<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
September 20, 1999
Date of Report (Date of earliest event reported)
MSX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 333-49821 38-3323099
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
275 REX BOULEVARD AUBURN HILLS, MICHIGAN
(Address of principal executive offices)
48326
(Zip Code)
(248) 299-1000
(Registrant's telephone number, including area code)
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<PAGE> 2
ITEM 2.ACQUISITION OR DISPOSITION OF ASSETS
Effective September 17, 1999, we acquired 100% of the outstanding common
stock of Chelsea Computer Consultants, Inc. ("Chelsea") from Staff Builders,
Inc. for about $20 million in cash. The acquisition was financed with borrowings
under our credit facility. Chelsea is a leading provider of information
technology professionals in the areas of application development, networking,
database design, enterprise and data modeling and hardware engineering. Chelsea
is headquartered in New York, New York and provides consulting and technical
staff augmentation services to customers in the financial services,
communications and manufacturing industries throughout North America.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial Statements:
Chelsea Computer Consultants, Inc. audited financial statements
as of and for the year ended June 30, 1998.......................4
Chelsea Computer Consultants, Inc. unaudited financial statements
as of and for the year ended June 30, 1999......................14
(b) Pro Forma Consolidated Financial Data:
MSX International, Inc. pro forma financial data..................19
(c) Exhibits:
Purchase Agreement............................................ ...27
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<PAGE> 3
SIGNATURE
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 hereunder duly authorized.
Dated: October 26, 1999
MSX INTERNATIONAL, INC.
By: /s/Frederick K. Minturn
----------------------------
Frederick K. Minturn
Executive Vice President, Chief Financial Officer
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<PAGE> 4
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT 5
FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1998:
Consolidated Balance Sheet 6
Consolidated Statement of Income 7
Consolidated Statement of Shareholders' Equity 8
Consolidated Statement of Cash Flows 9
Notes to Consolidated Financial Statements 10-13
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<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Chelsea Computer Consultants, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Chelsea Computer
Consultants, Inc. and Subsidiary (the "Company") as of June 30, 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1998, and
the results of its operations and it cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
Jericho, New York
October 8, 1998
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<PAGE> 6
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,016,214
Account receivable, net 4,304,200
Notes receivable 668,074
Deferred income taxes 5,800
Other current assets 133,733
-----------
Total current assets 6,128,021
OFFICE FURNITURE AND EQUIPMENT - Net 62,422
NOTES RECEIVABLE 273,208
OTHER ASSETS 36,878
-----------
TOTAL ASSETS $ 6,500,529
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,500,833
Loan payable 1,206,081
Current taxes payable 570,834
Notes payable to shareholder 694,707
-----------
Total current liabilities 3,972,455
-----------
DEFERRED INCOME TAXES 344,900
-----------
NOTES PAYABLE TO SHAREHOLDER - Excluding current portion 214,919
-----------
SHAREHOLDERS' EQUITY:
Common shares, no par value; 919 shares authorized and
outstanding -
Additional paid-in capital 2,020,329
Due from shareholder (68,477)
Retained earnings 746,403
Less cost of treasury stock (81 shares) (730,000)
-----------
Total shareholders' equity 1,968,255
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,500,529
===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 7
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
REVENUES $22,668,001
COSTS OF REVENUES 17,669,901
-----------
GROSS PROFIT 4,998,100
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 2,788,080
-----------
INCOME FROM OPERATIONS 2,210,020
INTEREST EXPENSE - Net 325,501
-----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,884,519
PROVISION FOR INCOME TAXES 838,400
-----------
NET INCOME $ 1,046,119
===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 8
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS/ TOTAL
NUMBER OF COMMON PAID-IN DUE FROM (ACCUMULATED TREASURY SHAREHOLDERS'
SHARES SHARES CAPITAL SHAREHOLDER DEFICIT) STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JULY 1, 1997 1,000 $ - $2,020,329 $(73,477) $ (299,716) $ - $ 1,647,136
Purchase of common stock (81) - - - - (730,000) (730,000)
Repayment of loan from shareholder - - - 5,000 - - 5,000
Net income - - - - 1,046,119 - 1,046,119
----- ---- ---------- -------- ---------- --------- -----------
BALANCES, JUNE 30, 1998 919 $ - $2,020,329 $(68,477) $ 746,403 $(730,000) $ 1,968,255
===== ==== ========== ======== ========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 9
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,046,119
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 41,051
Amortization of notes receivable 778,072
Provision for doubtful accounts 13,000
Benefit for deferred income taxes 250,100
Changes in assets and liabilities:
Accounts receivable (1,691,587)
Notes receivable (1,124,347)
Other current assets (57,577)
Other assets (10,495)
Accounts payable and accrued expenses 217,293
Current taxes payable 570,834
-----------
Net cash provided by operating activities 32,463
-----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Additions to property and equipment (17,618)
-----------
Net cash used in investing activities (17,618)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from loan 188,436
Net borrowings on shareholder loans 909,626
Purchase of treasury stock (730,000)
Receivable from shareholder 5,000
-----------
Net cash provided by financing activities 373,062
-----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 387,907
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 628,307
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,016,214
===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 296,047
===========
Income taxes paid $ 18,044
===========
</TABLE>
-9-
See notes to consolidated financial statements.
<PAGE> 10
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS
Chelsea Computer Consultants, Inc. ("Chelsea") provides information
technology ("IT") staffing and outsourcing services to customers
primarily in the financial services, communications, and manufacturing
industries, as well as to other consulting intermediaries that outsource
IT professionals. While contracts with customers are terminable by the
customer without penalty, the Company has a history of repeat business
from its customer base.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of Chelsea Computer
Consultants, Inc. and its wholly-owned subsidiary, Millennium
Computer System, Inc. ("Millennium") (collectively referred to as
the "Company" or "Companies"). Chelsea was incorporated in May 1993
and Millennium in October 1996. In connection with the exercise of
the options described in Note 5, the then majority shareholders of
the Companies contributed their shares of Millennium to Chelsea. All
significant intercompany balances and transactions have been
eliminated.
b. Revenue Recognition - The Company recognizes revenues from time and
material contracts as services are rendered and costs are incurred.
c. Cash and Cash Equivalents - For the purpose of reporting cash and
cash equivalents, the Company considers all highly liquid
investments purchased with an original maturity of three months or
less to be cash equivalents.
d. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses,
as well as the disclosure of contingent assets and liabilities in
the financial statements. Actual results could differ from those
estimates.
e. Office Furniture and Equipment - Office furniture and equipment is
stated at cost and depreciated over the estimated useful lives of
the assets, using either the straight-line method or an accelerated
method. The estimated useful lives of the related assets are
generally five to seven years.
f. Income Taxes - The Company filed income tax returns pursuant to
the cash method of accounting through June 30, 1997; however, the
Company changed to the accrual method commencing July 1, 1997 since
it has exceeded the $5 million three-year average gross receipts
test during the current fiscal year. The Company has accounted for
income taxes pursuant to Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109 requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
Company's financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the
differences between the financial accounting and tax bases of assets
and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
g. Recruitment and Relocation Expenses - The Company generally enters
into two-year employment agreements and promissory notes receivable
with its employees. As part of these agreements, the Company incurs
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<PAGE> 11
considerable expenses to relocate the employees to the United
States, including but not limited to airfare, room and board,
attorneys' fees, and a $3,000 relocation payment. The employees
agree that if employment terminates within this contract period,
reimbursement will be made to the Company for all relocation
expenses. Recruitment and relocation expenses in excess of amounts
covered by the employment agreements are expensed as incurred.
The related notes receivable from the employees are classified as
current or long term based on their expected maturity dates. Since
the majority of employees remain with the Company for at least the
two-year employment period, the Company amortizes the related notes
receivable over a two-year period. The amount amortized is shown as
a direct offset to the related notes in the accompanying financial
statements.
If an employee leaves before the completion of the two-year period,
the excess of the note balance over the accrued relocation expense
described above is immediately charged to relocation expense.
Recoveries from employees are recorded as a reduction of relocation
expense upon receipt.
3. LOAN PAYABLE
From 1995 to 1997, the Company had a financing arrangement which provided
for borrowings on lines of credit that were based on a formula of up to
80% of the Company's eligible outstanding accounts receivable; not to
exceed a maximum line of credit of $2 million. The financing agreement
bore interest at the prevailing prime lending rate plus 3.5 % and
included an annual facility fee of $10,000.
Effective January 1, 1998, the Company renewed its financing arrangement.
The revised financing arrangement, which expires on March 31, 2000 and is
subject to annual renewal, provides for lines of credit up to 90% of the
Company's eligible accounts receivable; not to exceed a maximum line of
credit of $6 million. The financing agreement bears interest at the
prevailing prime lending rate plus 2 percent. Such arrangement also
includes an annual facility fee of $30,000.
Such loans are collateralized by a security interest in the Company's
accounts receivable.
4. RELATED PARTY TRANSACTIONS
In January 1998, the Company borrowed $500,000 from the Chief Executive
Officer. This demand note bears interest at 15% with payments of interest
only beginning February 15, 1998, in equal monthly amounts of $6,250. In
August 1997, the Company borrowed $500,000 through a six-month unsecured
loan from the Chief Executive Officer. In November 1997, the Company
borrowed $500,000 from the Chief Operating Officer, the proceeds from
which were used to repay the amount borrowed in August. This loan bears
interest at 10% and is payable in ten quarterly installments of $57,129
beginning February 15, 1998.
The amount due from shareholder of $68,477 at June 30, 1998 relates to an
overpayment of interest on a loan from a shareholder. There are no
repayment terms or interest rates which have been established.
5. COMMON STOCK TRANSACTIONS AND NON-RECURRING COSTS
In October 1997, the Company repurchased 81 shares of outstanding common
stock for $730,000 from a former owner. In September 1996, Chelsea sold
19% of its common stock to Staff Builders, Inc. ("SBI") for $2 million
and granted SBI an option for an additional approximately 61% of the
Company's outstanding common stock. In October 1997, SBI exercised its
option and purchased the remaining approximately 61% of Chelsea's stock
from the selling shareholders for total cash consideration of $12.4
million.
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<PAGE> 12
As a result of these transactions, Chelsea became an approximately 80%
owned subsidiary of SBI. For income tax reporting purposes, Chelsea
became a member of the SBI consolidated federal income tax return since
over 80% of its stock was owned by SBI. As a result of the acquisition,
Chelsea is now a member of the MSXI consolidated federal income tax
return. Chelsea has and will continue to file separate state and local
income tax returns.
During fiscal 1998, the Company incurred $193,793 of non-recurring costs
related to a terminated effort to issue public securities. These cost are
included in selling, general administrative expenses.
6. RENTAL COMMITMENTS
The Company leases office space under various non-cancelable operating
leases. Approximate minimum annual rental commitments for the remaining
terms of the Company's non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
<S> <C>
1999 $252,899
2000 193,112
2001 57,425
2002 6,568
2003 1,004
--------
Total $511,008
========
</TABLE>
Aggregate rental expense for fiscal 1998 was $133,148.
7. ACCOUNTS RECEIVABLE
Substantially all of the Company's revenues (and the resulting accounts
receivable) are from large companies or major systems integrators.
Although the Company does not currently foresee a credit risk associated
with these receivables, credit risk is affected by conditions of
occurrences within the economy and the specific industries in which the
Company's customers operate.
Accounts receivable is pledged as collateral pursuant to a financing
agreement (see Note 3).
The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical
trends and other information. The allowance for doubtful accounts was
approximately $73,000 as of June 30, 1998. Although the Company does not
anticipate the loss of any significant customer or engagement, any such
loss could have a material adverse effect on the Company's operating
results and financial condition.
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<PAGE> 13
8. INCOME TAXES
The income tax provision for the year ended June 30, 1998 consists of the
following:
<TABLE>
<S> <C>
Current:
Due to parent for federal portion $ 477,500
State 110,800
Deferred 250,100
---------
Total $ 838,400
=========
</TABLE>
The deferred tax assets (liabilities) at June 30, 1998 are comprised of
the following:
<TABLE>
<S> <C>
Current:
Cash to accrual conversion $ (71,100)
Allowance for bad debts 10,600
Nondeductible accruals 66,300
---------
Total current 5,800
---------
Non-current:
Cash to accrual conversion (344,900)
---------
Total non-current (344,900)
---------
Total $(339,100)
=========
</TABLE>
Since the Company has a tax-sharing agreement with SBI, all federal and a
portion of the state and local taxes have been paid by SBI.
The following is a reconciliation of the effective income tax rate to the
federal statutory rate for the year ended June 30, 1998:
<TABLE>
<S> <C>
Federal statutory rate 34.0%
State and local taxes, net of federal tax benefit 10.4
Nondeductible meals and entertainment 0.1
----
Effective rate 44.5%
====
</TABLE>
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<PAGE> 14
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1999 (UNAUDITED):
Consolidated Balance Sheet 15
Consolidated Statement of Income 16
Consolidated Statement of Cash Flows 17
Notes to Consolidated Financial Statements 18
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<PAGE> 15
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,551,767
Account receivable, net 5,354,793
Notes receivable 385,478
Other current assets 227,075
-----------
Total current assets 7,519,113
OFFICE FURNITURE AND EQUIPMENT - Net 48,956
NOTES RECEIVABLE 82,028
DEFERRED INCOME TAXES 7,747
OTHER ASSETS 52,325
-----------
TOTAL ASSETS $ 7,710,169
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,864,578
Loan payable 1,426,438
Current taxes payable 1,118,970
Deferred income taxes 64,797
-----------
Total current liabilities 4,474,783
-----------
SHAREHOLDERS' EQUITY:
Common shares, no par value; 919 shares authorized and
outstanding --
Additional paid-in capital 2,020,329
Due from shareholder (73,477)
Retained earnings 2,018,534
Less cost of treasury stock (81 shares) (730,000)
-----------
Total shareholders' equity 3,235,386
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,710,169
===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 16
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
REVENUES $33,475,517
COSTS OF REVENUES 27,853,738
-----------
GROSS PROFIT 5,621,779
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,059,505
-----------
INCOME FROM OPERATIONS 2,562,274
INTEREST EXPENSE - Net 291,577
-----------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,270,697
PROVISION FOR INCOME TAXES 998,566
-----------
NET INCOME $ 1,272,131
===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 17
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
YEAR ENDED JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,272,131
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 35,194
Amortization of notes receivable 1,082,841
Deferred income taxes (282,050)
Changes in assets and liabilities:
Accounts receivable (1,050,593)
Notes receivable (609,066)
Other current assets (93,342)
Other assets (15,447)
Accounts payable and accrued expenses 363,745
Current taxes payable 548,136
-----------
Net cash provided by operating activities 1,251,549
-----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Additions to property and equipment (21,728)
-----------
Net cash used in investing activities (21,728)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from loan 220,358
Net repayments of shareholder loans (909,626)
Receivable from shareholder (5,000)
-----------
Net cash used in financing activities (694,268)
-----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 535,553
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,016,214
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,551,767
===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 18
CHELSEA COMPUTER CONSULTANTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
YEAR ENEDED JUNE 30, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Chelsea Computer Consultants, Inc. ("Chelsea") provides information
technology ("IT") staffing and outsourcing services to customers primarily
in the financial services, communications, and manufacturing industries,
as well as to other consulting intermediaries that outsource IT
professionals. While contracts with customers are terminable by the
customer without penalty, the Company has a history of repeat business
from its customer base.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Chelsea and its wholly-owned subsidiary, Millennium Computer System, Inc.
("Millennium") (collectively referred to as the "Company"). Chelsea was
incorporated in May 1993 and Millennium in October 1996. All significant
intercompany balances and transactions have been eliminated. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of only normal recurring
items, which are necessary for a fair presentation.
3. NON-RECURRING COSTS
The Company incurred certain costs totaling about $320,000, before taxes,
during the year ended June 30, 1999 which it considers nonrecurring in
nature. Such costs include a $264,000 charge to cost of sales related to
the termination of 70 consultants and a $56,000 charge to selling,
general and administrative expenses related to a terminated effort to
issue public securities.
4. ELATED PARTY TRANSACTION
The amount due from shareholder of $73,477 at June 30, 1998 relates to an
overpayment of interest on a loan from a shareholder. There were no
repayment terms or interest rates established for the overpayment which
was subsequently settled in September 1999.
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<PAGE> 19
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data have been derived from the
audited historical consolidated financial statements as of and for the fiscal
year ended January 3, 1999 for MSXI, from the audited historical financial
statements for the ten months ended October 31, 1998 for Lexstra International,
Inc. and for Lexus Temporaries, Inc., from the audited historical financial
statements for the fiscal year ended December 26, 1998 for MegaTech Engineering,
Inc., from the unaudited historical financial statements for the seven months
ended July 26, 1998 for Gold Arrow Contract Services, Ltd., from the unaudited
historical financial statements for the year ended December 31, 1998 for Pilot
Computer Services, Inc., from the unaudited historical financial statements for
the year ended December 31, 1998 of Rice Cohen International, Inc., from the
unaudited historical financial statements for the year ended December 31, 1998
of Management Resources International, Inc. and from the unaudited historical
consolidated financial statements as of and for the twelve months ended December
31, 1998 for Chelsea Computer Consultants, Inc.
The unaudited pro forma financial data do not purport to represent what our
results of operations or financial position would actually have been had these
transactions occurred at these times. This data also does not purport to project
our results of operations or financial position for or at any future period or
date. The unaudited pro forma financial data should be read in conjunction with
the related historical financial statements and notes thereto.
The unaudited pro forma consolidated balance sheet data give effect to the
acquisition of Chelsea Computer Consultants, Inc. effective September 17, 1999
(the "Chelsea Acquisition"). The pro forma balance sheet data have been prepared
as if the Chelsea Acquisition took place as of July 4, 1999.
The results of operations of acquired companies are included in our
consolidated results of operations from the date of acquisition forward. The
unaudited pro forma consolidated income statement data have been prepared as if
the acquisitions and our $30 million offering of senior subordinated debt in May
1999 had occurred at the beginning of the earliest pro forma period presented.
The unaudited pro forma consolidated income statement data give effect to:
- the Chelsea Acquisition effective September 17, 1999;
- the acquisition of Management Resources International, Inc. effective June
21, 1999 (the "Management Resources Acquisition");
- the acquisition of Rice Cohen International, Inc. effective April 5, 1999
(the "Rice Cohen Acquisition");
- the acquisition of MegaTech Engineering, Inc. effective December 26, 1998
(the "Megatech Acquisition");
- the acquisition of Pilot Computer Services, Inc. effective December 18, 1998
(the "Pilot Acquisition");
- the acquisition of Lexstra International, Inc. and Lexus Temporaries, Inc.
effective October 31, 1998 (the "Lexus and Lexstra Acquisition);
- the acquisition of Gold Arrow Contract Services, Ltd.
effective July 26, 1998 (the "Gold Arrow Acquisition"); and
- the $30 million offering of senior subordinated debt in May 1999.
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<PAGE> 20
PRO FORMA CONSOLIDATED BALANCE SHEET DATA (UNAUDITED)
AS OF JULY 4, 1999
<TABLE>
<CAPTION>
MSXI Chelsea Adjustments Pro Forma
------------------ --------------- ---------------- -----------
<S> <C> <C> <C> <C>
ASSETS (dollars in thousands)
Current assets:
Cash and cash equivalents $ 3,732 $ 1,552 $ 5,284
Receivables, net 227,483 5,355 232,838
Inventory 1,703 -- 1,703
Prepaid expenses and other assets 9,047 612 9,659
Deferred income taxes, net 869 -- 869
--------- --------- ---------
Total current assets 242,834 7,519 250,353
Property and equipment, net 35,394 49 35,443
Buildings held for sale 15,000 -- 15,000
Goodwill, net of accumulated amortization 75,095 -- $ 16,665 (a) 91,760
Other assets 20,899 134 21,033
Deferred income taxes 12,132 8 12,140
--------- --------- ---------
Total assets $ 401,354 $ 7,710 $ 425,729
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt $ 5,003 $ 1,426 $ 6,429
Accounts payable 112,585 443 113,028
Accrued payroll and benefits 25,065 1,422 26,487
Other accrued liabilities 29,189 1,119 30,308
Deferred income taxes, net 1,892 65 1,957
--------- --------- ---------
Total current liabilities 173,734 4,475 178,209
Long-term debt 209,544 -- 19,900 (b) 229,444
Long-term deferred compensation liability and other 4,732 -- 4,732
------- --------- ---------
Total liabilities 388,010 4,475 412,385
--------- --------- ---------
Redeemable Series A Preferred Stock, authorized 500,000 shares;
issued and outstanding, 360,000 shares 36,000 -- 36,000
--------- --------- ---------
Shareholders' equity (deficit) (22,656) 3,235 (3,235)(c) (22,656)
--------- --------- ---------
Total liabilities and shareholders' equity (deficit) $ 401,354 $ 7,710 $ 425,729
========= ========= =========
</TABLE>
See notes to pro forma consolidated financial statements
-20-
<PAGE> 21
PRO FORMA CONSOLIDATED INCOME STATEMENT DATA (UNAUDITED)
FISCAL YEAR ENDED JANUARY 3, 1999
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
LEXUS AND OTHER CHELSEA
MSXI CHELSEA(1) LEXSTRA MEGATECH ACQUISITIONS ACQUISITION
---------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales $ 1,081,042 $29,671 $38,777 $ 48,609 $ 24,324
Cost of Sales 997,014 23,234 30,658 39,937 21,227
----------- ------- ------- -------- --------
Gross Profit 84,028 6,437 8,119 8,672 3,097
SG&A 57,257 3,162 4,494 6,562 1,995 $ 555 (a)
MSBT 3,516 - - 522 -
----------- ------- ------- -------- --------
Operating income 23,255 3,275 3,625 1,588 1,102
Interest expense (income), net 17,416 337 94 66 187 1,642 (b)
Equity in net loss of EASi MegaTech
Engineering LLC - - - (280) -
----------- ------- ------- -------- --------
Income before income taxes 5,839 2,938 3,531 1,242 915
Income tax provision 3,068 1,447 - 667 55 (967)(c)
----------- ------- ------- -------- --------
Net income $ 2,771 $ 1,491 $ 3,531 $ 575 $ 860
=========== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------------------------------
LEXUS
AND LEXSTRA MEGATECH OTHER DEBT
ACQUISITIONS ACQUISITION ACQUISITIONS OFFERING PRO FORMA
----------------------------------------------------------------------------------------
(dollars in thousands)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net Sales $ 7,989 (j)
(11,849)(k) $ 1,218,563
Cost of Sales 7,509 (j) (2,461)(t)
(8,444)(k)
86 (l) 1,108,760
-----------
Gross Profit 109,803
SG&A $ (421)(d) 673 (u)
420 (e) 1,292 (j)
(2,177)(k)
(1,748)(m)
150 (n)
(431)(o) 71,783
MSBT 33 (j) 4,071
-----------
Operating income 33,949
Interest expense (income), net (94)(f) 8 (k) (203)(v) ($2,001) (z)
1,324 (g) (74)(p) 1,514 (w) 3,413 (aa)
Equity in net loss of EASi MegaTech 1,200 (q) 201 (ab) 25,030
Engineering LLC 280 (r) -
-----------
Income before income taxes 8,919
Income tax provision (503)(h) (245)(k) 256 (x) (548)(ac)
1,342 (i) (335)(s) 162 (y) 4,399
-----------
Net income $ 4,520
===========
</TABLE>
1) In anticipation of certain incremental business Chelsea began increasing its
number of available staff during 1998. The planned incremental business did not
materialize and, as a result, the number of unbilled or available consultants
was higher than usual during the fourth quarter of 1998 and first quarter of
1999. Chelsea's results of operations for the year ended December 31, 1998 were
unfavorably impacted by the cost of these unbilled consultants which is
estimated at about $1.2 million. This information is provided to supplement the
historical results of operations and should not be considered for pro forma
purposes.
See notes to pro forma consolidated financial statements
-21-
<PAGE> 22
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------
RICE COHEN RICE COHEN
AND MANAGEMENT AND MANAGEMENT
CHELSEA RESOURCES CHELSEA RESOURCES DEBT
INCOME STATEMENT MSXI ACQUISITION(1) ACQUISITIONS ACQUISITION ACQUISITIONS OFFERING PRO FORMA
-------- --------------- -------------- ----------- -------------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 681,994 $ 16,512 $ 2,900 $ 701,406
Cost of Sales 631,126 14,582 2,208 $ (183)(d)
--------- -------- --------
(49)(e) 647,683
-----------
Gross Profit 50,868 1,930 692 53,723
SG&A 29,364 1,568 -- $ 278 (a) 126 (f) 31,336
MSBT 2,566 -- -- 2,566
--------- -------- -------- -----------
Operating Income 18,938 362 692 19,821
Interest expense, net 9,706 121 -- 821 (b) 279 (g) $ (761) (j)
--------- -------- --------
1,166 (k)
75 (l) 11,407
Income before income taxes 9,232 241 692 8,414
Income tax provision 3,717 106 3 484) (c) (59)(h)
--------- -------- --------
232 (i) (163) (m) 3,352
-----------
Net Income $ 5,515 $ 135 $ 689 $ 5,062
========= ======== ======== ===========
</TABLE>
(1) In anticipation of certain incremental business Chelsea began increasing its
number of available staff during 1998. The planned incremental business did
not materialize and, as a result, the number of unbilled or available
consultants was higher than usual during the early months of 1999. In March
through June 1999, when it became clear this incremental business would not
materialize, Chelsea terminated the employment of about 70 excess
consultants on staff. Chelsea's results of operations for the first six
months of 1999 were unfavorably impacted by the cost of these unbilled
consultants which is estimated about $2.3 million. This information is
provided to supplement the historical results of operations and should not
be considered for pro forma purposes.
See notes to pro forma consolidated financial statements
-22-
<PAGE> 23
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The following pro forma adjustments are based on available information and
certain management estimates and assumptions. We believe that these adjustments
provide a reasonable basis for presenting all of the significant effects of the
Chelsea, Lexus and Lexstra, Gold Arrow, Pilot, MegaTech, Rice Cohen and
Management Resources acquisitions and the May 1999 offering of senior
subordinated debt and that the pro forma adjustments are properly applied in the
unaudited pro forma consolidated financial statements.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET DATA AS OF JULY 4, 1999
The accompanying unaudited pro forma consolidated balance sheet as of July
4, 1999 has been prepared to reflect the Chelsea acquisition for an aggregate
purchase price of $19.9 million. Pro forma adjustments are made to reflect:
(a) The excess of acquisition cost over the fair value of net assets acquired
(goodwill).
(b) Borrowings under our credit facility to complete the acquisition of Chelsea.
(c) The elimination of the shareholders' equity accounts of Chelsea.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED INCOME STATEMENT DATA FOR THE FISCAL YEAR
ENDED JANUARY 3, 1999
The accompanying unaudited pro forma consolidated income statement for the
fiscal year ended January 3, 1999 include the following adjustments to present
results as if the Chelsea Acquisition, the Lexus and Lexstra Acquisitions, the
MegaTech Acquisition, and the Gold Arrow, Pilot, Rice Cohen and Management
Resources acquisitions (collectively, the "Other Acquisitions"), and the $30
million offering of senior subordinated debt in May 1999 had been consummated on
December 29, 1997.
CHELSEA ACQUISITION
(a) Record amortization of aggregate goodwill of $16.7 million resulting from
the acquisition over an estimated useful life of 30 years.
(b) Record interest expense associated with borrowing of $19.9 million under our
credit facility to finance the acquisition of Chelsea. An assumed annual
interest rate of 8.25% is used based on the interest rates in effect at the
date of the acquisition.
The impact on interest expense of a 1/8 of 1% change in the interest rate
related to our credit facility is about $25,000 on an annual basis.
(c) Record the income tax effect of the pro forma adjustments at an assumed
effective income tax rate of 44% (the historical effective tax rate of
Chelsea).
-23-
<PAGE> 24
LEXUS AND LEXSTRA ACQUISITIONS
(d) Reduce executive compensation expense to reflect contractual agreements
negotiated in connection with the Acquisition.
(e) Record amortization of aggregate goodwill of $15.1 million resulting from
the acquisitions over an estimated useful life of 30 years.
(f) Eliminate net interest expense related to the historical financing of the
acquired businesses.
(g) Record interest expense associated with borrowing of $18.4 million under our
credit facility used to finance the acquisition at an assumed annual
interest rate of 7.19%, which is based on the interest rates in effect at
the date of the acquisitions.
The impact on interest expense of a 1/8 of 1% change in the interest rate
related to our credit facility is about $28,000 on an annual basis.
(h) Record the income tax benefit resulting from the pro forma adjustments
related to the acquisitions at an assumed effective income tax rate of 38%.
(i) Lexstra International, Inc. and Lexus Temporaries, Inc. had both elected to
be taxed under Subchapter-S of the Internal Revenue Code, which provided
that, in lieu of corporate income taxes, the stockholders were taxed
individually on their pro rata share of taxable income. This adjustment is
to record the assumed income tax provision that would have been incurred had
Lexstra International, Inc. and Lexus Temporaries, Inc. been taxable
corporations taxed at an assumed effective income tax rate of 38%.
MEGATECH ACQUISITION
(j) Record the results of operations of Tooling Concepts, a division of Johnson
Controls, Inc., transferred to MegaTech prior to our acquisition of
MegaTech.
(k) Eliminate the results of operations of MegaTech Engineering GmbH,
transferred from MegaTech prior to our acquisition of MegaTech.
(l) Adjust rental expense to reflect new contractual agreements negotiated in
connection with the MegaTech Acquisition.
(m) Eliminate certain corporate costs for compensation expenses, corporate
interest, aircraft charges and other costs, which relate to portions of the
MegaTech business we did not acquire.
(n) Record amortization of the aggregate goodwill of $5.4 million resulting from
the acquisition over an estimated useful life of 30 years.
(o) Eliminate costs associated with buildings not acquired with the MegaTech
Acquisition.
(p) Eliminate net interest expense related to the historical financing of the
acquired businesses.
(q) Record interest expense associated with borrowings of $15 million under our
credit facility used to finance the acquisition at an assumed annual
interest rate of 8.0%, which is based on the interest rates in effect at the
date of the acquisition.
The impact on interest expense of a 1/8 of 1% change in the interest rate
related to our credit facility is about $19,000 on an annual basis.
(r) Eliminate the operating loss of EASi MegaTech Engineering LLC, an equity
investee, which was not acquired, with the MegaTech Acquisition.
(s) Record the income tax benefit resulting from the pro forma adjustments
related to the acquisition at an assumed effective income tax rate of 34%.
-24-
<PAGE> 25
OTHER ACQUISITIONS
(t) Reduce executive compensation expense to reflect contractual agreements
negotiated in connection with the Rice Cohen Acquisition.
(u) Record amortization of the aggregate goodwill of $20.9 million resulting
from the Other Acquisitions over an estimated useful life of 30 years.
(v) Eliminate net interest expense related to the historical financing of the
acquired businesses.
(w) Record interest expense associated with borrowings of $21.0 million under
our credit facility used to finance the acquisitions at an assumed annual
interest rate of 7.2%, which is based on the weighted average of the
interest rates in effect at the dates of the acquisitions.
The impact on interest expense of a 1/8 of 1% change in the interest rate
related to our credit facility is about $17,000 on an annual basis.
(x) Record the income tax provision resulting from the pro forma adjustments
related to the Pilot, Rice Cohen and Management Resources acquisitions at an
assumed effective income tax rate of 34% and the Gold Arrow Acquisition at
an assumed effective income tax rate of 53%.
(y) Adjust the historical income tax provisions related to the Pilot, Rice Cohen
and Management Resources acquisitions to reflect an assumed effective income
tax rate of 34% and the Gold Arrow Acquisition at an assumed effective
income tax rate of 53%.
$30 MILLION OFFERING OF SENIOR SUBORDINATED DEBT
(z) Record the reduction of interest expense associated with the use of $28.2
million of net proceeds to reduce amounts outstanding under our credit
facility at an assumed interest rate of 7.1%, which is based on the weighted
average of the interest rates in effect during the pro forma period.
(aa)Record interest expense associated with the notes at an annual interest rate
of 11-3/8%.
The impact on interest expense of a 1/8 of 1% change in the interest rate
related to the notes is about $37,000 on an annual basis.
(ab)Record amortization of the costs associated with the offering of the notes.
(ac)Record the income tax benefit resulting from the pro forma adjustments
related to the offering of the notes, at an assumed effective income tax
rate of 34%.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE FISCAL SIX MONTHS
ENDED JULY 4, 1999
The accompanying unaudited pro forma consolidated income statement data for
the fiscal six months ended July 4, 1999 include the adjustments below to
present results as if the Chelsea Acquisition, the Rice Cohen and Management
Resources acquisitions and the $30 million offering of senior subordinated debt
had been consummated on December 29, 1997. The historical results of Lexus and
Lexstra, Gold Arrow, Pilot and MegaTech, which were acquired prior to January 3,
1999, are included in the unaudited historical consolidated financial statements
of MSXI as of and for the fiscal six months ended July 4, 1999.
CHELSEA ACQUISITION
(a) Record amortization of aggregate goodwill of $16.7 million resulting from
the acquisition over an estimated useful life of 30 years.
-25-
<PAGE> 26
(b) Record interest expense associated with borrowing of $19.9 million under our
credit facility used to finance the acquisition of Chelsea. An assumed
annual interest rate of 8.25% is used based on the interest rates in effect
at the date of the acquisition.
The impact on interest expense of a 1/8 of 1% change in the interest rate
related to our credit facility is about $25,000 on an annual basis.
(c) Record the income tax effect of the pro forma adjustments at an assumed
effective income tax rate of 44% (the historical effective tax rate of
Chelsea).
RICE COHEN AND MANAGEMENT RESOURCES
(d) Reduce executive compensation expense to reflect contractual agreements
negotiated in connection with the Rice Cohen Acquisition.
(e) Eliminate legal expenses directly attributable to the Rice Cohen
Acquisition.
(f) Record amortization of the aggregate goodwill of $13.0 million resulting
from the Acquisitions over an estimated useful life of 30 years.
(g) Record interest expense associated with borrowings of $13.7 million under
our credit facility used to finance the acquisitions at an assumed annual
interest rate of 6.7% which is based on the weighted average of the interest
rates in effect at the dates of the acquisitions.
(h) Record the income tax benefit resulting from the pro forma adjustments
related to the Rice Cohen and Management Resources acquisitions at an
assumed effective income tax rate of 34%.
(i) Adjust the historical income tax provision related to the Rice Cohen and
Management Resources acquisitions to reflect an assumed effective income tax
rate of 34%.
$30 MILLION OFFERING OF SENIOR SUBORDINATED DEBT
(j) Record the reduction of interest expense associated with the use of $28.2
million of net proceeds to reduce amounts outstanding under our credit
facility at an assumed interest rate of 7.2%, which is based on the weighted
average of the interest rates in effect during the pro forma period.
(k) Record interest expense associated with the notes at an annual interest rate
of 11-3/8%.
(l) Record amortization of the costs associated with the offering of the notes.
(m) Record the income tax benefit resulting from the pro forma adjustments
related to the offering of the notes, at an assumed effective income tax
rate of 34%.
-26-
<PAGE> 27
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10 Purchase Agreement
</TABLE>
<PAGE> 1
EXHIBIT 10
EXECUTION COPY
PURCHASE AGREEMENT
PURCHASE AGREEMENT dated as of September 17, 1999 among MSX
International Engineering Services, Inc., a Delaware corporation ("MSXI"); Staff
Builders, Inc., a Delaware corporation ("SBI"), Raymond Sheerin ("Sheerin") and
Michael Altman ("Altman" and together with SBI and Sheerin, the "Stockholders");
and Chelsea Computer Consultants, Inc., a New York corporation (the "Company").
WHEREAS, the Stockholders own all of the issued and outstanding capital
stock of the Company; and
WHEREAS, MSXI wishes to purchase from the Stockholders and the
Stockholders wish to sell to MSXI, upon the terms and conditions hereinafter
provided, all of the outstanding capital stock of the Company;
NOW, THEREFORE, the parties agree as follows:
I
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
Each of the Stockholders represent and warrant, except as otherwise
indicated, jointly and severally, to MSXI that the statements contained in this
Article I are correct and complete as of the date of this Agreement; for
purposes hereof, all references to the Company shall be deemed to include
Millenium Computer Systems, Inc., a New York corporation and wholly owned
subsidiary of Chelsea Computer Consultants, Inc., unless the context otherwise
requires:
1.01 The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York, has full power and
authority to own its properties and to carry on its business as now conducted,
and is in good standing and duly qualified to conduct business as a foreign
corporation in each of the jurisdictions (which is set forth in Exhibit 1.01) in
which the ownership or leasing of its properties or the conduct of its business
requires such qualification.
1.02 The Company's authorized capitalization consists of 1,000 shares
of common stock, $1.00 par value (the "Common Stock"), of which 919 shares (the
"Shares") are issued and outstanding as of the date hereof. The number of the
Shares issued, outstanding and owned by each of the Stockholders is set forth on
Exhibit 1.02. Exhibit 1.02 also sets forth the percentage amount of the Earnout
Opportunity (as defined below) to which each of the Stockholders is entitled.
The Shares are free and clear of all liens, encumbrances and claims except for a
lien in
1
<PAGE> 2
favor of Mellon Bank N.V. with respect to the Shares owned by SBI, which lien
will be released on or prior to the Closing. No other shares of capital stock of
the Company are issued or outstanding. All of the Shares are validly issued,
fully paid and nonassessable. There are no options, calls, warrants or other
securities or rights outstanding which are convertible into, exercisable for or
relate to the Common Stock or any other shares of capital stock of the Company.
1.03 Except as provided in Exhibit 1.03, the Company does not own
directly or indirectly any interest or have any investment in any corporation,
partnership, limited liability company or any other business. The capitalization
of any such entity is set forth on Exhibit 1.03 and, except as set forth on
Exhibit 1.03, Chelsea Computer Consultants, Inc. is the owner of all of the
capital stock or other equity interest (the "Interests") in each such entity.
All of the Interests are validly issued, fully paid and nonassessable and are
free and clear of all liens, encumbrances and claims. There are no options,
calls, warrants or other securities or rights outstanding which are convertible
into, exercisable for or relate to the Interests.
1.04 Exhibit 1.04 lists all memberships held in social, country or
other clubs or organizations, the fees or charges for which are directly paid
for or reimbursed by the Company.
1.05 Except as set forth on Exhibit 1.05 and for the ownership of
non-controlling interests in securities of corporations the shares of which are
publicly traded, each of the Stockholders represents and warrants severally that
it or he, as the case may be, does not own, and, to the best knowledge of each
such Stockholder, none of the Company's officers, directors or other key
employees (including purchasing agents and departmental managers) owns, directly
or indirectly, any interest or has any investment or profit participation in any
corporation or other entity which is a competitor of or which otherwise directly
or indirectly does business with the Company.
1.06 Exhibit 1.06(a) consists of copies of the Company's audited
balance sheets as of February 28, 1999 and June 30, 1998, 1997, 1996 and 1995
and the related statements of income, Stockholders' equity and changes in
financial position for the fiscal years then ended including the notes thereto.
Exhibit 1.06(b) consists of copies of the Company's balance sheet as of May 31,
1999 (the "May 31 Balance Sheet") and the related statements of income,
Stockholders' equity and changes in financial position for the respective months
and fiscal year-to-date periods then ended (and as of the corresponding dates
and for the corresponding periods in the preceding fiscal year) including the
notes thereto (the "May 31 Financial Statements"). Exhibits 1.06(a) and (b)
(hereinafter collectively referred to as the "Financial Statements"):
i. are true, complete and correct in all material respects as
of the respective dates and for the respective periods stated above;
ii. fairly present in all material respects the properties,
assets, financial position and results of operations of the Company as
of the respective dates and for the respective periods stated above;
and
2
<PAGE> 3
iii. have been prepared pursuant to and in accordance with
generally accepted accounting principles applied on a consistent basis.
Adequate provision have been timely made in the Financial Statements for
doubtful accounts and other receivables; all taxes assessable against the
Company and due or paid have been timely and adequately reflected in the
Financial Statements and all taxes assessable against the Company and not yet
due and payable have been timely and fully accrued or otherwise provided for
therein; and the Company has no liability or obligation, whether accrued,
absolute, or contingent, arising out of transactions entered into or any facts
existing on or prior to the respective dates of the Financial Statements, except
for liabilities and obligations that are timely reflected therein and except for
contractual or other obligations of performance (other than obligations arising
by reason of a default in performance) not required to be reflected in the
Financial Statements under generally accepted accounting principles consistently
applied. Any items of income or expense that are unusual or of a nonrecurring
nature have been separately disclosed in the Financial Statements. The Company
has distributed to the Stockholders all cash, loans from the Stockholders; all
split dollar life insurance policies and investments all as detailed on Exhibit
1.06(c).
1.07 All corporate action of the Company has been duly recorded in its
corporate minute books and duly authorized and adopted in accordance with
applicable law and the Company's by-laws and Articles of Incorporation (such
by-laws and Articles of Incorporation as currently in effect have been supplied
to MSXI in certified form as Exhibit 1.07, which Exhibit also includes a
schedule identifying the directors and officers of the Company).
1.08 (a) Exhibit 1.08(a) consists of copies of the Company's and/or its
Affiliates' (as defined below) federal, state and local tax returns filed for
fiscal years ended on and after December 31, 1995. The Company and/or its
Affiliates have properly prepared and duly and timely filed all Tax Returns (as
defined below) that they were required to file and paid in full all Taxes (as
defined below) up through and including the date hereof. As used herein, "Tax
Return" means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof. "Tax" means any federal, state,
local or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code 59A), customs, duties, capital stock franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty or additions thereto, whether
disputed or not. "Affiliates" shall mean any entity that has or was required to
file consolidated Tax Returns with the Company but only with respect to periods
for which such returns were or should have been filed. The May 31, 1999
Financial Statements include adequate provision for Taxes incurred or accrued as
of May 31, 1999. True and complete copies of the most recent federal, state and
local tax returns of the Company and/or its Affiliates, set forth as Exhibit
1.08(a), have been delivered to MSXI.
3
<PAGE> 4
(b) Except as specifically set forth on Exhibit 1.08(b), the
federal Tax Returns of the Company and each Affiliate have been audited or
examined by the IRS or other taxing authority through the Company's tax periods
listed on Exhibit 1.08(b) annexed hereto. Except as specifically set forth on
Exhibit 1.08(b), State and local franchise and sales Tax Returns of the Company
and each Affiliate have been audited through the tax periods listed on Exhibit
1.08(b) annexed hereto. Except as specifically set forth on Exhibit 1.08(b), no
assessments or additional Taxes have been proposed or threatened against the
Company or any Affiliate or any of their assets, and neither the Company nor any
Affiliate has executed any waiver of the statute of limitations on the
assessment or collection of any Taxes. Except as specifically set forth on
Exhibit 1.08(b), no issue has been raised in any such examination that can
reasonably be expected to result in a deficiency in any years not covered by
that examination. Except as specifically set forth on Exhibit 1.08(b),
adjustments, if any, to all such returns have been agreed upon and paid by the
Company and/or its Affiliates or are being contested as indicated on Exhibit
1.08(b).
(c) Except as indicated on Exhibit 1.08(c) annexed hereto,
there are no pending examinations, audits or similar investigations of the
Company or any Affiliate or its Tax Returns by any federal, state or local
taxing authority, and there are no federal, state, local or foreign tax liens
upon any of the Company's assets other than liens for Taxes not yet due or being
contested in good faith.
(d) The Company and/or its Affiliates have no deficiency with
respect to any tax period on account of Taxes and will not be subject to any
current or deferred liability with respect to Taxes or related charges and fees,
whether or not assessed, other than current and deferred Taxes as reported on
the May 31 Financial Statements not yet due.
(e) Except as specifically set forth on Exhibit 1.08(b), no
claim has ever been made by an authority in a jurisdiction where the Company
and/or any Affiliate does not file Tax Returns that any such entity is or may be
subject to taxation by that jurisdiction.
(f) There is no security interest on any assets of the Company
and/or any Affiliates that arose in connection with any failure or alleged
failure to pay any Tax. In addition, none of the Stockholders nor any director
or officer of SBI or the Company (or any employee or other agent responsible for
Tax) has any knowledge of any facts or circumstances that would lead them to
expect any authority to assess any additional Taxes for any period for which Tax
Returns have been filed.
(g) Exhibit 1.08(g) annexed hereto lists any elections which
the Company and/or any Affiliates have made with respect to the income tax
treatment of any items relating to or affecting the Company which cannot be
revoked without consent of the Commissioner of Internal Revenue.
1.09 Since December 31, 1998, there have not been any material adverse
changes, either individually or in the aggregate, in the general affairs,
business, prospects, properties,
4
<PAGE> 5
financial position, results of operations, or net worth of the Company and the
business affairs of the Company have since such date been conducted in the same
manner as theretofore conducted and in the usual and ordinary course. After the
close of business on December 31, 1998 no transaction has taken place and no
material contract has been entered into by the Company other than in the usual
and ordinary course of business; and specifically, without limitation of the
foregoing, there have been no sales of tangible or intangible assets of any
nature since such date.
1.10 Since December 31, 1998, there has been no material casualty
affecting the Company or loss, damage or destruction to any of its properties,
whether or not covered by or compensated under any insurance policy of the
Company.
1.11 Since December 31, 1998, the Company has not:
i. issued capital stock or declared or paid any dividend or made
any other payment from capital or surplus or other distribution of
any nature, or directly or indirectly redeemed, purchased or otherwise
acquired or recapitalized or reclassified any of its capital stock or
liquidated in whole or in part, except as disclosed on Exhibit 1.06(c);
ii. acquired all or substantially all of the stock or assets of
any other company (including any such acquisition structured as a
merger or consolidation) or made any loan of money to or investment in
any other company;
iii. created, incurred or assumed or committed to create, incur or
assume any indebtedness or other liability, except for accounts payable
or other current liabilities which (1) are not for borrowed money, (2)
were incurred in the usual and ordinary course of business, and (3)
have not been and will not be materially adverse to the general
affairs, business, prospects, properties, financial position, results
of operations or net worth of the Company;
iv. mortgaged, pledged or otherwise encumbered any asset;
v. raised salaries, hourly rates or the rate of bonuses or
commissions or other compensation, except for normal increases
consistent with past practice which are described in Exhibit 1.11(v);
vi. varied insurance coverage;
vii. altered or amended its Articles of Incorporation or by-laws;
or
viii.entered into, materially amended or terminated any
material contract, agreement, franchise, permit or license.
1.12 There have been no facts, circumstances or conditions that would
give rise to a material liability or obligation of any kind or nature
whatsoever, which have not been timely and
5
<PAGE> 6
adequately reflected or specifically disclosed in the Financial Statements,
except for contractual or other obligations of performance (other than
obligations arising by reason of a default in performance) not required to be
reflected in the Financial Statements under generally accepted accounting
principles consistently applied and except for liabilities and obligations
incurred in the usual and ordinary course of business since the date of the most
recent of the Financial Statements (other than liabilities and obligations
arising by reason of any breach of contract, breach of warranty, tort,
infringement or violation of law).
1.13 Neither this Agreement nor any Exhibits or other documents
furnished to MSXI pursuant hereto will contain any untrue statement of a
material fact or omit to state a material fact necessary to make the factual
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading. Neither the Company nor any of the
Stockholders has knowledge of any events, transactions or other facts which,
either individually or in the aggregate, might reasonably be expected to give
rise to circumstances or conditions which would have a material adverse effect
on the general affairs, business, prospects, properties, financial position,
results of operations or net worth of the Company.
1.14 The Company has a valid leasehold interest in all leases of
personalty, has good and unencumbered marketable title to all personalty of any
kind or nature owned by it, and has a valid legal right to use all other
personalty used by it in its business, free and clear of all liens,
encumbrances, claims or other conditions affecting title or use, except for (i)
liens for nondelinquent Taxes or Taxes being contested in good faith and (ii)
such liens and encumbrances as do not detract from or interfere with the present
or reasonably foreseeable use of the properties subject thereto. All of the
liens and encumbrances referred to in clause (ii) above are set forth in Exhibit
1.14.
1.15 All buildings and improvements and all of the equipment owned or
used by the Company are in good repair and in good operating condition and are
adequate and sufficient to carry on the Company's business as presently
conducted.
1.16 The Company does not now own, and has never owned, any real
property. Exhibit 1.16 lists by legal description all real property and the
ownership thereof which is leased or used by the Company in its business or in
which the Company has an interest (collectively, the "Properties") and lists all
real property previously leased or used by the Company or in which it had an
interest (collectively, the "Prior Properties"). The Company has a valid
leasehold interest in all real property leased by it, free and clear of all
easements, restrictions, occupancy agreements, assessments, liens, encumbrances,
claims or other matters affecting tile, use or occupancy except for (i) liens
for nondelinquent Taxes or Taxes being contested in good faith and (ii) such
easements, liens and encumbrances as do not detract from or interfere with the
present or reasonably foreseeable use of the Properties subject thereto. All of
the easements, liens and encumbrances referred to in clause (ii) above will be
set forth in Exhibit 1.16. The Company's rights under such leasehold estates are
not subordinate to, or defeasible by, any lien on the subject real estate, or
any prior lease thereon There are no ground subsidence or slides on such
Properties. The Properties are fully accessible by public roads and are free
from strips, gores and
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enclaves. The buildings and improvements on the properties do not encroach upon
any other properties. The Properties are served by utilities, including water,
sewage, gas, waste disposal, electricity and telephone, and neither the Company
nor the Stockholder is aware of any inadequacies with respect to such utilities.
No governmental authority having jurisdiction over the Properties has given any
notice of a possible future imposition of assessments affecting the Properties
or to exercise the power of eminent domain.
1.17 The Properties, the use of such Properties and the conduct of the
business of the Company thereon have not violated, and based upon present and
foreseeable uses of such Properties are not expected to violate, any
environmental law, zoning ordinance, or building code or any other law, rule,
regulation or ordinance of any governmental authority (including provisions of
law, rule or regulation scheduled for future implementation) or the common law.
The Company has utilized, handled, stored, delivered for disposal, disposed of
and transported all wastes, whether hazardous or not, in full compliance with
all laws, rules, regulations and ordinances (including provisions of any law,
rule, regulation or ordinance scheduled for future implementation) and the
common law and so as not to contaminate any of the Properties or any other
properties and so as not to give rise to any reporting, remediation or clean-up
obligation under any law, rule, regulation or ordinance (including provisions of
any law, rule, regulation or ordinance scheduled for future implementation) or
the common law. The Properties and the Company's personal property, including
its land, buildings, fixtures, machinery, equipment and inventory (whether now
or previously owned or leased by the Company), have not been contaminated,
tainted or polluted, nor will such property become contaminated, tainted or
polluted, from activities conducted by the Company or from the migration of
contaminants from adjacent property. None of the Properties appears on the
National Priority List or any foreign, federal, state or local listing which
identifies sites for remedial clean-up or investigatory actions. No asbestos,
PCB's, ureaformaldehyde, underground storage tanks or plating operations are or
were located on the Properties, and none of the Properties has been used to
handle, treat, store or dispose of or has been contaminated (including
contamination of soils, subsurface groundwater and surface waters located on, in
or under such premises) with or by pollutants, wastes, or any other substances,
which contamination may give rise to a reporting, remediation or clean-up
obligation with respect to such Properties or the property of others under any
law, rule, regulation or ordinance (including provisions of law, rule,
regulation or ordinance scheduled for future implementation) or the common law.
Exhibit 1.17 lists all waste haulers, waste disposal sites, dump sites and other
areas at which wastes generated by the Company have been disposed of (in each
case identifying such wastes), and specifically identifies each such site or
area which is or has been included in any published foreign, federal, state or
local "superfund" or other list of hazardous, toxic or other waste sites or
areas identified for remedial clean-up or investigatory actions. The provisions
of this Section shall also apply to (i) the Prior Properties with respect to the
period ending when the Company no longer owned, leased, used or had an interest
in such Prior Properties and (ii) the real property of, and actions taken by,
each person controlled by the Company during all periods in which the Company
controlled such person.
1.18 Exhibit 1.18(a) lists the ten largest customers of, and the ten
largest suppliers to, the Company during the twelve month periods ended December
31, 1998 and December 31, 1997
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(stating for each the dollar volume of the sales or purchases, as the case may
be). Exhibit 1.18(b) lists all of the existing agreements, contracts and
commitments of the Company, whether written or unwritten, of any kind or nature
whatsoever (including, without limiting the generality of the foregoing, all
supply contracts; labor agreements; leases; notes or other evidences of
indebtedness; mortgages; guarantee agreements; pension, stock option, stock
purchase, bonus, profit sharing and other employee or executive welfare or
benefit plans or agreements; sales representation and distribution agreements;
purchase orders and commitments; product warranties; and powers of attorney).
Notwithstanding the foregoing, Exhibit 1.18(b) does not list:
i. any contract with a customer made (A) in the usual and
ordinary course of business on or after the date hereof or (B) prior to
the date hereof whereby the Company is obligated to deliver less than
$50,000 in invoice value of services in each transaction or series of
related transactions; or
ii. any purchase commitment made (A) in the usual and ordinary
course of business at prevailing prices on or after the date hereof or
(B) prior to the date hereof which is not in excess of $50,000 in each
transaction or series of related transactions.
Concurrently with the delivery of the aforementioned list and as a part of
Exhibit 1.18(b), MSXI has been given copies of all written instruments
evidencing the items listed in Exhibit 1.18(b) and has also been given copies of
the forms of written purchase and sales orders used by the Company. The
aggregate purchase orders and purchase commitments outstanding on the date
hereof from the Company do not exceed $10,000.00. Such purchase orders and
purchase commitments may be cancelled at any time without penalty except as
otherwise described in Exhibit 1.18(c).
1.19 All of the agreements, contracts and commitments listed in Exhibit
1.18(b), and all of the agreements, contracts and commitments not listed by
reason of clause (i) or (ii) of Section 1.18, are valid and binding obligations
of the parties thereto in accordance with their respective terms and there has
occurred no event which would constitute any breach of or default in any
provision of any such agreement, contract or commitment or which would permit
the acceleration or termination of any obligation of any party thereto or the
creation of a lien or encumbrance upon any asset of the Company or which would
give rise to any of the foregoing upon the giving of notice or lapse of time. No
customer or supplier of the Company has notified the Company (including the
Stockholders and the officers and key employees of the Company) that it intends
to cease dealing with the Company or intends to alter in any material respect
the amount of such customer's or supplier's dealings with the Company, or would
alter in any material respect such dealings in the event of the consummation of
the transactions contemplated hereby.
1.20 All of the transactions of the Company have been conducted on an
arms-length basis or, in the case of transactions between the Company and any
current or former Stockholder or any entity in which the Company or any current
or former Stockholder had or has a direct or indirect interest (all of which
transactions since January 1, 1997, other than transactions between
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the Company and a wholly-owned subsidiary, are described in Exhibit 1.20(a)),
have been fair to the Company and on terms comparable to those which would have
prevailed in an arms-length transaction. No portion of the sales or other
ongoing business relationships of the Company is dependent upon the friendship
or the personal relationships (other than those customary within business
generally) of any Stockholder or any of the Company's or SBI's officers,
directors or other employees. To the knowledge of the Stockholders and the
Company, no employee of the Company has violated the published business policies
of any third party with respect to gifts, services or corporate business
practices. Except as are described in Exhibit 1.20(b), the Company does not have
outstanding loans or other advances directly or indirectly to or from any
Stockholder, any beneficiary of the Stockholder, any officer, director or
employee of the Company or SBI or any entity in which any Stockholder, any
beneficiary of any Stockholder or the Company has a direct or indirect interest,
other than travel advances in the usual and ordinary course of business. Exhibit
1.20(c) lists any officer or other key employee of the Company who terminated
employment with the Company since January 1, 1996. Neither the Company nor the
Stockholders has knowledge that any officer or other key employee of the Company
is considering the termination of employment. Neither the Company nor any person
acting on behalf of the Company has engaged in any business practice of the
nature referred to in the Report of the Securities and Exchange Commission
("SEC") dated May 12, 1976, on Questionable and Illegal Corporate Payments &
Practices. Since commencement of the period covered by the Financial Statements,
the Company has not forgiven or cancelled, without receiving full consideration,
any indebtedness owing to it by the Stockholders, any beneficiary of the
Stockholders, any officer, director or other employee of the Company or SBI, or
any entity in which the Stockholders, any beneficiary of the Stockholders or the
Company has a direct or indirect interest.
1.21 The Company has complied with all applicable laws, regulations,
orders and other requirements of governmental authorities (including with
respect to its business, assets, business practices, products and services). The
Company is not subject to any judicial, governmental or administrative order,
judgment or decree. No litigation of any kind or nature or governmental or
administrative investigation or proceeding to which it may be a party is now
pending or threatened, no claim which has not ripened into litigation or other
proceeding has been made or threatened against it, and no facts, circumstances
or conditions exist which might reasonably be expected to give rise to any such
claim, investigation, proceeding or litigation, in each case whether or not
covered by insurance. The Company has obtained all governmental licenses,
permits, approvals, authorizations, exemptions, classifications and certificates
material to the conduct of its business or to the ownership of its properties
(collectively referred to herein as "Licenses"). Exhibit 1.21 lists and includes
copies of all Licenses. The Company has no liability, and will not have any
liability following the Closing (as hereinafter defined), on account of (i)
nonconforming or defective services (including liability on account of
warranties) sold, provided or performed by or on behalf of the Company prior to
the Closing or (ii) the Company's working conditions as they exist at any time
prior to the Closing.
1.22 No employees of the Company are represented by a union or other
labor organization and no representation question exists respecting the
employees of the Company. The Company has complied with all applicable laws
affecting employment and employment
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practices, terms and conditions of employment and wages and hours, and has not
engaged in any unfair labor practice. There has been no complaint alleging
unfair labor practices against the Company filed with the National Labor
Relations Board. There has been no labor strike, dispute, slowdown or stoppage
pending or threatened against or affecting the Company. There has been no
grievance or arbitration proceeding against the Company arising out of or under
a collective bargaining agreement and no basis therefor exists. No agreement
that is binding on the Company restricts it from relocating or closing any of
its operations. The Company has not experienced any work stoppage or other labor
difficulty since January 1, 1995. There are no employee benefit plans of the
Company which are subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") other than those which are listed and
included as part of Exhibit 1.18(b). Each of such plans complies in all respects
with the Internal Revenue Code of 1986 and ERISA and the regulations thereunder
and no "Reportable Event" under ERISA or such regulations has occurred with
respect to any of such plans, and there exists no condition or set of
circumstances which could result in a Reportable Event. The value of all accrued
benefits are fully funded by the assets of such plans. Exhibit 1.22(a) consists
of copies of the most recent actuarial reports and trustee reports with respect
to each such plan. Since August 1, 1990 the Company has not participated in any
"multiemployer plan" as defined in ERISA. Exhibit 1.22(b) lists and describes
all "employee welfare benefit plans" and "employee pension benefit plans"
(within the meaning of Section 3(1) and 3(2), respectively, of ERISA) which have
been terminated since August 1, 1984. The terminations of all such employee
welfare and pension benefit plans have been approved by the Internal Revenue
Service and, in the case of any defined benefit pension plan, by the Pension
Benefit Guaranty Corporation. Exhibit 1.22(c) consists of copies of all Internal
Revenue Service "determination letters" received by the Company and all
approvals of the Pension Benefit Guaranty Corporation given in connection with
any existing or terminated plan.
1.23 Exhibit 1.23(a) lists all receivables written off or as to which a
reserve has been provided since December 31, 1997. All of the Company's
receivables of any nature, net of the reserve of $38,440.00 established on the
books of the Company as of the date hereof on a basis consistent with past
practice, will be collected in the usual and ordinary course of business without
resort to legal proceedings and will be paid in cash within 30 days of the
Closing Date. Exhibit 1.23(b) consists of aged accounts receivable trial
balances at December 31, 1998 and December 31, 1997.
1.24 Exhibit 1.24(a) lists all of the tangible personal property and
the ownership thereof which is either owned or used by the Company in its
business except for (i) items of finished inventory, work in process and raw
materials, (ii) items having an initial unit cost of $5,000 or less, and (iii)
items listed on Exhibit 1.24(c). Except as described in Exhibit 1.24(b), all
tangible personal property owned or used by the Company is situated at its
business premises and is currently used in its business. Exhibit 1.24(c) lists
or describes all tangible personal property owned by or an interest in which is
claimed by any other person (whether a customer, supplier or other person) for
which the Company is responsible (copies of all agreements relating thereto have
been delivered as part of Exhibit 1.18(b)), and all such property is in the
Company's actual possession and is in such condition that upon the return of
such property in its present condition
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to its owner, the Company will not be liable in any amount to such owner.
1.25 The copyrights, patents, invention disclosures, trademarks, trade
names and service marks, whether registered or common law, and all applications
therefor that are pending or in the process of preparation, and trade secrets,
secret processes and other proprietary rights of every kind and nature, in the
United States and in foreign countries (the "Rights") to the extent directly or
indirectly owned, licensed, used, required for use or controlled in whole or in
part by the Stockholders or a beneficiary of Stockholders in connection with the
business of the Company, or the Company or any officer, director or other
employee of the Company, are listed (or in the case of trade secrets and secret
processes, generally described) in Exhibit 1.25. Exhibit 1.25 also lists all
licenses and other agreements allowing the Company to use Rights of third
parties in the United States or foreign countries. Except as set forth in
Exhibit 1.25, the Company is the sole and exclusive owner of the Rights listed
in Exhibit 1.25, free and clear of any claims, liens, licenses, sublicenses,
charges or encumbrances and no governmental registration of any of the Rights
has lapsed, expired or been canceled, abandoned, opposed or the subject of a
re-examination request. There have been no claims, and there is no basis for any
claim, challenging the scope, validity or enforceability of any of the
copyrights, patents, trademarks, trade names or service marks. There are no
instances where it has been held, claimed, or alleged, whether directly or
indirectly, and none of the Stockholders nor the Company nor any officer,
director or other employee of the Company or SBI has any knowledge of any basis
upon which a claim may be made, that any of the Rights of the Company infringe
the Rights of any third party, or that any activity of any third party infringes
upon any of the Rights of the Company. Except as set forth in Exhibit 1.25, the
Company has been and is now conducting its business in a manner which has not
been and is not in violation of any Right of another and does not require a
license or other proprietary right to so operate its business.
1.26 Exhibit 1.26(a) sets forth the names, positions and annual
salaries of all officers and other non-hourly rated employees of the Company
receiving compensation at an annual rate (including bonuses, commissions and
other compensation) in excess of $25,000, together with the amount of bonuses
and description of agreements or arrangements for commissions and other
compensation or benefits of any nature to be paid or provided to any person
pursuant to agreement, custom or present understanding. Except for group
policies included in Exhibit 1.18(b), there is no insurance policy on the life
of any such officer or other person, the premium for which is paid, or
contributed to, by the Company, except as set forth in Exhibit 1.26(b), which
policies name the Company as the sole beneficiary.
1.27 Exhibit 1.27 contains a full and complete list of all policies of
insurance insuring the Company or its real and personal property against
casualty, liability and other risks, and such policies provide adequate coverage
for all risks normally insured against. All of the policies of insurance
described therein (copies of which have been delivered as part of Exhibit 1.18)
are in full force and effect as stated therein and the premiums therefor have
been paid as they became due and payable.
1.28 There are no facts, circumstances or conditions known to the
Stockholders or the
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Company which lead any of them to believe that the operating profit (before
interest income and interest expense, other non-operating income and expense,
and all taxes on income and prior to reflecting the inclusion of tax credits) of
the Company for calendar years 1999 and 2000 will be less than $3.3 million and
$3.6 million, respectively, except, in the case of 1999, for extraordinary
non-recurring legal fees.
1.29 The Stockholders have full power and authority to enter into this
Agreement and the agreements referred to in Section 3.02(v) and (vi) as to which
any Stockholder is individually a signatory (the "Ancillary Agreements") and to
consummate the transactions contemplated herein and therein. This Agreement has
been duly executed and delivered by the Stockholders and the Ancillary
Agreements, upon execution by such Stockholders, will have been duly executed
and delivered by such Stockholders, and each such agreement is or upon execution
will be a valid and binding obligation of the Stockholders enforceable in
accordance with its terms. Neither the execution of this Agreement or the
Ancillary Agreements by the Stockholders nor the consummation of the
transactions contemplated herein or therein by the Stockholders will constitute
or cause a breach or violation of any covenant or obligation binding upon such
Stockholder or affecting any of its properties. The Stockholders have complete
and unrestricted power to sell, assign and deliver to MSXI unencumbered
marketable title to the Shares. There are no restrictions upon the vesting in
MSXI of such title to the Shares, free and clear of liens, encumbrances and
other claims of any kind whatsoever, and such title vests in MSXI upon the
consummation of the transactions contemplated in this Agreement.
1.30 Neither the execution of this Agreement or the Ancillary
Agreements nor the consummation of the transactions contemplated herein or
therein (i) constitutes or cause a breach or violation of the charter or by-laws
of the Company, any license, franchise, lease, permit, approval or agreement to
which the Company is a party, or any other covenant or obligation binding upon
the Company or affecting any of its properties, (ii) causes a lien or other
encumbrance to attach to any of the Company's properties, or (iii) results in
the acceleration of or the right to accelerate any obligation under or the
termination of or the right to terminate any such license, franchise, lease,
permit, approval or agreement, or require a consent of any person to prevent
such breach, default, violation, lien, encumbrance, acceleration, right or
termination.
1.31 No approval of or filing with any foreign, federal, state or local
court, authority or administrative agency is necessary to authorize the
execution and delivery of this Agreement and the Ancillary Agreements by the
Company and the Stockholders or the consummation of the transactions
contemplated herein and therein by the Company and the Stockholders.
1.32 All assets of the Company are Year 2000 Compliant (as defined
below) except as listed on Exhibit 1.32. "Year 2000 Compliant" means that the
information technology accurately processes date/time data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations, to the extent that other information technology, used in
combination with the information technology being acquired, properly exchanges
date/time data with it.
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II
REPRESENTATIONS AND WARRANTIES
OF MSXI
MSXI represents and warrants to the Stockholders that the statements
contained in this Article II are correct and complete as of the date of this
Agreement:
2.01 MSXI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
2.02 MSXI has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated herein. This Agreement
has been duly executed and delivered by MSXI and is a valid and binding
obligation of MSXI enforceable in accordance with its terms. Neither the
execution of this Agreement by MSXI nor the consummation of the transactions
contemplated herein by MSXI will constitute or cause a breach or violation of
any covenants or obligations binding upon it or affecting any of its properties.
2.03 No approval of or filing with any federal, state or local court,
authority or administrative agency is necessary to authorize the execution of
this Agreement by MSXI or the consummation of the transactions contemplated
herein by MSXI.
2.04 MSXI (or its subsidiary to which its rights hereunder may be
assigned) is acquiring the Shares for its own account for investment and with no
present view to the distribution thereof within the meaning of the Securities
Act of 1933.
III
PURCHASE AND SALE
3.01 Concurrently with the execution and delivery of this Agreement and
subject to the terms and conditions hereof, the Stockholders hereby sell,
transfer and convey, and MSXI hereby purchases, the Shares owned by each
Stockholder.
3.02 Concurrently with the execution and delivery of this Agreement,
the Stockholders have delivered to MSXI the following:
i. certificates representing all of the Shares registered in
the name of the Stockholders, endorsed in blank or with accompanying
stock powers duly signed, in either such case with signatures
guaranteed by a national banking institution;
ii. a statement from each of the Stockholders and each officer
and director of the Company that each either waives or has no claim, as
may be appropriate, against the Company for unpaid dividends, bonuses,
profit sharing or rights or other claims of
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whatsoever kind, nature or description, except only salaries and fringe
benefits normally accrued and described in such statement;
iii.certificates of good standing from the appropriate
agencies certifying that the Company is in good standing in the
jurisdiction of its incorporation and in each of the jurisdictions in
which it is qualified to do business as a foreign corporation dated
within five (5) days of the date of this Agreement;
iv. a complete list as of the date hereof certified by the
Company's treasurer containing the names of all banks or any other
financial institution which are depositories of funds of the Company,
the names of all persons authorized to draw or sign checks or drafts
upon the accounts established in said banks, and the names and
locations of any institutions in which the Company may have safe
deposit boxes and the names of the persons having access thereto, and
copies of the resolutions of the Board of Directors of the Company
relating to the foregoing matters;
v. three agreements to preserve corporate opportunity
between each of the Stockholders, on the one hand, and MSXI, on the
other hand, in the form previously initialed by MSXI and the
Stockholders;
vi. an employment agreement between each of Sheerin and
Altman and the Company in the form previously initialed by MSXI and
Sheerin and Altman (the "Employment Agreements");
vii.an opinion of counsel to the Stockholders, dated as of
the date hereof and in the form of Schedule II hereto.
viii. a certificate dated the date of this Agreement signed
by the Stockholders representing that all liabilities of the Company at
the date of this Agreement which are not reflected in the Financial
Statements are only liabilities incurred since the date of the most
recent Financial Statements in the ordinary and usual course of
business, none of which were incurred in violation or contravention of
any provision of this Agreement. The delivery of such certificate shall
in no way diminish or supersede the representations and warranties of
the Stockholders made in this Agreement;
ix. resignations dated the date hereof of each director and
such of the officers of the Company as have been requested by MSXI;
x. an agreement by MSXI to use its reasonable best efforts
to obtain the release of Altman's guarantee of certain payment
obligations of the Company as described on Exhibit 3.02(x) and to
indemnify Altman for any amounts paid by Altman under such guarantees
upon the Company's improper failure to fulfill its obligations after
the date hereof;
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xi. an agreement or other instrument, in form and substance
satisfactory to MSXI, transferring from SBI to MSXI any and all rights
to indemnification by third parties that SBI may be entitled to with
respect to the Company; and
xii.duly executed agreements relating to non-competition
between each of Marian Lipton and Michael Waitzman and MSXI in the form
previously initialed by MSXI and the Stockholders.
3.03 Concurrently with the execution and delivery of this Agreement,
MSXI has delivered to the Stockholder the following:
i. (a) The sum of $16.9 million (the "Closing Payment"),
allocated among the Stockholders as follows:
Name Amount
SBI $14.5 million
Altman $1.2 million
Sheerin $1.2 million
(b) The Stockholders, on the one hand, and MSXI, on the other
hand, hereby agree to pay to the other the Additional Payment (as
defined below) or the inverse thereof, as the case may be, as follows:
if the Additional Payment is a positive number, MSXI shall pay such
amount to the Stockholders (according to the following percentages: SBI
- 82.62%; Altman - 9.19%; Sheerin - 9.19%) at such time as the
Additional Payment is determined in accordance with Section 4.02
hereof. If the Additional Payment is a negative number, the
Stockholders shall pay the inverse of such number to MSXI (in the
percentages set forth above) at such time as the Additional Payment
Amount is determined in accordance with Section 4.02 hereof;
(c) "Additional Payment" shall mean the amount by which the
Net Tangible Book Value (as defined below) on the date hereof is more
than (or less than) Net Tangible Book Value reflected in the May 31
Balance Sheet. "Holdback Amount" means $3 million. "Net Tangible Book
Value" as of any date means the net book value of total assets less
current liabilities of the Company after the elimination of any net
inter-company balances due from or owing to SBI. "Purchase Price" means
the Closing Payment plus or minus the Additional Payment plus the
Holdback Amount.
ii. An escrow agreement by and among MSX, SBI and Solovay
Edlin & Eiseman, P.C., as escrow agent, in the form previously
initialed by MSX and SBI, with respect to the payment to SBI of the
Holdback Amount.
iii. an opinion of MSXI's counsel, dated as of the date of this
Agreement, to the effect that:
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(a) MSXI is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware;
(b) MSXI has full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated
herein; and
(c) This Agreement has been duly executed and delivered by
MSXI and is a valid and binding obligation of MSXI in accordance
with its terms.
3.04 Sheerin and Altman (the "Employee Stockholders") shall be eligible
to receive aggregate additional consideration for the sale of the Shares of the
Company for specific financial performance by the Company in twelve-month
periods ending September 30, 2000 and September 30, 2001 (the "Earnout
Opportunity"). The Earnout Opportunity shall be calculated as follows:
i. If EBIT of the Company for the twelve month period ended
September 30, 2000 ("2000 EBIT") exceeds $3,300,000, MSXI shall pay to
the Employee Stockholders an amount equal to 18.38% of ten times the
amount by which 2000 EBIT exceeds $3,300,000; and
ii. If EBIT of the Company for the twelve month period ended
September 30, 2001 ("2001 EBIT") exceeds the greater of $3,300,000 or
2000 EBIT, MSXI shall pay to the Employee Stockholders an amount equal
to 18.38% of ten times the amount by which 2001 EBIT exceeds the
greater of $3,300,000 or 2000 EBIT;
provided, however, that in no event shall the total (a) aggregate payment of
Purchase Price (which includes, for purposes hereof, the Earnout Opportunity) to
the Employee Stockholders exceed $7,500,000 and (b) payment to any Employee
Stockholder exceed $3,750,000; and provided, further, that an Employee
Stockholder shall not be eligible to receive any payment of the Earnout
Opportunity in the event that he is not employed by MSXI at the time the Earnout
Opportunity is required to be paid to such Employee Stockholder except if such
failure to be employed is a result of termination of employment (a) as a result
of death or disability or (b) by MSXI without "cause" (as defined in the
Employment Agreements).
3.05 As used herein, the following terms have the respective meanings
set forth below:
"EBIT," for any period, shall mean the income of the Company,
without deduction for interest on borrowed money, considered
as an independent corporate entity (whether or not the Company
is one or more corporations and/or one or more divisions),
prior to any deduction for federal and state taxes measured by
earnings (other than any such taxes as have heretofore been
deducted by the Company in determining EBIT) and prior to
reflecting the inclusion of any tax credits, all determined in
accordance with generally accepted accounting principles
consistently applied but with the following adjustments:
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<PAGE> 17
(1) The amount by which any extraordinary gain and gain from the
sale, exchange or other disposition of property (other than inventory
sold in the ordinary course of business) exceeds the sum of any
extraordinary loss and any loss from the sale, exchange or other
disposition of such property shall be excluded in determining EBIT.
(2) Depreciation and amortization valuations for assets of the
Company as of the date hereof shall be based on asset valuation as
though the acquisition by MSXI of the Company had not been effected.
(3) Charges not above market rates (i.e., rates attainable from
unrelated third parties) for specific services rendered or paid by or
on behalf of MSXI for the Company shall be deemed an expense of the
Company for the period in which such services were rendered.
(4) An allocation of expense for MSXI services in the amount of
2% of the Value Added Sales charged monthly representing costs and
expenses for accounting services, cash management, payroll services,
human resource services, employee benefit management and other
corporate and divisional services actually provided by MSXI directly
for the benefit of the Company minus administrative expenses paid
directly by the Company with the written approval of MSXI. "Value Added
Sales" shall mean all sales recorded on the books of the Company on a
monthly basis derived from services rendered by employees of the
Company to Customers, and specifically excludes any sales recorded in
the nature of expense reimbursement.
(5) Any item of income or charge against income which is realized
or incurred in a period which deviates from normal business practice of
the Company (if not inconsistent with GAAP) and has the effect of
increasing or decreasing EBIT shall be allocated to the period to which
it properly belongs.
(6) In the case of an acquisition of a business placed under the
ownership or control of the Company, EBIT of the Company shall not
include EBIT of such business unless so agreed in writing by MSXI and
the Employee Stockholders.
Any adjustments to EBIT which vary from the terms set forth above must
be approved in writing by the Executive Vice President and Chief
Financial Officer of MSX International, Inc.
3.06 All determinations of EBIT for the Company, including all adjustments
thereto to prevent any such distortion in EBIT and other determinations in
accordance with the terms of this Agreement, shall be made and reported to MSXI
and the Employee Stockholders by the internal accounting staff utilized by MSXI
within 90 days after the end of the period for which such determination is being
made. The determination of such internal accounting staff shall be conclusive
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<PAGE> 18
and binding upon the parties hereto on the thirtieth day thereafter (or such
earlier date as MSXI is advised by the Employee Stockholders that the Employee
Stockholders accept such determination as conclusive and binding) unless the
Employee Stockholders within such thirty-day period provide to MSXI written
notice of objection to such determination, in which event the matter shall be
resolved by the Dispute Resolution Mechanism. Subject to the adjustments set
forth above, MSXI's accounting policies and practices shall be utilized in
determining EBIT as long as such policies are in accordance with generally
accepted accounting principles consistently applied. Any Earnout Opportunity
payments owed shall be paid within 10 days after the determination has become
conclusive and binding on the parties that such payment is due to the Employee
Stockholders. Such payment shall be made by check and mailed to the Employee
Stockholders at their address set forth herein.
3.07 MSXI and the Employee Stockholders shall submit any dispute
concerning the, Additional Payment or the Earnout Opportunity or the allocation
thereof to a jointly selected accounting firm (the "Settlement Firm") for
resolution. If MSXI and the Employee Stockholders cannot jointly agree on an
accounting firm to serve as the Settlement Firm, each party shall submit the
name of a national accounting firm (which firm shall not be either party's
accountants) to MSXI's outside counsel, who shall select one of such firms by
lot in the presence of a representative of the Employee Stockholders. The
decision of the Settlement Firm shall be final and binding on the parties and
the award of the Settlement Firm (as arbitrator) may be entered in any court of
competent jurisdiction. The fees and expenses of the Settlement Firm shall be
borne equally by MSXI and the Stockholders involved in the dispute. The
Settlement Firm shall be provided with reasonable access to information
necessary to effect the dispute resolution. The procedure described in this
Section 3.07 is referred to herein as the "Dispute Resolution Mechanism."
3.08 MSXI's obligations to pay Earnout Opportunity hereunder shall not
detract from MSXI's rights to operate the Company in such manner as MSXI shall
in good faith determine. MSXI and the Employee Stockholders do not owe a
fiduciary duty to each other in connection with the conduct of business as it
affects the Earnout Opportunity. However, the parties will always act in good
faith and give reasonable consideration to both the short term and long term
good of the Company.
IV
OTHER AGREEMENTS
4.01 To the extent that any lease, license, contract or commitment of
the Company requires consent or waiver of the other party upon a change in
control of the Company, then the Stockholders will take all reasonable measures
to assist in obtaining such consent or waiver and, to the extent such consent or
waiver is not obtained, the Stockholders shall, during the period through and
ending at the term of such contract, use its best efforts to provide MSXI with
the benefits of such contract on the same terms and conditions as currently set
forth in such contract.
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<PAGE> 19
4.02 Within 75 days of the date hereof, MSXI or its representatives
shall perform a review as of the date hereof of the Company's accounts for
purposes of determining the Net Tangible Book Value as of the date hereof and
the amount of the Additional Payment. MSXI shall furnish the Stockholders with a
written report with respect to such determinations. MSXI's determination and
report shall be conclusive and binding on the Stockholders unless the
Stockholders shall give written notice of objection thereto to MSXI within
fifteen days after the Stockholders' receipt of such report. If the Stockholders
give such notice of objection, the matter will be resolved in accordance with
the Dispute Resolution Mechanism. The amount owed to the Stockholders or MSXI,
as the case may be, shall be paid within 10 days after such amount is definitely
and finally determined.
4.03 (a) Except as expressly provided herein, SBI shall be liable for
and shall pay (i) any Taxes relating to the Company or any asset or business of
the Company that are attributable to any taxable period or portion thereof
ending on or prior to the date hereof (including periods subsequent to the end
of any tax period immediately preceding the date hereof and ending on the date
hereof), and (ii) any Taxes for which it is liable pursuant to Section 4.07
hereunder. In the event the Company or MSXI is required to pay any Taxes after
the Closing for which SBI has liability in accordance with the immediately
preceding sentence, SBI will reimburse MSXI for the payment of such Taxes upon
delivery to SBI by MSXI of documentation reasonably satisfactory to SBI
demonstrating payment of such liability.
(b) MSXI shall be liable for and shall pay all other Taxes
relating to the Company or any asset or business of the Company for which SBI is
not liable pursuant to the provisions of Sections 4.03(a) or 4.07.
4.04 (a) SBI shall prepare, or cause to be prepared, and file, or cause
to be filed, on a timely basis, consistent with all applicable laws, rules or
regulations, all Tax Returns relating to the business or assets of the Company
for all taxable periods ending on or prior to the date hereof (including but not
limited to any short period Tax Return for the period ending on the date
hereof). MSXI shall cause the Company to provide to SBI the data and
information, within its possession, reasonably necessary for SBI to file all
required Tax Returns for the Company for all taxable periods ending on or prior
to the date hereof. SBI shall provide MSXI for MSXI's review, comment and
reasonable approval, at least thirty (30) days prior to filing, with copies of
all Tax Returns which SBI or any of its Affiliates has the obligation to file
that relate to, include or result in any tax liability for the Company and SBI
and each of its Affiliates shall not take any filing position on such Tax
Returns or otherwise make any elections that would have an adverse effect on the
Company.
(b) SBI shall provide MSXI all data and information within its
or its Affiliates' possession reasonably necessary for the Company to file all
required Tax Returns for the Company for all taxable periods ending after the
date hereof.
4.05 After the date hereof, each of MSXI and SBI shall make available
to the other, as
19
<PAGE> 20
reasonably required, and to any taxing authority (whether federal, state, local,
domestic or foreign), all information, records and documents relating to Taxes
or potential Taxes relating to the Company and shall preserve all such
information, records and documents until the expiration of any applicable
statute of limitations or extension thereof.
4.06 Any and all existing Tax sharing, allocation, compensation or like
agreements or arrangements that include the Company shall be terminated as of
the date hereof without liability to the Company or MSXI.
4.07 The Stockholders shall bear the cost of all excise, real property
transfer, stamp, filing, recordation or other similar Taxes payable in respect
of or as a consequence of the transfer of the shares of the Company hereunder.
4.08 SBI shall promptly notify MSXI, and MSXI shall promptly notify the
SBI, as the case may be, in writing upon receipt of notice of any pending or
threatened Tax audits, appeals or other administrative procedures or assessments
which may affect the Tax liabilities of the Company relating to a period with
respect to which the other is or may be liable for Taxes. SBI and/or Sheerin and
Altman, as applicable, at its/their sole cost and expense, shall represent
its/their own interest and the interest of the Company in any matter, including
any audit, examination, appeal, assessment, notice of deficiency or other
adjustment or proposed adjustment, or administrative or judicial proceeding, the
settlement of any of the foregoing, or the filing of any amended return
involving a liability for Taxes relating to a period with respect to which SBI
and/or Sheerin and Altman, as applicable, is liable pursuant to this Article IV.
SBI and/or Sheerin and Altman, as applicable, shall not settle any of the
foregoing if such settlement would have an adverse impact on or result in Tax
liability to the Company or MSXI without the written consent of MSXI. MSXI, at
its sole cost and expense, shall represent its own interest and the interests of
the Company in any Tax matters involving a liability for Taxes relating to a
period with respect to which MSXI has liability pursuant to this Article IV.
MSXI and SBI and/or Sheerin and Altman, as applicable, shall cooperate fully
with each other and their respective counsel in the defense or compromise of any
Tax matter for which either or both could be liable including, without
limitation, the provision of any necessary powers of attorney.
4.09 In the event, subsequent to MSXI's acquisition of the Company from
the Stockholders, the Company generates net operating losses which may be
carried back to a preacquisition period and which can result in a refund claim
for a consolidated return year, SBI hereby agrees to make timely claim for such
refund and to remit to MSXI the full amount of such refund upon receipt or
immediately thereafter.
4.10 SBI shall make a protective election under Treasury Regulations
Section 1.1502-95(e), on a timely basis, if requested by MSXI.
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<PAGE> 21
V
INDEMNIFICATION
5.01 Without limiting any other rights or remedies available to MSXI,
the Stockholders shall, jointly and severally, indemnify, defend and hold
harmless MSXI, the Company and their respective affiliates and the respective
officers, directors, employees and shareholders of the foregoing from, against
and with respect to any claim, liability, obligation, loss, damage, assessment,
judgment, cost and expense (including reasonable attorney's and accountant's
fees and costs and expenses reasonably incurred in investigating, preparing,
defending against or prosecuting any litigation or claim, action, suit,
proceeding or demand, penalties and interest), of any kind or character (and
without giving effect to any tax benefit to the indemnified party) (a "Loss"),
arising out of or in any manner incident, relating or attributable to (i) any
inaccuracy in any representation or breach of any warranty of the Stockholders
or the Company contained in this Agreement or in any certificate, instrument of
transfer or other document or agreement executed by the Stockholders or the
Company in connection with this Agreement or otherwise made or given in
connection with this Agreement, (ii) any failure by the Company or the
Stockholders to perform or observe, or to have performed or observed, in full,
any covenant or agreement to be performed or observed by either of them under
this Agreement or under any certificates or other documents or agreements
executed by the Stockholders or the Company in connection with this Agreement,
(iii) claims relating to the adequacy of the consideration to be received by the
Stockholders, (iv) the Company's handling, storage, use, disposal, delivery for
disposal or generation of hazardous or toxic substances, wastes of any kind or
similar materials at any time prior to the date hereof or the contamination of
the Properties or the Prior Properties with or by pollutants, wastes, or any
other substances, (v) any agreements, contracts, negotiations or other dealings
by the Stockholders or the Company with any person concerning the ownership or
sale of the capital stock or business of the Company, (vi) any loss or claim
with respect to (x) any liability of the Company not recorded in the Financial
Statements or (y) any liability of SBI or its Affiliates, provided that Altman
and Sheerin shall not have any liability to MSXI with respect to this clause
(y), and (vii) any guaranty to which the Company is a party and which guarantees
amounts payable by, or obligations of, any person or entity other than the
Company.
5.02 Notwithstanding the foregoing or anything to the contrary
contained in this Agreement:
(a) Each Stockholder shall be responsible (i) only for his or its
Pro Rata Share (as defined below) of each Loss and (ii) for an aggregate
amount of Losses limited to the amount of consideration such Stockholder
received or will receive hereunder;
(b) Entitlement to indemnification pursuant to this Article
V shall be conditioned upon a claim being submitted in writing by MSXI to the
Stockholders within the following time periods:
(i) with respect to Losses claimed pursuant to 5.01(i),
prior to the expiration of such representations and warranties
as set forth in Section 6.04;
(ii) with respect to Losses claimed pursuant to 5.01 (ii),
(iii),
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<PAGE> 22
(v) and (vi)(y) at any time after the date hereof;
(iii) with respect to Losses claimed pursuant to 5.01(iv),
prior to the eighth anniversary of the date hereof;
(iv) with respect to Losses claimed pursuant to 5.01(vi)
(x) or (vii), prior to the third anniversary of the date
hereof.
(c) The Stockholders shall have no obligation to indemnify
MSXI under this Article V until such time, if any, as the aggregate amount of
all Losses exceeds $50,000 and the only to the extent of such excess; provided,
however, such limitation shall not apply to any breaches of the representation
contained in Section 1.23.
(d) No Stockholder shall be liable for any indemnification
amount due with respect to the breach of any Ancillary Agreement by another
Stockholder; provided, however, there shall be no limit to the indemnification
obligations of such breaching Stockholder and the limitations provided in this
Section 5.02 and Section 5.03 hereof shall not apply to any Loss related to any
such breach.
5.03 Notwithstanding anything to the contrary contained in this
Agreement, the foregoing limitations contained in paragraphs (a) and (c) of
Section 5.02 shall not apply to any claim for indemnification arising out of or
in any manner incident, relating or attributable to an inaccurate or incorrect
representation or warranty which, when made by any Stockholder was to such
Stockholder's knowledge inaccurate or incorrect (whether or not MSXI had actual
knowledge of such inaccuracy or incorrectness).
5.04 For purposes of this Article V, "Pro Rata Share" shall mean the
following with respect to each Stockholder: SBI - 87.94%; Altman - 6.03%;
Sheerin - 6.03%.
5.05 The parties agree that any indemnification payments made pursuant
to this Agreement shall be treated for income Tax purposes as an adjustment to
the Purchase Price unless otherwise required by applicable law.
22
<PAGE> 23
VI
GENERAL
The following general provisions shall apply at all times from and
after the date of this Agreement.
6.01 The Stockholders represent and warrant to MSXI that the services
of a broker or finder have not been used by the Stockholders or the Company in
connection with any of the matters pertaining to the transactions contemplated
herein and that no broker's, finder's or financial advisor's fee will become
payable by MSXI or the Company by reason of the execution of this Agreement or
the consummation of the transactions contemplated herein and arising out of the
acts or omissions of or by the Stockholders. The Stockholders will hold harmless
and indemnify MSXI, the Company and their respective affiliates and the
officers, directors, employees and shareholders of the foregoing from and
against any claim for broker's, finder's or financial advisor's fees, including
costs or expenses incurred in connection with the defense of any suit claiming
such fees, or in any other manner pertaining to claims for such fees, which may
become payable by reason of the acts or omissions of the Stockholders. MSXI
shall hold harmless and indemnify the Stockholders from and against any claim
for broker's, finder's, or financial advisor's fees, including costs or expenses
incurred in connection with the defense of any suit claiming such fees, or in
any other manner pertaining to claims for such fees, which may become payable by
the Stockholders solely by reason of the acts or omissions of MSXI.
6.02 Except as required by applicable law, none of MSXI or the
Stockholders shall issue any press release or make any public announcement
relating to the subject matter of this Agreement without the prior written
approval of MSXI.
6.03 This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Michigan without giving effect to any
choice or conflict of law provision or rule (whether of the State of Michigan or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Michigan.
6.04 The Ancillary Agreements shall survive the Closing in accordance
with their terms. The representations, warranties and other agreements herein
contained shall survive the Closing, and notwithstanding any investigation by a
party hereto or such party's actual knowledge of any inaccuracy in any
representation or any breach of warranty or covenant, shall continue in full
force and effect after the Closing subject, however, to the following
limitations upon survival of the representations and warranties: (a) the
representations and warranties of the Stockholders contained in Sections 1.01,
1.02, 1.07, 1.14, 1.15, 1.23, 1.29 and 1.30 shall survive without limit; (b) the
representations and warranties of the Stockholders contained in Section 1.17
shall expire on the eighth anniversary of the Closing; (c) the representations
and warranties of the Stockholders contained in Section 1.08, 1.18, 1.19, 1.21,
1.22 and 1.25 shall expire 90 days after the expiration of the relevant statute
of limitations; (d) the representations and warranties of the Stockholders
contained in Section 1.32 shall expire on the eighteen month anniversary of the
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<PAGE> 24
Closing Date; (e) all other representations and warranties of the Stockholders
shall expire twenty-four months after the Closing; and (f) the representations
and warranties of Buyer shall survive without limit except that the
representations and warranties contained in Section 2.03 shall expire 90 days
after the expiration of the relevant statute of limitations.
6.05 Except for the Ancillary Agreements, this Agreement (which term,
as used in this Agreement, includes the Schedules and Exhibits referred to
herein) constitutes the entire agreement among the parties pertaining to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, and there are no representations, warranties, covenants or other
agreements among the parties in connection with the subject matter hereof except
as set forth specifically herein. No amendment, supplement, modification, waiver
or termination of this Agreement shall be implied or be binding (including any
alleged waiver based on a party's knowledge of any inaccuracy in any
representation or any breach of warranty or covenant contained herein) unless in
writing and signed by the party against which such amendment, supplement,
modification, waiver or termination is asserted. No waiver of a provision of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly therein provided.
6.06 All of the terms and provisions of this Agreement by or for the
benefit of the parties shall be binding upon and inure to the benefit of their
respective successors, permitted assigns, heirs and personal representatives.
The rights and obligations provided by this Agreement shall not be assignable,
except by MSXI (without discharge of its obligations hereunder) to a subsidiary
or affiliate or a successor to its business, and, except as expressly provided
herein, nothing herein is intended to confer upon any person other than the
parties and their successors, any rights or remedies under or by reason of this
Agreement.
6.07 All instruments or documents to be delivered by any party to this
Agreement shall be in form and content reasonably satisfactory to the counsel
for the party receiving such instrument or document. Each Exhibit shall be
identified by a cover page and initialed on each page for purposes of
identification on behalf of the Stockholders by an officer of the Company or
counsel for the Stockholders. MSXI's authorized representative shall likewise
initial each page thereof solely for purposes of identification and to
acknowledge receipt thereof. Each Exhibit shall be deemed an integral part of
this Agreement.
6.08 This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
6.09 The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the
24
<PAGE> 25
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
term "including" shall mean including but not limited to. The term "knowledge"
(which applies only to the Stockholders) means that any of the Stockholders has
in his or its possession a writing with the information in question or that the
information, after due investigation, is known by Sheerin, Altman or any of the
officers, directors or employees of the Company or SBI. The parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty, or covenant. Any term
or provision of this Agreement that is invalid or unenforceable in any situation
in any jurisdiction shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or enforceability of the
offending term or provision in any other situation or in any other jurisdiction.
6.10 Each of the parties acknowledges and agrees that the other
parties would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties agrees that the other parties
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter,
in addition to any other remedy to which they may be entitled, at law or in
equity.
6.11 All notices, requests, demands, claims and other communications
hereunder shall be in writing. Any such written communication shall be deemed to
have been duly given (except as may otherwise be specifically provided herein to
the contrary), and shall be deemed sufficient to preserve the rights of the
sending party, if either (i) mailed by certified or registered mail, with
postage prepaid by sender, or shipped by express courier service, with charges
prepaid by sender and receipted for by or on behalf of the intended recipient,
in each case to the following address (or to such other address as any party may
designate for himself or itself by notice to the other parties given pursuant
hereto), or else (ii) delivered by hand and receipted for by or on behalf of the
intended recipient:
25
<PAGE> 26
If to MSXI to: Chief Executive Officer
MSX International, Inc.
275 Rex Boulevard
Auburn Hills, Michigan 48326
with copies to: Vice President and General
Counsel
MSX International, Inc.
275 Rex Boulevard
Auburn Hills, Michigan 48326
and
Solovay Edlin & Eiseman, P.C.
845 Third Avenue
New York, New York 10022
Attention: Michael B. Solovay, Esq.
If to the
Stockholders to: Chelsea Computer Consultants, Inc.
156 Fifth Avenue
New York, New York 10010
Attention: Raymond Sheerin
Michael Altman
and
Chief Executive Officer
Staff Builders, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
with a copy to: Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Richard L. Posen, Esq.
26
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MSX INTERNATIONAL ENGINEERING SERVICES,
INC.
By: /s/Carol Creel
----------------------------------
Name: Carol Creel
Title: Vice President and Assistant
Secretary
STOCKHOLDERS:
/s/Raymond Sheerin
-------------------------------------
Raymond Sheerin
/s/Michael Altman
-------------------------------------
Michael Altman
STAFF BUILDERS, INC.
By: /s/Stephen Savitsky
---------------------------------
Name: Stephen Savitsky
Title: Chief Executive Officer
THE COMPANY:
CHELSEA COMPUTER CONSULTANTS, INC.
By: /s/Michael Altman
---------------------------------
27
<PAGE> 28
Schedule I
Text of Counsel Opinion
(Note: Capitalized words have their respective meanings assigned to them in the
Agreement)
A. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of _________, has full corporate power
and authority to own its properties and to carry on its business as now
conducted and, to the best knowledge of such counsel, is in good standing and
duly qualified to conduct business as a foreign corporation in each jurisdiction
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification.
B. The Company's authorized capitalization consists of 1,000 shares of
common stock, $1.00 par value (the "Common Stock"), of which 919 shares (the
"Shares") are issued and outstanding as of the date hereof. The number of the
Shares issued, outstanding and owned by each of the Stockholders is set forth on
Exhibit 1.02 to the Agreement. Except as set forth on Exhibit 1.02, the Shares
are free and clear of all liens, encumbrances and claims. No other shares of
capital stock of the Company are authorized, issued or outstanding. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable. To the best knowledge of such counsel, there are no
options, calls, warrants or other securities or rights outstanding which are
convertible into, exercisable for or relate to any shares of capital stock of
the Company.
C. The Stockholders each have full power and authority to enter into
the Agreement and the Ancillary Agreements to which they are signatory and to
consummate the transactions contemplated therein. The Agreement and the
Ancillary Agreements have been duly executed and delivered by the Stockholders
and each such agreement is a valid and binding obligation of the Stockholders
enforceable in accordance with its terms.
D. To the best knowledge of such counsel, there is not now pending or
threatened any litigation of any kind or nature or any governmental or
administrative investigation or proceeding to which the Company is or may be a
party except as disclosed in the Exhibits to the Agreement.
E. Neither the execution of the Agreement or the Ancillary Agreements
by the Stockholders or the Company nor the consummation of the transactions
contemplated therein will constitute or cause a breach or violation of the
charter or by-laws of the Company or, to the best knowledge of such counsel,
will (i) constitute or cause a breach or violation of any material license,
franchise, lease, permit, approval or agreement to which the Company is a party,
or any other material covenant or obligation binding upon any of the Company and
the Stockholders or affecting any of their respective properties, (ii) cause a
lien or other encumbrance to attach to any
<PAGE> 29
of the Company's properties, or (iii) result in the acceleration of or the right
to accelerate any obligation under or the termination of or the right to
terminate any such license, franchise, lease, permit, approval or agreement, or
require a consent of any person to prevent such breach, default, violation,
lien, encumbrance, acceleration, right or termination.
F. To the best knowledge of such counsel, no approval of or filing with
any federal, state or local court, authority or administrative agency which has
not been obtained or made is necessary to authorize the execution and delivery
of the Agreement and the Ancillary Agreements by the Company and the
Stockholders or the consummation of the transactions contemplated by the
Agreement and the Ancillary Agreements by the Company and the Stockholders.
G. The Shares have been duly transferred and sold to MSXI and good and
valid title thereto, free and clear of all liens, encumbrances and claims, has
been transferred to MSXI (assuming that MSXI is without notice, under Section
8-304 of the Uniform Commercial Code, of any adverse claim with respect to the
Shares)
