage suffered by the Credit Agent as a result of such transfer except for loss or damage suffered by the Credit Agent as a result of its own wilful misconduct or bad faith. The Credit Agent has no obligation to follow instructions from the Trustee in contravention of this Agreement.

(g) Neither the Credit Agent nor the Senior Lenders shall be required to marshal any present or future collateral security for the Company’s or its Subsidiaries’ obligations to the Credit Agent or the Senior Lenders under the Senior Credit Agreement or the Senior Collateral Documents or to resort to such collateral security or other assurances of payment in any particular order, and all of their rights in respect of such collateral security shall be cumulative and in addition to all other rights, however existing or arising.

5.6 When Discharge of Senior Lender Claims Deemed to Not Have Occurred. If at any time after the Discharge of Senior Lender Claims has occurred the Company incurs and designates any Future First-Lien Indebtedness, then such Discharge of Senior Lender Claims shall automatically be deemed not to have occurred for all purposes of this Agreement (other than with respect to any actions taken prior to the date of such designation as a result of the occurrence of such first Discharge of Senior Lender Claims), and the applicable agreement governing such Future First-Lien Indebtedness shall automatically be treated as the Senior Credit Agreement for all purposes of this Agreement, including for purposes of the Lien priorities and rights in respect of Common Collateral set forth herein. Upon receipt of notice of such designation (including the identity of the new Credit Agent), the Trustee shall promptly (i) enter into such documents and agreements (at the expense of the Company), including amendments or

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supplements to this Agreement, as the Company or such new Credit Agent shall reasonably request in writing in order to provide the new Credit Agent the rights of the Credit Agent contemplated hereby and (ii) deliver to the Credit Agent the Pledged Collateral that is Common Collateral together with any necessary endorsements (or otherwise allow such Credit Agent to obtain control of such Pledged Collateral).

Section 6. Insolvency or Liquidation Proceedings.

6.1 Financing Issues. If the Company or any other Grantor shall be subject to any Insolvency or Liquidation Proceeding and the Credit Agent shall desire to permit the use of cash collateral or to permit the Company or any other Grantor to obtain financing under Section 363 or Section 364 of Title 11 of the United States Code or any similar provision in any Bankruptcy Law (“DIP Financing”), then the Trustee, on behalf of itself and the Noteholders, agrees that it will raise no (a) objection to such use of cash collateral or DIP Financing and will not request adequate protection or any other relief in connection therewith (except to the extent permitted by the proviso in clause (ii) of Section 3.1(a) and Section 6.3) and, to the extent the Liens securing the Senior Lender Claims under the Senior Credit Agreement or, if no Senior Credit Agreement exists, under the other Senior Lender Documents are subordinated or pari passu with such DIP Financing, will subordinate its Liens in the Common Collateral to such DIP Financing (and all Obligations relating thereto) on the same basis as the other Liens securing the Noteholder Claims are so subordinated to Liens securing Senior Lender Claims under this Agreement, (b) objection and will not otherwise contest any motion for relief from the automatic stay or from any injunction against foreclosure or enforcement in respect of Senior Lender Claims made by Credit Agent or any holder of Senior Lender Claims, (c) objection and will not otherwise contest any lawful exercise by any holder of Senior Lender Claims of the right to credit bid Senior Lender Claims at any sale in foreclosure of Senior Lender Collateral, (d) objection or otherwise contest any other request for judicial relief made in any court by any holder of Senior Lender Claims relating to the lawful enforcement of any Lien on Senior Lender Collateral or (e) objection or otherwise contest any order relating to a sale of assets of any Grantor for which the Credit Agent has consented that provides, to the extent the sale is to be free and clear of Liens, that the Liens securing the Senior Lender Claims and the Noteholder Claims will attach to the proceeds of the sale on the same basis of priority as the Liens securing the Senior Lender Collateral rank to the Liens securing the Noteholder Collateral in accordance with this Agreement.

6.2 Relief from the Automatic Stay. Until the Discharge of Senior Lender Claims has occurred, the Trustee, on behalf of itself and the Noteholders, agrees that none of them shall seek relief from the automatic stay or any other stay in any Insolvency or Liquidation Proceeding in respect of the Common Collateral, without the prior written consent of the Credit Agent and the Required Lenders.

6.3 Adequate Protection. The Trustee, on behalf of itself and the Noteholders, agrees that none of them shall contest (or support any other Person contesting) (a) any request by the Credit Agent or the Senior Lenders for adequate protection or (b) any objection by the Credit Agent or the Senior Lenders to any motion, relief, action or proceeding based on the Credit Agent’s or the Senior Lenders’ claiming a lack of adequate protection. Notwithstanding the foregoing, in any Insolvency or Liquidation Proceeding, (i) if the Senior Lenders (or any subset

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thereof) are granted adequate protection in the form of additional collateral in connection with any DIP Financing or use of cash collateral under Section 363 or Section 364 of Title 11 of the United States Code or any similar Bankruptcy Law, then the Trustee, on behalf of itself and any of the Noteholders, may seek or request adequate protection in the form of a replacement Lien on such additional collateral, which Lien is subordinated to the Liens securing the Senior Lender Claims and such DIP Financing (and all Obligations relating thereto) on the same basis as the other Liens securing the Noteholder Claims are so subordinated to the Liens securing Senior Lender Claims under this Agreement and (ii) in the event the Trustee, on behalf of itself and the Noteholders, seeks or requests adequate protection and such adequate protection is granted in the form of additional collateral, then the Trustee, on behalf of itself or any of the Noteholders, agrees that the Credit Agent shall also be granted a senior Lien on such additional collateral as security for the Senior Lender Claims and any such DIP Financing and that any Lien on such additional collateral securing the Noteholder Claims shall be subordinated to the Liens on such collateral securing the Senior Lender Claims and any such DIP Financing (and all Obligations relating thereto) and any other Liens granted to the Senior Lenders as adequate protection on the same basis as the other Liens securing the Noteholder Claims are so subordinated to such Liens securing Senior Lender Claims under this Agreement.

6.4 Preference Issues. If any Senior Lender is required in any Insolvency or Liquidation Proceeding or otherwise to turn over or otherwise pay to the estate of the Company or any other Grantor (or any trustee, receiver or similar person therefor), because the payment of such amount was declared to be fraudulent or preferential in any respect or for any other reason, any amount (a “Recovery”), whether received as proceeds of security, enforcement of any right of set-off or otherwise, then the Senior Lender Claims shall be reinstated to the extent of such Recovery and deemed to be outstanding as if such payment had not occurred and the Senior Lenders shall be entitled to a Discharge of Senior Lender Claims with respect to all such recovered amounts. If this Agreement shall have been terminated prior to such Recovery, this Agreement shall be reinstated in full force and effect, and such prior termination shall not diminish, release, discharge, impair or otherwise affect the obligations of the parties hereto.

6.5 Application. This Agreement shall be applicable prior to and after the commencement of any Insolvency or Liquidation Proceeding. All references herein to any Grantor shall apply to any trustee for such Person and such Person as debtor in possession. The relative rights as to the Collateral and proceeds thereof shall continue after the filing thereof on the same basis as prior to the date of the petition, subject to any court order approving the financing of, or use of cash collateral by, any Grantor.

6.6 506(c) Claims. Until the Discharge of Senior Lender Claims, the Trustee on behalf of itself and the Noteholders will not assert or enforce any claim under § 506(c) of the United States Bankruptcy Code senior to or on a parity with the Liens securing the Senior Lender Claims for costs or expenses of preserving or disposing of any Common Collateral.

Section 7. Reliance; Waivers; etc.

7.1 Reliance. The consent by the Senior Lenders to the execution and delivery of the Noteholder Documents to which the Senior Lenders have consented and all loans and other extensions of credit made or deemed made on and after the date hereof by the Senior

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Lenders to the Company or any Subsidiary shall be deemed to have been given and made in reliance upon this Agreement. The Trustee, on behalf of itself and the Noteholders, acknowledges that it and the Noteholders have, independently and without reliance on the Credit Agent or any Senior Lender, and based on documents and information deemed by them appropriate, made their own credit analysis and decision to enter into the Indenture, this Agreement and the transactions contemplated hereby and thereby and they will continue to make their own credit decision in taking or not taking any action under the Indenture or this Agreement.

7.2 No Warranties or Liability. The Trustee, on behalf of itself and the Noteholders, acknowledges and agrees that each of the Credit Agent and the Senior Lenders have made no express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectibility or enforceability of any of the Senior Lender Documents, the ownership of any Common Collateral or the perfection or priority of any Liens thereon. The Senior Lenders will be entitled to manage and supervise their respective loans and extensions of credit under the Senior Lender Documents in accordance with law and as they may otherwise, in their sole discretion, deem appropriate, and the Senior Lenders may manage their loans and extensions of credit without regard to any rights or interests that the Trustee or any of the Noteholders have in the Common Collateral or otherwise, except as otherwise provided in this Agreement. Neither the Credit Agent nor any Senior Lender shall have any duty to the Trustee or any of the Noteholders to act or refrain from acting in a manner that allows, or results in, the occurrence or continuance of an event of default or default under any agreements with the Company or any Subsidiary thereof (including the Noteholder Documents), regardless of any knowledge thereof that they may have or be charged with. Except as expressly set forth in this Intercreditor Agreement, the Credit Agent, the Senior Lenders, the Trustee and the Noteholders have not otherwise made to each other nor do they hereby make to each other any warranties, express or implied, nor do they assume any liability to each other with respect to (a) the enforceability, validity, value or collectibility of any of the Noteholder Claims, the Senior Lender Claims or any guarantee or security which may have been granted to any of them in connection therewith, (b) the Company’s title to or right to transfer any of the Common Collateral or (c) any other matter except as expressly set forth in this Intercreditor Agreement.

7.3 Obligations Unconditional. All rights, interests, agreements and obligations of the Credit Agent and the Senior Lenders and the Trustee and the Noteholders, respectively, hereunder shall remain in full force and effect irrespective of:

(a) any lack of validity or enforceability of any Senior Lender Documents or any Noteholder Documents;

(b) any change in the time, manner or place of payment of, or in any other terms of, all or any of the Senior Lender Claims or Noteholder Claims, or any amendment or waiver or other modification, including any increase in the amount thereof, whether by course of conduct or otherwise, of the terms of the Senior Credit Agreement or any other Senior Lender Document or of the terms of the Indenture or any other Noteholder Document;

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(c) any exchange of any security interest in any Common Collateral or any other collateral, or any amendment, waiver or other modification, whether in writing or by course of conduct or otherwise, of all or any of the Senior Lender Claims or Noteholder Claims or any guarantee thereof;

(d) the commencement of any Insolvency or Liquidation Proceeding in respect of the Company or any other Grantor; or

(e) any other circumstances that otherwise might constitute a defense available to, or a discharge of, the Company or any other Grantor in respect of the Senior Lender Claims, or of the Trustee or any Noteholder in respect of this Agreement.

Section 8. Miscellaneous.

8.1 Conflicts. Subject to Section 8.19, in the event of any conflict between the provisions of this Agreement and the provisions of the Senior Lender Documents or the Noteholder Documents, the provisions of this Agreement shall govern.

8.2 Continuing Nature of this Agreement; Severability. Subject to Section 6.4 hereof, this Agreement shall continue to be effective until the Discharge of Senior Lender Claims shall have occurred. This is a continuing agreement of lien subordination and the Senior Lenders may continue, at any time and without notice to the Trustee or any Noteholder, to extend credit and other financial accommodations and lend monies to or for the benefit of the Company or any other Grantor constituting Senior Lender Claims in reliance hereon. The terms of this Agreement shall survive, and shall continue in full force and effect, in any Insolvency or Liquidation Proceeding. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

8.3 Amendments; Waivers. No amendment, modification or waiver of any of the provisions of this Agreement by the Trustee or the Credit Agent shall be deemed to be made unless the same shall be in writing signed on behalf of the party making the same or its authorized agent and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the parties making such waiver or the obligations of the other parties to such party in any other respect or at any other time. The Company and the other Grantors shall not have any right to consent to or approve any amendment, modification or waiver of any provision of this Agreement except to the extent their rights are affected.

8.4 Information Concerning Financial Condition of the Company and the Subsidiaries. The Credit Agent, the Senior Lenders, the Trustee and the Noteholders, shall each be responsible for keeping themselves informed of (a) the financial condition of the Company and the Subsidiaries and all endorsers and/or guarantors of the Noteholder Claims or the Senior Lender Claims and (b) all other circumstances bearing upon the risk of nonpayment of the Noteholder Claims or the Senior Lender Claims. The Credit Agent, the Senior Lenders, the Trustee and the Noteholders shall have no duty to advise any other party hereunder of

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information known to it or them regarding such condition or any such circumstances or otherwise. In the event that the Credit Agent, any of the Senior Lenders, the Trustee, or any of the Noteholders, in its or their sole discretion, undertakes at any time or from time to time to provide any such information to any other party, it or they shall be under no obligation (w) to make, and the Credit Agent, the Senior Lenders, the Trustee and the Noteholders shall not make, any express or implied representation or warranty, including with respect to the accuracy, completeness, truthfulness or validity of any such information so provided, (x) to provide any additional information or to provide any such information on any subsequent occasion, (y) to undertake any investigation or (z) to disclose any information that, pursuant to accepted or reasonable commercial finance practices, such party wishes to maintain confidential or is otherwise required to maintain confidential.

8.5 Subrogation. The Trustee, on behalf of itself and the Noteholders, hereby waives any rights of subrogation it may acquire as a result of any payment hereunder until the Discharge of Senior Lender Claims has occurred.

8.6 Application of Payments. Except as otherwise provided herein, all payments received by the Senior Lenders may be applied, reversed and reapplied, in whole or in part, to such part of the Senior Lender Claims as the Senior Lenders, in their sole discretion, deem appropriate, consistent with the terms of the Senior Lender Documents. Except as otherwise provided herein, the Trustee, on behalf of itself and the Noteholders, assents to any such extension or postponement of the time of payment of the Senior Lender Claims or any part thereof and to any other indulgence with respect thereto, to any substitution, exchange or release of any security that may at any time secure any part of the Senior Lender Claims and to the addition or release of any other Person primarily or secondarily liable therefor.

8.7 Consent to Jurisdiction; Waivers. The parties hereto consent to the jurisdiction of any state or federal court located in New York, New York, and consent that all service of process may be made by registered mail directed to such party as provided in Section 8.8 for such party. Service so made shall be deemed to be completed three days after the same shall be posted as aforesaid. The parties hereto waive any objection to any action instituted hereunder in any such court based on forum non conveniens, and any objection to the venue of any action instituted hereunder in any such court. Each of the parties hereto waives any right it may have to trial by jury in respect of any litigation based on, or arising out of, under or in connection with this Agreement, or any course of conduct, course of dealing, verbal or written statement or action of any party hereto in connection with the subject matter hereof.

8.8 Notices. All notices to the Noteholders and the Senior Lenders permitted or required under this Agreement may be sent to the Trustee and the Credit Agent, respectively. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, electronically mailed or sent by courier service or U.S. mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or electronic mail or upon receipt via U.S. mail (registered or certified, with postage prepaid and properly addressed). For the purposes hereof, the addresses of the parties hereto shall be as set forth below each party’s name on the signature pages hereto, or, as to each party, at such other address as may be designated by such party in a written notice to all of the other parties. The Credit

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Agent hereby agrees to deliver the notice contemplated in Section 11.09 of the Indenture to the Trustee promptly upon payment in full in cash of all Indebtedness under the Credit Agreement.

8.9 Further Assurances. Each of the Trustee, on behalf of itself and the Noteholders, and the Credit Agent, on behalf of itself and the Senior Lenders, agrees that each of them shall take such further action and shall execute and deliver to the Credit Agent and the Senior Lenders such additional documents and instruments (in recordable form, if requested) as the Credit Agent or the Senior Lenders may reasonably request to effectuate the terms of and the lien priorities contemplated by this Agreement.

8.10 Governing Law. This Agreement has been delivered and accepted at and shall be deemed to have been made at New York, New York and shall be interpreted, and the rights and liabilities of the parties bound hereby determined, in accordance with the laws of the State of New York.

8.11 Binding on Successors and Assigns. This Agreement shall be binding upon the Credit Agent, the Senior Lenders, the Trustee, the Noteholders, the Company, the Company’s Subsidiaries party hereto and their respective permitted successors and assigns.

8.12 Specific Performance. The Credit Agent may demand specific performance of this Agreement. The Trustee, on behalf of itself and the Noteholders, hereby irrevocably waives any defense based on the adequacy of a remedy at law and any other defense that might be asserted to bar the remedy of specific performance in any action that may be brought by the Credit Agent.

8.13 Section Titles. The section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Agreement.

8.14 Counterparts. This Agreement may be executed in one or more counterparts, including by means of facsimile, each of which shall be an original and all of which shall together constitute one and the same document.

8.15 Authorization. By its signature, each Person executing this Agreement on behalf of a party hereto represents and warrants to the other parties hereto that it is duly authorized to execute this Agreement. The Credit Agent represents and warrants that this Agreement is binding upon the Lenders. The Trustee represents and warrants that this Agreement is binding upon the Noteholders.

8.16 No Third Party Beneficiaries; Successors and Assigns. This Agreement and the rights and benefits hereof shall inure to the benefit of, and be binding upon, each of the parties hereto and their respective successors and assigns and shall inure to the benefit of each of, and be binding upon, the holders of Senior Lender Claims and Noteholder Claims. No other Person shall have or be entitled to assert rights or benefits hereunder.

8.17 Effectiveness. This Agreement shall become effective when executed and delivered by the parties hereto. This Agreement shall be effective both before and after the commencement of any Insolvency or Liquidation Proceeding. All references to the Company or

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any other Grantor shall include the Company or any other Grantor as debtor and debtor-in-possession and any receiver or trustee for the Company or any other Grantor (as the case may be) in any Insolvency or Liquidation Proceeding.

8.18 Credit Agent and Trustee. It is understood and agreed that (a) Congress is entering into this Agreement in its capacity as administrative agent and the provisions of Section 12 of the Credit Agreement applicable to Congress as administrative agent thereunder shall also apply to Congress as Credit Agent hereunder and (b) Deutsche Bank National Trust Company is entering in this Agreement in its capacity as Trustee and the provisions of Article 7 of the Indenture applicable to the Trustee thereunder shall also apply to the Trustee hereunder.

8.19 Relative Rights. Notwithstanding anything in this Agreement to the contrary, nothing in this Agreement is intended to or will (a) amend, waive or otherwise modify the provisions of the Senior Credit Agreement or the Indenture or any other Senior Lender Documents or Noteholder Documents entered into in connection with the Senior Credit Agreement or the Indenture or permit the Company or any Subsidiary to take any action, or fail to take any action, to the extent such action or failure would otherwise constitute a breach of, or default under, the Senior Credit Agreement or any other Senior Lender Documents entered into in connection with the Senior Credit Agreement or the Indenture or any other Noteholder Documents entered into in connection with the Indenture, (b) change the relative priorities of the Senior Lender Claims or the Liens granted under the Senior Lender Documents on the Common Collateral (or any other assets) as among the Senior Lenders, (c) otherwise change the relative rights of the Senior Lenders in respect of the Common Collateral as among such Senior Lenders or (d) obligate the Company or any Subsidiary to take any action, or fail to take any action, that would otherwise constitute a breach of, or default under, the Senior Credit Agreement or any other Senior Lender Document entered into in connection with the Senior Credit Agreement or the Indenture or any other Noteholder Documents entered into in connection with the Indenture.

8.20 Indenture Reference. Notwithstanding anything to the contrary in this Agreement, any references contained herein to any Section, clause, paragraph, definition or other provision of the Indenture (including any definition contained therein) shall be deemed to be a reference to such Section, clause, paragraph, definition or other provision as in effect on the date of this Agreement; provided that any reference to any such Section, clause, paragraph or other provision shall refer to such Section, clause, paragraph or other provision of the Indenture (including any definition contained therein) as amended or modified from time to time if such amendment or modification has been (1) made in accordance with the Indenture and (2) approved in writing by, or on behalf of, the requisite holders of Senior Lender Claims as are needed under the terms of the Senior Credit Agreement to approve such amendment or modification.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

CREDIT AGENT: CONGRESS FINANCIAL CORPORATION (CENTRAL),
By:	/s/ Anthony Vizgirda
	Name:	ANTHONY VIZGIRDA
	Title:	First Vice President
	Address:	Congress Financial Corporation (Central) 150 S. Wacker Drive, Suite 2200 Chicago, IL 60606

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

TRUSTEE: DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee,
By:	/s/ Safet Kalabovic
	Name:	Safet Kalabovic
	Title:	Vice President
	Address:
COLLATERAL AGENT: DEUTSCHE BANK NATIONAL TRUST COMPANY, as Collateral Agent,
By:	/s/ Safet Kalabovic
	Name:	Safet Kalabovic
	Title:	Vice President
	Address:

The foregoing Intercreditor Agreement is hereby confirmed and accepted as of the date first above written.

DELCO REMY INTERNATIONAL, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
	Address:
DELCO REMY AMERICA, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President & Secretary
NABCO, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
POWER INVESTMENTS, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
FRANKLIN POWER PRODUCTS, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
INTERNATIONAL FUEL SYSTEMS, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary

POWER INVESTMENTS MARINE, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Treasurer & Secretary

MARINE CORPORATION OF AMERICA,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Treasurer & Secretary

POWRBILT PRODUCTS, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary

WORLD WIDE AUTOMOTIVE, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary

BALLANTRAE CORPORATION,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary

WILLIAMS TECHNOLOGIES, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary

REMY POWERTRAIN, L.P.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Finance & Secretary

M & M KNOPF AUTO PARTS, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
REMAN HOLDINGS, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
REMY INTERNATIONAL, INC.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary
JAX REMAN, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Assistant Secretary
REMY REMAN, L.L.C.,
By:	/s/ David E. Stoll
	Name:	David E. Stoll
	Title:	Vice President, Treasurer & Secretary

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, John H. Weber, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Remy International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether, or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 11, 2006	/s/ John H. Weber
	John H. Weber
	President and Chief Executive Officer

1

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Rajesh K. Shah, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Remy International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether, or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 11, 2006	/s/ Rajesh K. Shah
	Rajesh K. Shah
	Executive Vice President and
	Interim Chief Financial Officer

1

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Remy International, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John H. Weber, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.

/s/ John H. Weber

John H. Weber

President and

Chief Executive Officer

May 11, 2006

A signed original of this written statement required by Section 906 has been provided to Remy International, Inc. and will be retained by Remy International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Remy International, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rajesh K. Shah, Executive Vice President and Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.

/s/ Rajesh K. Shah

Rajesh K. Shah

Executive Vice President and

Interim Chief Financial Officer

May 11, 2006

A signed original of this written statement required by Section 906 has been provided to Remy International, Inc. and will be retained by Remy International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.