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As filed with the Securities and Exchange Commission on June 29, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MSX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 7363 38-3323099
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification No.)
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MSX International Business Services, Inc. ........................ 7363 38-3323109
MSX International Engineering Services, Inc. ..................... 8711 38-3323110
MSX International (Holdings), Inc. ............................... 6719 38-3325699
MSX International (USA), Inc. .................................... 6719 38-3325698
MSX International Technology Services, Inc. ...................... 7363 38-2703800
(Exact name of registrant as specified in its charter)............ (Primary Standard Industrial (I.R.S. Employer
Classification Code Identification No.)
Number)
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DELAWARE
(State or other jurisdiction of
incorporation or organization)
275 Rex Boulevard
Auburn Hills, Michigan 48326
(248) 299-1000
(Address and telephone number of registrant's principal executive offices)
Carol Creel
Vice President and General Counsel
275 Rex Boulevard
Auburn Hills, Michigan 48326
(248) 299-1000
(Name, address and telephone number of agent for service)
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Copies to:
DAVID W. FERGUSON, ESQ.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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CALCULATION OF REGISTRATION FEE
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Amount Proposed Proposed
Titles of Each Class of to be Maximum Offering Maximum Aggregate Amount of
Securities to be Registered Registered Price Per Note(1) Offering Price(1) Registration Fee
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11 3/8% Senior Subordinated Notes
due 2008....................... $30,000,000 100% $30,000,000 $8,340
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Guarantees of 11 3/8% Senior
Subordinated Notes due 2008.... (2) (2) (2) (2)
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(1) Estimated pursuant to Rule 457(f) solely for the purposes of calculating the
registration fee.
(2) Pursuant to Rule 457(n), no registration fee is required with respect to the
Guarantees of the Senior Subordinated Notes registered hereby.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON THE DATE THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED JUNE 29, 1999
OFFER TO EXCHANGE
11 3/8% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
FOR ANY AND ALL OUTSTANDING
11 3/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
MSX INTERNATIONAL, INC.
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED.
We are offering to exchange up to $30,000,000 aggregate principal amount of
our 11 3/8% Senior Subordinated Notes due 2008, Series B (the "exchange notes"),
which have been registered under the Securities Act of 1933, for $30,000,000
aggregate principal amount of our existing 11 3/8% Senior Subordinated Notes due
2008, Series B (the "old notes" or the "Series B Notes" and, together with the
exchange notes and our currently outstanding $100,000,000 aggregate principal
amount of 11 3/8% Senior Subordinated Notes, the "Notes"). This $100,000,000
aggregate principal amount of notes was originally issued pursuant to Rule 144A
and Regulation S under the Securities Act in January 1998 and exchanged for
registered notes in August 1998 in an exchange offer similar to this offer. The
$100,000,000 issuance is sometimes referred to in this prospectus as the Series
A Notes. We are offering to issue the exchange notes to satisfy our obligations
contained in the registration agreement entered into when the old notes were
sold in transactions pursuant to Rule 144A and Regulation S under the Securities
Act and therefore not registered with the SEC.
The terms of the exchange notes are identical in all material respects to
the terms of the old notes, except that the exchange notes have been registered
under the Securities Act, and certain transfer restrictions and registration
rights relating to the old notes do not apply to the exchange notes.
Exchange Offer:
- You must complete and send the letter of transmittal that accompanies
this prospectus to the exchange agent, IBJ Whitehall & Trust Company,
by 5:00 p.m, New York City time, on .
- If your old notes are held in book-entry form at the Depository Trust
Company (DTC), you must instruct DTC through your signed letter of
transmittal that you wish to exchange your old notes for exchange
notes. When the exchange offer closes, your DTC account will be
changed to reflect your exchange of old notes for exchange notes.
- You should read the section titled "The Exchange Offer" for additional
information on how to exchange your old notes for exchange notes.
- We will not receive any proceeds from the exchange offer.
The notes are our general unsecured senior subordinated obligations and are
subordinated in right of payment to all of our senior indebtedness, including
any borrowings under our credit facility. At April 4, 1999, we had approximately
$118.9 million of outstanding senior indebtedness.
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF THE OLD NOTES PRIOR TO TENDERING THEIR
OLD NOTES FOR THE EXCHANGE NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE EXCHANGE NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999.
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TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS................................................................... 2
PROSPECTUS SUMMARY........................................................................... 3
RISK FACTORS................................................................................. 13
USE OF PROCEEDS.............................................................................. 19
CAPITALIZATION............................................................................... 19
PRO FORMA FINANCIAL DATA..................................................................... 20
SELECTED FINANCIAL AND OTHER DATA............................................................ 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................. 31
BUSINESS..................................................................................... 40
MANAGEMENT................................................................................... 46
PRINCIPAL STOCKHOLDERS....................................................................... 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................... 51
DESCRIPTION OF CAPITAL STOCK................................................................. 53
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS.................................................... 55
THE EXCHANGE OFFER........................................................................... 57
DESCRIPTION OF NOTES......................................................................... 63
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....................................... 90
PLAN OF DISTRIBUTION......................................................................... 91
LEGAL MATTERS................................................................................ 91
EXPERTS...................................................................................... 91
AVAILABLE INFORMATION........................................................................ 92
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................... F-1
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FORWARD-LOOKING STATEMENTS
This prospectus contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "estimates," "will," "should,"
"plans" or "anticipates" or other variations thereon or comparable terminology,
or by discussions of strategy. These forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties. Actual results may vary materially from those in the
forward-looking statements as a result of any number of factors, many of which
are beyond the control of management. These factors include, but are not limited
to, MSX International's leverage, its reliance on major customers in the
automotive industry, the degree and nature of competition, MSX International's
ability to recruit and place qualified personnel, risks associated with its
acquisition strategy, and employment liability risk.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the related notes) included
elsewhere in this prospectus.
THE COMPANY
MSX International, Inc. ("MSXI") is a leading supplier of people and
technology-driven engineering and business services, principally to the
automotive industry in the United States and Europe, with the capability to
provide services on a worldwide basis. Through internal growth and acquisitions,
MSXI is now a single source provider of a broad range of complementary
outsourcing services, provided both at customer and MSXI facilities. Services
offered by MSXI include technical and professional contract staffing; product
development services; training services; digital document and information
storage and retrieval; process improvement consulting; comprehensive marketing
information processing and teleservices. MSXI is also a provider of purchasing
support services, which include processes to manage the procurement of staffing,
training and other professional services.
MSXI is a Delaware holding company formed in 1996 and owned by Citicorp
Venture Capital Ltd. ("CVC"), MascoTech, Inc. ("MascoTech") and certain members
of management. On January 3, 1997, MSXI acquired (the "TSG Acquisition")
selected assets and operations of the former engineering and technical business
service units of MascoTech Automotive Systems Group, Inc. ("MASG") and
MascoTech. Through the consummation of the TSG Acquisition, MSXI also acquired
(the "APX Acquisition") the net assets of APX International ("APX") which
previously had been acquired by MASG as of November 6, 1996. All references
herein to MSXI, unless the context otherwise requires, shall mean MSX
International, Inc., including its consolidated subsidiaries, and its
predecessor for accounting purposes, the Technical Services Group of MascoTech
("TSG").
Effective August 31, 1997, MSXI acquired (the "GRI Acquisition") all of the
issued and outstanding stock of Geometric Results Incorporated ("GRI") from Ford
Motor Company ("Ford"). In connection with this acquisition, MSXI entered into
two five-year agreements with Ford to manage certain temporary staffing
procurement services for Ford (the "Ford Master Vendor Agreement") and to
continue providing certain general business services (the "Ford Master Supply
Agreement").
By adding GRI's capabilities to its traditional strength in technical
staffing and design and engineering services, MSXI expanded its ability to sell
a broad range of complementary services to both existing and new customers
within and outside the automotive industry. MSXI believes that it is the only
company currently providing such a broad range of services to the automotive
industry on a worldwide basis.
In January 1998, MSXI completed the private placement of $100 million of
the Series A Notes. In August 1998, MSXI exchanged these notes for publicly
registered notes.
Since January 1998, MSXI has completed seven acquisitions and made two
equity investments. These transactions have expanded MSXI's geographic coverage,
service offerings, and reach to customers outside the automotive industry.
MSXI employed or sourced over 12,000 individuals at 64 operating facilities
in 23 countries as of January 3, 1999. MSXI continues to pursue a dual growth
strategy focused on both internal development and complementary acquisitions.
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THE EXCHANGE OFFER
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The Exchange Offer................................... Up to $30 million aggregate principal amount of exchange
notes are being offered in exchange for a like aggregate
principal amount of old notes. We are making the
Exchange Offer in order to satisfy our obligations under
the registration agreement relating to the old notes.
For a description of the procedures for tendering old
notes, see "The Exchange Offer - Procedures for
Tendering Old Notes."
Expiration Time...................................... 5:00 p.m., New York City time, on , 1999 (the
"expiration time") unless the Exchange Offer is extended
by MSXI (in which case the term "expiration time" means
the latest date and time to which the Exchange Offer is
extended). Any waiver, extension or termination of the
Exchange Offer will be publicly announced by us through
a release to the Dow Jones News Service and as otherwise
required by applicable law or regulations. See "The
Exchange Offer - Terms of the Exchange Offer; Period for
Tendering Old Notes."
Certain Conditions to the
Exchange Offer....................................... The Exchange Offer is subject to certain conditions. We
reserve the right, subject to applicable law, at any
time and from time to time, (1) to delay the acceptance
of the old notes for exchange, (2) to terminate the
Exchange Offer if certain specified conditions have not
been satisfied, (3) to extend the expiration time of the
Exchange Offer and retain all old notes tendered
pursuant to the Exchange Offer, subject, however, to the
right of holders of old notes to withdraw their tendered
old notes, or (4) to amend the terms of the Exchange
Offer in any respect. See "The Exchange Offer - Terms of
the Exchange Offer; Period for Tendering Old Notes" and
" - Certain Conditions to the Exchange Offer."
Withdrawal Rights.................................... Tenders of old notes may be withdrawn at any time prior
to the expiration time by delivering a written notice of
this withdrawal to the exchange agent in conformity with
certain procedures set forth below under "The Exchange
Offer - Withdrawal Rights."
Procedures for Tendering Old
Notes................................................ Tendering holders of old notes must complete and sign a
Letter of Transmittal in accordance with the
instructions contained therein and forward the same by
mail, facsimile or hand delivery, together with any
other required documents, to the exchange agent (as
defined below) at the address set forth herein by the
expiration time, either with the old notes to be
tendered or in compliance with the specified procedures
for guaranteed delivery of old notes. Certain brokers,
dealers, commercial banks, trust companies
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and other nominees may also effect tenders by book-entry
transfer. We urge holders of old notes registered in the
name of a broker, dealer, commercial bank, trust company
or other nominee to contact this person promptly if they
wish to tender old notes pursuant to the Exchange Offer.
See "The Exchange Offer - Procedures for Tendering Old
Notes." Letters of transmittal and certificates
representing old notes should not be sent directly to us.
These documents should only be sent to the exchange agent.
Questions regarding how to tender and requests for
information should be directed to the Exchange Agent. See
"The Exchange Offer - Exchange Agent."
Guaranteed Delivery
Procedures........................................... Holders of old notes who wish to tender their old notes
and whose old notes are not immediately available or who
cannot deliver their old notes, a Letter of Transmittal
or any other document required by the Letter of
Transmittal to the exchange agent prior to the
expiration time, must tender their old notes according
to the guaranteed delivery procedures set forth in "The
Exchange Offer - Guaranteed Delivery Procedures."
Resales of exchange notes............................ We are making the Exchange Offer in reliance on the
position of the staff of the Division of Corporation
Finance of the Commission as set forth in certain
interpretive letters addressed to third parties in other
transactions. However, we have not sought our own
interpretive letter and there can be no assurance that
the staff of the Division of Corporation Finance of the
Commission would make a similar determination with
respect to the Exchange Offer as it has in previous
interpretive letters to third parties. Based on these
interpretations by the staff of the Division of
Corporation Finance, and subject to the two immediately
following sentences, we believe that exchange notes
issued pursuant to this Exchange Offer in exchange for
old notes may be offered for resale, resold and
otherwise transferred by a holder of exchange notes
(other than a holder who is a broker-dealer) without
further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided
that these exchange notes are acquired in the ordinary
course of the holder's business and that the holder is
not participating, and has no arrangement or
understanding with any person to participate, in a
distribution (within the meaning of the Securities Act)
of the exchange notes. However, any holder of old notes
who is an "affiliate" of MSXI or who intends to
participate in the Exchange Offer for the purpose of
distributing the exchange notes, or any broker-dealer
who purchased the old notes from MSXI to resell pursuant
to Rule 144A or any other available exemption under the
Securities Act, (a) will not be able to rely on the
interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the
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above-mentioned interpretive letters, (b) will not be
permitted or entitled to tender these old notes in the
Exchange Offer and (c) must comply with the registration
and prospectus delivery requirements of the Securities
Act in connection with any sale or other transfer of
these old notes unless the sale is made pursuant to an
exemption from these requirements.
Each holder of old notes who wishes to exchange old notes
for exchange notes in the Exchange Offer will be required
to represent that (1) it is not an "affiliate" of MSXI
within the meaning of Rule 405 under the Securities Act,
(2) any exchange notes to be received by it are being
acquired in the ordinary course of its business and (3) it
has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the
Securities Act) of the exchange notes.
Each broker-dealer that receives exchange notes for its
own account in exchange for old notes, where the old notes
were acquired as the result of market-making activities or
other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of
these exchange notes. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for
old notes where the old notes were acquired by the
broker-dealer for its own account as a result of
market-making or other trading activities. Subject to
certain provisions set forth in the Registration Agreement
and to the limitations described below under "The Exchange
Offer - Resale of Exchange Notes," MSXI has agreed that
this prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection
with any of these resales for a period ending 180 days
after the expiration time or, if earlier, when all the
exchange notes have been disposed of by the broker-dealer.
See "Plan of Distribution." Any holder who is an
"affiliate" of MSXI may not rely on these interpretive
letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange
Offer - Resales of Exchange Notes."
Acceptance of Old Notes and
Offer, Delivery of Exchange
Notes................................................ Subject to the terms and conditions of the Exchange
Offer, MSXI will accept for exchange any and all old
notes which are properly tendered in the Exchange Offer,
and not
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withdrawn, prior to 5:00 p.m. New York City time, on the
expiration time. Subject to these terms and conditions,
the exchange notes issued pursuant to the Exchange Offer
will be delivered promptly following the expiration time.
See "The Exchange Offer - Acceptance of Old Notes for
Exchange; Delivery of Exchange Notes."
Exchange Agent....................................... The exchange agent with respect to the Exchange Offer is
IBJ Whitehall Bank & Trust Company (the "exchange agent").
The addresses and telephone and facsimile numbers of the
exchange agent are set forth in "The Exchange Offer -
Exchange Agent" and in the letter of transmittal.
Material United States Federal
Income Tax Consequences.............................. The exchange of old notes for exchange notes pursuant to
the Exchange Offer is not a taxable event for U.S.
federal income tax purposes.
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THE EXCHANGE NOTES
The following summary description of the exchange notes is qualified in its
entirety by the more detailed information set forth under the caption
"Description of Notes" contained elsewhere in this prospectus.
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Exchange Notes....................................... Up to $30 million aggregate principal amount of 11 3/8%
Senior Subordinated Notes due 2008. The exchange notes
will be issued and the old notes were issued under the
indenture, dated January 15, 1998 (the "Indenture"). The
terms of the exchange notes are identical in all
material respects to the terms of the old notes, except
that the offer and sale of the exchange notes have been
registered under the Securities Act and therefore the
exchange notes are not subject to certain restrictions
on transfer applicable to the old notes, will not
contain legends relating thereto and will not be
entitled to registration rights or other rights under
the Registration Agreement. See "The Exchange Offer -
Purpose of the Exchange Offer" and "Description of
Notes."
Maturity Date........................................ January 15, 2008.
Interest Payment Dates............................... January 15 and July 15 of each year, commencing July 15,
1999.
Subsidiary Guarantees................................ The exchange notes have been guaranteed on a senior
subordinated basis by each Domestic Restricted Subsidiary
that is an Obligor or Guarantor with respect to any
obligations under one or more Bank Credit Agreements.
Subordination........................................ The exchange notes and the Subsidiary Guarantees will be
general unsecured senior subordinated obligations of
MSXI and the Subsidiary Guarantors, as applicable. The
exchange
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notes and the Subsidiary Guarantees will be subordinated
in right of payment to the prior payment in full of all
existing and future Senior Indebtedness, and will rank
pari passu with all present and future Senior Subordinated
Indebtedness and senior to all present and future
Indebtedness (as defined) that is by its terms expressly
subordinated to the Notes. As of April 4, 1999, after
giving pro forma effect to the offering of the old notes,
and the acquisitions of Management Resources International,
Inc. and Rice Cohen International, Inc., MSXI had $104.5
million of outstanding Senior Indebtedness and the Subsidiary
Guarantors had $87.6 million of outstanding Senior
Indebtedness. See "Description of Notes - Subordination."
Sinking Fund......................................... None.
Optional Redemption.................................. The exchange notes will be redeemable at the option of
MSXI, in whole or in part, at any time on or after
January 15, 2003, at the redemption prices set forth
herein plus accrued and unpaid interest, if any, to the
date of redemption. See "Description of Notes - Optional
Redemption." In addition, at any time prior to January
15, 2001, MSXI may redeem, at its option, up to an
aggregate amount of 35% of the original principal amount
of exchange notes with the proceeds of one or more
Public Equity Offerings following which there is a
Public Market at a redemption price of 111.375% of the
principal amount the exchange notes plus accrued and
unpaid interest, if any, to the redemption date,
provided that at least 65% of the original aggregate
principal amount of exchange notes remains outstanding
immediately after each one of these redemptions.
Change of Control.................................... Upon the occurrence of a Change of Control, each holder
of exchange notes will have the right to require MSXI to
repurchase all or a portion of its exchange notes at a
price in cash equal to 101% of the aggregate principal
amount of these notes, plus accrued and unpaid interest,
if any, to the date of repurchase. In the event of a
Change in Control, there can be no assurance that MSXI
will have the financial resources or be permitted under
the terms of its other indebtedness to repurchase or
redeem the exchange notes. See "Description of Notes
Change of Control."
Certain Covenants.................................... The indenture pursuant to which the exchange notes will
be issued contains certain covenants that, among other
things, will limit the ability of MSXI and its Restricted
Subsidiaries (as defined) to:
- incur additional Indebtedness (as defined),
- make Restricted Payments (as defined),
- sell assets of MSXI and its Restricted
Subsidiaries,
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- issue or sell capital stock (as defined) of a
Restricted Subsidiary,
- enter into certain transactions with affiliates,
- create certain liens,
- enter into certain mergers and consolidations and
- incur Indebtedness which is subordinate to
Senior Indebtedness and senior to the exchange notes.
The covenants are subject to a number of significant
exceptions and qualifications. See "Description of Notes
Certain Covenants."
Possible Limited Market for the Exchange Notes....... The exchange notes will trade as a single class with
MSXI's existing $100,000,000 aggregate principal amount
of registered notes, for which there is a limited
trading market. There can be no assurance as to the
liquidity of any market for the exchange notes. We
currently do not intend to apply for listing of the
notes on any securities exchange or for quotation
through Nasdaq.
Use of Proceeds...................................... We will not receive any cash proceeds from the issuance
of the exchange notes.
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MATERIAL CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The sale of the old notes was not registered under the Securities Act or
any state securities laws and therefore the old notes may not be offered, sold
or otherwise transferred except in compliance with the registration requirements
of the Securities Act and any other applicable securities laws, or pursuant to
an exemption from these laws or in a transaction not subject to these laws, and
in each case in compliance with other conditions and restrictions, including
MSXI's and the Trustee's right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any proposed
transfer. Old notes which remain outstanding after completion of the Exchange
Offer will continue to bear a legend reflecting these restrictions on transfer.
In addition, upon completion of the Exchange Offer, holders of old notes which
remain outstanding will not be entitled to any rights to have the resale of
these old notes registered under the Securities Act or to any similar rights
under the Registration Agreement. MSXI currently does not intend to register
under the Securities Act the resale of any old notes which remain outstanding
after completion of the Exchange Offer.
To the extent that old notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered old notes could be adversely
affected. In addition, although the old notes are eligible for trading in the
Private Offerings, Resale and Trading through Automatic Linkages ("PORTAL")
market, to the extent that old notes are tendered and accepted in connection
with the Exchange Offer, any trading market for old notes which remain
outstanding after the Exchange Offer could be adversely affected.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary combined financial data of MSXI for the year ended
December 31, 1996 has been derived from the audited historical combined
financial statements of TSG, the predecessor to MSXI for accounting purposes, as
of and for the period then ended. The summary historical consolidated financial
data of MSXI as of and for the fiscal years ended December 28, 1997 and January
3, 1999 have been derived from the audited historical consolidated financial
statements of MSXI as of and for the fiscal years then ended. The unaudited pro
forma consolidated financial data of MSXI as of and for the fiscal year ended
January 3, 1999 have been derived from the audited historical financial
statements of MSXI as of and for the fiscal year ended January 3, 1999. The
unaudited historical consolidated financial data of MSXI as of and for the
fiscal quarters ended March 29, 1998 and April 4, 1999 have been derived from
the historical unaudited consolidated financial statements of MSXI as of and for
the fiscal quarters then ended. The unaudited pro forma financial data of MSXI
as of and for the fiscal quarter ended April 4, 1999 have been derived from the
unaudited historical consolidated financial statements of MSXI as of and for the
fiscal quarter ended April 4, 1999. The following data should be read in
conjunction with "Pro Forma Financial Data," "Selected Financial and Other
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and notes thereto included elsewhere
herein. The summary unaudited pro forma financial data do not purport to
represent what MSXI's results of operations or financial position would actually
have been had the offering of the old notes or the acquisitions occurred at such
times. This data also does not purport to project MSXI's results of operations
or financial position for or at any future period or date.
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FISCAL YEAR FISCAL YEAR ENDED
YEAR ENDED ENDED JANUARY 3, 1999(C)
DECEMBER 31, DECEMBER 28, --------------------------
1996 1997(C) HISTORICAL PRO FORMA(A)
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STATEMENT OF OPERATIONS DATA:
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Net sales....................... $ 228,260 $ 564,546 $ 1,081,042 $ 1,191,353
Cost of sales................... 192,510 514,019 997,014 1,087,987
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Gross profit.................... 35,750 50,527 84,028 103,366
Selling, general and
administrative expenses....... 26,240 36,007 57,257 68,066
Michigan Single Business Tax.... 1,510 2,868 3,516 4,071
Restructuring costs............. -- 2,000 -- --
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Operating income................ 8,000 9,652 23,255 31,229
Interest expense, net........... 1,310 12,400 17,416 23,051
Other income (expense), net..... 70 -- -- --
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Income (loss) before taxes...... 6,620 (2,748) 5,839 8,178
Income tax provision (benefit).. 2,800 225 3,068 4,779
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Net income (loss)............... $ 3,820 $ (2,973) $ 2,771 $ 3,399
========== ========== =========== ===========
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents....... $ 7,070 $ 11,575 $ 4,248
Receivables, net................ 58,860 178,938 208,451
Total assets.................... 94,150 287,176 356,724
Total debt and capital lease
obligations................... 4,200 153,246 185,081
Contractual acquisition
obligation.................... 15,000
Redeemable Series A
Preferred Stock............... -- 36,000 36,000
Shareholders' equity (deficit).. 69,450 (26,364) (26,105)
OTHER DATA:
EBITDA(D)....................... $ 14,480 $ 22,379 $ 40,369 $ 51,693
Capital expenditures............ 4,840 11,518 11,559 12,667
Depreciation and amortization... 4,970 9,859 13,598 16,393
<CAPTION>
FISCAL QUARTERS ENDED
--------------------------------------------
HISTORICAL PRO FORMA(B)
----------------------------- -------------
MARCH 29, 1998 APRIL 4, 1999 APRIL 4, 1999
-------------- ------------- -------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Net sales....................... $ 255,056 $ 339,488 $ 341,777
Cost of sales................... 236,719 315,184 316,632
------------ ----------- ----------
Gross profit.................... 18,337 24,304 25,145
Selling, general and
administrative expenses....... 12,504 14,151 14,260
Michigan Single Business Tax.... 772 1,315 1,315
Restructuring costs............. -- -- --
------------ ----------- ----------
Operating income................ 5,061 8,838 9,570
Interest expense, net........... 4,313 4,659 5,284
Other income (expense), net..... -- -- --
------------ ----------- ----------
Income (loss) before taxes...... 748 4,179 4,286
Income tax provision (benefit).. 370 1,729 1,765
------------ ----------- ----------
Net income (loss)............... $ 378 $ 2,450 $ 2,521
============ =========== ==========
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents....... $ 15,038 $ 3,642 $ 3,642
Receivables, net................ 177,936 230,905 231,520
Total assets.................... 289,382 381,665 381,686
Total debt and capital lease
obligations................... 161,403 203,456 218,455
Contractual acquisition
obligation.................... -- 15,000 --
Redeemable Series A
Preferred Stock............... 36,000 36,000 36,000
Shareholders' equity (deficit).. (26,762) (24,809) (24,809)
OTHER DATA:
EBITDA(D)....................... $ 9,672 $ 13,512 $ 14,372
Capital expenditures............ 1,763 3,010 3,010
Depreciation and amortization... 3,839 3,359 3,487
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR ENDED
YEAR ENDED ENDED JANUARY 3, 1999(C)
DECEMBER 31, DECEMBER 28, --------------------------
1996 1997(C) HISTORICAL PRO FORMA(A)
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Ratio of earnings to fixed
charges(E).................... 3.1x -- 1.2x 1.2x
Ratio of EBITDA to interest
expense, net.................. 2.2x
<CAPTION>
FISCAL QUARTERS ENDED
---------------------------------------------
HISTORICAL PRO FORMA(B)
----------------------------- -------------
MARCH 29, 1998 APRIL 4, 1999 APRIL 4, 1999
-------------- ------------- -------------
<S> <C> <C> <C>
Ratio of earnings to fixed
charges(E).................... 1.1x 1.7x 1.6x
Ratio of EBITDA to interest
expense, net 2.7x
</TABLE>
(A) The summary unaudited pro forma statement of operations gives effect to the
Lexus and Lexstra, MegaTech and Other Acquisitions as well as the offering
of the old notes. See "Pro Forma Financial Data."
(B) The summary unaudited pro forma information gives effect to the Rice Cohen
and Management Resources acquisitions which occurred after April 4, 1999,
the offering of the old notes and the sale of real property with an
estimated fair value of $15 million and payment of a $15 million
contractual acquisition obligation, both related to the MegaTech
acquisition. See "Pro Forma Financial Data."
(C) Beginning in 1997, MSXI adopted a 52-53 week fiscal year which ends on the
Sunday nearest December 31. The fiscal year ended January 3, 1999 was a 53
week fiscal year.
(D) EBITDA represents income before income taxes plus interest expense, net,
depreciation, amortization, Michigan Single Business Tax, and other income
(expense), net. EBITDA is presented as additional information because
management believes it to be a useful indicator of a company's ability to
meet debt service and capital expenditure requirements. It is not, however,
intended as an alternative measure of operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles.)
(E) For purposes of computing the ratio of earnings to fixed charges, earnings
represent net income before income taxes and fixed charges. Fixed charges
consist of interest expense, an assumed interest component of operating
leases and amortization of deferred financing costs. For the fiscal year
ended December 28, 1997, earnings were inadequate to cover fixed charges
by approximately $2.7 million.
12
<PAGE> 14
RISK FACTORS
This prospectus contains statements which constitute forward-looking
statements. These statements appear in a number of places in this prospectus and
include statements regarding the intent, belief, outlook, estimate or
expectations of MSXI, its directors or its officers primarily with respect to
future events and the future financial performance of MSXI. Holders of the old
notes are cautioned that any of these forward-looking statements are not
guarantees of future events or performance and involve risks and uncertainties,
and actual results may differ materially from those in the forward-looking
statements. In addition to the other matters described in this prospectus,
holders of the old notes should consider the specific factors set forth below
before accepting the Exchange Offer.
WE ARE HIGHLY LEVERAGED
MSXI is highly leveraged. As of April 4, 1999, MSXI's total debt,
contractual acquisition obligation, and capital lease obligations totaled $218.5
million (exclusive of $31.2 million of undrawn capacity under the Senior Credit
Facility (also referred to as the "Credit Facility")) and MSXI's ratio of total
debt, contractual acquisition obligation, and capital lease obligations to total
capitalization was 95.1%. The degree to which MSXI is leveraged could have
important consequences to holders of the exchange notes (and to holders of the
old notes), including the following: (1) MSXI's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired; (2) a substantial
portion of MSXI's cash flow from operations will be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to MSXI for its operations and expansion plans; and (3) MSXI may be more
vulnerable to a downturn in general economic conditions or its business. The
discretion of MSXI's management with respect to certain business matters is
limited by covenants contained in the Credit Facility and the Indenture as well
as future debt instruments. Among other things, the covenants contained in the
Indenture restrict, condition or prohibit MSXI from incurring additional
indebtedness, creating liens on its assets, making certain asset dispositions
and entering into certain transactions with affiliates. In addition, the Credit
Facility contains financial and operating covenants and prohibitions, including
requirements that MSXI maintain certain financial ratios. There can be no
assurance that MSXI's leverage and these restrictions will not materially and
adversely affect MSXI's ability to finance its future operations or capital
needs or to engage in other business activities. Moreover, a failure to comply
with the obligations contained in the Indenture or any other agreements with
respect to additional financing, including the Credit Facility or any
replacement facility, could result in an event of default under these
agreements, which could permit acceleration of the related debt and acceleration
of debt under future debt agreements that may contain cross acceleration or
cross default provisions. See "Description of Notes."
MSXI's ability to make scheduled payments or to refinance its obligations
with respect to its indebtedness depends on its financial and operating
performance, which, in turn, is subject to prevailing economic conditions and to
financial, business and other factors beyond its control and to the ability of
MSXI to access payments and advances from its subsidiaries in amounts and at
times sufficient to fund its debt obligations. There can be no assurance that
MSXI's operating results or access to payments and advances from its
subsidiaries will be sufficient for payment of MSXI's indebtedness, including
the Notes (and on any outstanding old notes). See " - Our holding company
structure may impair the ability of holders to receive payment on the Notes."
OUR HOLDING COMPANY STRUCTURE MAY IMPAIR THE ABILITY OF HOLDERS TO RECEIVE
PAYMENT ON THE NOTES
MSXI is a holding company and conducts all of its operations through
subsidiaries. Consequently, the ability of MSXI to pay its obligations,
including its obligation to pay interest on and principal of the exchange notes,
whether at their maturity or upon an earlier redemption at the option of MSXI or
the holders of these notes, will be dependent on the ability of MSXI to receive
dividends and other payments or advances from its subsidiaries or to obtain
additional capital or other payments or advances, in cash or otherwise, from its
subsidiaries, which have no obligation to provide any dividends, payments or
advances, other than pursuant to the Subsidiary Guarantees, or from another
source. Each of MSXI's Domestic Restricted Subsidiaries that is an obligor or
Guarantor with respect to any obligations under one or more Bank Credit
Agreements is a Subsidiary Guarantor.
13
<PAGE> 15
The right of MSXI to receive assets of any of its subsidiaries upon
liquidation or reorganization (and the consequent right of holders to
participate in those assets) of a subsidiary will be subject to the prior claims
of that subsidiary's creditors (including trade creditors). Accordingly, the
exchange notes, as is the case with the old notes, effectively will be
subordinated to all liabilities of MSXI's subsidiaries, including trade
payables, except to the extent that MSXI is itself recognized as a creditor of a
subsidiary, in which case the claims of MSXI would still be subordinated to any
security interest in the assets of that subsidiary, and any indebtedness of this
particular subsidiary senior to that held by MSXI. The aggregate amount of debt
and other liabilities of MSXI's subsidiaries was approximately $187.3 million as
of April 4, 1999 (excluding debt owed by any subsidiary to MSXI).
WE ARE RELIANT ON THE AUTOMOTIVE INDUSTRY
Sales of MSXI's services to the automotive market (including OEM suppliers)
accounted for approximately 86% of MSXI's pro forma net sales for the fiscal
year ended January 3, 1999. As a result, MSXI's principal operations are
directly related to domestic and foreign automotive vehicle design, planning and
production. Automotive sales and production are highly cyclical, dependent on
consumer spending and subject to the impact of domestic and international
economic conditions. In addition, automotive production and sales can be
affected by labor relations issues, regulatory requirements, trade agreements
and other factors. A decline in automotive sales and design planning and
production could materially adversely affect MSXI's results of operations or
financial condition. Because of MSXI's reliance on the automotive industry,
which is centered in Southeastern Michigan, as of January 3, 1999, approximately
31% of MSXI's facilities were located in Michigan and over 50% of MSXI's
employees were based in Michigan. In the future, a majority of MSXI's business
is likely to remain in Michigan, and therefore might be affected by any
extraordinarily adverse conditions in Michigan.
WE ARE RELIANT ON OUR MAJOR CUSTOMERS
In the fiscal year ended January 3, 1999, sales to Ford, MSXI's largest
customer, accounted for approximately 47% of its Outsourcing Services and
substantially all of its Purchasing Support Services. A substantial portion of
sales to Ford were made pursuant to the Ford Master Vendor Agreement and the
Ford Master Supply Agreement, which were entered into for five year terms when
MSXI acquired GRI in August 1997. Under the Ford Master Supply Agreement, MSXI
has been designated as Ford's sole or preferred supplier of business and
technical services. The agreement is scheduled to terminate in August 2002, but
is subject to earlier termination by Ford in the event that MSXI fails to
satisfy certain standards of performance and competitiveness. There can be no
assurance that Ford will continue to require all of the services currently
provided or that Ford will not develop alternative sources, including its
in-house operations, for the services currently purchased under the Ford Master
Supply Agreement.
The Ford Master Vendor Agreement designates MSXI as the sole "master
vendor" of selected Contract Staffing services to specified Ford business units.
These services consist of management of the selection, retention and payment of
suppliers of personnel to Ford through the Master Vendor Program. In exchange
for these services, Ford pays certain agreed upon compensation to MSXI. In the
United States, this compensation includes payment for the personnel supplied to
Ford at prescribed hourly billing rates, together with certain agreed upon fees.
These billing rates are adjusted to reflect inflation on an annual basis. MSXI
is not entitled to compensation from Ford for personnel costs that exceed the
prescribed billing rates, except as approved by Ford. In the United Kingdom,
MSXI receives compensation in the form of a direct fee and passes through
supplier charges directly to Ford. The Ford Master Vendor Agreement specifies
that certain percentages of Ford's requirements for personnel be filled with
MSXI's Contract Staffing employees. The Ford Master Vendor Agreement is
scheduled to terminate in August 2002, although the parties have agreed to
negotiate in good faith to extend the term for an additional five-year period.
The Ford Master Vendor Agreement is also subject to certain termination rights,
including Ford's right to terminate upon MSXI's failure to satisfy certain
standards of performance and competitiveness or upon the occurrence of a change
in Ford's business, brought about by adverse economic conditions, that
eliminates the need for the services. Termination of the Ford Master Vendor or
the Ford Master Supply Agreement by Ford could have a material adverse effect on
MSXI's business, operating results or financial condition. See "Business -
General Information."
14
<PAGE> 16
In connection with the Master Vendor Program and with certain services
provided under the Ford Master Supply Agreement, MSXI collects receivables at
approximately the same time it makes payment to its suppliers. However, in
connection with its other programs, MSXI typically is reimbursed by its
customers within invoicing terms, which is generally a 60 day period after it
pays its employees. If any of MSXI's large customers, including Ford, were to
experience a liquidity problem that resulted in the customer being unable to
reimburse MSXI, MSXI could, in turn, develop a liquidity problem. Development of
this type of a liquidity problem could have a material adverse effect on MSXI's
business, operating results or financial condition.
TERMINATION OF CUSTOMER RELATIONSHIPS MAY CAUSE US TO HAVE UNCOVERED FINANCIAL
COMMITMENTS
As a leading, single source provider of staffing, engineering and business
services, MSXI provides its customers with a broad range of complementary
services tailored to suit its customers' needs. Accordingly, as customers' needs
arise, MSXI must often make significant financial commitments and incur overhead
expenses in order to complete projects or fulfill purchase orders. In the event
that MSXI's customers cancel or cease to maintain their arrangements with MSXI
or MSXI is unable to procure similar business from new customers, MSXI may not
be able to generate sufficient revenues to offset its financial commitments or
overhead expenses. There can be no assurance that the work flow under its
current arrangements will continue or that these arrangements will be replaced
by similar arrangements with the same or new customers.
OUR PRINCIPAL SHAREHOLDERS MAY EXERice CohenSE CONTROL OVER OUR OPERATIONS
CVC and MascoTech beneficially own approximately 81.3% of MSXI's
outstanding Common Stock and members of the management of MSXI beneficially own
approximately 14% of MSXI's outstanding common stock. If these stockholders were
to vote all of their shares in a similar manner, they would effectively control
MSXI. In addition, they would have sufficient voting power to elect the entire
Board of Directors of MSXI and, in general, to determine the outcome of certain
proposed corporate transactions, including mergers, consolidations and the sale
of all or substantially all of MSXI's assets, and to prevent or cause a change
in control of MSXI. Further, CVC, MascoTech and certain members of management
have entered into a Stockholders' Agreement (as defined) in which they have
agreed to vote their shares in a manner so as to elect the entire Board of
Directors of MSXI. See "Certain Relationships and Related Transactions -
Stockholders' Agreement."
THE INDUSTRIES IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE
Each industry in which MSXI operates is highly competitive. MSXI competes
not only with full-service and highly specialized companies in national,
regional and local markets, but also competes with businesses that have the
ability to perform MSXI's services in-house. MSXI's competitors may have greater
name recognition and greater marketing, financial and other resources than MSXI,
and MSXI's in-house competitors often have the capability to offer more highly
integrated services at lower cost. There can be no assurance that MSXI will be
able to compete effectively against its competitors in the future or that
businesses will continue to outsource the types of services that MSXI offers.
Continued or increased competition could limit MSXI's ability to maintain or
increase its market share and margins and could have a material adverse effect
on MSXI's business, financial condition or results of operation.
FLUCTUATIONS IN THE GENERAL ECONOMY MAY ADVERSELY AFFECT OUR OPERATIONS
Historically, the general level of economic activity has significantly
affected the demand for MSXI's services. As economic activity has slowed, the
use of third-party services often has been curtailed before permanent employees
have been laid off. An economic downturn on a national or local basis may
adversely affect the demand for MSXI's services and may have a material adverse
effect on MSXI's results of operations or financial condition. As economic
activity has increased, the demand for third-party services has similarly
increased. During periods of increased economic activity and generally higher
levels of employment, MSXI may face increased competitive pricing pressures.
There can be no assurance that these pricing pressures will not adversely affect
MSXI's results of operations.
15
<PAGE> 17
WE ARE DEPENDENT ON THE AVAILABILITY OF QUALIFIED PERSONNEL
MSXI depends upon its ability to attract and retain personnel, particularly
technical personnel, who possess the skills and experience necessary to meet the
needs of its clients. Competition for individuals with proven technical or
professional skills is intense. MSXI competes with other staffing companies as
well as MSXI's customers and other employers for qualified personnel. There can
be no assurance that qualified personnel will continue to be available to MSXI
in sufficient numbers and upon economic terms acceptable to MSXI. If the cost of
attracting and retaining personnel increases, there can be no assurance that
MSXI will be able to pass this increased cost through to its customers, and
therefore these increases may have a significant effect on MSXI's results of
operations and financial condition.
WE ARE SUBJECT TO FOREIGN EXCHANGE RISKS BECAUSE OF OUR FOREIGN OPERATIONS
As a result of MSXI's global expansion, non-United States net sales
accounted for approximately 16% of MSXI's pro forma net sales for the fiscal
year ended January 3, 1999. A significant percentage of these sales are
denominated in currencies other than U.S. dollars. MSXI anticipates that its
percentage of net sales generated outside the U.S. will increase in the future.
Changes in exchange rates therefore may have a significant effect on MSXI's
results of operations and financial condition.
OUR ACQUISITION STRATEGY IS SUBJECT TO A NUMBER OF RISKS
MSXI plans to continue to make selective strategic acquisitions to enhance
its global market position and broaden its service offerings. There can be no
assurance, however, that MSXI will be able to identify additional acquisitions
or that, if identified, any anticipated benefits will be realized from these
acquisitions. The availability of additional acquisition financing cannot be
assured and, depending on the terms of these additional acquisitions, could be
restricted by the terms of the Credit Facility and/or the Indenture. The process
of integrating acquired operations into MSXI's existing operations may result in
unforeseen operating difficulties and may require significant financial
resources that would otherwise be available for the ongoing development or
expansion of MSXI's existing operations. In addition, successful completion of
an acquisition may depend on consents from third parties, including regulatory
authorities and private parties, which consents are beyond the control of MSXI.
Possible future acquisitions by MSXI could result in the incurrence of
additional debt, contingent liabilities and amortization expenses related to
goodwill and other intangible assets, all of which could materially adversely
affect MSXI's results of operations and financial condition.
OUR OPERATING RESULTS MAY FLUCTUATE FROM PERIOD TO PERIOD
Results for any quarter or fiscal year are not necessarily indicative of
the results that MSXI may achieve for any subsequent quarter or fiscal year. The
timing or completion of material projects could result in fluctuations in MSXI's
results of operations for particular quarterly or annual periods.
WE MAY BE LIABLE FOR THE ACTIONS OF OUR EMPLOYEES
MSXI, in the course of providing services to its customers, places its
employees in the workplaces of other businesses. An attendant risk of this
activity includes possible claims of errors and omissions, misuse of client
proprietary information, discrimination and harassment, theft of client
property, other criminal activity or torts, workers' compensation claims and
other claims. While MSXI has not historically experienced any material claims of
these types, there can be no assurance that MSXI will not experience these types
of claims in the future. In some instances, MSXI has agreed to indemnify clients
against some of the foregoing matters.
A COURT COULD FIND THE SUBSIDIARY GUARANTEES TO BE A FRAUDULENT CONVEYANCE
Although the exchange notes are obligations of MSXI, they will be
unconditionally guaranteed on an unsecured senior subordinated basis by the
Subsidiary Guarantors. MSXI is a holding company that derives all of its
operating income and cash flow from its subsidiaries. The performance by each
Subsidiary Guarantor of its obligations with
16
<PAGE> 18
respect to its Subsidiary Guarantee may be subject to review under relevant
federal and state fraudulent conveyance and similar statutes in a bankruptcy or
reorganization case or lawsuit by or on behalf of unpaid creditors of such
Subsidiary Guarantor. Under these statutes, if a court were to find under
relevant federal or state fraudulent conveyance statutes that a Subsidiary
Guarantor did not receive fair consideration or reasonably equivalent value for
incurring its Subsidiary Guarantee of the old notes and the exchange of the old
notes for exchange notes, and that, at the time of incurrence, the Subsidiary
Guarantor: (1) was insolvent, (2) was rendered insolvent by reason of the
incurrence or grant, (3) was engaged in a business or transaction for which the
assets remaining with the Subsidiary Guarantor constituted unreasonably small
capital or (4) intended to incur, or believed that it would incur, debts beyond
its ability to pay these debts as they matured, then the court, subject to
applicable statutes of limitation, could void the Subsidiary Guarantor's
obligations under its Subsidiary Guarantee, recover payments made under the
Subsidiary Guarantee, subordinate the Subsidiary Guarantee to other indebtedness
of the Subsidiary Guarantor or take other action detrimental to the holders of
the notes.
The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured or if a company is not able to pay its debts as they become
due. Moreover, regardless of solvency, a court could void an incurrence of
indebtedness, including the Subsidiary Guarantees, if it determined that the
transaction was made with the intent to hinder, delay or defraud creditors. In
addition, a court could subordinate the indebtedness, including the Subsidiary
Guarantees, to the claims of all existing and future creditors on similar
grounds. The Subsidiary Guarantees could also be subject to the claim that,
since the Subsidiary Guarantees were incurred for the benefit of MSXI, and only
indirectly for the benefit of the Subsidiary Guarantors, the obligations of the
Subsidiary Guarantors thereunder were incurred for less than reasonably
equivalent value or fair consideration. Neither MSXI nor any Subsidiary
Guarantor believes that, after giving effect to the Offering, any of the
Subsidiary Guarantors (1) was insolvent or rendered insolvent by the incurrence
of the Guarantees in connection with the Offering, (2) was not in possession of
sufficient capital to run their business effectively or (3) incurred debts
beyond its ability to pay as the same mature or become due.
There can be no assurance as to what standard a court would apply in order
to determine whether a Subsidiary Guarantor was "insolvent" upon the sale of the
old notes or that, regardless of the method of valuation, a court would not
determine that the Subsidiary Guarantor was insolvent at the time of the sale of
the old notes.
OUR ABILITY TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL MAY BE LIMITED
Upon the occurrence of a Change of Control, each holder of notes will have
the right to require MSXI to repurchase all or a portion of these holder's notes
at a price in cash equal to 101% of the aggregate principal amount of these
notes, plus accrued and unpaid interest, if any, to the date of repurchase.
However, MSXI's ability to repurchase the notes upon a Change of Control may be
limited by the terms of then existing contractual obligations of MSXI and its
subsidiaries. In addition, the occurrence of a Change of Control will constitute
an event of default under the Credit Facility. The Credit Facility prohibits the
purchase of the notes unless and until the time the indebtedness under the
Credit Facility is paid in full. There can be no assurance that MSXI will have
the financial resources to repay amounts due under the Credit Facility, or to
repurchase or redeem the Notes. If MSXI fails to repurchase all of the Notes
tendered for purchase upon the occurrence of a Change of Control, this failure
will constitute an event of default under the Indenture. See " - We are Highly
Leveraged" above.
With respect to the sale of assets referred to in the definition of Change
of Control, the meaning of the phrase "all or substantially all" as used in that
definition varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under the relevant law and is
subject to judicial interpretation. Accordingly, in certain circumstances there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the assets of a
person and therefore it may be unclear whether a Change of Control has occurred
and whether the notes are subject to an offer to repurchase.
17
<PAGE> 19
The Change of Control provision may not necessarily afford the holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving
MSXI that may adversely affect the holders, because these transactions may not
involve a shift in voting power or beneficial ownership or, even if they do, may
not involve a shift of the magnitude required under the definition of Change of
Control to trigger these provisions. Except as described under "Description of
Exchange Notes - Change of Control," the Indenture does not contain provisions
that permit the holders of the notes to require MSXI to repurchase or redeem the
notes in the event of a takeover, recapitalization or similar transaction.
THERE MAY BE A LIMITED MARKET FOR THE EXCHANGE NOTES
The exchange notes will trade as a single class with MSXI's existing
$100,000,000 aggregate principal amount of registered notes, for which there is
a limited trading market. The exchange notes may trade at a discount from their
initial offering price, depending upon prevailing interest rates, the market for
similar securities and other factors, including general economic conditions and
the financial condition of MSXI. MSXI does not intend to apply for a listing of
the exchange notes on any securities exchange or for quotation on Nasdaq. There
can be no assurance as to the liquidity of any market for the notes.
ANY OLD NOTES WILL CONTINUE TO BE SUBJECT TO RESTRICTIONS ON TRANSFER
The old notes have not been registered under the Securities Act or any
state securities laws and, unless registered, the old notes may not be offered
or sold except pursuant to an effective registration statement under the
Securities Act, or pursuant to an exemption from, or in a transaction not
subject to, such registration requirements. See "Notice to Investors". Pursuant
to the Registration Agreement, MSXI has agreed to file within 90 days of Issue
Date and cause to become effective within 180 days of the issue date a
registration statement relating to an exchange offer for the old notes or, in
lieu thereof, to file and cause to become effective a resale shelf registration
for the old notes. If not exchanged in the Exchange Offer, the old notes
generally will be permitted to be resold or otherwise transferred, subject to
the restrictions described under "Exchange Offer; Registration Rights" and
"Notice to Investors", by each holder without the requirement of further
registration. The Exchange Offer will not be conditioned upon any minimum or
maximum aggregate principal amount of old notes being tendered for exchange. No
assurance can be given as to the liquidity of the trading market for the old
notes, or, in the case of non-tendering holders of old notes, the trading market
for the old notes following the Exchange Offer.
The liquidity of, and trading market for, old notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect the liquidity and trading markets independent of
the financial performance and prospects of MSXI.
18
<PAGE> 20
USE OF PROCEEDS
MSXI will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes as described in this
prospectus, MSXI will receive old notes in like principal amount. The old notes
surrendered in exchange for the exchange notes will be retired and canceled.
Accordingly, the issuance of the exchange notes will not result in any change in
the indebtedness of MSXI.
CAPITALIZATION
The following table sets forth the consolidated capitalization of MSXI as
of April 4, 1999 on an historical basis and on a pro forma basis to give effect
to the offering of the old notes and the application of the proceeds therefrom.
See "Use of Proceeds" and "Pro Forma Financial Data." This table should be read
in conjunction with the consolidated financial statements, including the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF APRIL 4, 1999
--------------------------
ACTUAL PRO FORMA
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes payable and current portion of long-term debt..................... $ 4,572 $ 4,572
Contractual acquisition obligation (A).................................. 15,000 15,000(A)
Long-term debt, less current portion:
Credit Facility, as amended and restated (B)........................ 98,754 70,564
11 3/8% Senior Subordinated Notes due 2008 (C)....................... 100,000 129,415
----------- ------------
Total long-term debt, less current portion.............................. 198,754 199,979
Long-term capital lease obligations..................................... 130 130
Redeemable Series A Preferred Stock..................................... 36,000 36,000
Shareholders' equity (deficit):
Common Stock, $.01 par: authorized, 2,000,000 shares; issued and
outstanding 97,004 shares........................................... 1 1
Additional paid in capital.............................................. (24,644) (24,644)
Other comprehensive income (loss)....................................... (2,414) (2,414)
Accumulated deficit..................................................... 2,248 2,248
----------- ------------
Total shareholders' equity (deficit).................................. (24,809) (24,809)
----------- ------------
Total capitalization................................................ $ 229,647 $ 230,872
=========== ============
</TABLE>
- ------------------
(A) Under a stock purchase agreement, a wholly owned subsidiary of MSX
International, Inc. purchased all of the outstanding shares of MegaTech
Engineering Inc. ("MEI")(the "MegaTech Acquisition") from Becker Group,
Inc., a wholly owned subsidiary of Johnson Controls, Inc. MSXI did not
assume any bank debt. The total("JCI") purchase price for the stock of MEI
was $30 million of which $15 million was paid at the closing using
borrowings under the Credit Facility. The remaining $15 million (which is
non-interest bearing) will be paid to JCI no later than June 30, 1999. The
payment will be intially funded by bank borrowings under the existing
Credit Facility which will be reduced by the proceeds from the sale of the
real property acquired which is anticipated to be completed in July 1999.
This real property has been presented in the historical consolidated
financial statements of MSXI as of January 3, 1999, as buildings held for
sale and the related amount due to JCI has been presented in the historic
consolidated financial statements of MSXI as of January 3, 1999, as a
contractual acquisition obligation.
(B) The Credit Facility provides for borrowings of up to $130 million.
Availability under the Credit Facility is subject to satisfaction of a
borrowing base requirement and certain other conditions. See "Description
of Certain Other Indebtedness."
(C) The pro forma balance gives effect to the issuance by MSXI of $30 million
aggregate principal amount of old notes, which are reflected net of
discount of $585,000.
19
<PAGE> 21
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 fiscal 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., and from the unaudited historical financial statements for the year ended
December 31, 1998 of Management Resources International, Inc.
Effective October 31, 1998, MSXI acquired Lexstra International, Inc. and
Lexus Temporaries, Inc. (the "Lexus and Lexstra Acquisitions"). Effective July
26, 1998 MSXI acquired Gold Arrow Contract Services, Ltd. (the "Gold Arrow
Acquisition"). Effective December 18, 1998, MSXI acquired Pilot Computer
Services, Inc. (the "Pilot Acquisition"). Effective December 26, 1998, MSXI
acquired MegaTech Engineering, Inc. (the "MegaTech Acquisition"). Effective
April 5, 1999, MSXI acquired Rice Cohen International, Inc. (the "Rice Cohen
Acquisition"). Effective June 21, 1999, MSXI acquired Management Resources
International, Inc. (the "Management Resources Acquisition"). The pro forma
information gives effect to (i) the Lexus and Lexstra, Gold Arrow, Pilot,
MegaTech, Rice Cohen and Management Resources acquisitions and (ii) the
offering of the old notes, as described in the notes to the unaudited pro forma
consolidated financial statements.
The audited historical consolidated financial statements of MSXI for the
fiscal year ended January 3, 1999 include the results of operations of the
acquired companies from their dates of acquisition, except for the Rice Cohen
and Management Resources acquisitions which were made subsequent to January 3,
1999.
The unaudited pro forma consolidated balance sheet gives effect to the
Offering and the sale of real property with an estimated fair value of $15
million and payment of a $15 million contractual acquisition obligation, as if
these transactions had occurred on April 4, 1999. The unaudited pro forma
consolidated income statement gives effect to the May 1999 offering of the old
notes and to the Lexus and Lexstra, Gold Arrow, Pilot, MegaTech, Rice Cohen and
Management Resources acquisitions as if these transactions had occurred on
December 29, 1997. The unaudited pro forma financial data do not purport to
represent what MSXI's 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 MSXI's 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
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements and the notes
thereto included elsewhere in this prospectus.
20
<PAGE> 22
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF APRIL 4, 1999
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
RICE COHEN AND
MANAGEMENT ACQUISITION
MSXI RESOURCES ADJUSTMENTS COMBINED
---------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 3,642 $ 3,642
Receivables, net...................................................... 230,905 $615 231,520
Inventory............................................................. 1,435 1,435
Prepaid expenses and other assets..................................... 7,951 74 8,025
Deferred income taxes, net............................................ 900 900
---------- ---------- ---------
Total current assets................................................ $ 244,833 689 245,522
---------- ---------- ---------
Property & equipment, net............................................... 35,500 133 35,633
Buildings held for sale................................................. 15,000 15,000
Goodwill, net of accumulated amortization of $2,337..................... 58,369 $ 12,974 (A) 71,343
Other assets............................................................ 15,645 15,645
Deferred income taxes, net.............................................. 12,318 12,318
---------- ---------- ---------
Total assets........................................................ $ 381,665 $ 822 $ 395,461
========== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long term debt................... $ 4,572 $ 4,572
Accounts payable...................................................... 98,967 $ 22 98,989
Accrued payroll and benefits.......................................... 25,318 25,318
Other accrued liabilities............................................. 21,733 21,733
Contractual acquisition obligation.................................... 15,000 15,000
Deferred income taxes, net............................................ 1,736 1,736
---------- ---------- ---------
Total current liabilities........................................... 167,326 22 167,348
Long-term debt.......................................................... 198,754 13,774 (B) 212,528
Long-term deferred compensation liability and other..................... 4,394 4,394
---------- ---------- ---------
Total liabilities..................................................... 370,474 22 384,270
---------- ---------- ---------
Redeemable Series A Preferred Stock, authorized 500,000 shares;
issued and outstanding 360,000 shares................................. 36,000 36,000
---------- ---------- ---------
Shareholders' equity (deficit): (24,809) 800 (800)(C) (24,809)
---------- ---------- ---------
Total liabilities and shareholders' equity (deficit)............... .$ 381,665 $ 822 $ 395,461
========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
OFFERING
ADJUSTMENTS COMBINED
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 29,415 (D)
(28,190)(E)
(1,225)(F) $ 3,642
Receivables, net...................................................... 231,520
Inventory............................................................. 1,435
Prepaid expenses and other assets..................................... 8,025
Deferred income taxes, net............................................ 900
-----------
Total current assets................................................ $ 245,522
-----------
Property & equipment, net............................................... 35,633
Buildings held for sale................................................. (15,000)(G) -
Goodwill, net of accumulated amortization of $2,337..................... 71,343
Other assets............................................................ 1,225 (F) 16,870
Deferred income taxes, net.............................................. 12,318
-----------
Total assets........................................................ $ 381,686
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long term debt................... $ 4,572
Accounts payable...................................................... 98,989
Accrued payroll and benefits.......................................... 25,318
Other accrued liabilities............................................. 21,733
Contractual acquisition obligation.................................... (15,000)(G) --
Deferred income taxes, net............................................ 1,736
-----------
Total current liabilities........................................... 152,348
Long-term debt.......................................................... 29,415 (D)
(28,190)(E) 213,753
Long-term deferred compensation liability and other..................... 4,394
-----------
Total liabilities..................................................... 370,495
-----------
Redeemable Series A Preferred Stock, authorized 500,000 shares;
issued and outstanding 360,000 shares................................. 36,000
-----------
Shareholders' equity (deficit):......................................... (24,809)
-----------
Total liabilities and shareholders' equity (deficit)................ $ 381,686
===========
</TABLE>
See notes to pro forma consolidated financial statements.
21
<PAGE> 23
PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FISCAL YEAR ENDED JANUARY 3, 1999
<TABLE>
<CAPTION>
ACQUISITIONS PRO FORMA ADJUSTMENTS
------------------------------------------ ---------------------
LEXUS AND
LEXSTRA
MSXI LEXUS LEXSTRA MEGATECH OTHER ACQUISITIONS
----------- -------- --------- -------- ----------- ------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT
<S> <C> <C> <C> <C> <C> <C>
Net Sales....................... $ 1,081,042 $ 17,509 $ 21,268 $ 48,609 $ 24,324
Cost of Sales................... (997,014) (14,799) (15,859) (39,937) (21,227)
Gross Profit.................... 84,028 2,710 5,409 8,672 3,097
SG&A............................ (57,257) (1,266) (3,228) (6,562) (1,995) $ 421 (A)
(420)(B)
MSBT............................ (3,516) (522)
Operating income................ 23,255 1,444 2,181 1,588 1,102
Interest income (expense), net.. (17,416) (90) (4) (66) (187) 94 (C)
(1,324)(D)
Equity in net loss of EASi
MegaTech Engineering
LLC........................... (280)
Income before income taxes...... 5,839 1,354 2,177 1,242 915
Income tax provision............ (3,068) (667) (55) 503 (E)
(1,342)(F)
Net Income...................... $ 2,771 $ 1,354 $ 2,177 $ 575 $ 860
OTHER DATA
EBITDA (AA)..................... $ 40,369 $ 1,450 $ 2,205 $ 3,322 $ 1,132
Capital expenditures............ $ 11,559 $ 6 $ 51 $ 1,051 $ --
Depreciation and amortization... $ 13,598 $ 6 $ 24 $ 1,492 $ 30
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------
MEGATECH OTHER
ACQUISITION ACQUISITIONS OFFERING PRO FORMA
------------ ------------- --------- ----------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT
<S> <C> <C> <C> <C>
Net Sales....................... $ 7,989 (G) $ 2,461 (Q)
(11,849)(H) $1,191,353
Cost of Sales................... (7,509)(G)
8,444 (H)
(86)(I) (1,087,987)
Gross Profit.................... 103,366
SG&A............................ (33)(G) (673)(R)
(1,292)(G)
2,177 (H)
1,748 (J)
(150)(K)
431 (L) (68,066)
MSBT............................ (4,071)
Operating income................ 31,229
Interest income (expense), net.. (8)(H) 203 (S) $ 2,001 (W)
74 (M) (1,514)(T) (3,413)(X)
(1,200)(N) (201)(Y) (23,051)
Equity in net loss of EASi
MegaTech Engineering
LLC........................... 280 (O)
Income before income taxes...... 8,178
Income tax provision............ 172 (H) (256)(U) 548 (Z)
183 (P) (162)(V)
$ (4,779)
Net Income...................... $ 3,399
OTHER DATA
EBITDA (AB)..................... $ 51,693
Capital expenditures............ $ 12,667
Depreciation and amortization... $ 16,393
Ratio of EBITDA to interest income (expense), net............................... 2.2x
Ratio of earnings to fixed charges (AB)......................................... 1.2x
</TABLE>
See notes to pro forma consolidated financial statements.
22
<PAGE> 24
PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FISCAL QUARTER ENDED APRIL 4, 1999
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------
RICE COHEN AND RICE COHEN AND
MANAGEMENT RESOURCES MANAGEMENT RESOURCES
MSXI ACQUISITIONS ACQUISITIONS OFFERING PRO FORMA
---------- -------------------- --------------------- -------- -----------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT
<S> <C> <C> <C> <C> <C>
Net Sales................................. $ 339,488 $ 2,289 $ 341,777
Cost of Sales............................. (315,184) (1,679) $ 183 (A)
49 (B) (316,632)
---------- ---------- ---------
Gross Profit.............................. 24,304 610 25,145
SG&A...................................... (14,151) (109)(C) (14,260)
MSBT...................................... (1,315) (1,315)
---------- ----------
Operating income.......................... 8,838 610 9,570
Interest income (expense), net ........... (4,659) -- (227)(D) $ 493 (G)
---------- ----------
(841)(H)
(50)(I) (5,284)
Income before income taxes................ 4,179 610 4,286
Income tax benefit (provision)............ (1,729) (2) 36 (E) 135 (J)
---------- ---------- (205)(F) (1,765)
---------
Net Income................................ $ 2,450 $ 608 $ 2,521
========== ========== =========
OTHER DATA
EBITDA (K)................................ $ 13,512 $ 629 $ 14,372
Capital expenditures...................... $ 3,010 -- $ 3,010
Depreciation and amortization............. $ 3,359 $ 19 $ 3,487
Ratio of EBITDA to interest income (expense), net.............................................................. 2.7x
Ratio of earnings to fixed charges (L)......................................................................... 1.6x
</TABLE>
See notes to pro forma consolidated financial statements.
23
<PAGE> 25
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. MSXI believes that these
adjustments provide a reasonable basis for presenting all of the significant
effects of the Lexus and Lexstra, Gold Arrow, Pilot, MegaTech, Rice Cohen and
Management Resources acquisitions and the May 1999 offering of the old notes and
that the pro forma adjustments are properly applied in the unaudited pro forma
consolidated financial statements.
The unaudited pro forma financial data do not purport to represent what
MSXI's results of operations or financial position would actually have been had
these transactions occurred at such times. This data also does not purport to
project MSXI's results of operations or financial position for or at any future
period or date.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET AS OF APRIL 4, 1999
The accompanying unaudited pro forma consolidated balance sheet as of April
4, 1999 has been prepared to reflect the acquisitions of Rice Cohen and
Management Resources by MSXI for an aggregate purchase price of $13.8 million
and the payment of a portion of outstanding indebtedness under the Credit
Facility from the net proceeds of the offering of the old notes. 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 the Credit Facility to complete the acquisitions.
(C) The elimination of the shareholders' equity accounts of Rice Cohen and
Management Resources.
(D) The issuance by MSXI of $30 million aggregate principal amount of old
notes, which are reflected net of a discount of $585 thousand.
(E) The application of the net proceeds from the issuance of the old notes
to repay a portion of outstanding indebtedness under the Credit
Facility.
(F) The payment of an estimated $1.225 million for fees and expenses
related to the offering of the old notes.
(G) The sale of real property with an estimated fair value of $15 million
and payment of a $15 million contractual acquisition obligation.
Under the stock purchase agreement related to the MegaTech Acquisition, a
wholly owned subsidiary of MSXI purchased all of the outstanding shares of MEI
from Becker Group, Inc., a wholly owned subsidiary of Johnson Controls, Inc. The
total purchase price of the stock of MEI was $30 million of which $15 million
was paid at closing using borrowing under Credit Facility. The remaining $15
million (which is non-interest bearing) will be paid to JCI no later than June
30, 1999. The payment will be initially funded by bank borrowings under the
existing Credit Facility which will be reduced by the proceeds from the sale of
the real property acquired, which is anticipated to be completed in July 1999.
In the historical consolidated balance sheet of MSXI, such real property has
been presented as buildings held for sale and the related amount due to JCI has
been presented as a contractual acquisition obligation.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED INCOME STATEMENT 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 Lexus and Lexstra Acquisitions, the MegaTech Acquisition, and
the Gold Arrow, Pilot, Rice Cohen and Management Resources acquisitions
(collectively, the "Other Acquisitions"), and the offering of the old notes had
been consummated on December 29, 1997.
Lexus and Lexstra Acquisitions
(A) Reduce executive compensation expense to reflect contractual
agreements negotiated in connection with the Acquisition.
(B) Record amortization of aggregate goodwill of $15.1 million resulting
from the acquisitions over an estimated useful life of 30 years.
(C) Eliminate net interest expense related to the historical financing of
the acquired businesses.
24
<PAGE> 26
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
(D) Record interest expense associated with borrowing of $18.4 million
under the 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 the Credit Facility is approximately $28,000 on an
annual basis.
(E) Record the income tax benefit resulting from the pro forma
adjustments related to the acquisitions at an assumed effective
income tax rate of 38%.
(F) 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
(G) Record the results of operations of Tooling Concepts, a division of
JCI, transferred to MegaTech prior to the acquisition of MegaTech
by MSXI.
(H) Eliminate the results of operations of MegaTech Engineering GmbH,
transferred from MegaTech prior to the acquisition of MegaTech by
MSXI.
(I) Adjust rental expense to reflect new contractual agreements
negotiated in connection with the MegaTech Acquisition.
(J) Eliminate certain corporate costs for compensation expenses,
corporate interest, aircraft charges and other costs, which relate to
portions of the MegaTech business that were not acquired by MSXI.
(K) Record amortization of the aggregate goodwill of $5.4 million
resulting from the acquisition over an estimated useful life of 30
years.
(L) Eliminate costs associated with buildings not acquired with the
MegaTech Acquisition.
(M) Eliminate net interest expense related to the historical financing of
the acquired businesses.
(N) Record interest expense associated with borrowings of $15 million
under the 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 the Credit Facility is approximately $19,000 on an
annual basis.
(O) Eliminate the operating loss of EASi MegaTech Engineering LLC, an
equity investee, which was not acquired with the MegaTech
Acquisition.
(P) Record the income tax benefit resulting from the pro forma
adjustments related to the acquisition at an assumed effective income
tax rate of 34%.
25
<PAGE> 27
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
Other Acquisitions
(Q) Reduce executive compensation expense to reflect contractual
agreements negotiated in connection with the Rice Cohen Acquisition.
(R) Record amortization of the aggregate goodwill of $20.9 million
resulting from the Other Acquisitions over an estimated useful life
of 30 years.
(S) Eliminate net interest expense related to the historical financing of
the acquired businesses.
(T) Record interest expense associated with borrowings of $21.0 million
under the 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 the Credit Facility is approximately $17,000 on an
annual basis.
(U) Record the income tax provision resulting from the pro forma
adjustments related to the Pilot, Rice Cohen and Management Resources
acquisitions at assumed effective income tax rates of 34% and the
Gold Arrow Acquisition at assumed effective income tax rates of 53%.
(V) Adjust the historical income tax provisions related to the Pilot,
Rice Cohen and Management Resources acquisitions to reflect assumed
effective income tax rates of 34% and the Gold Arrow Acquisition at
an assumed effective income tax rates of 53%.
The Offering of the Old Notes
(W) Record reduction of interest expense associated with the use of $28.2
million of net proceeds to reduce amounts outstanding under the
Credit Facility at an assumed interest rate of 7.1%.
The impact on interest expense of a 1/8 of 1% change in the
interest rate related to the Credit Facility is approximately $37,000
on an annual basis.
(X) Record interest expense associated with the old notes at an annual
interest rate of 11 3/8%.
(Y) Record amortization of the costs associated with the offering of the
old notes.
(Z) Record the income tax benefit resulting from the pro forma
adjustments related to the offering of the old notes, at an assumed
effective income tax rate of 34%.
Other Data
(AA) EBITDA represents income before income taxes plus interest expense,
net, depreciation, amortization, Michigan Single Business Tax, and
other income (expense), net. EBITDA is presented as additional
information because management believes it to be a useful indicator
of a company's ability to meet debt service and capital expenditure
requirements. It is not, however, intended as an alternative measure
of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles).
(AB) For purposes of computing the ratio of earnings to fixed charges,
earnings represent net income before income taxes and fixed charges.
Fixed charges consist of interest expense, an assumed interest
component of operating leases and amortization of deferred financing
costs.
26
<PAGE> 28
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
ADJUSTMENTS TO PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE FISCAL QUARTER
ENDED APRIL 4, 1999
The accompanying unaudited pro forma consolidated income statement for the
fiscal quarter ended April 4, 1999 includes the following adjustments to present
results as if the Rice Cohen and Management Resources acquisitions and the
offering of the old notes had been consummated on December 29, 1997, and
includes the historical results of Lexus and Lexstra, Gold Arrow, Pilot and
MegaTech which were acquired prior to January 3, 1999 and whose results are
included in the unaudited historical consolidated financial statements of MSXI
as of and for the fiscal quarter ended April 4, 1999.
(A) Reduce executive compensation expense to reflect contractual
agreements negotiated in connection with the Rice Cohen Acquisition.
(B) Eliminate legal expenses directly attributable to the Rice Cohen
Acquisition.
(C) Record amortization of the aggregate goodwill of $13.0 million
resulting from the Acquisitions over an estimated useful life of 30
years.
(D) Record interest expense associated with borrowings of $13.7 million
under the 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.
(E) 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%.
(F) 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%.
(G) Record the reduction of interest expense associated with the use of
$28.2 million of net proceeds to reduce amounts outstanding under the
Credit Facility at an assumed interest rate of 7.2%, which is based
on the weighted average of the interest rates in effect at the dates
of the acquisitions.
(H) Record interest expense associated with the Notes at an annual
interest rate of 11.375%.
(I) Record amortization of the costs associated with the offering of the
old notes.
(J) Record the income tax benefit resulting from the pro forma
adjustments related to the offering of the old notes, at an assumed
effective income tax rate of 34%.
OTHER DATA
(K) EBITDA represents income before income taxes plus interest expense,
net, depreciation, amortization, Michigan Single Business Tax, and
other income (expense), net. EBITDA is presented as additional
information because management believes it to be a useful indicator
of a company's ability to meet debt service and capital expenditure
requirements. It is not, however, intended as an alternative measure
of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles).
(L) For purposes of computing the ratio of earnings to fixed charges,
earnings represent net income before income taxes and fixed charges.
Fixed charges consist of interest expense, an assumed interest
component of operating leases and amortization of deferred financing
costs.
27
<PAGE> 29
SELECTED FINANCIAL AND OTHER DATA
The following selected historical combined financial data of MSXI for the
years ended December 31, 1994, 1995 and 1996 have been derived from the audited
historical combined financial statements of TSG, MSXI's predecessor for
accounting purposes for the years then ended. The selected historical
consolidated financial data of MSXI as of and for the fiscal years ended
December 28, 1997 and January 3, 1999 have been derived from the audited
historical financial statements of MSXI as of and for the fiscal years then
ended. The selected historical unaudited consolidated financial data of MSXI as
of and for the fiscal quarters ended March 29, 1998 and April 4, 1999 have been
derived from the unaudited historical financial statements of MSXI as of and for
the fiscal quarters then ended. The selected financial and other data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the accompanying consolidated financial
statements and notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, FISCAL YEAR ENDED (A) FISCAL QUARTER ENDED (B)
------------------------------- ----------------------- -------------------------
DECEMBER JANUARY 3, MARCH 29, APRIL 4,
1994 1995 1996 28, 1997 1999 1998 1999 (C)
--------- --------- --------- ---------- ------------ ----------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales............................ $184,540 $216,130 $228,260 $564,546 $1,081,042 $255,056 $339,488
Cost of sales........................ (149,950) (178,760) (192,510) (514,019) (997,014) (236,719) (315,184)
-------- -------- -------- -------- ---------- -------- --------
Gross profit......................... 34,590 37,370 35,750 50,527 84,028 18,337 24,304
Selling, general and administrative
expenses........................... (23,550) (25,230) (26,240) (36,007) (57,257) (12,504) (14,151)
Michigan Single Business Tax......... (1,760) (1,500) (1,510) (2,868) (3,516) (772) (1,315)
Restructuring costs.................. -- -- -- (2,000) -- -- --
-------- -------- -------- -------- ---------- -------- --------
Operating income .................... 9,280 10,640 8,000 9,652 23,255 5,061 8,838
Interest expense, net................ (920) (1,470) (1,310) (12,400) (17,416) (4,313) (4,659)
Other income (expense), net.......... 180 1,070 (70) -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Income (loss) before taxes........... 8,540 10,240 6,620 (2,748) 5,839 748 4,179
Income tax provision................. (3,140) (3,820) (2,800) (225) (3,068) (370) 1,729
-------- -------- -------- -------- ---------- -------- --------
Net income (loss)................... $ 5,400 $ 6,420 $ 3,820 $(2,973) $ 2,771 $ 378 $ 2,450
======== ======== ======== ======== ========== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............ $ 1,540 $ 1,800 $ 7,070 $ 11,575 $ 4,248 $ 15,038 $ 3,642
Receivables, net..................... 47,240 60,190 58,860 178,938 208,451 177,936 230,905
Total assets......................... 69,490 87,480 94,150 287,176 356,724 289,382 381,665
Total debt and capital lease
obligations.......................... 3,370 3,550 4,200 153,246 185,081 161,403 203,466
Contractual acquisition
obligation(D)........................ -- -- -- -- 15,000 -- 15,000
Redeemable Series A Preferred Stock -- -- -- 36,000 36,000 36,000 36,000
Shareholders' equity (deficit)....... 46,430 63,650 69,450 (26,364) (26,105) (26,762) (24,809)
OTHER DATA:
EBITDA (E)........................... $ 15,430 $ 16,680 $ 14,480 $ 22,379 $ 40,369 $ 9,672 $ 13,512
Capital Expenditures................. 7,030 8,400 4,840 11,518 11,559 1,763 3,010
Depreciation and amortization........ 4,390 4,540 4,970 9,859 13,598 3,839 3,359
Ratio of earnings to fixed charges (F) 4.1x 3.4x 3.1x - 1.2x 1.1x 1.7x
</TABLE>
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(A) Beginning in 1997, MSXI adopted a 52-53 week fiscal year which ends on the
Sunday nearest December 31. The fiscal year ended January 3, 1999 was a 53
week fiscal year.
(B) In the opinion of MSXI, the selected historical unaudited consolidated
financial data of MSXI as of and for the fiscal quarters ended March 29,
1998 and April 4, 1999 contain all adjustments which are normal and
recurring in nature necessary to present fairly the selected historical
unaudited consolidated financial data for the fiscal quarters then ended.
The operating results for the fiscal quarters ended March 29, 1998 and
April 4, 1999 are not necessarily indicative of the results of operations
for the entire year.
(c) The selected historical unaudited consolidated financial data of MSXI as of
and for the fiscal quarter ended April 4, 1999 include the financial
position, results of operations and cash flows of Lexus and Lexstra, Gold
Arrow, Pilot and MRI as such businesses were acquired prior to
January 3, 1999.
(D) Under a stock purchase agreement, a wholly owned subsidiary of MSX
International, Inc. purchased one hundred percent of the outstanding shares
of MEI from Becker Group, Inc., a wholly owned subsidiary of JCI (the
"MegaTech Acquisition"). MSXI did not assume any bank debt. The total
purchase price for the stock of MEI was $30 million, of which $15 million
was paid at the closing using borrowings under the Credit Facility. The
remaining $15 million (which is non-interest bearing) will be paid to JCI
no later than June 30, 1999. The payment will be initially funded by bank
borrowings under the existing Credit Facility which will be reduced by the
proceeds from the sale of the real property acquired which is anticipated
to be completed in July 1999. This real property has been presented in the
historic consolidated financial statements of MSXI as of January 3, 1999,
as buildings held for sale and the related amount due to JCI has been
presented in the historic consolidated financial statements of MSXI as of
January 3, 1999, as a contractual acquisition obligation.
(E) EBITDA represents income (loss) before income taxes plus interest expense,
net, depreciation, amortization, Michigan Single Business Tax and other
income/(expense), net. EBITDA is presented as additional information
because management believes it to be a useful indicator of a company's
ability to meet debt service and capital expenditure requirements. It is
not, however, intended as an alternative measure of operating results or
cash flow from operations (as determined in accordance with generally
accepted accounting principles).
(F) For purposes of computing the ratio of earnings to fixed charges,
earnings represent net income (loss) before income taxes and fixed charges.
Fixed charges consist of interest expense, an assumed interest component of
operating leases and amortization of deferred financing costs. For the
fiscal year ended December 28, 1997, earnings were inadequate to cover
fixed charges by approximately $2.7 million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis of financial condition and results of operations of
MSXI should be read in conjunction with MSX International's combined and
consolidated financial statements and the related notes thereto included
elsewhere herein.
MSXI was organized to pursue growth opportunities in technology-driven
engineering and business services. In January 1997, MSXI completed the TSG
Acquisition, which included acquiring the assets of APX which had been
previously acquired by MASG. Since then, MSXI has pursued a strategy of internal
growth and complementary acquisitions. Acquisitions have expanded MSXI's
geographic coverage, its service offerings, and its reach to customers outside
the automotive industry. In August 1997, MSXI completed the GRI Acquisition.
Since January 1998, MSXI has completed seven additional acquisitions and made
two equity investments.
The results of operations for the fiscal years ended December 28, 1997 and
January 3, 1999 include the results of operations of acquired companies from the
dates of their acquisition. As a result, the financial performance of MSXI for
the fiscal years ended December 28, 1997 and January 3, 1999 are not directly
comparable to the results of operations for the immediately preceding year.
GENERAL
MSXI is a holding company formed and owned by Citicorp Venture Capital,
Ltd., MascoTech, Inc., and certain members of management. MSXI believes that it
is well positioned to increase its market share among existing customers and in
the global automotive market, as well as to expand into non-automotive markets.
As it pursues additional strategic acquisitions, MSXI also intends to continue
to rationalize its cost structure through the elimination of redundant back
office activities, operating facilities, management and administrative offices.
MSXI operates in two industry segments: Outsourcing Services and Purchasing
Support Services.
Outsourcing Services provides technical support services to commercial
enterprises, including technical and professional contract staffing, product
development support, and other business services. During the fiscal year ended
January 3, 1999, MSXI had over 150 customers in this segment, including Ford,
General Motors, and DaimlerChrysler, who accounted for 47.0%, 17.0%, and 16.2%
of net sales for the fiscal year ended January 3, 1999. MSXI achieved earnings
before interest and taxes, including Michigan Single Business Tax ("EBIT"), of
$22.3 million on net sales in the Outsourcing Services segment totaling $515.9
million. As a result of the GRI Acquisition, a substantial portion of MSXI's
sales to Ford of other business services are generated pursuant to the Ford
Master Supply Agreement, a five-year agreement that was executed when MSXI
acquired GRI. MSXI is the sole or preferred provider of outsourcing services
identified in the agreement to various business units of Ford.
In its Purchasing Support Services segment, MSXI provides administrative
support to large companies for the purchase of contract staffing, training, and
other professional services. For fiscal 1998, this segment generated EBIT of
$4.4 million on net sales totaling $591.5 million. MSXI generates substantially
all of its net sales in its Purchasing Support Services segment pursuant to the
Ford Master Supply Agreement, as well as the Ford Master Vendor Agreement, which
describes staffing services provided by MSXI to Ford. MSXI manages and
administers the purchasing of several service commodities, including contract
staffing, training, and other professional services. This includes order
processing, administration and payment of vendor invoices related to these
services. MSXI believes that it can expand this business by offering comparable
services, which include a variety of automated processes, to customers other
than Ford and by adding other purchased commodities to the procurement process.
MSXI recorded $26.4 million of inter-company sales from its contract
staffing unit to its Purchasing Support Services business in fiscal 1998.
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CONSOLIDATED RESULTS OF OPERATIONS
FISCAL QUARTER ENDED APRIL 4, 1999 COMPARED WITH THE FISCAL QUARTER ENDED
MARCH 29, 1998
Net sales
MSXI's net sales for the quarter ended April 4, 1999 increased $84.4
million (33.1%) from $255.1 million to $339.5 million, as compared to the
quarter ended March 29, 1998. The increase in net sales resulted from internal
growth of $54.4 million and sales from acquired businesses of approximately
$30.0 million.
Net sales of MSXI's Purchasing Support Services segment for the quarter
ended April 4, 1999 was $170.3 million, an increase of $25.1 million (17.3%), as
compared to $145.2 million for the quarter ended March 29, 1998. The increase in
net sales resulted from greater demand for customer administrative support
services.
Net sales of MSXI's Outsourcing Services segment for the quarter ended
April 4, 1999 was $178.4 million, an increase of $63.7 million (55.5%), as
compared to $114.7 million for the quarter ended March 29, 1998. The increase in
net sales is comprised of increased volume and approximately $30.0 million of
net sales from acquired businesses. In addition to MSXI's acquisitions,
increased sales related to the opening of new locations, customers'
consolidation of their supplier base and increased demand for automotive design
and engineering services both in the United States and the United Kingdom.
Gross Profit
Gross profit for the quarter ended April 4, 1999 increased $6.0 million
(32.5%) from $18.3 million to $24.3 million, as compared to the quarter ended
March 29, 1998. This increase resulted from improved sales volume and the
acquisition of businesses.
Gross profit as a percentage of net sales for the quarters ended April 4,
1999 and March 29, 1998 was 7.2% in each quarter. Improvements in the gross
profit margin from MSXI's Outsourcing Services segment was offset from increased
sales volume in MSXI's Purchasing Support Services segment that are at lower
gross profit margins.
Selling, General and Administrative Expenses
MSXI's selling, general and administrative expenses for the quarter ended
April 4, 1999 increased $1.6 million (13.2%) from $12.5 million to $14.1
million, as compared to the quarter ended March 29, 1998. Selling, general and
administrative expenses as a percentage of net sales for the quarter ended April
4, 1999 was 4.2% as compared to 4.9% for the prior year quarter ended March 29,
1998. The decline as a percentage of net sales principally related to the
continued consolidation of centralized administrative services and the increase
in net sales volume during the period.
Operating Income
Principally as a result of the foregoing, offset by an increase in Michigan
Single Business Tax of $0.5 million, MSXI's operating income for the quarter
ended April 4, 1999 increased $3.7 million (74.6%) from $5.1 million to $8.8
million, as compared to the quarter ended March 29, 1998. Operating income as a
percentage of net sales for the quarter ended April 4, 1999 increased from 2.0%
to 2.6%, as compared to the quarter ended March 29, 1998.
FISCAL YEAR ENDED JANUARY 3, 1999 COMPARED WITH THE FISCAL YEAR ENDED
DECEMBER 28, 1997
Net Sales
MSXI's net sales for fiscal 1998 increased $516.5 million (91.5%) from
$564.5 million to $1,081.0 million, as compared to the fiscal year ended
December 28, 1997. This increase resulted principally from the inclusion of a
full year of operations from the GRI Acquisition in fiscal 1998 as compared to
four months in fiscal 1997. Net sales of
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MSXI's Purchasing Support Services segment increased $394.3 million, which
related entirely to the inclusion of a full year of operations of the GRI
Acquisition. Net sales of MSXI's Outsourcing Services segment increased $141.6
million. The increase in net sales of this segment is comprised of $78.7 million
relating to a full year of operations from the GRI Acquisition, increased volume
in contract staffing services of $44.4 million, which includes $16.1 million
from acquisitions of businesses in fiscal 1998, and an increase in revenues from
product development totaling $18.5 million. In addition to its acquisitions, the
increase in contract staffing is related to a combination of internal growth,
including the opening of new locations, and increased sales resulting from
customers' consolidation of their supplier base. Net sales from product
development support increased primarily due to an increase in customer orders
for automotive design and engineering in the United Kingdom.
Gross Profit
Gross profit for fiscal 1998 increased $33.5 million (66.3%), from $50.5
million to $84.0 million, as compared to fiscal 1997. This increase resulted
principally from the inclusion of a full year of operations from the GRI
Acquisition in fiscal 1998 as compared to four months in fiscal 1997. In
addition, MSXI's contract staffing and product development support services
improved in both sales volume and margins.
Gross profit as a percentage of net sales for fiscal 1998 decreased from
9.0% to 7.8%, as compared to fiscal 1997, principally due to the inclusion of
the gross profits from MSXI's Purchasing Support Services operations acquired
from GRI, which has a higher sales volume and lower margins than MSXI's
Outsourcing Services.
Selling, General and Administrative Expenses
MSXI's selling, general and administrative expenses in fiscal 1998
increased $21.3 million (59.0%), from $36.0 million to $57.3 million, as
compared to fiscal 1997. This increase resulted principally from the inclusion
of a full year of operations from the GRI Acquisition in fiscal 1998 as compared
to four months in fiscal 1997, increased investment in MSXI's human resources
and business systems to support acquisitions and internal growth, and the
implementation of a performance incentive plan. Selling, general and
administrative expenses as a percentage of net sales in fiscal 1998 was 5.3% as
compared to 6.4% in fiscal 1997. The decline as a percentage of net sales
principally related to the continued consolidation of centralized administrative
services and the increase in net sales volume during the period.
In fiscal 1997 there was a one-time, pre-tax charge of $2.0 million for
restructuring costs relating to the closure of two facilities.
Operating Income
Principally as a result of the foregoing, offset by an increase in Michigan
Single Business Tax of $0.6 million, MSXI's operating income for fiscal 1998
increased $13.6 million (140.9%), from $9.7 million to $23.3 million, as
compared to fiscal 1997. Operating income as a percentage of net sales for
fiscal 1998 increased from 1.7% to 2.2%, as compared to fiscal 1997.
FISCAL YEAR ENDED DECEMBER 28, 1997 COMPARED WITH THE YEAR ENDED DECEMBER
31, 1996
Net Sales
MSXI's net sales for fiscal 1997 increased $336.2 million (147.3%), from
$228.3 million to $564.5 million, as compared to 1996. This increase resulted
principally from the APX Acquisition and the GRI Acquisition. These increases
were offset by a decline in the Outsourcing Services segment's net sales from
product development support in the United States due to the completion of a
multi-year project, the early termination of an engineering project in Europe
and the planned elimination of an unprofitable shop facility in the United
States.
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Gross Profit
MSXI's gross profit for fiscal 1997, which includes gross profits from GRI
for four months, increased $14.8 million (41.5%), from $35.7 million to $50.5
million, as compared to 1996. This increase resulted principally from the APX
and GRI Acquisitions. Gross profit as a percentage of net sales for fiscal 1997
decreased from 15.7% to 9.0% as compared to 1996, principally due to the
inclusion of gross profits from MSXI's Purchasing Support Services acquired from
GRI, which is at a lower margin than MSXI's Outsourcing Services, and due to
lower margins earned on sales of product development services as a result of
under-absorbed fixed costs resulting from the decrease in sales in Europe and
North America. Gross profit as a percentage of net sales also decreased as a
result of a change in the pricing of certain manufacturing engineering purchase
orders from fixed-price to time-and-materials.
Selling, General and Administrative Expenses
MSXI's selling, general and administrative expenses for fiscal 1997
increased $9.8 million (37.4%), from $26.2 million to $36.0 million, as compared
to 1996. This increase resulted principally from the APX and the GRI
Acquisitions. In addition, there was a one-time, pre-tax charge of $2.0 million
in 1997 related to the closure of two facilities. Selling, general and
administrative expenses as a percentage of net sales for fiscal 1997 decreased
from 11.5% to 6.4%, as compared to 1996. This decrease principally related to
the consolidation of centralized administrative services and the increase in net
sales volume during the period.
Operating Income
Principally as a result of the foregoing, offset by an increase in Michigan
Single Business Tax of $1.4 million, MSXI's operating income for fiscal 1997
increased $1.7 million (21.3%), from $8.0 million to $9.7 million, as compared
to 1996. Operating income as a percentage of sales for fiscal 1997 decreased
from 3.5% to 1.7% as compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
MSXI's principal capital requirements are for the acquisition of
businesses, capital expenditures, and working capital to support growth. These
requirements have been met through a combination of bank debt, issuance of
senior subordinated notes and cash from operations.
Shortly after its inception in late 1996, MSXI completed the TSG
Acquisition at a purchase price of $145.6 million. The TSG Acquisition, which
followed the initial capitalization of MSXI, was financed through $3.8 million
of common equity, $36.0 million of Redeemable Series A Preferred Stock, $70.0
million of senior subordinated debt, and $35.8 million of borrowings under
credit facilities between MSXI and Bank One Corporation as agent and its
affiliates (the "Old Credit Facility"). On August 31, 1997, MSXI acquired GRI
for $60.0 million which was financed with borrowings under the Old Credit
Facility, offset in part by substantial cash balances acquired.
MSXI typically pays its employees on a weekly basis and is reimbursed by
its customers within invoicing terms, which is generally a 60 day period after
MSXI pays its employees. However, in connection with Purchasing Support
Services, MSXI collects related receivables at approximately the same time it
makes payment to its suppliers.
Net cash used for operating activities increased $10.7 million from $(0.2)
million for the quarter ended March 29, 1998 to $(10.9) million for the
quarter ended April 4, 1999. This use of cash from operating activities resulted
from a change in receivables of $23.4 million during the quarter ended April 4,
1999 as compared to the prior year quarter and other items of $3.2 million
offset in part by an increase in net income of $2.1 million and a change in
current liabilities of $13.8 million. The changes in receivables relate to
increased sales volume and timing of customer collections. Net cash from
operating activities for fiscal 1998 increased $24.7 million from $1.8 million
in fiscal 1997 to $26.5 million in fiscal 1998. This increase was principally
due to an increase in net income of $5.7 million, a change in non-cash charges
for depreciation and amortization of $4.3 million, and a change in other items
of $14.7 million, principally due to the timing of receipts and payments
associated with MSXI's Purchasing
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Support Services as well as improved collections of accounts receivable in the
United Kingdom. Net cash from operating activities for fiscal 1997 decreased
$6.0 million, from $7.8 million in 1996 to $1.8 million in fiscal 1997. The
decrease was principally due to an unfavorable change in net income of $(6.8)
million, offset by an increase in non-cash charges for depreciation and
amortization of $4.9 million, and a decrease in other items affecting cash
provided by operating activities of $(4.1) million.
Net cash used for investing activities increased $3.6 million from $1.8
million for the quarter ended March 29, 1998 to $5.4 million for the quarter
ended April 4, 1999. This change relates to capital expenditures and an
investment in Cadform. Net cash used for investing activities for fiscal 1998
decreased $117.4 million from $170.7 million to $53.3 million, as compared to
fiscal 1997. Acquisitions in fiscal 1998 were not as large as in fiscal 1997,
which included the TSG Acquisition and the GRI Acquisition. Capital expenditures
for fiscal 1998 and fiscal 1997 were $11.6 million and $11.5 million,
respectively. The majority of these capital expenditures were to acquire
equipment for specific customer projects, including computer systems and
improvements on leased facilities. In the year ended December 31, 1996, TSG,
MSXI's predecessor for accounting purposes, invested $4.8 million, principally
for capital expenditures.
Net cash from financing activities increased $10.7 million from $6.2
million for the quarter ended March 29, 1998 to $16.9 for the quarter ended
April 4, 1999. Financing requirements during the quarter ended April 4, 1999
increased to support the net cash used for operating activities as noted above.
Net cash from financing activities for fiscal 1998 decreased $162.1 million from
the comparable prior period. Financing requirements decreased commensurate with
the declines in investing activities and the improvement in cash flow from
operating activities after the initial capitalization of MSXI. Net cash from
financing activities for fiscal 1997, increased $177.4 million, from $4.2
million to $181.6 million, as compared to fiscal 1996. This increase was due to
the CVC and MascoTech bridge loans, aggregating $40.0 million, the issuance of
$3.8 million of Common Stock, $36.0 million of Redeemable Series A Preferred
Stock, a $30.0 million Senior Subordinated Note and borrowings under the old
credit facility.
On January 22, 1998, MSXI issued, in a private placement, $100 million
aggregate principal amount of 11-3/8% unsecured senior subordinated notes
maturing January 15, 2008. On August 20, 1998, MSXI consummated an offer to
exchange registered notes for those notes.
Concurrent with the private placement of those notes, MSXI entered into a
$100 million Credit Facility with Bank One Corporation (the "Credit Facility")
to replace a previous credit facility. On April 14, 1998, MSXI syndicated the
Credit Facility to add additional commercial lenders and amended and restated
the Credit Facility to add a $30 million term loan portion. On the same date,
MSXI borrowed the full amount available under the term loan and used the funds
to reduce outstanding balances under the revolving loan portion of the Credit
Facility. As of April 4, 1999, $98.7 million was outstanding under the Credit
Facility as amended and restated.
MSXI's total indebtedness consists of the Notes, borrowings under the
Credit Facility and borrowings under various short-term arrangements. Additional
information regarding theses obligations is set forth in the notes to MSXI's
condensed consolidated financial statements included in this prospectus. The
ability of MSXI to meet its debt service obligations will be dependent upon the
future performance of MSXI, which will be impacted by general economic
conditions and other factors.
During fiscal 1998, MSXI finalized the purchase price of the APX
Acquisition, which resulted in a favorable purchase price adjustment totaling
$4.8 million. This amount was collected in October 1998.
CORPORATE DEVELOPMENT
Acquisitions
MSXI has completed several strategic acquisitions that have expanded its
geographic coverage, service offerings, and reach to customers outside the
automotive industry.
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On August 4, 1998, MSXI acquired Gold Arrow Contract Services, Ltd., a
technical and information technology staffing services company located in the
United Kingdom with annual sales of approximately $20 million. Funding for the
transaction was provided by borrowings under the Credit Facility as amended and
restated.
Effective October 31, 1998, MSXI acquired Lexstra International, Inc. and
Lexus Temporaries, Inc., providers of contract computer consultants, systems
analysts and network support personnel. The companies are headquartered in New
York, NY and have offices in Boston, MA, Red Bank, NJ and Silver Springs, MD.
The companies have combined annual sales of approximately $46.9 million. The
purchase price was $24 million at closing, with additional payments contingent
on achieving improved operating results for the years 1998 through 2000. Funding
for the initial transaction was provided by borrowings under the Credit Facility
as amended and restated.
On December 18, 1998, MSXI acquired Pilot Computer Services, Inc. This
Concord, California-based company provides computer professionals experienced in
systems development, systems enhancement and project management.
Effective December 26, 1998, MSXI acquired MegaTech Engineering, Inc.
("MEI") from Johnson Controls, Incorporated ("JCI"). MEI offers technical
staffing and product development support services. The total purchase price was
$30 million, including $15 million which was paid at the closing using
borrowings under the Credit Agreement as amended and restated. The balance of
the purchase price is due, without interest, in fiscal 1999 and is expected to
be provided by the proceeds from the sale of real property acquired. As part of
the transaction, MSXI significantly enhanced its opportunity to provide services
to JCI. It also strengthened its training resources by acquiring a training
academy that operates a degree-granting program in automotive design and
engineering in conjunction with Central Michigan University.
In early April 1999, MSXI acquired Rice Cohen International, a permanent
placement staffing company based in Yardley, Pennsylvania with annual sales of
approximately $5.0 million.
On June 21, 1999 MSXI acquired Management Resources International, Inc., a
provider of training services and courseware in quality systems, with annual
sales of about $3.5 million.
Additional information related to certain of these developments is
set forth in the notes to MSXI's combined and consolidated financial statements
captioned "Acquisitions of Business" included in the Financial Statements
section of this prospectus.
Equity Investments
On January 8, 1999, MSXI acquired an approximate 25% interest in Cadform
GmbH, a German company with sales of approximately $22 million that provides
product design and tooling services to the automotive industry. Based in Homberg
(Ohm), Germany, Cadform specializes in automotive interior systems and cast
aluminum products. Cadform plans to engage in joint projects with MSXI. As part
of the investment, MSXI obtained an option to acquire an additional interest in
Cadform.
On May 28, 1999, MSXI acquired a 30% interest in Quandoccorre Srl and
Quandoccorre Interinale SpA, two affiliated Italian companies with combined
sales of approximately $10 million. Quandoccorre Srl provides consulting
services on a project basis. Quandoccorre Interinale SpA is one of a limited
number of companies licensed under new Italian legislation to provide staffing
services. MSXI expects to pursue complementary opportunities for growth in
Italy, including expansion of its engineering and product development support
capabilities. If the two companies achieve specific performance targets in 1999,
MSXI anticipates that it will acquire the remaining interests in the companies.
DEBT OFFERING
On May 18, 1999, MSXI issued, in a private placement, $30 million aggregate
principal amount of 11-3/8% unsecured subordinated notes maturing January 15,
2008 (the "old notes"). The old notes were issued, net of discount, in an
aggregate amount of $29.4 million. These old notes are substantially identical
to, and rank pari passu in right of
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payment with, the $100 million aggregate principal amount of 11-3/8% unsecured
subordinated Series A Notes issued by MSXI on January 22, 1998. These old notes
and the Series A Notes will trade as separate securities prior to the completion
of the exchange offer relating to the old notes (the "Exchange Offer"). It is
anticipated that the Exchange Offer will be consummated within 210 days of the
issuance of the old notes. The net proceeds received from the issuance of the
old notes were used to repay outstanding indebtedness under MSXI's Credit
Facility.
UNITED KINGDOM WORKING TIME DIRECTIVE
MSXI is monitoring developments in the United Kingdom related to government
mandated, minimum vacation benefits for employees. Prompted by the commonization
of employment legislation across Europe, the United Kingdom adopted a "Working
Time Directive" in Fall 1998. The Directive requires payment of a minimum three
week vacation benefit to employees, retroactive to October 1998. In October
1999, the minimum vacation benefit will be raised to four weeks. The application
of the Directive to all employment classes is not yet finalized, nor is it
resolved whether staffing vendors or their customers will bear the expected
increase in employment costs. MSXI is working with professional advisors to
assess the likely result of the Working Time Directive and alternative benefit
strategies. MSXI believes that the ultimate impact of the Directive will not
have a material impact on the financial position, results of operations and cash
flows of MSXI, taken as a whole.
INFLATION
Although MSXI cannot anticipate future inflation, it does not believe that
inflation has had, or is likely in the foreseeable future to have, a material
impact on its results of operations. While MSXI's contracts typically do not
include automatic adjustments for inflation, the Ford Master Vendor Agreement
does provide for automatic adjustments for inflation for services provided under
the Master Vendor Program.
SEASONALITY
MSXI's quarterly operating results are affected primarily by the number of
billing days in the quarter and the seasonality of its customers' businesses.
Demand for services of MSXI have historically been lower during the year-end
holidays.
YEAR 2000
The Year 2000 issue ("Y2K") is the result of computer programs having been
written using two digits, rather than four, to define the applicable year. Any
of the computers, computer programs and manufacturing and administrative
equipment that have date sensitive software may recognize a date having "00" as
the year 1900 rather than the year 2000. If any of MSXI's systems or equipment
use only two digits, systems failures or miscalculations may result. This may
cause disruptions of operations including, among other things, a temporary
inability to process transactions or send and receive electronic data with third
parties, or to engage in similar normal business activities.
MSXI, on a coordinated basis and with the assistance of consultants, is
addressing Y2K. MSXI's Y2K methodology categorizes its assets into four areas:
applications, facility systems, PCs and peripherals, and third party providers.
Applications have been classified depending on the associated business unit
or corporate sponsor. Managers are in place with responsibility for
prioritization, assessment, remediation planning and implementation, and
testing. Five hundred applications have been identified, of which 88 are
considered critical. Substantially all critical applications are scheduled for
remediation and testing by June 30, 1999. Although there can be no assurances
that MSXI will identify and correct every Y2K defect, MSXI believes it has in
place a comprehensive program to identify, remediate and test all applicable
applications.
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MSXI has inventoried all facility systems (e.g., HVAC, security,
telephones, etc.) worldwide. Non-compliance reports have been distributed to
individual business units. Less than five percent of all facility systems were
not Y2K compliant. Business units will replace, retire or repair facility
systems as necessary.
PCs and peripherals have been inventoried worldwide. All PCs were upgraded
to ensure hardware and software compliance by the end of the first fiscal
quarter of 1999. Substantially all network operations hardware and software have
been upgraded and are compliant as of the date of this prospectus.
The majority of third party providers and key suppliers have been contacted
with a letter requesting Y2K status. Contingency planning has commenced with the
identification of critical facilities and systems. Specific back-up systems
plans were finalized by the end of the first fiscal quarter of 1999. The ability
of key service providers, such as utility companies, to facilitate MSXI's need
is of paramount importance. In some cases, especially with respect to its
utility vendors, alternative suppliers may not be available.
For its information technology, MSXI currently uses a mid-range,
non-mainframe based computer environment which is complemented by a series of
local area networks ("LAN's") that are connected via a wide-area network
("WAN"). Enabled versions of MSXI's financial, human resource and business
systems are in place. MSXI incorporates limited use of machinery and equipment
with embedded technology.
MSXI's most significant risks with respect to Y2K problems are lost revenue
and damaged relations with MSXI's customers resulting from a delay in the
delivery of goods and services and the effect of shutting down production or a
customer's facility. MSXI believes the risk may be somewhat mitigated as the
majority of MSXI's revenue is generated from the sale of business systems,
systems technology and staffing services as opposed to the delivery of
manufactured product.
MSXI's cost for Y2K compliance preparation in 1998 was approximately
$500,000. Y2K remediation costs for 1999 are expected to reach $2.0 million,
which include upgrades, repairs and programming. As the Y2K project continues,
MSXI may discover additional Y2K problems, may not be able to develop, implement
or test remediation or contingency plans, or may find that the cost of these
activities exceed current expectations. In many cases, MSXI must rely on
assurances from suppliers that new and upgraded information systems as well as
key services will be Y2K compliant. While MSXI plans to validate supplier
representations, it cannot be sure that its tests will be adequate, or that, if
problems are identified they will be addressed in a timely and satisfactory
manner. Even if MSXI, in a timely manner, completes all of its assessments,
implements and tests all remediation plans, and develops contingency plans, some
problems may not be identified or corrected in time to prevent material adverse
consequences or business interruptions to MSXI.
EUROCURRENCY
On January 1, 1999, the member states of the European Economic and Monetary
Union agreed to adopt the Euro as their common legal currency. The existing
member state currencies are scheduled to remain legal tender as denominations of
the Euro until at least January 1, 2002, but not later than July 1, 2002. During
this transition period, monetary transactions may be settled using either the
Euro or the existing member state currencies.
MSXI has both operating divisions and customers located in Europe. In
1998, combined revenues from these sources were approximately 14.8% of total
revenues. MSXI has operations in substantially all European Economic and
Monetary Union participating countries, as well as in the United Kingdom, which
has elected not to participate in the Euro conversion at this time. The affected
operations plan to make the Euro the functional currency sometime during the
transition period, although certain of MSXI's European operations have already
entered into Euro-based transactions, such as bank borrowings and collection of
accounts receivable.
It is difficult to assess the competitive impact of the Euro conversion on
MSXI's operations, both in Europe and in the United States. In markets where
sales are made in U.S. dollars, there may be pressure to denominate sales in the
Euro. However, exchange risks resulting from these transactions could be
mitigated through hedging. It is not
37
<PAGE> 39
anticipated that changes to information technology and other systems which are
necessary for the Euro conversion will be material. MSXI is currently assessing
the impact the Euro conversion may have on items such as taxation and other
issues.
MSXI is in the process of implementing system software required for the
Euro currency conversion and does not anticipate the conversion to have a
significant impact on the operations, financial position or liquidity of its
European businesses.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MSXI is exposed to certain market risks, including interest rates and
currency exchange rates. Risk exposure relating to these market risks are
summarized below. This information should be read in connection with the
Combined and Consolidated Financial Statements and the related notes thereto
included elsewhere in this prospectus.
Currency Rate Management
For fiscal 1998, approximately 16% of MSXI's net sales were from foreign
markets. To date, MSXI has been able to minimize its currency exposure by
receiving its foreign revenues in local currency, which are naturally hedged as
the corresponding costs are usually in the same currency.
Interest Rate Management
MSXI manages its interest cost using a combination of fixed and variable
rate debt. As of January 3, 1999, MSXI has $100 million of senior subordinated
notes outstanding at a fixed interest rate of 11 3/8%. In addition, MSXI has a
$130 million credit facility at variable rates of interest. As of January 3,
1999, $80.4 million of the Credit Facility was outstanding at interest rates
ranging from 6.75% to 7.81%. A 1% increase in the credit facility's applicable
interest rate would result in additional interest expense of approximately $0.8
million per year.
As of January 3, 1999 the fair value of the Series A Notes was $97.5
million compared to its carrying value of $100 million.
Sales with Major Customers.
Three customers accounted for approximately 75%, 8% and 8%, respectively,
of consolidated net sales for fiscal 1998.
38
<PAGE> 40
BUSINESS
MSXI is a leading supplier of people and technology-driven engineering and
business services, principally to the automotive industry in the United States
and Europe, with the capability to provide services on a worldwide basis.
Through internal growth and acquisitions, MSXI is now a single source provider
of a broad range of complementary outsourcing services, provided both at
customer and MSXI facilities. Services offered by MSXI include technical and
professional contract staffing; product development services; training services;
digital document and information storage and retrieval; process improvement
consulting; comprehensive marketing information processing; teleservices; and
purchasing support services, which include processes to manage the procurement
of staffing, training and other professional services.
On January 3, 1997, MSXI completed the TSG Acquisition wherein it acquired
selected assets and operations of the former engineering and technical business
service units of MASG and MascoTech. Through the consummation of the TSG
Acquisition, MSXI also acquired the net assets of APX which previously had been
acquired by MASG as of November 6, 1996. All references herein to MSXI, unless
the context otherwise requires, shall mean MSX International, Inc., including
its consolidated subsidiaries, and its predecessor for accounting purposes, TSG.
Effective August 31, 1997, MSXI completed the GRI Acquisition through which
all of the issued and outstanding stock of GRI was acquired from Ford Motor
Company ("Ford"). In connection with this acquisition, MSXI entered into the
Ford Master Vendor Agreement and the Ford Master Supply Agreement.
By adding GRI's capabilities to its traditional strength in technical
staffing and design and engineering services, MSXI expanded its ability to sell
a broad range of complementary services to both existing and new customers
within and outside the automotive industry. MSXI believes that it is the only
company currently providing such a broad range of services to the automotive
industry on a worldwide basis.
MSXI employed or sourced over 12,000 individuals at 64 operating facilities
in 23 countries as of January 3, 1999. MSXI continues to pursue a dual growth
strategy focused on both internal development and complementary acquisitions.
39
<PAGE> 41
SEGMENT INFORMATION
MSXI reports its services in two segments: Outsourcing Services and
Purchasing Support Services and analyzes its operations to the level of earnings
before income taxes. The following table sets forth, for the three years ended
January 3, 1999, and the fiscal quarters ended March 29, 1998 and April 4, 1999,
the net sales and earnings before interest and taxes, including Michigan Single
Business Tax, ("EBIT"), as defined for each industry segment.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL QUARTER FISCAL QUARTER
YEAR ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3, MARCH 29, APRIL 4,
1996 1997 1999 1998 1999
----------- ----------- ------------ ----------- ----------
(IN THOUSAND)
<S> <C> <C> <C> <C> <C>
NET SALES (1)
Outsourcing Services ............$ 228,260 $ 374,207 $ 515,880 $ 114,698 $ 178,375
Purchasing Support Services...... -- 197,186 591,538 145,240 170,312
---------- ---------- ---------- ---------- ----------
$ 228,260 $ 571,393 $1,107,418 $ 259,938 $ 348,687
========== ========== ========== ========== ==========
EBIT -
Outsourcing Services ............$ 9,440 $ 10,368 $ 22,339 $ 5,196 $ 8,881
Purchasing Support Services...... -- 2,152 4,432 637 1,272
---------- ---------- ---------- ---------- ----------
$ 9,440 $ 12,520 $ 26,771 $ 5,833 $ 10,153
========== ========== ========== ========== ==========
</TABLE>
- ----------------
(1) Results do not reflect the elimination of inter-segment sales, which were
$6.8 million and $26.4 million, respectively, in the fiscal years 1997 and
1998 and $4.9 million and $9.2 million, respectively, in the fiscal
quarters ended March 29, 1998 and April 4, 1999.
OUTSOURCING SERVICES
In MSXI's Outsourcing Services segment, MSXI provides technical support
services. These services include technical and professional contract staffing,
product development support and other business services. Sales in the
Outsourcing Services segment are based principally on fees charged for resources
provided to support development, manufacturing and distribution of customer
products and services. MSXI's customers are increasingly relying on third
parties to provide them with these and other essential services, allowing
customers to improve operating efficiency by focusing on core competencies.
MSXI provides a multi-discipline, technical and professional staffing
service with international delivery, recruiting, and training capability. MSXI
principally provides engineers, designers, and technicians, primarily to the
automotive industry, and information technology personnel to a variety of
industries. MSXI is a leader in automotive technical staffing worldwide. Through
internal growth and recent acquisitions, it has also developed information
technology staffing capabilities on the West Coast and in the mid-Atlantic
states.
MSXI provides a complete range of vehicle engineering services covering all
phases of the product development cycle. These services, which are primarily
provided at MSXI's own facilities, include computer-aided design and
engineering, product and manufacturing engineering, assembly tooling, program
management, and specialty vehicle support for original equipment manufacturer
("OEM") marketing programs and non-automotive vehicle applications. As of
January 3, 1999, approximately $210 million of its engineering services sales
are either "booked" or recurring based on long-term relationships, compared to
approximately $170 million in January 1998.
The remaining services provided by MSXI in the Outsourcing Services segment
are a broad range of technology-based business services. These include design
and delivery of training programs, digital document and information storage and
retrieval, internet-based systems development and integration, comprehensive
marketing information processing, teleservices such as hotline and customer
assistance, process improvement implementation, and other services.
40
<PAGE> 42
In the Outsourcing Services segment, MSXI obtains its sales from more than
150 customers including the major United States and European automotive OEMs and
a number of automotive suppliers. Ford, General Motors Corporation, and
DaimlerChrysler Corporation, respectively, accounted for 47.0%, 17.0%, and 16.2%
of net sales in this segment for the fiscal year ended January 3, 1999.
PURCHASING SUPPORT SERVICES
In MSXI's Purchasing Support Services segment, MSXI provides administrative
support to large companies for the purchase of various services. Customers in
this segment use MSXI and its automated processes to manage the procurement of
staffing, training, consulting and other professional services. Sales from this
segment include the billings from sub-suppliers for their services rendered,
plus a small mark-up for management and processing. For the fiscal year ended
January 3, 1999, the Purchasing Support Services segment obtained its sales
primarily from Ford.
Additional financial information concerning MSXI's segments as of January
3, 1999 and for each of the three years in the period ended January 3, 1999 and
the fiscal quarters ended March 29, 1998 and April 4, 1999 is set forth in the
Notes to MSXI's combined and consolidated financial statements captioned
"Segment Information" included in the Financial Statements section of this
prospectus.
Recent Acquisitions
The following table sets forth certain information on the businesses
acquired since January 1998. The aggregate unaudited pro forma 1998 net sales of
these companies totaled approximately $115.0 million.
<TABLE>
<CAPTION>
MONTH GEOGRAPHIC NUMBER
NAME ACQUIRED SERVICES COVERAGE MARKETS OF SITES
- ------------------- ----------- -------------- --------------- --------------------- --------
<S> <C> <C> <C> <C> <C>
Gold Arrow Contract August 1998 Information United Kingdom, Automotive, financial 2
Services, Ltd. technology and Northern Europe services, and other
technical commercial markets
staffing
Lexstra International, Inc. October 1998 Information Mid-Atlantic Financial services and 4
technology Region other commercial markets
staffing
Lexus Temporaries, Inc. October 1998 Network support Mid-Atlantic Telecommunications 4
staffing Region
Pilot Computer Services, December 1998 Information California Government, health 3
Inc. technology care, and other
staffing commercial markets
MegaTech Engineering, Inc. December 1998 Technical Michigan Automotive original 1
staffing and equipment manufacturers
product and suppliers
development
services
Rice Cohen International April 1999 Permanent staff Mid-Atlantic Selected services 1
placement region markets
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
MONTH GEOGRAPHIC NUMBER
NAME ACQUIRED SERVICES COVERAGE MARKETS OF SITES
- ------------------- ----------- -------------- --------------- --------------------- --------
<S> <C> <C> <C> <C> <C>
Management Resources June 1999 Training Midwest Quality systems 1
International, Inc. Services and
courseware in
quality systems
</TABLE>
Equity Investments
In January 1999, MSXI acquired an approximate 25% interest and an option to
acquire an additional interest in Cadform GmbH ("Cadform"), a German company
that provides design and tooling services to the automotive industry. Cadform is
based in Homberg (Ohm), Germany. It specializes in engineering for automotive
interior systems and cast aluminum products. MSXI and Cadform plan to engage in
joint projects to leverage their combined product development capabilities.
In May 1999, MSXI acquired a 30% interest in Quandoccorre Srl and
Quandoccorre Internale SpA, two affiliated Italian companies with combined sales
of approximately $10 million. Quandoccorre Srl provides consulting services on a
project basis. Quandoccorre Internale SpA is one of a limited number of
companies licensed under new Italian legislation to provide staffing services.
MSXI expects to pursue complementary opportunities for growth in Italy,
including expansion of its staffing, engineering and product development support
capabilities. If the two companies achieve specific performance targets in
1999, MSXI anticipates that it will acquire the remaining interest in the
companies.
INTERNATIONAL OPERATIONS
MSXI's international presence is an important competitive advantage in
winning and retaining new business and meeting the global sourcing, quality and
engineering requirements of many of its customers. MSXI, through its
subsidiaries, has businesses located in 23 countries. Foreign operations are
subject to political, monetary, economic and other risks accompanying
international business. In the fiscal year ended January 3, 1999, 16% of MSXI's
net sales were generated outside the United States.
MSXI expanded its UK staffing services capabilities in 1998 through the
acquisition of Gold Arrow Contract Services, Ltd. ("Gold Arrow"), an information
technology and technical staffing company headquartered in Basildon, Essex,
England. The Gold Arrow acquisition enhances MSXI's ability to support UK
customer requirements for technical staffing in the automotive, financial
services, and other industries. Similarly, planned joint projects with Cadform
are expected to strengthen MSXI's positioning with German automotive
manufacturers and their suppliers. Investments with Quandoccorre Srl and
Quandoccorre Internale SpA are expected to position MSXI to expand its
staffing, engineering and product development opportunities in Italy.
COMPETITION
The major domestic and foreign markets for MSXI's products and services are
highly competitive. In some cases, MSXI's global competitors include a number of
other well-established vendors, as well as customers with their own internal
capabilities. Although a number of companies of varying sizes compete with MSXI,
no single competitor is in substantial competition with MSXI with respect to all
of its services.
MSXI depends upon its ability to attract, retain and develop personnel,
particularly technical personnel, who possess the skills and experience
necessary to meet the needs of customers. Competition for individuals with
proven technical or professional skills is intense. MSXI competes with other
staffing companies, as well as MSXI's customers and other employers for
qualified personnel. The acquisition of MEI reinforced MSXI's commitment to
training and development. As part of the transaction, MSXI acquired a training
academy that operates a degree-granting program in automotive design and
engineering in conjunction with Central Michigan University.
Competition among vendors of outsourced product development services is
based on the types of individual and bundled services offered and by the
location of customers. The basis of competition includes the size of competing
42
<PAGE> 44
firms, global capability, relevant experience, prior relationships with
customers, and price. In the United States, MSXI competes with Modern
Engineering, a subsidiary of CDI, and Defiance, among others. European
competition includes Bertrandt, Hawtal Whiting, Engineering & Design AG, and
Rucker.
MSXI supplies outsourced technical staffing based on its ability to
identify, match, and provide high quality personnel on an efficient basis and at
a competitive price. MSXI both manages and competes with many companies in the
temporary staffing industry, which is highly competitive, fragmented, and has
limited barriers to entry. MSXI uses a variety of resources and techniques to
support its recruiting capability, including support of web-enabled recruiting
databases, internal training, international recruiting coordination, and
competitive benchmarking of compensation and benefits. MSXI's principal
competitors in staffing services include CDI, TechAid, Manpower, Kelly Services
Technical, Olsten, Randstad (in Europe, only), Volt, and numerous regional
information technology staffing firms.
The degree of competition among suppliers of the remaining outsourced
business services provided by MSXI is high. In many cases, MSXI's principal
competition is the customer's in-house operations. For certain services, such as
training, marketing and imaging services, there are numerous outside
competitors, many of whom have greater name recognition and marketing, financial
and other resources than MSXI.
Currently, MSXI's Purchasing Support Services segment primarily provides
services to Ford pursuant to agreements that expire in 2002. MSXI remains
subject to competitive benchmarking with respect to price, service quality, and
responsiveness.
GENERAL INFORMATION
MSXI believes that it has developed strong relationships with its customers
and has a reputation for quality, reliability and service that has been
recognized through Ford's Q1 and DaimlerChrysler's Pentastar awards. In
addition, most of its operations are certified to the ISO 9001 or 9002
international quality standards. An operation receives ISO certification when an
independent assessor determines that the operation is in compliance with a
documented quality management system.
A substantial portion of sales to Ford were made pursuant to the Ford
Master Vendor Agreement and the Ford Master Supply Agreement, which were entered
into for five year terms when MSXI acquired GRI in August 1997. These
agreements are subject to earlier termination in the event that MSXI fails to
satisfy certain standards of performance and competitiveness. However, both Ford
and MSXI have agreed to negotiate in good faith to extend the terms for an
additional five years beyond the initial five year terms. Ford and MSXI have
also agreed to maintain an advisory board comprised of executives from both
companies to monitor and enhance the relationship between the companies.
MSXI's quarterly operating results are affected primarily by the number of
billing days in the quarter and the seasonality of its customers' businesses.
Demand for services of MSXI have historically been lower during the year-end
holidays.
Except as noted above, no material portion of MSXI's business is dependent
upon any one customer or is subject to re-negotiation of prices. In general,
equipment and technologies required by MSXI to support its service offerings are
obtainable from various sources in the quantities desired.
ENVIRONMENTAL
Compliance with foreign, federal, state and local environmental protection
laws and regulations is not expected to result in material capital expenditures
by MSXI or to have a material effect on MSXI's results of operations, cash
flows, or competitive position.
43
<PAGE> 45
EMPLOYEES
The following table sets forth certain information regarding MSXI's
employees as of January 3, 1999.
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES
---------
<S> <C>
North America .................................................... 5,764
United Kingdom ................................................... 1,111
Germany .......................................................... 335
Rest of Europe ................................................... 563
South America .................................................... 77
Australasia ...................................................... 49
-----
Total ........................................................ 7,899
=====
</TABLE>
Of MSXI's 7,899 employees, approximately 5,600 were paid on an hourly
basis. Currently, approximately 200 of MSXI's employees in the United States are
members of unions. MSXI believes its current relations with its employees are
good.
PROPERTIES
The following table sets forth certain information regarding the facilities
operated by MSXI as of January 3, 1999. MSXI believes that substantially all of
its property and equipment is in good condition and that it has sufficient
capacity to meet its current and projected operating needs. All of MSXI's
facilities are utilized in its Outsourcing Services segment. Three of these
facilities are also utilized to provide Purchase Support Services.
<TABLE>
<CAPTION>
NUMBER OF
FACILITIES
----------
<S> <C>
North America .................................................. 38
United Kingdom ................................................. 9
Germany ........................................................ 6
Rest of Europe ................................................. 6
South America .................................................. 2
Australasia .................................................... 3
--
Total ...................................................... 64
==
</TABLE>
As part of the MegaTech Acquisition, MSXI acquired a campus of five
buildings located in Warren, Michigan. MSXI expects to complete a sale/leaseback
transaction related to this property. Additional financial information regarding
this transaction is set forth in the notes to MSXI's combined and consolidated
financial statements titled "Acquisition of Businesses" and "Property and
Equipment, Net," included in the Financial Statements section of this
prospectus. In addition, information regarding this transaction may be found in
note (A) to the capitalization table, note (G) to the Pro Forma Financial Data
and note (D) to the Selected Financial and Other Data section of this
prospectus.
Excluding the MegaTech buildings held for sale, all but one of MSXI's
facilities are leased. MSXI believes that the termination of any one of its
leases would not materially adversely affect MSXI.
LEGAL PROCEEDINGS
MSXI is involved in various proceedings incidental to the ordinary conduct
of its business. MSXI believes that none of these proceedings will have a
material adverse effect on MSXI's financial condition, results of operations or
cash flows.
44
<PAGE> 46
MANAGEMENT
The following table sets forth certain information with respect to
directors and executive officers of MSXI as of June 22, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Erwin H. Billig ................... 73 Chief Executive Officer, Chairman of the Board of Directors
Frederick K. Minturn .............. 42 Executive Vice President; Chief Financial Officer
Roger Fridholm .................... 59 President, Business, Technology and Staffing Services Division
John Risk ......................... 61 President, Product Development Services Division
Ralph L. Miller ................... 56 Special Assistant to the Chairman of the Board
Richard M. Cashin, Jr ............. 46 Director
David E. Cole ..................... 61 Director
Michael A. Delaney ................ 45 Director
Lee M. Gardner .................... 52 Director
Richard A. Manoogian .............. 62 Director
</TABLE>
Erwin H. Billig has been Chief Executive Officer since April 28, 1998 and
Chairman of the Board of Directors since January 3, 1997. He served as Vice
Chairman of MascoTech from 1994 to 1997 and was President and Chief Operating
Officer of MascoTech from 1986 to 1994. He is also the Chairman of the Board of
Directors of Titan Wheel International, Inc., a director of OEA, Inc. and a
director and Vice Chairman of Delco Remy International, Inc.
Frederick K. Minturn has been Executive Vice President and Chief Financial
Officer since January 3, 1997. Mr. Minturn was Group Controller of MascoTech's
Automotive Operations from 1991 through December 1996 and served as Vice
President from 1994 through December 1996.
Roger Fridholm has been President of the Business, Technology and Staffing
Services Division since May 26, 1998. Mr. Fridholm has also served as President
of St. Clair Group, Inc., a private investment company, since 1991 and as
Chairman of Ad Hoc Legal Resources LLC since 1995, as President of IPG Services
Corporation since 1996, and as President of Ad Hoc, Inc. since 1997, all of
which are staffing service companies. Mr. Fridholm is a director of The Stroh
Companies, Inc., MascoTech, Inc., MCN Energy Group and Comerica Bank.
John Risk has been President of the Product Development Services Division
since May 11, 1998. Mr. Risk retired from Ford Motor Company in 1997, where he
served as executive director of Ford's global midsize and small car lines from
1994 to 1997.
Ralph L. Miller has been Special Assistant to the Chairman of the Board
since April 28, 1998. From January 3, 1997 to April 28, 1998, Mr. Miller served
as President and Chief Operating Officer. He was President and Chief Executive
Officer of APX International, Inc. from January 1994 through December 1996. He
is also a director of Separation Dynamics International Ltd., and iX Systems,
Inc.
Richard M. Cashin, Jr. has been a director since January 3, 1997. Mr.
Cashin has been president of CVC since 1994. Mr. Cashin is also a director of
Levitz Furniture Inc., Delco Remy International, Inc., LifeStyle Furnishings
International Ltd., Fairchild Semiconductor Corporation, FFC Holding, Inc.,
Cable Systems International, Euramax International, Plc, Titan Wheel
International, Inc., Hoover Group Inc., Thermal Engineering, Gerber
Childrenswear Inc., JAC Holding Corporation, GVC Holdings, Ballantrae
Corporation and Delta Commodities, Inc.
David E. Cole has been a director since January 3, 1997. Mr. Cole has been
the Director of the Office for the Study of Automotive Transportation (OSAT) at
the University of Michigan's Transportation Research Institute since 1978. Mr.
Cole is a director of Mechanical Dynamics Inc., Thyssen U.S., Saturn Electronics
& Engineering, Inc., and Plastech Inc. Mr. Cole is also a director of the
Automotive Hall of Fame and is on the Board of Trustees of Hope College.
45
<PAGE> 47
Michael A. Delaney has been a director since January 3, 1997. He has been a
Vice President of CVC since 1989 and a Managing Director since January of 1998.
Mr. Delaney is also a director of Allied Digital Technologies, Inc., GVC
Holdings, JAC Holding Corporation, CORT Business Services Corporation, Inc.,
Palomar Technologies Corporation, Great Lakes Dock & Dredge Corporation, SC
Processing, Inc., Triumph Group, Inc., CLARK Material Handling Inc.,
International Knife and Saw, Inc., Aetna Industries, Inc., AmeriSource Health
Corporation and Delco Remy International, Inc.
Lee M. Gardner has been a director since January 3, 1997. Mr. Gardner has
served as President and Chief Operating Officer of MascoTech since 1992.
Richard A. Manoogian has been a director since January 3, 1997. Mr.
Manoogian served as Chairman, Chief Executive Officer and a director of
MascoTech from 1984 to 1998 and continues to serve as its Chairman and as a
director. Mr. Manoogian is also Chairman of the Board and Chief Executive Office
of Masco Corporation and a director of Bank One Corporation, Detroit Renaissance
and The American Business Conference.
Each director of MSXI holds office until a successor is elected and
qualified or until the director's earlier resignation or removal.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth certain information
with respect to all compensation paid or earned for services rendered to MSXI
for the last two fiscal years (except for bonus amounts, which are compensation
for services rendered in the immediately preceding year) of those persons who
served as (i) MSXI's Chief Executive Officer during fiscal 1998 and (ii) MSXI's
four most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers of MSXI at the end of fiscal 1998
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------
FISCAL YEAR OTHER ANNUAL
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) COMPENSATION ($)
--------------------------- ----------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Erwin H. Billig...........................
Chief Executive Officer, Chairman 1/3/99 240,000 -
of the Board of Directors 12/28/97 - - -
Frederick K. Minturn......................
Executive Vice President; Chief 1/3/99 212,500 20,000 105,128(2)
Financial Officer 12/28/97 200,000 65,000 100,594(2)
Roger Fridholm............................
President, Business, Technology, and 1/3/99 152,700 - -
Staffing Services Division 12/28/97 - - -
John Risk.................................
President, Product Development 1/3/99 174,667 - -
Services Division 12/28/97 - - -
Ralph L. Miller...........................
Special Assistant to the Chairman 1/3/99 335,400 61,925 16,770(1)
of the Board 12/28/97 325,000 - 13,575(1)
</TABLE>
- ----------
(1) Company match of amounts of employee salary deferrals pursuant to MSXI's
Deferred Compensation Plan.
(2) Company match of amounts of employee salary deferrals pursuant to MSXI's
Deferred Compensation Plan totaling $10,625 in fiscal 1998 and $8,333 in
fiscal 1997, combined with the value on the date of vesting in each
46
<PAGE> 48
of fiscal 1997 and 1998 of 4,697 shares of common stock of MascoTech
granted pursuant to MascoTech's 1991 Stock Incentive Plan, being
compensation for services prior to 1997.
Pursuant to MSXI's Deferred Compensation Plan, certain of MSXI's management
employees have the option of deferring salary and bonus amounts up to a maximum
amount of 10% of salary. In addition, deferred discretionary bonuses may be
awarded by MSXI to participants in the Deferred Compensation Plan. These
deferred amounts and MSXI matches are credited to an account on the books of
MSXI, which is credited annually with earnings. In 1997 and 1998, MSXI matched
five percent of the amount deferred by participants in the Deferred Compensation
Plan.
DIRECTOR COMPENSATION
Outside directors are entitled to receive $10,000 in annual compensation
and $500 per meeting attended. As of the date of this prospectus, Mr. Cole is
the only outside director.
EMPLOYMENT AGREEMENTS
Ralph L. Miller and Frederick K. Minturn. Effective as of January 3, 1997,
MSXI entered into employment agreements with Mr. Miller to serve as President
and Chief Operating Officer (Mr. Miller's position prior to April 28, 1998) and
Mr. Minturn to serve as Executive Vice President and Chief Financial Officer,
each for an initial term of two years. Effective May 1, 1998, Mr. Miller's
Employment Agreement was amended to reflect the change in duties for Mr.
Miller's position and to adjust his compensation (the "Amendment"). The
following terms of Mr. Miller's agreement are still effective although his
position has changed. The agreements will automatically renew for successive
one-year terms unless otherwise terminated in writing by either MSXI or Messrs.
Miller or Minturn, as the case may be. Annual base salary for Mr. Miller,
pursuant to the Amendment, is $335,400 and for Mr. Minturn is $200,000, subject,
in each case, to increases upon approval by the Board of Directors. The
agreements also provide that MSXI will pay Mr. Miller and Mr. Minturn an annual
performance bonus pursuant to the Performance Incentive Plan described below.
Mr. Miller and Mr. Minturn will also be entitled to all other employee benefits
maintained for officers and employees of MSXI. MSXI may terminate employment
upon death or disability. Either MSXI or Mr. Miller or Mr. Minturn, as
applicable, may terminate the agreement, with or without cause (as defined
therein). If the agreement is terminated without cause by MSXI or with good
reason (as defined therein) by Mr. Miller or Mr. Minturn, as applicable, MSXI
will pay to Mr. Miller or Mr. Minturn, as applicable, the full base salary for
the remainder of the term then in effect. The agreements also provide that,
during the term of their employment, and thereafter for the greater of twelve
months or the remainder of the then current term, Mr. Miller and Mr. Minturn
will not, directly or indirectly, engage in certain activities competitive with
the business of MSXI. Pursuant to the Amendment, MSXI may elect to extend Mr.
Miller's non-compete provision for an additional six-month period in exchange
for a payment equaling $10,000 per month.
Roger Fridholm. Mr. Fridholm's services are provided to MSXI pursuant to an
agreement with St. Clair Group, Inc. ("St. Clair Group"). Annual compensation
paid to St. Clair Group for Mr. Fridholm's services is $250,000, subject to
increase upon approval of the Board of Directors. The agreement also provides
that MSXI will pay to St. Clair Group a discretionary annual performance bonus
for Mr. Fridholm's services. In addition, the agreement provides that St. Clair
Group and MSXI may agree to extend Mr. Fridholm's term of service for an
additional three years. If this extension is agreed upon, MSXI has agreed to
purchase from Mr. Fridholm, for an amount less than $4.0 million, an employee
leasing business owned by Mr. Fridholm's spouse.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee are Messrs. Billig, Delaney and
Gardner. Messrs. Billig and Delaney also serve on the compensation committee of
Delco Remy International, Inc.
The compensation committee recommended adoption of MSXI's Performance
Incentive Plan to reflect MSXI's compensation policy.
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<PAGE> 49
PERFORMANCE INCENTIVE PLAN
MSXI introduced the Performance Incentive Plan ("PIP") in April 1998. All
of MSXI's salaried employees, including executive officers, are eligible to
receive payments under PIP. PIP offers target awards based on a percentage of an
employee's annual base salary. Actual awards are based on individual as well as
corporate and business unit performance. Under PIP, each of Mr. Miller, Mr.
Minturn, and Mr. Risk may receive a discretionary annual performance bonus,
capped at 87.5% of his annual base salary, if MSXI meets or exceeds its target
performance.
Mr. Billig is eligible to receive discretionary annual bonuses as
determined by the Board of Directors.
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<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table provides certain information regarding the beneficial
ownership, as defined in Rule 13d-3 of the Securities Exchange Act of 1934 (the
"Exchange Act"), of MSXI's common stock as of March 25, 1999 by (1) each
stockholder known to MSXI to be the beneficial owner of 5% or more of any class
of MSXI's voting securities, (2) each of MSXI's directors and executive officers
and (3) all directors and executive officers as a group. So far as is known to
MSXI, the persons named in the tables below as beneficially owning the shares
set forth below have sole voting power and sole investment power with respect to
these shares, unless otherwise indicated.
<TABLE>
<CAPTION>
AMOUNT BENEFICIALLY OWNED PERCENT OF CLASS
--------------------------- -----------------------
CLASS A SERIES A CLASS A SERIES A
COMMON PREFERRED COMMON PREFERRED
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK
- ------------------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
MascoTech, Inc ........................................ 43,752* 180,000 43.8% 50.0%
21001 Van Born Road
Taylor, Michigan 48180
Citicorp Venture Capital, Ltd ......................... 32,041* 131,826 32.0% 36.6%
399 Park Avenue, 14th Floor
New York, New York 10043
CCT Partners IV, L.P. ................................. 5,468* 22,495 5.5% 6.2%
399 Park Avenue, 14th Floor
New York, New York 10043
Richard M. Cashin, Jr ................................. 1,084* 4,466 1.0% 1.2%
399 Park Avenue, 14th Floor
New York, New York 10043
Michael A. Delaney .................................... 332* 1,367 0.3% 0.4%
399 Park Avenue, 14th Floor
New York, New York 10043
Erwin H. Billig(1) .................................... 3,000* -- 3.0% --
275 Rex Boulevard
Auburn Hills, MI 48326
Frederick K. Minturn .................................. 1,500* -- 1.5% --
275 Rex Boulevard
Auburn Hills, MI 48326
Roger Fridholm ........................................ 1,999* -- 2.0% --
275 Rex Boulevard
Auburn Hills, MI 48326
John Risk ............................................. 1,000* -- 1.0% --
275 Rex Boulevard
Auburn Hills, MI 48326
</TABLE>
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<PAGE> 51
<TABLE>
<CAPTION>
AMOUNT BENEFICIALLY OWNED PERCENT OF CLASS
--------------------------- -----------------------
CLASS A SERIES A CLASS A SERIES A
COMMON PREFERRED COMMON PREFERRED
NAME OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK
- ------------------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
Ralph L. Miller(2) .................................... 4,867* 7,697 4.9% 2.1%
275 Rex Boulevard
Auburn Hills, MI 48326
All directors and executive officers as a group ....... 13,782 13,530 13.5% 3.8%
</TABLE>
- ------------------
* Consists of an equal number of shares of each of Series A-1 Common Stock,
Series A-2 Common Stock, Series A-3 Common Stock and Series A-4 Common
Stock (collectively, the "Class A Common Stock")
(1) In name of Billig Family Limited Partnership.
(2) As trustee of Kyung Ae Bae and Ralph L. Miller, Trustees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
On January 3, 1997, in connection with the ownership of certain capital
shares of MSXI, MSXI entered into a stockholders' agreement (the "Stockholders'
Agreement") with MascoTech, CVC and certain executive officers and directors of
MSXI (the "Management Stockholders" and, together with MascoTech and CVC, the
"Stockholders"). The Stockholders' Agreement imposes certain restrictions on,
and rights with respect to, the transfer of shares of MSXI's Common Stock (as
defined) and Series A Preferred Stock held by MascoTech, CVC and the Management
Stockholders. The Stockholders Agreement also entitles the Stockholders to
certain rights regarding corporate governance of MSXI and to CVC and MascoTech
the right to purchase their pro rata share in connection with the issuance of
any new shares of Common Stock by MSXI.
The Stockholders' Agreement sets forth conditions under which the parties
may transfer their shares. The Stockholders' Agreement provides for a right of
first refusal in favor of MSXI in the event that any Stockholder (the "Selling
Stockholder") desires to transfer its shares of Common Stock pursuant to a bona
fide third party offer or an involuntary transfer, as defined in the
Stockholders Agreement. To the extent that MSXI elects to purchase fewer than
all of the shares proposed to be sold by any Selling Stockholder, the
Stockholders' Agreement provides for rights of first refusal on a pro rata basis
in favor of CVC and MascoTech. Pursuant to an Amendment to the Stockholders'
Agreement dated as of August 10, 1998, as a result of the sale by CVC of shares
to Mr. Miller, CVC has the right of first refusal with respect to shares owned
by Mr. Miller, up to an amount necessary to bring CVC back to its original
ownership level. In the case of a bona fide third party offer, without the
consent of the Selling Stockholders, neither MSXI nor the other Stockholders may
purchase any of the shares pursuant to the right of first refusal unless all the
shares are purchased. If the Selling Stockholder is MascoTech or CVC, and the
Selling Stockholder proposes to sell shares representing more than 5% of the
outstanding shares of Common Stock on a fully-diluted basis or if any Selling
Stockholder proposes to transfer shares of Series A Preferred Stock, then the
Selling Stockholder must also cause the buyer to give the other Stockholders an
option to sell a pro rata number of their respective shares of the same class
and on the same terms and conditions as the Selling Stockholder.
In the event that a Management Stockholder's shares of capital stock are
subject to an involuntary transfer (such as a seizure pursuant to a judgment
lien or in connection with any voluntary or involuntary bankruptcy proceeding),
the Stockholders' Agreement grants similar rights to purchase these shares first
to MSXI and then to MascoTech and CVC, pro rata.
Subject to certain restrictions, following the fifth anniversary of the
date of the Stockholders' Agreement and for as long as CVC or MascoTech, as the
case may be, or any of their permitted successors and assigns, shall hold more
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<PAGE> 52
than 60% of the Common Stock of MSXI originally issued to them, the
Stockholders' Agreement grants each of MascoTech and CVC certain "drag-along
rights." The drag-along rights require the other Stockholders to sell all of
their capital stock upon the same terms and conditions as MascoTech and CVC in
connection with the sale of all of the shares of MascoTech or CVC, as the case
may be, to a third party. In addition, if MascoTech or CVC propose the transfer
or sale of all or substantially all of the assets or business of MSXI to any
third party, MascoTech or CVC, as the case may be, may require the other Selling
Stockholders to take all action necessary to cause MSXI to approve the
transaction.
The Stockholders' Agreement provides that the Board of Directors (the
"Board") of MSXI shall consist of seven members consisting of two nominees of
CVC, two nominees of MascoTech, one nominee of the Management Stockholders and
two disinterested directors. Voting on the Board is weighted so as to provide
each MascoTech designate with 17.5%, each CVC designate with 17.5%, the
Management designate with 10%, and each disinterested director with10%,
respectively, of the voting power on the Board.
REGISTRATION RIGHTS AGREEMENT
On January 3, 1997, MSXI entered into a registration agreement (the "MSXI
Registration Rights Agreement") with CVC, MascoTech and the Management
Stockholders. The MSXI Registration Agreement provides that CVC and MascoTech
shall be entitled, at any time, to request that MSXI effect an underwritten
primary or secondary public offering, which raises aggregate net proceeds to
MSXI of at least $50,000,000 or, after June 3, 1998, to request that MSXI effect
an underwritten primary or secondary public offering of at least 25% of MSXI's
Common Stock on a fully diluted basis; and in connection with any such public
offering MSXI is required to use reasonable efforts to include in the offering
all other shares, subject to certain exceptions, that the stockholders request
for inclusion therein. In addition, at any time following an initial public
offering of MSXI's shares, the MSXI Registration Agreement provides that,
subject to certain limitations, each of CVC and MascoTech shall be entitled to
request three long-form registrations using SEC Form S-1 or S-2 and request
unlimited short-form registrations using Form S-3 (any registration effected in
accordance with this or the preceding sentence, a "Demand Registration"). If (i)
MSXI's Board determines that a Demand Registration must be postponed to avoid
the disclosure of material non-public information or (ii) as a result of a
pending material financing or acquisition, then MSXI may require CVC or
MascoTech, as the case may be, to withdraw its Demand Registration and not
submit another Demand Registration for up to sixty days. Whenever MSXI decides
to register any of its shares (other than on Forms S-4 and S-8), the CVC,
MascoTech and Management Stockholders have the right to register (or
"piggyback") their shares on the same terms as MSXI. MSXI is obligated to pay
all reasonable fees, costs and expenses in connection with any initial, demand
or piggyback registration.
Notwithstanding these demand registration rights, MSXI shall not be
obligated to effect a Demand Registration statement if, within 90 days of the
request, a registration statement in which CVC or MascoTech was entitled to
participate, pursuant to their demand or piggyback registration rights, was
filed. In addition, MSXI and each Stockholder shall be precluded from effecting
any public sale or distribution of the shares for a certain period prior to and
following the effective date of any initial public offering or any demand or
piggyback registration. In each demand registration, holders of registrable
securities other than the holders initiating the registration may include their
securities in the registration, subject to certain restrictions. The MSXI
Registration Agreement contains indemnity and contribution provisions between
MSXI and any selling stockholders for losses arising out of any registration
effected pursuant to the MSXI Registration Rights Agreement.
OTHER
The services of Mr. Fridholm are provided to MSXI through his employer, St.
Clair Group, a company owned by Mr. Fridholm's spouse. See "Executive
Compensation."
On August 10, 1998, CVC sold to Mr. Miller 1,900 shares of MSXI's Class A
Common Stock and 7,815 shares of MSXI's Series A Preferred Stock for a
cumulative purchase price of $1 million.
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<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
MSXI's certificate of incorporation ("certificate of incorporation")
provides that MSXI is authorized to issue 2,000,000 shares of common stock, par
value $0.01 per share, divided into two classes: Class A Common Stock ("Class A
Stock") and Class B Common Stock ("Class B Stock" and, together with the Class A
Stock, the "common stock").
Class A Stock is divided into five series consisting of 125,000 shares each
of Series A-1 Common Stock ("Series A-1"), Series A-2 Common Stock ("Series
A-2"), Series A-3 Common Stock ("Series A-3"), Series A-4 Common Stock ("Series
a-4") and 500,000 Shares of Series I Common Stock ("Series I"). Class B Stock is
divided into five series consisting of 125,000 shares each of Series B-1 Common
Stock ("Series B-1"), Series B-2 Common Stock ("Series B-2"), Series B-3 Common
Stock ("Series B-3"), Series B-4 Common Stock ("Series B-4") and 500,000 Shares
of Series II Common Stock ("Series II").
The holders of Class A Stock are entitled to one vote for each share held
of record on all matters to be voted on by MSXI's stockholders. The holders of
Class B Stock have no voting rights except as required by law or in the
certificate of incorporation.
The holders of all classes of common stock receive dividends ratably. If
dividends are declared in shares of common stock, the dividend must be declared
and paid at the same rate per share on each class or series of Common Stock and
unless 95% of the shares of each class or series approves, the dividends payable
in shares of a particular class or series of Common Stock are payable only to
holders of the particular class or series of common stock; however, any dividend
payable to one class or series of common stock entitles the other class or
series to a dividend in the same form and amount on the same date. If the
dividends consist of voting securities of MSXI, at the request of each holder of
Class B Stock, MSXI must pay dividends to holders of Class B Stock in nonvoting
securities of MSXI which are identical to the voting securities and convertible
into or exchangeable for voting securities on the same terms as the Class B
Stock is convertible to Class A Stock. The holders of all classes are entitled
to share ratably in all distributions resulting from any liquidation,
dissolution or winding up.
The holders of (a) Series A-1 can convert their shares into Series B-1, (b)
Series A-2 can convert their shares into Series B-2, (c) Series A-3 can convert
their shares into B-3, (d) Series A-4 can convert their shares into B-4, and (e)
Series I can convert their shares into Series II, in each case at a one-to-one
conversion rate. This conversion may occur at any time in the event that the
respective holder determines that it might be subject to a Regulatory Problem
(as defined in the certificate of incorporation) or an Accounting Determination,
as defined in the certificate of incorporation. The holders of each series of
Class B Stock can convert their shares into Class A Stock in the same manner as
described in (a) through (e) above. Upon the occurrence of a Qualifying Offering
(as defined in the Stockholders' Agreement) or a Sale Transaction (as defined in
the Stockholders' Agreement), (a) each share of Series A-1, Series A-2, Series
a-3, and Series A-4 will be automatically converted into one fully paid and
non-assessable share of Series I Stock and (b) each share of Series B-1, Series
B-2, Series B-3, and Series B-4 will be automatically converted into one fully
paid and non-assessable share of Series II Stock.
PREFERRED STOCK
MSXI's Certificate of Incorporation provides that MSXI is authorized to
issue 1,500,000 shares of preferred stock, divided into two classes: 500,000
shares of Redeemable Series A Preferred Stock, par value $0.01, and 1,000,000
shares of New Preferred Stock, par value $0.01 ("New Preferred").
The Redeemable Series A Preferred Stock has a stated value of $100 per
share, and no additional shares may be issued. As long as any shares of the
Redeemable Series A Preferred Stock are outstanding, MSXI may not issue
preferred stock that is senior or pari passu with respect to payment of
dividends, other distributions, or preference on redemption or liquidation
without the consent of the holders of 67% of the Redeemable Series A Preferred
Stock. Except as required by law or to validate certain actions of MSXI which
adversely affect the rights or powers, ranking,
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<PAGE> 54
or authorized number of shares, the holders of Redeemable Series A Preferred
Stock have no voting rights. Dividends on the Redeemable Series A Preferred
Stock are payable in cash at a rate per annum equal to 12% of the sum of $100
plus an amount equal to any accrued and unpaid dividends. Dividends on the
Redeemable Series A Preferred Stock accrue daily and are cumulative. MSXI may
not declare or pay any dividend or other distribution in respect of the Common
Stock or other class or series of stock ranking junior to the Redeemable Series
A Preferred Stock (collectively the "Junior Stock") unless all accrued and
unpaid dividends with respect to Redeemable Series A Preferred Stock have either
been paid or contemporaneously are declared and paid; however, MSXI may (a)
acquire Junior Stock in an exchange or conversion, (b) pay dividends in shares
of Junior Stock, and (c) acquire shares of Common Stock pursuant to the
Stockholders' Agreement.
The New Preferred shall be authorized in one or more series and shall have
voting powers, preferences, and other rights and qualifications as the Board of
Directors state in a restitution or resolutions provided for an issuance of the
New Preferred.
The Redeemable Series A Preferred Stock is mandatorily redeemable by MSXI
at the earlier of (a) December 31, 2008 or (b) the date on which a Sale
Transaction by MascoTech or CVC occurs. MSXI may redeem any or all of the
Redeemable Series A Preferred Stock at its election prior to the mandatory
redemption date. In both instances, the redemption price for the Redeemable
Series A Preferred Stock shall be the sum of $100 plus an amount equal to any
accrued and unpaid dividends. MSXI may also elect to acquire shares of the
Redeemable Series A Preferred Stock from time to time without redeeming or
otherwise acquiring all or any other issued shares of the Redeemable Series A
Preferred Stock (a "Special Redemption") pursuant to the terms of the
Stockholders' Agreement.
The Redeemable Series A Preferred Stock may be exchanged for MSXI's 12%
Junior Subordinated Debentures ("Junior Debentures") at the election of MSXI.
MSXI must make its election within 45 days of receipt of notice from MascoTech
or CVC of their offer to exchange and sell their Redeemable Series A Preferred
Stock ("Exchange Notice"). The Junior Debentures will mature on the mandatory
redemption date of the Redeemable Series A Preferred Stock. If MSXI elects to
exchange the shares, it must exchange all of the shares designated to be
exchanged in the Exchange Notice and all of the shares designated by other
holders of Redeemable Series A Preferred Stock in an additional notice. The
Credit Facility and the Indenture will restrict the incurrence of additional
Indebtedness, including the exchange of the Redeemable Series A Preferred Stock.
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<PAGE> 55
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
CREDIT FACILITY
Concurrently with the January 1998 offering of notes, MSXI entered into the
Credit Facility with Bank One Corporation, on behalf of itself and as agent for
as syndicate of other lenders. Funds under the Credit Facility are available for
acquisitions, working capital and general corporate purposes.
Interest Rate. Interest on the loans under the Credit Facility is payable
quarterly or, if earlier, at the end of each interest period and accrues at an
annual rate equal to, at the option of MSXI, (a) a floating-rate (the "Floating
Rate") which shall be the higher of (i) the prime rate of Bank One Corporation
or a comparable rate of an Affiliate of Bank One Corporation or (ii) 1.0% over
the Federal Funds rate, or (b) the London Interbank Offered Rate ("LIBOR") plus
the applicable margin, which can range from 0.45% to 1.40% for revolving loans
and 0.625% to 1.75% for term loans, in each case based on MSXI's ratio of total
debt to EBITDA (each as defined in and calculated pursuant to the Credit
Facility).
Borrowing Base. The Credit Facility, at the time of the issuance of the
Series A Notes, initially had a borrowing unit of $100 million. On April 14,
1998, MSXI syndicated the Credit Facility to add a $30 million term loan
portion. On the same date, MSXI borrowed the full amount available under the
term loan and used the funds to reduce outstanding balances under the revolving
loan portion of the Credit Facility. As of April 4, 1999, $98.8 million was
outstanding under the Credit Facility as amended and restated. The Credit
Facility provides MSXI with available credit of up to $130 million but if MSXI's
ratio of total debt to EBITDA exceeds a specified number, the amount available
may be limited to a percentage of eligible accounts receivable of MSXI.
Guarantee and Security Interest. Each significant domestic subsidiary of
MSXI guarantees all obligations of MSXI under the Credit Facility. In addition,
these obligations will be secured by a pledge of the Stock of these domestic
subsidiaries and a first lien on substantially all assets of these domestic
subsidiaries and a pledge of 65% of the stock of the significant foreign
subsidiaries. The obligations of MSXI under the Credit Facility will rank senior
to all other indebtedness of MSXI, including the Notes.
Covenants. The Credit Facility contains certain reporting covenants and
other customary affirmative covenants and various negative covenants including
but not limited to certain limitations on mergers, sales of assets,
acquisitions, liens, investments, indebtedness, contingent obligations,
dividends, subsidiaries' ability to agree to dividend restrictions, affiliate
transactions and changes of business. The Credit Facility also contains certain
covenants with respect to employee benefit arrangements and environmental
matters. The Credit Facility also contains certain financial covenants including
but not limited to a ratio of total debt to EBITDA, a fixed charge coverage
ratio, and a minimum net worth requirement (each as defined in and calculated
pursuant to the Credit Facility).
Events of Default. The Credit Facility contains customary events of default
including without limitation defaults for nonpayment of principal when due,
nonpayment of interest and fees within five business days when due, material
misrepresentations, default in the performance of most negative covenants,
default in performance of any other term or covenant for thirty days after
notice (five days after notice for information covenants), bankruptcy or
insolvency, ERISA, change of control, unstayed judgments in excess of a certain
amount and cross-defaults to any indebtedness equal to or in excess of a certain
amount in the aggregate for MSXI or any subsidiary, which default is a payment
default or would permit the holders of this indebtedness to cause this
indebtedness to become due prior to its stated maturity.
FORD FACILITY
The Fleet Central Billing-Finance Facility (the "Ford Facility") is an
arrangement between MSXI and Ford Motor Company Limited ("Ford Limited") whereby
MSXI participates in the Fleet Central Billing Program (the "Program"). Under
the Ford Facility, Ford Limited appoints MSXI as an agent to purchase
maintenance and service accounts receivable ("Receivables") of selected Ford
Limited dealers in the United Kingdom (the "Dealers"). MSXI purchases
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<PAGE> 56
the Receivables on behalf of Ford at a discount of 2.75% or the rate of discount
as may be agreed upon from time to time. Ford provides MSXI with funding to
purchase Receivables, and this funding currently bears interest at the one month
LIBOR rate plus 1.66% and is subject to adjustment in the future. As of April 4,
1999, there was approximately $4.6 million of indebtedness outstanding under
the Ford Facility.
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<PAGE> 57
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, MSXI will accept for exchange old
notes which are properly tendered on or prior to the expiration time and not
withdrawn as permitted below. For each $1,000 principal amount of old notes
surrendered to MSXI pursuant to this offer, the holder of the old note will
receive an new note having a principal amount equal to that of the surrendered
old note. MSXI will keep this offer open for not less than 30 business days, or
longer if required by applicable law, after the date notice of this offer is
mailed to the holders of the old notes. As used below, the term "expiration
time" means 5:00 p.m., New York City time, on , 1999; provided,
however, that if MSXI has extended the period of time for which this offer is
open, the term "expiration time" means the latest time and date to which this
offer is extended.
As of the date of this prospectus, $30 million in aggregate principal
amount of the old notes are outstanding. This prospectus, together with the
letter of transmittal, is first being sent on or about the date set forth on the
cover page to all holders of old notes at the addresses set forth in the
security register with respect to old notes maintained by the Trustee. MSXI's
obligations to accept old notes for exchange pursuant to this offer is subject
to certain conditions as set forth under " - Certain Conditions to the Exchange
Offer" below.
MSXI expressly reserves the right, at any time or from time to time, to
extend the period of time during which this offer is open, and thereby delay
acceptance for any exchange of any old notes, by giving notice of the extension
to these holders. During any such extension, all old notes previously tendered
will remain subject to this offer and may be accepted for exchange by MSXI. Any
old notes not accepted for exchange for any reason will be returned without
expense to the tendering holder these old notes as promptly as practicable after
the expiration or termination of this offer.
MSXI expressly reserves the right to amend or terminate the Exchange Offer,
and not to accept for exchange any old notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "Certain Conditions to the Exchange Offer." MSXI will give
notice of any extension, amendment, non-acceptance or termination to the holders
of the old notes as promptly as practicable, this notice in the case of any
extension to be issued by means of a press release or other public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration time.
PROCEDURES FOR TENDERING OLD NOTES
The tender to MSXI of old notes by a holder as set forth below and the
acceptance of those old notes by MSXI will constitute a binding agreement
between the tendering holder and MSXI upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying letter of
transmittal. Except as set forth below, a holder who wishes to tender old notes
for exchange pursuant to the Exchange Offer must transmit a properly completed
and duly executed letter of transmittal, including all other documents required
by the letter of transmittal, to IBJ Whitehall Bank & Trust Company (the
"exchange agent") at the address set forth below under "exchange agent" on or
prior to the expiration time. In addition, (1) certificates for old notes must
be received by the exchange agent along with the letter of transmittal, (2) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
old notes, if this procedure is available, into the Exchange Agent's account at
DTC (as defined) pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Time or
(3) the holder must comply with the guaranteed delivery procedures described
below. The method of delivery of old notes, letters of transmittal and all other
required documents is at the election and risk of the holders. If delivery is by
mail, it is recommended that registered mail, properly insured, with return
receipt requested, be used. In all cases, sufficient time should be allowed to
assure timely delivery. No letters of transmittal or old notes should be sent
directly to MSXI.
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<PAGE> 58
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
pursuant to that letter of transmittal are tendered (1) by a registered holder
of the old notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(2) for the account of an eligible institution (as defined below). In the event
that signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, these guarantees must be by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "eligible institutions"). If old notes are registered in the name
of a person other than the person signing the letter of transmittal, the old
notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by MSXI in its sole discretion, duly executed by the registered
holder with the signature guaranteed by an eligible institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of old notes tendered for exchange will be determined by
MSXI in its sole discretion, which determination shall be final and binding.
MSXI reserves the absolute right to reject any and all tenders of any particular
old notes not properly tendered or not to accept any particular old notes the
acceptance of which might, in the judgment of MSXI or its counsel, be unlawful.
MSXI also reserves the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular old notes either before or
after the expiration time. This right includes the right to waive the
ineligibility of any holder who seeks to tender old notes in the Exchange Offer.
The interpretation of the terms and conditions of the Exchange Offer as to any
particular old notes either before or after the expiration time (including the
letter of transmittal and the instructions thereto) by MSXI shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with the tender of old notes for exchange must be cured within the
reasonable period of time as MSXI shall determine. Neither MSXI, the exchange
agent nor any other person shall be under any duty to give notification of any
defect or irregularity with respect to any tender of old notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of old notes, these old notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the old
notes.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, this person should so indicate when signing and, unless waived by
MSXI, proper evidence satisfactory to MSXI of its authority to so act must be
submitted.
By executing, or otherwise becoming bound by, the letter of transmittal,
each holder of the old notes (other than certain specified holders) will
represent that (1) it is not an affiliate of MSXI, (2) any exchange notes to be
received by it were acquired in the ordinary course of its business and (3) it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the exchange notes.
If the tendering holder is a broker-dealer that will receive exchange notes for
its own account in exchange for old notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
these exchange notes. See " - Resales of the Exchange Notes."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
MSXI will accept, promptly after the expiration time, all old notes properly
tendered and will issue the exchange notes promptly after acceptance of the old
notes. See "Certain Conditions to the Exchange Offer" below. For purposes of the
Exchange Offer, MSXI shall be deemed to have accepted properly tendered old
notes for exchange when, as and if MSXI has given oral or written notice of this
acceptance to the exchange agent.
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In all cases, issuance of exchange notes for old notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the exchange agent of certificates for these old notes or a timely
Book-Entry Confirmation of these old notes into the exchange agent's account at
DTC pursuant to the book-entry transfer procedures described below, a properly
completed and duly executed letter of transmittal and all other required
documents. If any tendered old notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if certificates
representing old notes are submitted for a greater principal amount than the
holder desires to exchange, these unaccepted or non-exchanged old notes will be
returned without expense to the tendering holder these old notes as promptly as
practicable after the expiration or termination of the Exchange Offer. In the
case of old notes tendered by book-entry transfer into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described below,
these non-exchanged old notes will be credited to an account maintained with
DTC.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in DTC's systems may make
book-entry delivery of old notes by causing DTC to transfer these old notes into
the exchange agent's account in accordance with DTC's procedures for transfer.
However, the exchange for the old notes so tendered will only be made after
timely confirmation of this book-entry transfer of old notes into the exchange
agent's account, and timely receipt by the exchange agent of an agent's message
and any other documents required by the letter of transmittal. The term "agent's
message" means a message, transmitted by DTC and received by the exchange agent
and forming a part of a Book-Entry Confirmation, which states that DTC has
received an express acknowledgment from a participant tendering old notes that
are the subject of this Book-Entry Confirmation that this participant has
received and agrees to be bound by the terms of the letter of transmittal, and
that MSXI may enforce this agreement against the participant. Although delivery
of old notes may be effected through book-entry transfer into the exchange
agent's account at DTC, the letter of transmittal or facsimile this letter,
properly completed and duly executed, with any required signature guarantees and
any other required documents, must in any case be delivered to and received by
the exchange agent at its address set forth under " - Exchange Agent" on or
prior to the expiration time, or the guaranteed delivery procedure set forth
below must be complied with.
Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the old notes desires to tender these old notes
and the old notes are not immediately available, or time will not permit such
holder's old notes or other required documents to reach the Exchange Agent
before the expiration time, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (1) the tender is made
through an Eligible Institution, (2) prior to the expiration time, the Exchange
Agent receives from this Eligible Institution a properly completed and duly
executed letter of transmittal (or a facsimile of this letter) and Notice of
Guaranteed Delivery, substantially in the form provided by MSXI, by telegram,
telex, facsimile transmission, mail or hand delivery, setting forth the name and
address of the holder of old notes and the amount of old notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates of all physically tendered old notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the letter of transmittal will be deposited by
the eligible institution with the exchange agent, and (3) the certificates for
all physically tendered old notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the letter
of transmittal, are received by the exchange agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time prior to the expiration
time.
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For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses set forth below under
"exchange agent." These notices of withdrawal must specify the name of the
person having tendered the old notes to be withdrawn, identify the old notes to
be withdrawn, including the principal amount of these old notes, and, where
certificates for old notes have been transmitted, specify the name in which
these old notes are registered, if different from that of the withdrawing
holder. If certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of these
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an eligible institution unless the holder is an
eligible institution. If old notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawn old
notes and otherwise comply with the procedures of this facility. All questions
as to the validity, form and eligibility (including time of receipt) of these
notices will be determined by MSXI, whose determination shall be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any old
notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the tendering holder without cost to the holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. In the case of old notes tendered by book-entry transfer into
the exchange agent's account at DTC pursuant to the book-entry transfer
procedures described above, these old notes will be credited to an account
maintained with DTC for the old notes. Properly withdrawn old notes may be
tendered by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time on or prior to the expiration time.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, MSXI shall not
be required to accept for exchange, or to issue exchange notes in exchange for,
any old notes and may terminate or amend the Exchange Offer, if at any time
before the expiration time, MSXI determines that the Exchange Offer violates
applicable law, any interpretation of the staff of the Commission or any order
of any governmental agency or court of competent jurisdiction.
The foregoing condition is for the sole benefit of MSXI and may be asserted
by MSXI regardless of the circumstances giving rise to the condition. The
failure by MSXI at any time to exercise the foregoing rights shall not be deemed
a waiver of these rights and each of these rights shall be deemed an ongoing
right which may be asserted at any time and from time to time.
In addition, MSXI will not accept for exchange any old notes tendered, and
no exchange notes will be issued in exchange for any of the old notes, if prior
to the expiration time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "TIA").
EXCHANGE AGENT
IBJ Whitehall Bank & Trust Company has been appointed as the exchange agent
for the Exchange Offer. All executed letters of transmittal should be directed
to the exchange agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this prospectus or of
the accompanying letter of transmittal and requests for Notices of Guaranteed
Delivery should be directed to the exchange agent, addressed as follows:
Deliver To:
IBJ Whitehall Bank & Trust Company, Exchange Agent
By Mail or By Hand:
One State Street
New York, New York 10004
Attention: Luis Perez, Assistant Vice President
By Facsimile:
(212) 858-2952
Confirm by Telephone:
(212) 858-2000
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Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
MSXI will not make any payments to brokers, dealers, or others soliciting
acceptances of the Exchange Offer. The principal solicitation is being made by
mail; however, additional solicitations may be made by telephone or in person by
officers and employees of MSXI.
The expenses to be incurred in connection with the Exchange Offer will be
paid by MSXI. These expenses include fees and expenses of the exchange agent and
the Trustee, accounting and legal fees and printing costs among others.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
MSXI to register exchange notes in the name of, or request that old notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALE OF THE EXCHANGE NOTES
Holders of old notes who do not exchange their old notes for exchange notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of these old notes as set forth in the legend thereon as a
consequence of the issuance of the old notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of, the Securities
Act and applicable state securities law. Old notes not exchanged pursuant to the
Exchange Offer will continue to accrue interest at 11 3/8% per annum and will
otherwise remain outstanding in accordance with their terms. Holders of old
notes do not have any appraisal or dissenters' rights under the Delaware General
Corporation Law in connection with the Exchange Offer. In general, the old notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. MSXI does not currently
anticipate that it will register the old notes under the Securities Act.
However, (1) if the Initial Purchasers so request with respect to old notes not
eligible to be exchanged for exchange notes in the Exchange Offer and held by
them following consummation of the Exchange Offer or (2) if any holder of old
notes is not eligible to participate in the Exchange Offer or, in the case of
any holder of old notes that participates in the Exchange Offer, does not
receive freely tradable exchange notes in exchange for old notes, MSXI is
obligated to file a registration statement on the appropriate form under the
Securities Act relating to the old notes held by these persons.
Based on interpretations by the staff of the Commission set forth in Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co.
Incorporated (available June 5, 1991) and Shearman & Sterling (available July 2,
1993), MSXI is of the view that exchange notes issued pursuant to the Exchange
Offer may be offered for resale, resold or otherwise transferred by their
holders, other than (1) any such holder which is an "affiliate" of MSXI within
the meaning of Rule 405 under the Securities Act or (2) any broker-dealer that
purchases Notes from MSXI to resell pursuant to Rule 144A or any other available
exemption, without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that these exchange notes are
acquired in the ordinary course of the holders' business and the holder has no
intention, or any arrangement or understanding with any person, to participate
in the distribution of such exchange notes. If any holder has any arrangement or
understanding with respect to the distribution of the exchange notes to be
acquired pursuant to the Exchange Offer, the holder (1) could not rely on the
applicable interpretations of the staff of the Commission and (2) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction. A broker-dealer who holds old
notes that were acquired for its own account as a result of market-making or
other trading activities may be deemed to be an "underwriter" within the meaning
of the Securities Act and must, therefore, deliver a prospectus
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meeting the requirements of the Securities Act in connection with any resale of
exchange notes. This broker-dealer that receives exchange notes for its own
account in exchange for old notes, where the old notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge in the letter of transmittal that it will deliver a
prospectus in connection with any resale of these exchange notes. See "Plan of
Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the exchange notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or any exemption from
registration or qualification is available and is complied with. MSXI has
agreed, pursuant to the Registration Agreement and subject to certain specified
limitations therein, to register or qualify the exchange notes for offer or sale
under the securities or blue sky laws of the jurisdictions any holder of the
exchange notes reasonably requests in writing.
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DESCRIPTION OF NOTES
GENERAL
The form and terms of the exchange notes are the same as the form and terms
of the old notes except that (1) the exchange notes are being registered under
the Securities Act and (2) holders of the exchange notes will not be entitled to
certain rights of holders of the old notes under the Registration Agreement that
will terminate upon completion of the Exchange Offer. The old notes were issued
under an Indenture dated as of January 15, 1998 (the "Indenture"), among MSXI,
the Subsidiary Guarantors and IBJ Whitehall Bank & Trust Company, as trustee
(the "Trustee").
The following is a summary of certain provisions of the Indenture and the
exchange notes. A copy of the Indenture and the form of notes has been filed as
an exhibit to the registration statement of which this prospectus is a part. The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
contained in the Indenture and those terms made a part of it by the Trust
Indenture Act of 1939, as amended. Capitalized terms used herein and not
otherwise defined have the meanings set forth in the section " - Certain
Definitions."
Principal of, premium, if any, and interest on the exchange notes will be
payable, and the old notes may be exchanged or transferred, at the office or
agency of MSXI, which, unless otherwise provided by MSXI, will be the offices of
the Trustee. At the option of MSXI, payment of interest may be made by check
mailed to the addresses of the holders as their addresses appear in the note
register.
The exchange notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of the
exchange notes, but MSXI may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF THE NOTES
The Notes are general unsecured senior subordinated obligations of MSXI,
limited in aggregate principal amount to $130.0 million, and will mature on
January 15, 2008. The notes bear interest at the rate of 11 3/8% per annum from
January 15, 1998, or from the most recent date to which interest on the notes,
or the old notes exchanged for any exchange notes, has been paid or provided
for, payable semi-annually to holders of record at the close of business on the
January 1 or July 1 immediately preceding the interest payment date on January
15 and July 15 of each year, commencing January 15, 1998. MSXI will pay interest
on overdue principal at 1% per annum in excess of this rate, and it will pay
interest on overdue installments of interest at this higher rate to the extent
lawful.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the notes will not be
redeemable at the option of MSXI prior to January 15, 2003. Thereafter, the
notes will be redeemable, at MSXI's option, in whole or in part, at any time or
from time to time, upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest to the redemption date, subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date, if redeemed during the 12-month period commencing on
January 15 of the years set forth below:
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<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ -----
<C> <C>
2003......................................................... 105.6875%
2004......................................................... 103.7917
2005......................................................... 101.8958
2006 and thereafter.......................................... 100.0000
</TABLE>
In addition, at any time and from time to time prior to January 15, 2001,
MSXI may redeem at its option in the aggregate up to 35% of the original
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 111.375% plus accrued and
unpaid interest, if any, to the redemption date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% of the original
aggregate principal amount of the Notes must remain outstanding after each of
these redemptions.
SELECTION
In the case of any partial redemption, selection of the notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by another
method the Trustee in its sole discretion shall deem to be fair and appropriate,
although no note of $1,000 in original principal amount or less will be redeemed
in part. If any note is to be redeemed in part only, the notice of redemption
relating to this note shall state the portion of the principal amount of this
note to be redeemed. A new note in principal amount equal to the unredeemed
portion of this note will be issued in the name of the holder of this note upon
cancellation of the original note.
SUBSIDIARY GUARANTEES
Each of MSXI's Domestic Restricted Subsidiaries that is an Obligor or
Guarantor with respect to any obligations under one or more Bank Credit
Agreements has irrevocably and unconditionally guaranteed on a joint and several
basis, as primary obligors and not merely as sureties, on an unsecured senior
subordinated basis the performance and punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all obligations of MSXI under
the Indenture and the Notes, whether for payment of principal of or interest on
the Notes, expenses, indemnification or otherwise (all these obligations
Guaranteed by the Subsidiary Guarantors being herein called the "Guaranteed
Obligations"). The Subsidiary Guarantors have agreed to pay, in addition to the
amount stated above, any and all expenses, including reasonable counsel fees and
expenses, incurred by the Trustee or the holders in enforcing any rights under
the Subsidiary Guarantees. Each Subsidiary Guarantee will be limited in amount
to an amount not to exceed the maximum amount that can be Guaranteed by the
applicable Subsidiary Guarantor without rendering the Subsidiary Guarantee
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally.
MSXI shall cause each Domestic Restricted Subsidiary that at anytime
becomes an obligor or Guarantor with respect to any obligations under one or
more Bank Credit Agreements to execute and deliver to the Trustee a supplemental
indenture pursuant to which the Domestic Restricted Subsidiary will Guarantee
payment of the Notes on the same terms and conditions as those set forth in the
Indenture.
Each Subsidiary Guarantee is a continuing Guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon each Subsidiary Guarantor and (c) inure to the benefit of
and be enforceable by the Trustee, the holders and their successors, transferees
and assigns. A Subsidiary Guarantee will be released upon the sale of all the
Capital Stock, or all or substantially all of the assets, of the applicable
Subsidiary Guarantor if such sale is made in compliance with the Indenture.
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SUBORDINATION
The indebtedness evidenced by the Notes and the Subsidiary Guarantees will
be unsecured senior subordinated obligations of MSXI and the Subsidiary
Guarantors, as the case may be. The payment of the principal of, premium (if
any) and interest on the Notes and the payment of any Subsidiary Guarantee is
subordinate in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Indebtedness of MSXI or the relevant Subsidiary
Guarantor, as the case may be, whether outstanding on May 13, 1999 or
subsequently incurred, including the obligations of MSXI and such Subsidiary
Guarantor under the Senior Credit Facility.
As of April 4, 1999, (i) MSXI would have had approximately $90.7 million
outstanding Senior Indebtedness (excluding unused commitments under the Senior
Credit Facility) and (ii) Senior Indebtedness of the Subsidiary Guarantors would
have been approximately $73.8 million (excluding Guarantees under the Senior
Credit Facility). Although the Indenture contains limitations on the amount of
additional Indebtedness that MSXI and its Restricted Subsidiaries may incur,
under certain circumstances the amount of this Indebtedness could be substantial
and, in any case, this Indebtedness may be Senior Indebtedness. See "Certain
Covenants - Limitation on Incurrence of Indebtedness."
Only Indebtedness of MSXI or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guarantee
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guarantee will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of MSXI and the relevant Subsidiary Guarantor,
respectively. MSXI and each Subsidiary Guarantor has agreed in the Indenture
that it will not Incur, directly or indirectly, any Indebtedness that is
subordinate or junior in ranking in right of payment to its Senior Indebtedness
unless this Indebtedness is pari passu with or is expressly subordinated in
right of payment to the Notes. Unsecured Indebtedness is not deemed to be
subordinated or junior merely because it is unsecured.
MSXI may not pay principal of, premium (if any) or interest on, the Notes
or make any deposit pursuant to the provisions described under " - Defeasance"
below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Subordinated Debt") if (1) any Senior Indebtedness is
not paid when due or (2) any other default on this Senior Indebtedness occurs
and the maturity of this Senior Indebtedness is accelerated in accordance with
its terms unless, in either case, the default has been cured or waived and the
acceleration has been rescinded or the Senior Indebtedness has been paid in
full. However, MSXI may pay the Subordinated Debt without regard to the
foregoing if MSXI and the Trustee receive written notice approving the payment
from the Representative of the Senior Indebtedness with respect to which either
of the events set forth in clause (1) or (2) of the immediately preceding
sentence has occurred and is continuing. During the continuance of any default
(other than a default described in clauses (1) and (2) of the second preceding
sentence) with respect to any Designated Senior Indebtedness pursuant to which
the related maturity may be accelerated immediately without further notice
(except the notice required to effect the acceleration) or upon the expiration
of any applicable grace periods, MSXI may not pay the Subordinated Debt for a
period (a "Payment Blockage Period") commencing upon the receipt by the Trustee
(with a copy to MSXI) of written notice (a "Blockage Notice") of the default
from the Representative of the holders of the Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if the Payment Blockage Period is terminated (1) by
written notice to the Trustee and MSXI from the Person or Persons who gave the
Blockage Notice, (2) because the default giving rise to the Blockage Notice is
no longer continuing or (3) because the Designated Senior Indebtedness has been
repaid in full).Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of the Designated Senior Indebtedness or
the Representative of these holders has accelerated the maturity of such
Designated Senior Indebtedness, MSXI may resume payments on the Notes after the
end of the payment Blockage Period. The Notes shall not be subject to more than
one Payment Blockage Period in any consecutive 360-day period, irrespective of
the number of defaults with respect to Designated Senior Indebtedness during
this period.
Upon any payment or distribution of the assets of MSXI of any kind or
character upon a total or partial liquidation, winding up, assignment for the
benefit of creditors or marshaling of assets or other distribution in a
bankruptcy, insolvency, receivership or dissolution or reorganization of or
similar proceeding relating to MSXI or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full of this Senior
Indebtedness before the
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noteholders are entitled to receive any payment, and, until the Senior
Indebtedness is paid in full, any payment or distribution to which noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of the Senior Indebtedness as their interests may appear. If a
payment or distribution is made to noteholders that, due to the subordination
provisions, should not have been made to them, these noteholders are required to
hold it in trust for the holders of Senior Indebtedness and pay it over to them
as their interests may appear.
The obligations of a Subsidiary Guarantor under its Subsidiary Guarantee
are unsecured senior subordinated obligations. This being the cases the rights
of noteholders to receive payment by a Subsidiary Guarantor pursuant to its
Subsidiary Guarantee will be subordinated in right of payment to the rights of
holders of Senior Indebtedness of this Subsidiary Guarantor. The terms of the
subordination provisions described above with respect to MSXI's obligations
under the Notes apply equally to a Subsidiary Guarantor and the obligations of
the Subsidiary Guarantor under its Subsidiary Guarantee.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of MSXI or a Subsidiary Guarantor who are
holders of Senior Indebtedness of MSXI or a Subsidiary Guarantor, as the case
may be, may recover more, ratably, than the noteholders, and creditors of MSXI
who are not holders of Senior Indebtedness may recover less, ratably, than
holders of Senior Indebtedness and may recover more, ratably, than the
noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under " - Defeasance."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder shall have the
right to require that MSXI repurchase all or a portion of the holder's Notes at
a purchase price in cash equal to 101% of the principal amount of the notes to
be repurchased plus accrued and unpaid interest, if any, to the date of
repurchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date), in
accordance with the provisions of the next paragraph.
Within 30 days following any Change of Control, MSXI shall mail a notice to
each holder with a copy to the Trustee stating: (1) that a Change of Control has
occurred and that the holder has the right to require MSXI to purchase the
holder's Notes at a purchase price in cash equal to 101% of the principal amount
outstanding at the repurchase date plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts and relevant financial information
regarding the Change of Control; (3) the repurchase date (which shall be no
earlier than 30 days nor later than 60 days from the date this notice is
mailed); and (4) the instructions determined by MSXI, consistent with the
covenant described hereunder, that a holder must follow in order to have its
Notes repurchased.
MSXI shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
MSXI shall comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations under the covenant described
hereunder by virtue of this compliance.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Senior Credit Facility. Future
Senior Indebtedness of MSXI may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the holders of
their right to require MSXI to repurchase the Notes could cause a default under
the Senior Indebtedness, even if the Change of Control itself does not, due to
the financial effect of the repurchase on MSXI. Finally, MSXI's ability to pay
cash to the holders upon a repurchase may be limited by MSXI's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any repurchases required in connection with a
Change of Control. MSXI's failure to purchase the Notes in connection with
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a Change in Control would result in a default under the Indenture which would,
in turn, constitute a default under the Senior Credit Facility. Under these
circumstances, the subordination provisions in the Indenture would likely
restrict payment to the holders of the Notes.
BOOK-ENTRY, DELIVERY AND FORM
Exchange notes will be in registered certificated form ("Certificated
Notes") or registered global form ("Global Notes"). Each Global Note will be
deposited upon issuance with The Depository Trust Company ("DTC") and registered
in the name of a nominee of DTC. holders may elect to hold their exchange notes
directly or, subject to the rules and procedures of DTC described below, in a
Global Note. However, tendering holders of old notes held in global form shall
initially receive an interest held in a Global Note and tendering holders of old
notes held directly in certificated form shall initially receive exchange notes
in certificated form, in each case unless otherwise specified in the letter of
transmittal.
The Depository has advised MSXI as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934 (the "Exchange Act"). The Depository was created to hold securities
of institutions that have accounts with the Depository ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in these securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depository's participants include securities
brokers and dealers, which may include the Initial Purchasers, banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the old
notes represented by the Global Note to the accounts of participants. The
accounts to be credited shall be designated by the initial purchasers of the old
notes. Ownership of beneficial interests in the Global Note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
the Depository, with respect to participants' interest, and these participants,
with respect to the owners of beneficial interests in the Global Note other than
participants. The laws of some jurisdictions may require that certain purchasers
of securities take physical delivery of these securities in definitive form.
These limits and laws may impair the ability to transfer or pledge beneficial
interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or its nominee, as the case may be,
will be considered the sole legal owner and holder of the related exchange notes
for all purposes of these exchange notes and the Indenture. Except as set forth
below, owners of beneficial interests in the Global Note will not be entitled to
have the exchange notes represented by the Global Note registered in their
names, will not receive or be entitled to receive physical delivery of
certificated Notes in definitive form and will not be considered to be the
owners or holders of any exchange notes under the Global Note. MSXI understands
that under existing industry practice, in the event an owner of a beneficial
interest in the Global Note desires to take any action that the Depository, as
the holder of the Global Note, is entitled to take, the Depository would
authorize the participants to take this action, and that the participants would
authorize beneficial owners owning through these participants to take this
action or would otherwise act upon the instructions of beneficial owners owning
through them.
Payment of principal of and interest on Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
MSXI expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to the
irrespective beneficial
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interests in the principal amount of the Global Note as shown on the records of
the Depository or its nominee. MSXI also expects that payments by participants
to owners of beneficial interests in the Global Note held through these
participants will be governed by standing instructions and customary practices
and will be the responsibility of the participants. MSXI will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Global Note
for any Note or for maintaining, supervising or reviewing any records relating
to the beneficial ownership interests or for any other aspect of the
relationship between the Depository and its participants or the relationship
between these participants and the owners of beneficial interests in the Global
Note owning through these participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole by
the Depository to a nominee of this Depository or by a nominee of this
Depository to the Depository or another nominee of the Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. Neither the
Trustee nor MSXI will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The exchange notes represented by the Global Note are exchangeable for
certificated exchange notes in definitive form of like tenor as these exchange
notes in denominations of U.S.$1,000 and integral multiples of this amount if
(1) the Depository notifies MSXI that it is unwilling or unable to continue as
Depository for the Global Note or if at any time the Depository ceases to be a
clearing agency registered under the Exchange Act, (2) MSXI in its discretion at
any time determines not to have all of the exchange notes represented by the
Global Note or (3) a default entitling the holders of the exchange notes to
accelerate the maturity of the old notes has occurred and is continuing. Any new
note that is exchangeable pursuant to the preceding sentence is exchangeable for
certificated notes issuable in authorized denominations and registered in the
names as the Depository shall direct. Subject to the foregoing, the Global Note
is not exchangeable, except for a Global Note of the same aggregate denomination
to be registered in the name of the Depository or its nominee.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Incurrence of Indebtedness. (a) MSXI shall not, and shall not
permit any Restricted Subsidiary to, Incur, directly or indirectly, any
Indebtedness, provided, however, that MSXI and the Restricted Subsidiaries may
Incur Indebtedness if, immediately after giving effect to this Incurrence, the
Consolidated Coverage Ratio exceeds 2.0 to1 if this Indebtedness is Incurred
prior to January 15, 2001 or 2.25 to 1 if this Indebtedness is Incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a), MSXI and the Restricted
Subsidiaries may Incur any or all of the following Indebtedness: (1)
Indebtedness Incurred pursuant to the Bank Credit Agreements and Guarantees of
indebtedness Incurred pursuant to the Bank Credit Agreements; provided, however,
that, after giving effect to this type of Incurrence, the aggregate principal
amount of the Indebtedness then outstanding does not exceed the greater of (i)
$115.0 million less the amount of Net Available Cash from Asset Sales used to
permanently reduce indebtedness under the Bank Credit Agreements and (ii) the
sum of (x) 85% of the net book value of the accounts receivable of MSXI and its
Restricted Subsidiaries, determined in accordance with GAAP and (y) 50% of the
net book value of the inventory of MSXI and its Restricted Subsidiaries,
determined in accordance with GAAP; (2) Indebtedness represented by (i) the
notes issued January 1998 (and the registered notes issued in exchange
therefor), (ii) up to $30 million aggregate principal amount of old notes and
the exchange notes and (iii) Indebtedness represented by the Subsidiary
Guarantees; (3) Indebtedness outstanding on January 22, 1998 (other than
Indebtedness described in clause (1) of this paragraph); (4) Indebtedness of
MSXI owed to and held by a Wholly-Owned Subsidiary or Indebtedness of a
Wholly-Owned
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Subsidiary owed to and held by MSXI or a Wholly-Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock which
results in this type of Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any subsequent transfer of this Indebtedness (other than to MSXI
or a Wholly-Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of this Indebtedness by the related issuer; (5) Refinancing
Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or
pursuant to clause (2), (3) or this clause (5); (6) Indebtedness in respect of
performance bonds, bankers' acceptances, letters of credit and surety or appeal
bonds entered into by MSXI or a Restricted Subsidiary in the ordinary course of
business (in each case other than an obligation for borrowed money); (7) Hedging
Obligations consisting of Interest Rate Agreements and Currency Agreements
entered into in the ordinary course of business and not for the purpose of
speculation; provided, however, that, in the case of Currency Agreements and
Interest Rate Agreements, these Currency Agreements and Interest Rate Agreements
do not increase the Indebtedness of MSXI outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest rates or
by reason of fees, indemnities and compensation payable thereunder; (8) Purchase
Money Indebtedness and Capital Lease Obligations Incurred to finance the
acquisition or improvement by MSXI or a Restricted Subsidiary of any assets in
the ordinary course of business and which do not exceed $7.0 million in the
aggregate at any time outstanding; (9) Indebtedness arising from the honoring by
a bank or other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business, provided that this
Indebtedness is extinguished within five business days of Incurrence; (10)
Indebtedness Incurred after the Issue Date representing interest paid-in-kind;
or (11) Indebtedness in an aggregate principal amount which, together with all
other Indebtedness of MSXI and its Restricted Subsidiaries outstanding on the
date of Incurrence (other than Indebtedness permitted by clauses (1) through
(10) above or paragraph (a)), does not exceed $10.0 million.
(c) Notwithstanding the foregoing, MSXI shall not, and shall not permit any
Restricted Subsidiary to, Incur any Indebtedness pursuant to the foregoing
paragraph (b) if the proceeds of this Indebtedness are used, directly or
indirectly, to Refinance (i) any Subordinated Obligations unless this
indebtedness shall be subordinated to the Notes and the Subsidiary Guarantees,
as applicable, to at least the same extent as these Subordinated Obligations or
(ii) any Senior Subordinated Indebtedness unless this Indebtedness shall be
Senior Subordinated Indebtedness or shall be subordinated to the Notes and the
Subsidiary Guarantees, as applicable.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, MSXI, in its sole discretion, will
classify this item of Indebtedness and only be required to include the amount
and type of this Indebtedness in one of the above clauses and (ii) an item of
Indebtedness may be divided and classified in more than one of the types of
Indebtedness described above.
Limitation on Layered Debt. Notwithstanding paragraphs (a) and (b) of the
covenant described under " - Limitation on Incurrence of Indebtedness," MSXI
shall not, and shall not permit any Subsidiary Guarantor to, Incur any
Indebtedness if the Indebtedness is subordinate or junior in ranking in right of
payment to any Senior Indebtedness of MSXI or the applicable Subsidiary
Guarantor, as applicable, unless the Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness.
Limitation on Restricted Payments. (a) MSXI shall not, and shall not permit
any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment
if at the time MSXI or the applicable Restricted Subsidiary makes the Restricted
Payment: (1) a default shall have occurred and be continuing (or would result
therefrom); (2) MSXI is not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under " - Limitation on
Incurrence of Indebtedness"; or (3) the aggregate amount of the Restricted
Payment together with all other Restricted Payments (the amount of any payments
made in property other than cash to be valued at the fair market value of this
property, as determined in good faith by the Board of Directors) declared or
made since the Issue Date would exceed the sum of: (A) 50% of the Consolidated
Net Income accrued during the period (treated as one accounting period) from the
Issue Date to the end of the most recent fiscal quarter prior to the date of the
Restricted Payment for which financial statements of MSXI are available (or, in
case the Consolidated Net Income accrued during this period (treated as one
accounting period) shall be a deficit, minus 100% of this deficit); (B) the
aggregate Net Cash Proceeds received subsequent to the Issue Date by MSXI from
the issuance or sale of (i) its Capital Stock (other than
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Disqualified Stock or the issuance or sale of Capital Stock to a Subsidiary of
MSXI) or (ii) the Capital Stock of a Restricted Subsidiary pursuant to a
Qualified TIPS Transaction (other than any issuance or sale to a Subsidiary of
MSXI); (C) the amount by which Indebtedness of MSXI or its Restricted
Subsidiaries is reduced on MSXI's balance sheet upon the conversion or exchange
(other than by a Subsidiary of MSXI) subsequent to the Issue Date, of any
Indebtedness of MSXI or its Restricted Subsidiaries convertible or exchangeable
for Capital Stock (other than Disqualified Stock) of MSXI (less the amount of
any cash, or the fair market value of any other property, distributed by MSXI or
any Restricted Subsidiary upon this kind of conversion or exchange); and (D) an
amount equal to the sum of the net reduction in Investments resulting from
repayments of loans or advances or other transfers of assets subsequent to the
Issue Date, in each case to MSXI or any Restricted Subsidiary; provided,
however, that the foregoing amount shall not exceed the amount of Investments
previously made (and treated as a Restricted Payment) by MSXI or any Restricted
Subsidiary in this Person.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (1)
any purchase or redemption of Capital Stock or Subordinated Obligations of MSXI
or any Restricted Subsidiary made in exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of MSXI (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary of MSXI);
provided, however, that (A) this purchase or redemption shall be excluded from
the calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from this sale shall be excluded from the calculation of amounts under
clause (3)(B) of paragraph (a) above; (2) any purchase or redemption of (A)
Subordinated Obligations of MSXI made in exchange for, or out of the proceeds of
the substantially concurrent sale of, Subordinated Obligations of MSXI which is
permitted to be Incurred pursuant to paragraphs (b) and (c) of the covenant
described under " - Limitation on Incurrence of Indebtedness" or (B)
Subordinated Obligations of a Restricted Subsidiary made in exchange for, or out
of the proceeds of the substantially concurrent sale of, Subordinated
Obligations of the particular Restricted Subsidiary or MSXI which is permitted
to be Incurred pursuant to paragraphs (b) and (c) of the covenant described
under " - Limitation on Incurrence of Indebtedness"; provided, however, that
this purchase or redemption shall be excluded from the calculation of the amount
of Restricted Payments; (3) dividends paid within 60 days after the date of this
declaration, if at this date of declaration this dividend would have complied
with this covenant; provided, however, that at the time of payment of such
dividend, no other default shall have occurred and be continuing (or would
result therefrom); provided, further, however, that this dividend shall be
included in the calculation of the amount of Restricted Payments; (4) any
purchase or redemption or other retirement for value of Capital Stock of MSXI
required pursuant to any shareholders agreement, management agreement or
employee stock option agreement in accordance with the provisions of this kind
of arrangement in an amount not to exceed $1.5 million in the aggregate;
provided, however, that at the time of this purchase or redemption, no other
default shall have occurred and be continuing (or would result therefrom);
provided, further, however, that this purchase or redemption shall be included
in the amount of Restricted Payments; or (5) Guarantees by MSXI or any
Restricted Subsidiary of Indebtedness Incurred by MSXI or a Restricted
Subsidiary, provided, however, that at the time this Guarantee is Incurred it
would be permitted under the covenant described under " - Limitation on
Incurrence of Indebtedness"; provided, further, however, that this Guarantee
shall be excluded from the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
MSXI shall not, and shall not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock to MSXI or a Restricted Subsidiary or pay any Indebtedness owed to MSXI,
(b) to make any loans or advances to MSXI or (c) to transfer any of its property
or assets to MSXI, except: (1) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date; (2) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by this Restricted Subsidiary which was
entered into on or prior to the date on which this Restricted Subsidiary was
acquired by MSXI (other than as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which this Restricted Subsidiary
became a Restricted Subsidiary or was acquired by MSXI) and outstanding on this
date; (3) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (1) or (2) of this covenant (or effecting a Refinancing of this
Refinancing Indebtedness pursuant to this clause (3)) or contained in any
amendment to an agreement referred to in clause (1) or (2) of this covenant or
this clause (3); provided, however, that the
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encumbrances and restrictions with respect to this Restricted Subsidiary
contained in any such refinancing agreement or amendment are no more restrictive
in any material respect than the encumbrances and restrictions with respect to
the Restricted Subsidiary contained in these agreements; (4) any encumbrance or
restriction consisting of customary non-assignment provisions in leases
governing leasehold interests to the extent the provisions restrict the transfer
of the lease or the property leased thereunder; (5) in the case of clause (c)
above, restrictions contained insecurity agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent these restrictions
restrict the transfer of the property subject to these security agreements or
mortgages; (6) any restriction with respect to (x) a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of this Restricted Subsidiary
or (y) an asset of a Restricted Subsidiary pursuant to an agreement entered into
for the sale or disposition of this asset, in each case pending the closing of
the sale or disposition; (7) any restriction imposed by applicable law; and (8)
any encumbrance or restriction with respect to a Foreign Restricted Subsidiary
which is contained in agreements evidencing Indebtedness permitted under the
covenant described under " - Limitation on Incurrence of Indebtedness" and which
encumbrance or restriction is customary in agreements of this type.
Limitation on Sales of Assets and Subsidiary Stock. MSXI shall not, and
shall not permit any Restricted Subsidiary to, consummate any Asset Disposition
unless (i) MSXI or the Restricted Subsidiary receives consideration at the time
of the Asset Disposition at least equal to the fair market value (including as
to the value of all non-cash consideration), as determined in good faith by the
Board of Directors, of the shares and assets subject to the Asset Disposition
and (ii) at least 75% of the consideration therefor received by MSXI or the
Restricted Subsidiary is in the form of cash or cash equivalents, provided,
however, that this clause (ii) shall not apply if MSXI or a Restricted
Subsidiary is disposing of assets in exchange for Additional Assets. For the
purposes of this covenant, the assumption of Indebtedness of MSXI or any
Restricted Subsidiary and the release of MSXI or the Restricted Subsidiary from
all liability on the Indebtedness in connection with the Asset Disposition is
deemed to be cash.
With respect to any Asset Disposition occurring on or after the Issue Date
from which MSXI or any Restricted Subsidiary receives Net Available Cash, MSXI
or the Restricted Subsidiary shall (i) within 365 days after the date the Net
Available Cash is received and to the extent MSXI or such Restricted Subsidiary
elects (or is required by the terms of any Senior Indebtedness) to (A) apply an
amount equal to the Net Available Cash to prepay, repay, purchase or legally
defease Senior Indebtedness of MSXI or the Restricted Subsidiary, in each case
owing to a Person other than MSXI or any Affiliate of MSXI, or (B) invest an
equal amount, or the amount not so applied pursuant to clause (A), in Additional
Assets (including by means of an Investment in Additional Assets by a Subsidiary
Guarantor with Net Available Cash received by MSXI or another Subsidiary
Guarantor) and (ii) apply the excess Net Available Cash (to the extent not
applied pursuant to clause (i)) as provided in the following paragraphs of the
covenant described hereunder; provided, however, that in connection with any
prepayment, repay mentor purchase of Senior Indebtedness pursuant to clause (A)
above (other than the repayment of Senior Indebtedness Incurred under a Bank
Credit Agreement to fund the purchase of an asset which is sold by MSXI within
180 days of its purchase pursuant to a Sale/Leaseback Transaction), MSXI or the
Restricted Subsidiary shall retire the Senior Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. The amount of Net
Available Cash required to be applied pursuant to clause (ii) above and not
theretofore so applied shall constitute "Excess Proceeds." Pending application
of Net Available Cash pursuant to this provision, this Net Available Cash shall
be invested in Temporary Cash Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $3
million, MSXI shall, not later than 30 days after the end of the period during
which MSXI is required to apply this Excess Proceeds pursuant to clause (i) of
the immediately preceding paragraph (or, if MSXI so elects, at any time within
this period), make an offer (an "Excess Proceeds Offer") to purchase from the
holders of Notes and Other Qualified Notes (determined on a pro rata basis
according to the accreted value or aggregate principal amount, as the case may
be, of the Notes and the Other Qualified Notes) in an amount equal the Excess
Proceeds (rounded down to the nearest multiple of $1,000) on the date, at a
purchase price equal to 100% of the principal amount of these Notes, plus, in
each case, accrued interest (if any) to the date of purchase (the "Excess
Proceeds Payment"). Upon completion of an Excess Proceeds Offer the amount of
Excess Proceeds remaining after
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application pursuant to the Excess Proceeds Offer, (including payment of the
purchase price for Notes duly tendered) may be used by MSXI for any corporate
purpose (to the extent not otherwise prohibited by the Indenture).
MSXI shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
thereunder in the event that the Excess Proceeds are received by MSXI under the
covenant described hereunder and MSXI is required to repurchase Notes as
described above. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
MSXI shall comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations under the covenant described
hereunder by virtue of this compliance.
Limitation on Affiliate Transactions. (a) MSXI shall not, and shall not
permit any Restricted Subsidiary to, enter into or permit to exist any
transaction or series of related transactions (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with any Affiliate of MSXI (an "Affiliate
Transaction") unless the terms the transaction (1) are no less favorable to MSXI
or the Restricted Subsidiary than those that could be obtained at the time of
the transaction in arm's-length dealings with a Person who is not an Affiliate,
(2) if the Affiliate Transaction (or series of related Affiliate Transactions)
involves aggregate payments in an amount in excess of $1.0 million (i) are set
forth in writing and (ii) comply with clause (1), (3) if the Affiliate
Transaction (or series of related Affiliate Transactions) involves aggregate
payments in an amount in excess of $2.5 million in any one year, (i) are set
forth in writing, (ii) comply with clause (2) and (iii) have been approved by a
majority of the disinterested members of the Board of Directors, and (4) if the
Affiliate Transaction (or series of related Affiliate Transactions) involves
aggregate payments in an amount in excess of $10.0 million in any one year, (i)
comply with clause (3) and (ii) have been determined by a nationally recognized
investment banking firm to be fair, from a financial standpoint, to MSXI and its
Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (1)
any Restricted Payment permitted to be paid pursuant to the covenant described
under " - Limitation on Restricted Payments," (2) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise, pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans in the ordinary course of business and approved by the Board of Directors,
(3) the grant of stock options or similar rights to employees and directors of
MSXI in the ordinary course of business and pursuant to plans approved by the
Board of Directors, (4) loans or advances to employees of MSXI or its
Subsidiaries; provided, however, the aggregate amount of these loans or advances
outstanding at any one time shall not exceed $1.5 million, (5) fees,
compensation or employee benefit arrangements paid to and indemnity provided for
the benefit of directors, officers or employees of MSXI or any Subsidiary in the
ordinary course of business, (6) any Affiliate Transaction between MSXI and a
Restricted Subsidiary or between Restricted Subsidiaries in the ordinary course
of business (so long as the other stockholders of any participating Restricted
Subsidiaries which are not Wholly Owned Subsidiaries are not themselves
Affiliates of MSXI), or (7) Existing Affiliate Agreements, including amendments
to these agreements or replacements of these agreements entered into after
January 22, 1998; provided, however, that the terms of any such amendment or
replacement are at least as favorable to MSXI as those that could be obtained at
the time of the amendment or replacement in arm's-length dealings with a Person
which is not an Affiliate. If MSXI or any Restricted Subsidiary has complied
with all of the provisions of the foregoing paragraph (a) other than clause
(4)(ii) of paragraph (a), this paragraph (a) shall not prohibit MSXI or any
Restricted Subsidiary from entering into Affiliate Transactions pursuant to
which MSXI or any Restricted Subsidiary renders services in the ordinary course
of business to CVC or MascoTech or to Affiliates of CVC or MascoTech.
Limitation on the Issuance or Sale of Capital Stock of Restricted
Subsidiaries. MSXI shall not (i) sell, pledge, hypothecate or otherwise dispose
of any shares of Capital Stock of a Restricted Subsidiary (other than pledges of
Capital Stock securing Senior Indebtedness) or (ii) permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock other than (A) to MSXI or a Restricted Subsidiary,
(B) directors' qualifying shares and shares owned by foreign shareholders, to
the extent required by applicable local laws in foreign countries, (C) pursuant
to a Qualified TIPS Transaction or (D) if, immediately after giving effect to
the issuance or sale, the Restricted Subsidiary would no longer constitute a
Subsidiary. The proceeds of any sale of this type Capital Stock permitted hereby
will be treated as Net Available Cash from an Asset Disposition and must be
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applied in accordance with the terms of the covenant described under " -
Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. MSXI shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur or permit to exist any Lien (other
than Permitted Liens) of any nature whatsoever on any property of MSXI or any
Restricted Subsidiary (including Capital Stock of a Restricted Subsidiary),
whether owned at the Issue Date or thereafter acquired, which secures
Indebtedness that ranks pari passu with or is subordinated to the Notes or the
Subsidiary Guarantees unless (i) if the Lien secures Indebtedness that ranks
pari passu with the Notes and the Subsidiary Guarantees, the Notes and the
Subsidiary Guarantees are secured on an equal and ratable basis with the
obligation so secured until the time as the obligation is no longer secured by a
Lien or (ii) if the Lien secures Indebtedness that is subordinated to the Notes
and the Subsidiary Guarantees, the Lien shall be subordinated to a Lien granted
to the holders on the same collateral as that securing the Lien to the same
extent as the subordinated Indebtedness is subordinated to the Note and the
Subsidiary Guarantees.
Designation of Restricted and Unrestricted Subsidiaries. The Board of
Directors may designate any Subsidiary of MSXI (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary if (a) the Subsidiary
to be so designated (the "Designee") does not own any Capital Stock or
Indebtedness of, or own or hold any Lien on any property of, MSXI or any other
Subsidiary (other than a direct or indirect Subsidiary of the Designee,
provided, however, that this direct or indirect Subsidiary of the Designee shall
otherwise comply with clauses (a) through (f) of this covenant), (b) the
Subsidiary to be so designated is not obligated under any Indebtedness, Lien or
other obligation that, if in default, would result (with the passage of time or
notice or otherwise) in a default on any Indebtedness of MSXI or of any
Subsidiary (other than the Designee or a Subsidiary of the Designee that is an
Unrestricted Subsidiary), (c) MSXI certifies that the designation complies with
the covenant described under "Certain Covenants - Limitation on Restricted
Payments," (d) the Subsidiary, either alone or in the aggregate with all other
Unrestricted Subsidiaries, does not operate, directly or indirectly all or
substantially all of the business of MSXI and its Subsidiaries; (e) the
Subsidiary does not directly or indirectly, own any Indebtedness of or Capital
Stock in, and has no Investments in, MSXI or any Restricted Subsidiary; and (f)
the Subsidiary is a Person with respect to which neither MSXI nor any of its
Restricted Subsidiaries has any direct or indirect obligation (i) to subscribe
for additional Capital Stock or (ii) to maintain or preserve this Person's
financial condition or to cause this Person to achieve any specified levels of
operating results. If, at any time, any Unrestricted Subsidiary would fail to
meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of this Subsidiary shall be deemed to be Incurred as of
this date. For purposes of making one of these designations, all outstanding
Investments by MSXI and its Restricted Subsidiaries, except to the extent repaid
in cash, in the Subsidiary will be deemed to be Restricted Payments at the time
of this designation and will reduce the amount available for Restricted Payments
under clause (3) of the covenant described under "Certain Covenants - Limitation
on Restricted Payments." The designation shall only be permitted if the
Restricted Payment would be permitted at this time and if the Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
This type of designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to the designation or redesignation and an Officers' Certificate (a)
certifying that the designation or redesignation complies with the foregoing
provisions and (b) giving the effective date of the designation or
redesignation, this filing with the Trustee is to occur within 45 days after the
end of the fiscal quarter of MSXI in which the designation or redesignation is
made, or, in the case of a designation or redesignation made during the last
fiscal quarter of MSXI's fiscal year, within 90 days after the end of this
fiscal year. Unless designated as an Unrestricted Subsidiary as herein provided,
each Subsidiary of MSXI shall be a Restricted Subsidiary. Except as provided
herein, no Restricted Subsidiary shall be redesignated as an Unrestricted
Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary, if immediately after giving pro forma effect to the
designation (a) MSXI could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "Certain Covenants - Limitation on
Incurrence of Indebtedness" and (b) no default shall have occurred and be
continuing or would result therefrom.
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Merger and Consolidation. MSXI shall not consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of related
transactions, all or substantially all its assets to, any Person, unless: (1)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a corporation organized and existing under the laws of the United States of
America, any State of the U.S.A. or the District of Columbia and the Successor
Company (if not MSXI) shall expressly assume, by an indenture supplemental
thereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of MSXI under the Notes and the Indenture; (2)
immediately after giving effect to the transaction on a pro forma basis, and
treating any Indebtedness which becomes an obligation of the Successor Company
or any Subsidiary as a result of the transaction as having been Incurred by this
Successor Company or the Subsidiary at the time of this transaction, no default
shall have occurred and be continuing; (3) except in the case of a merger the
sole purpose of which is to change MSXI's jurisdiction of incorporation,
immediately after giving effect to the transaction on a pro forma basis, the
Successor Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under " - Limitation on
Incurrence of Indebtedness"; (4) immediately after giving effect to the
transaction on a pro forma basis, the Successor Company shall have Consolidated
Net Worth in an amount that is not less than the Consolidated Net Worth of MSXI
immediately prior to the transaction; and (5) MSXI shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
the consolidation, merger or transfer and the supplemental indenture (if any)
comply with the Indenture. Notwithstanding the foregoing clauses (2), (3) and
(4), any Restricted Subsidiary may consolidate with, merge into or transfer all
or part of its properties and assets to MSXI or another Restricted Subsidiary.
The Successor Company shall be the successor to MSXI and shall succeed to,
and be substituted for, and may exercise every right and power of, MSXI under
the Indenture, but the predecessor Company in the case of a conveyance, transfer
or lease shall not be released from the obligation to pay the principal of and
interest on the Notes.
MSXI shall not permit any Subsidiary Guarantor to consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person (other than
MSXI or a Wholly-Owned Subsidiary), unless: (1) the resulting, surviving or
transferee Person (if not the Wholly-Owned Subsidiary) shall be a corporation
organized and existing under the laws of the United States of America, any State
of the U.S.A. or the District of Columbia and the Successor Company (if not the
Wholly-Owned Subsidiary) shall expressly assume, by a Guarantee agreement,
inform satisfactory to the Trustee, all the obligations of the Subsidiary under
its Subsidiary Guarantee; (2) immediately after giving effect to the transaction
on a pro forma basis (and treating any Indebtedness which becomes an obligation
of the resulting, surviving or transferee Person as a result of the transaction
as having been Incurred by this Person at the time of the transaction), no
default shall have occurred and be continuing; and (3) MSXI shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that the consolidation, merger or transfer and the Guarantee agreement comply
with the Indenture. The provisions of clauses (1) and (3) above shall not apply
to any transactions which constitute an Asset Disposition if MSXI has complied
with the applicable provisions of the covenant described under " - Limitation on
Sales of Assets and Subsidiary Stock" above.
SEC Reports. Notwithstanding that MSXI may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, MSXI shall file with the SEC and provide the Trustee and noteholders and
prospective noteholders (upon request) the annual reports and the information,
documents and other reports as are specified in these Sections and applicable to
a U.S. corporation subject to these Sections, such information, documents and
other reports to be so filed and provided at the times specified for the filing
of this information, documents and reports under these Sections; provided,
however, that MSXI shall not be required to file any report, document or other
information with the SEC if the SEC does not permit the filing.
DEFAULTS
An event of default is defined in the Indenture as (1) a default in the
payment of interest on the Notes when due (whether or not the payment is
prohibited by the provisions described under "Subordination" above), continued
for 30 days, (2) a default in the payment of principal of any Note when due at
its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise (whether or not the payment is prohibited by the
provisions described under "Subordination" above), (3) the failure by MSXI, to
comply for 60 days after notice with any of its
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obligations under the covenants described under " - Limitation on Incurrence of
Indebtedness," " - Limitation on Restricted Payments," " - Limitation on Sales
of Assets and Subsidiary Stock" and " - Merger and Consolidation," (4) the
failure by MSXI to comply for 60 days after notice with its other agreements
contained in the Indenture, (5) Indebtedness of MSXI or any Restricted
Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders of this Indebtedness because of a default and
the total amount of the Indebtedness unpaid or accelerated exceeds $5.0 million
(the "cross-acceleration provision"), (6) certain events of bankruptcy,
insolvency or reorganization of MSXI or a Significant Subsidiary (the
"bankruptcy provisions"), (7) any judgment or decree for the payment of money in
excess of $5.0 million is rendered against MSXI or a Restricted Subsidiary,
remains outstanding following the judgment and is not discharged, waived or
stayed within 60 days after entry of the judgment or decree (the "judgment
default provision"), or (8) a Subsidiary Guarantee ceases to be in full force
and effect (other than in accordance with the terms of this Subsidiary
Guarantee) or a Subsidiary Guarantor denies or disaffirms its obligations under
its Subsidiary Guarantee and the default continues for 10 days. However, a
default under clause (3) or (4) will not constitute an event of default until
the Trustee or the holders of 25% in principal amount of the outstanding Notes
notify MSXI of the default and MSXI does not cure the default within the time
specified in clauses (3) and (4) of this paragraph, after receipt of the notice.
If an event of default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon this declaration, this principal and interest shall be due and
payable immediately. If an event of default relating to certain events of
bankruptcy, insolvency or reorganization of MSXI occurs and is continuing, the
principal of and interest on all the Notes will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holders of the Notes. Under certain circumstances, the
holders of a majority in principal amount of the outstanding Notes may rescind
this type of acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an event of default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders unless these holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (1) this holder has
previously given the Trustee notice that an event of default is continuing, (2)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (3) these holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(4) the Trustee has not complied with this request within 60 days after the
receipt the request and the offer of security or indemnity and (5) the holders
of a majority in principal amount of the outstanding Notes have not given the
Trustee a direction inconsistent with such request within the 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder or that would involve the Trustee in personal liability.
The Indenture provides that if a default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the default
within 90 days after it occurs. Except in the case of a default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as a committee of its trust officers determines that withholding notice
is not opposed to the interest of the holders. In addition, MSXI is required to
deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers the certificate know of any default
that occurred during the previous year. MSXI also is required to deliver to the
Trustee, within 30 days after the occurrence of this default, written notice of
any event which would constitute certain defaults, their status and what action
MSXI is taking or proposes to take in respect these defaults.
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AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (1) reduce the amount of Notes whose holders must consent to an
amendment, (2) reduce the rate of or extend the time for payment of interest on
any Note, (3) reduce the principal of or change the Stated Maturity of any Note,
(4) reduce the premium payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under " - Optional
Redemption" above, (5) make any Note payable in money other than that stated in
the Note, (6) impair the right of any holder to institute suit for the
enforcement of any payment on or with respect to this holder's Notes or any
Subsidiary Guarantee, (7) make any change in the amendment provisions which
require each holder's consent or in the waiver provisions or (8) make any change
to the subordination provisions of the Indenture that would adversely affect the
noteholders.
Without the consent of any holder, MSXI and Trustee may amend the Indenture
to cure any ambiguity, omission, defect or inconsistency, to provide for the
assumption by a successor corporation of the obligations of MSXI under the
Indenture, to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner so
that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add Guarantees with respect to the Notes, to release Subsidiary
Guarantors when permitted by the Indenture, to secure the Notes, to add to the
covenants of MSXI for the benefit of the holders or to surrender any right or
power conferred upon MSXI, to make any change that does not adversely affect the
rights of any holder or to comply with any requirement of the SEC in connection
with the qualification of the Indenture under the Trust Indenture Act. However,
no amendment may be made to the subordination provisions of the Indenture that
adversely affects the rights of any holder of Senior Indebtedness then
outstanding unless the holders of the Senior Indebtedness (or their
Representative) consents to the change.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if this consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, MSXI is required
to mail to holders a notice briefly describing the amendment. However, the
failure to give this notice to all holders, or any defect therein, will not
impair or affect the validity of the amendment.
TRANSFER
Certificated Notes will be issued in registered form and will be
transferable only upon the surrender of the Notes being transferred for
registration of transfer. MSXI may require payment of a sum sufficient to cover
any tax, assessment or other governmental charge payable in connection with
certain transfers and exchanges.
DEFEASANCE
MSXI at any time may terminate all its obligations under the Notes and the
Indenture ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and
to maintain a registrar and paying agent in respect of the Notes. MSXI at any
time may terminate its obligations under " - Change of Control" and under the
covenants described under " - Certain Covenants" (other than the covenant
described under " - Merger and Consolidation"), the operation of the
cross-acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under " -
defaults" above and the limitations contained in clauses (3) and (4) under
"Certain Covenants - Merger and Consolidation" above ("covenant defeasance").
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MSXI may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If MSXI exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
event of default with respect thereto. If MSXI exercises its covenant defeasance
option, payment of the Notes may not be accelerated because of an event of
default specified in clause (3), (4), (5), (6) (with respect only to Significant
Subsidiaries) or (7) under " - defaults" above or because of the failure of MSXI
to comply with clause (3) or (4) under "Certain Covenants - Merger and
Consolidation" above. If MSXI exercises its legal defeasance option or its
covenant defeasance option, each Subsidiary Guarantor will be released from all
of its obligations with respect to its Subsidiary Guarantee.
In order to exercise either defeasance option, MSXI must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of this deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if this deposit and defeasance had
not occurred (and, in the case of legal defeasance only, the Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change
inapplicable Federal income tax law).
CONCERNING THE TRUSTEE
IBJ Whitehall Bank & Trust Company is to be the Trustee under the Indenture
and has been appointed by MSXI as Registrar and Paying Agent with regard to the
exchange notes.
The holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an event of default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to these provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any holder of Notes,
unless the requesting holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the exchange notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
indebtedness and Capital Stock) in a Related Business, including improvements to
existing assets, used by MSXI or a Restricted Subsidiary in a Related Business;
(ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of this Capital Stock by MSXI or another Restricted
Subsidiary; provided, however, that the Restricted Subsidiary is primarily
engaged in a Related Business; (iii) Capital Stock constituting an additional
equity interest in any Person that at this time is a Restricted Subsidiary that
is not a Wholly-Owned Subsidiary; or (iv) the costs of improving or developing
any property owned by MSXI or a Restricted Subsidiary that is used in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with the specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of the Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "Certain
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Covenants - Limitation on Restricted Payments," "Certain Covenants - Limitation
on Affiliate Transactions" and "Certain Covenants - Limitations on Sales of
Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial
owner of Capital Stock representing 10% or more of the total voting power of the
Voting Stock (on a fully diluted basis) of MSXI or of rights or warrants to
purchase this Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of this beneficial owner pursuant to the first
sentence of this paragraph.
"Asset Disposition" means any sale, lease, transfer, Sale/Leaseback
Transaction or other disposition (or series of related sales, leases, transfers
or dispositions) by MSXI or any Restricted Subsidiary, including any disposition
by means of a merger, consolidation or similar transaction (each referred to for
the purposes of this definition as a "disposition"), of (i) any shares of
Capital Stock of a Restricted Subsidiary (other than directors' qualifying
shares and shares owned by foreign shareholders to the extent required by
applicable local laws in foreign countries), (ii) all or substantially all the
assets of any division, business segment or comparable line of business of MSXI
or any Restricted Subsidiary or (iii) any other assets of MSXI or any Restricted
Subsidiary outside of the ordinary course of business of MSXI or the Restricted
Subsidiary. Notwithstanding the foregoing, the term "Asset Disposition" shall
not include (x) a disposition by a Restricted Subsidiary to MSXI or by MSXI or a
Restricted Subsidiary to a Subsidiary Guarantor, (y) For purposes of the
covenant described under "Certain Covenants - Limitation on Sales of Assets and
Subsidiary Stock", a disposition that constitutes a Permitted Investment or a
Restricted Payment permitted by the covenant described under "Certain Covenants
- - Limitation on Restricted Payments", and (z) a disposition of assets having a
fair market value of less than $1,000,000.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in the
Sale/Leaseback Transaction (including any period for which the lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of the Indebtedness or
redemption or similar payment with respect to the Preferred Stock multiplied by
the amount of the payment by (ii) the sum of all these payments.
"Bank Credit Agreements" means the Senior Credit Facility and any other
bank credit agreement or similar facility now existing or entered into in the
future by MSXI or any Restricted Subsidiary, as any of the same may be amended,
waived, modified, Refinanced or replaced from time to time (except to the extent
that this amendment, waiver, modification, replacement or Refinancing would be
prohibited by the terms of the Indenture).
"Bank Indebtedness" means any and all present and future amounts payable
under or in respect of the Bank Credit Agreements, including principal, premium
(if any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization, whether or not a claim for
post-filing interest is allowed in these proceedings), fees, charges, expenses,
reimbursement obligations, guarantees and all other indebtedness and other
Obligations and liabilities payable in respect of the Bank Credit Agreements.
"Board of Directors" means the Board of Directors of MSXI or any committee
of the Board of directors duly authorized to act on behalf of the Board of
Directors.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by the
obligation shall be the capitalized amount of the obligation determined in
accordance with GAAP; and the Stated Maturity of this obligation shall be the
date of the last payment of rent or any other amount due under the lease prior
to the first date upon which the lease may be terminated by the lessee without
payment of a penalty.
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"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of this Person, including any Preferred
Stock, but excluding any debt securities convertible into this equity.
"Change of Control" means the occurrence of any of the following events:
(i) prior to the first public offering of Voting Stock of MSXI, the
Permitted Investors cease to be entitled (by "beneficial ownership" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Voting Stock,
contract or otherwise) to elect or cause the election of directors having,
a majority in the aggregate of the total voting power of the Board of
Directors, whether as a result of issuance of securities of MSXI, any
merger, consolidation, liquidation or dissolution of MSXI, any direct or
indirect transfer of securities by the Permitted Investors or otherwise
(for purposes of this clause (i) and clause (ii) below, the Permitted
Investors shall be deemed to beneficially own any Voting Stock of any
entity (the "specified entity") held by any other entity (the "parent
entity") so long as the Permitted Investors beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of this parent entity);
(ii) after the first public offering of Voting Stock of MSXI, any
"person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes
of this clause (ii) the person shall be deemed to have "beneficial
ownership" of all shares that this person has the right to acquire,
directly or indirectly), of more than 35% of the total voting power of the
Voting Stock of MSXI and either (x) the Permitted Holders beneficially own
(as defined in clause (i) above), directly or indirectly, in the aggregate
a lesser percentage of the total voting power of the Voting Stock of MSXI
than this other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the Board of Directors or (y) the other person is entitled to elect
directors having a majority of the total voting power of the Board of
Directors; or
(iii) after the first public offering of Voting Stock of MSXI, during
any period of not greater than two consecutive years beginning after the
Issue Date, individuals who at the beginning of this period constituted the
Board of Directors (together with any new directors whose election by the
Board of Directors or whose nomination for election by the shareholders of
MSXI was approved by a vote of a majority of the directors of MSXI then
still in office who were either directors at the beginning of the period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors then in
office.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less, the
number of days after the end of this fiscal quarter as the consolidated
financial statements of MSXI shall be available) prior to the date of the
determination to (ii) Consolidated Interest Expense for the four fiscal
quarters; provided, however, that (1) if MSXI or any Restricted Subsidiary has
Incurred any Indebtedness since the beginning of this period that remains
outstanding on the date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, or both, EBITDA and Consolidated Interest Expense for this period
shall be calculated after giving effect on a pro forma basis to this
Indebtedness as if this Indebtedness had been Incurred on the first day of the
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of the new Indebtedness as if such
discharge had occurred on the first day of the period (except that, in the case
of Indebtedness used to finance working capital needs incurred under a revolving
credit or similar arrangement, the amount of this Indebtedness shall be deemed
to be the average daily balance of the Indebtedness during the
four-fiscal-quarter period), (2) if since the beginning of this period MSXI or
any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
this period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of the Asset
Disposition for the period, or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for this period, and Consolidated
Interest Expense for this period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of MSXI
or any Restricted Subsidiary repaid, repurchased, defeased,
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assumed by a third person (to the extent MSXI and its Restricted Subsidiaries
are no longer liable for this Indebtedness) or otherwise discharged with respect
to MSXI and its continuing Restricted Subsidiaries in connection with the Asset
Disposition for the period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for the period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
MSXI and its continuing Restricted Subsidiaries are no longer liable for the
Indebtedness after this sale), (3) if since the beginning of the period MSXI
shall have consummated a Public Equity Offering following which there is a
Public Market, Consolidated Interest Expense for this period shall be reduced by
an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of MSXI or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to MSXI and its Restricted
Subsidiaries in connection with such Public Equity Offering for this period, (4)
if since the beginning of this period MSXI or any Restricted Subsidiary (by
merger or otherwise) shall have made an Investment in any Restricted Subsidiary
(or any Person which becomes a Restricted Subsidiary) or an acquisition of
assets, which acquisition constitutes all or substantially all of an operating
unit of a business, including any Investment or acquisition occurring in
connection with a transaction requiring a calculation to be made hereunder,
EBITDA and Consolidated Interest Expense for this period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if the Investment or acquisition occurred on the first day of
the period and (5) if since the beginning of this period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into MSXI or
any Restricted Subsidiary since the beginning of this period) shall have made
any Asset Disposition, any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (3) or (4) above if made by MSXI or a
Restricted Subsidiary during this period, EBITDA and Consolidated Interest
Expense for this period shall be calculated after giving pro forma effect
thereto as if the Asset Disposition, Investment or acquisition occurred on the
first day of this period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of MSXI in accordance with Article 11 of Regulation S-X. If
any Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on this Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to this
Indebtedness if the Interest Rate Agreement has a remaining term in excess of 12
months).
"Consolidated Interest Expense" means, for any period, the total interest
Expense of MSXI and its consolidated Restricted Subsidiaries, plus, to the
extent not included in this total interest expense, and to the extent incurred
by MSXI or its Restricted Subsidiaries, (i) interest expense attributable to
Capital Lease Obligations, (ii) amortization of debt discount, (iii) capitalized
interest, (iv) non-cash interest expenses, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), and (vii) interest actually paid on any Indebtedness of
any other Person that is Guaranteed by MSXI or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income of MSXI and
its consolidated Subsidiaries; provided, however, that there shall not be
included in this Consolidated Net Income: (i) any net income (or loss) of any
Person if this Person is not a Restricted Subsidiary, except that subject to the
exclusion contained in clause (iv) below, MSXI's equity in the net income of
this Person for this period shall be included in the Consolidated Net Income up
to the aggregate amount of cash actually distributed by this Person during this
period to MSXI or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to a Restricted
Subsidiary, to the limitations contained in clause (iii) below); (ii) for
purposes of subclause (a)(3)(A) of the covenant described under "Certain
Covenants - Limitation on Restricted Payments" only, any net income (or loss) of
any Person acquired by MSXI or a Subsidiary in a pooling of interests
transaction for any period prior to the date of the acquisition; (iii) any net
income of any Restricted Subsidiary if Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by the Restricted Subsidiary, directly or indirectly, to MSXI,
except that (A) subject to the exclusion contained in clause (iv) below, MSXI's
equity in the net income of the Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by the Restricted Subsidiary consistent with this
restriction during this period to MSXI or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation contained
in this clause) and (B) MSXI's equity in a net loss of
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a Restricted Subsidiary for the period shall be included in determining the
Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other
disposition of any assets of MSXI or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise
disposed of in the ordinary course of business and any gain (or loss) realized
upon the sale or other disposition of any Capital Stock of any Person; (v)
extraordinary gains or losses; and (vi) the cumulative effect of a change in
accounting principles. Notwithstanding the foregoing, for the purposes of the
covenant described under "Certain Covenants - Limitation on Restricted Payments"
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to MSXI or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of MSXI and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of MSXI ending at least 45 days prior to the taking of any action
for the purpose of which the determination is being made, as (i) the prior
stated value of all outstanding Capital Stock of MSXI plus (ii) paid-in capital
or capital surplus relating to this Capital Stock plus (iii) any retained
earnings or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Currency Agreement" means, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement to which
this Person is a party or a beneficiary.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"CVC Investor" means (i) CVC or any direct or indirect Wholly-Owned
Subsidiary of CVC, (ii) Citicorp, N. A. and (iii) any officer, employee or
director of CVC so long as this person shall be an employee, officer or director
of CVC or any direct or indirect Wholly-Owned Subsidiary of CVC.
"Default" means any event which is, or after notice or passage of time or
both would be, an event of default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of MSXI which, at the date of determination, has
an aggregate principal amount outstanding of, or under which, at the date of
determination, the holders of this indebtedness are committed to lend up to, at
least $10 million and is specifically designated by MSXI in the instrument
evidencing or governing the Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (1) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(2) is convertible or exchangeable, at the option of the holder of this stock,
for Indebtedness or Disqualified Stock or (3) is redeemable at the option of the
holder of this stock, in whole or in part, in each case on or prior to the
eleven month anniversary of the Stated Maturity of the Notes. Disqualified Stock
shall not include any Capital Stock that is not otherwise Disqualified Stock if
by its terms the holders have the right to require the issuer to repurchase this
stock (or the stock is mandatorily redeemable) upon a Change of Control (or upon
an event substantially similar to a Change of Control).
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of MSXI
other than a Foreign Restricted Subsidiary.
"EBITDA" for any period means the sum of Consolidated Net Income plus,
without duplication, the following to the extent deducted in calculating the
Consolidated Net Income: (i) Consolidated Interest Expense, (ii) income tax
expense (including Michigan Single Business Tax expense), (iii) depreciation
expense, (iv) amortization expense and (v) all other non-cash items reducing
Consolidated Net Income (other than items that will require cash payments and
for which an accrual or reserve is, or is required by GAAP to be, made, other
than accruals for post-retirement benefits other than pensions), less all
non-cash items increasing Consolidated Net Income, in each case for this period.
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Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Subsidiary of MSXI shall
be added to Consolidated Net Income to compute EBITDA only to the extent (and in
the same proportion) that the net income of this Subsidiary was included in
calculating Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Affiliate Agreements" means the Stockholders' Agreement, the MSXI
Registration Agreement and any other existing agreement with MascoTech or any of
its Affiliates described on Schedule I to the Indenture.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of MSXI
which is not organized under the laws of the United States of America or any
State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as then in effect, including those set forth in (i) the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (ii) statements and pronouncements of the
Financial Accounting Standards Board and (iii) those other statements by those
other entities as approved by a significant segment of the accounting
profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of this
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) the Indebtedness or other obligation of the Person (whether arising
by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of the Indebtedness or other
obligation of the payment the indebtedness or to protect the obligee against
loss in respect this indebtedness, in whole or in part; provided, however, that
the term "Guarantee" shall not include (x) endorsements for collection or
deposit in the ordinary course of business or (y) guarantees among Restricted
Subsidiaries or guarantees by MSXI of Restricted Subsidiaries; provided that the
Indebtedness being guaranteed is permitted to be Incurred. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of this Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Series A, Series
B, old note or new note as the case may be, Note which is registered on the
Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness of a Person existing at the time
this Person becomes a Subsidiary (whether by merger, consolidation, acquisition
or otherwise) shall be deemed to be Incurred by this Subsidiary at the time it
becomes a Subsidiary; provided, further, however, that in the case of a discount
security, neither the accrual of interest nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness, but the entire
face-amount of this security shall be deemed Incurred upon the issuance of the
security. The term "Incurrence" when used as a noun shall have a correlative
meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (1) the principal of and premium (if any)
in respect of (A) indebtedness of the Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which the Person is responsible or liable; (2) all Capital
Lease Obligations of the Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by the Person; (3) all obligations of
the Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such Person, all obligations of such Person
under any title retention agreement, and any obligation to pay rent or other
payment amounts of the Person with respect to any Sale/Leaseback Transaction
(but excluding trade accounts payable arising in the ordinary course of
business), which
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purchase price or obligation is due more than six months after the date of
placing this property in service or taking delivery and title thereto or the
completion of these services (provided that, in the case of obligations of an
acquired Person assumed in connection with an acquisition of the Person, these
obligations would constitute Indebtedness of the Person); (4) all obligations of
the Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than obligations
described in (1) through (3) above) entered into in the ordinary course of
business of the Person to the extent these letters of credit are not drawn upon
or, if and to the extent drawn upon, the drawing is reimbursed no later than the
tenth Business Day following receipt by the Person of a demand for reimbursement
following payment on the letter of credit); (5) the amount of all obligations of
the Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of the Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (6) all
obligations of the type referred to in clauses (1) through (5) of other Persons
and all dividends of other Persons for the payment of which, in either case, the
Person is responsible or liable, directly or indirectly, as obligor, guarantor
or otherwise, including by means of any Guarantee; (7) all obligations of the
type referred to in clauses (1) through (6) of other Persons secured by any Lien
on any property or asset of this Person (whether or not the obligation is
assumed by this Person), the amount of the obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured; and (8) to the extent not otherwise included in this definition,
Hedging Obligations of the Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at this date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations as
described above at this date; provided, however, that the amount outstanding at
any time of any Indebtedness issued with original issue discount shall be deemed
to be the face amount of the Indebtedness less the remaining unamortized portion
of the original issue discount of the Indebtedness at the time determined in
conformity with GAAP.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect MSXI or any Restricted Subsidiary against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by the Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "Certain Covenants - Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to MSXI's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of MSXI at the time that the Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon are designation of the
Subsidiary as a Restricted Subsidiary, MSXI shall be deemed to continue to have
a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if
positive) equal to (x) MSXI's "Investment" in the Subsidiary at the time of the
redesignation less (y) the portion (proportionate to MSXI's equity interest in
the Subsidiary) of the fair market value of the net assets of the Subsidiary at
the time of the redesignation; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
the transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the date on which the exchange notes are originally
issued.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any conditional sale or other title retention
agreement or lease in this nature.
"Management Investors" means each of the officers, employees and directors
of MSXI who own Voting Stock of MSXI on the Issue Date, in each case so long as
this person shall remain an officer, employee or director of MSXI.
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"MascoTech" means MascoTech, Inc., a Delaware corporation, and its
successors.
"Net Available Cash" from an Asset Disposition means cash payments received
by MSXI or any of its Subsidiaries therefrom (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to properties or
assets or received in any other noncash form) in each case net of (i) all legal,
title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local taxes required
to be paid or accrued as a liability under GAAP, as a consequence of the Asset
Disposition, (ii) all payments made on any Indebtedness which is secured by any
assets subject to the Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect to the assets, or
which must by its terms, or in order to obtain a necessary consent to the Asset
Disposition, or by applicable law, be repaid out of the proceeds from the Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of the
Asset Disposition and (iv) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the property or other assets disposed in the Asset Disposition and retained
by MSXI or any Restricted Subsidiary after the Asset Disposition, including
without limitation liabilities under any indemnification obligations associated
with such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of the issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with this issuance or sale and net of taxes paid or
payable as a result this issuance or sale.
"Obligations" means all present and future obligations for principal,
premium, interest (including, without limitation, any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not the interest is an
allowed claim under applicable law), penalties, fees, indemnifications,
reimbursements (including, without limitation, all reimbursement and other
obligation pursuant to any letters of credit, bankers acceptances or similar
instruments or documents), damages and other liabilities payable under the
documentation at any time governing any indebtedness.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Vice President of MSXI.
"Officers' Certificate" means a certificate signed by two Officers of MSXI,
at least one of whom shall be the principal financial officer of MSXI, and
delivered to the Trustee.
"Other Qualified Notes" means any outstanding Senior Subordinated
Indebtedness of MSXI issued pursuant to an indenture having a provision
substantially similar to the provision relating to Asset Dispositions contained
in the covenant described under "Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock."
"Permitted Holders" means the CVC Investors, MascoTech, the Management
Investors and their respective Permitted Transferees; provided, however, that
any Management Investor and any CVC Investor and any Permitted Transferee of a
Management Investor or CVC Investor (other than CVC or Citicorp, N. A. or any
direct or indirect Subsidiary of CVC or Citicorp, N.A. or any other Person
controlled by CVC or Citicorp, N. A.) shall not be a "Permitted Holder" if the
Person is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
exchange Act), directly or indirectly, of Voting Stock that represents at least
30% of the aggregate voting power of all classes of the Voting Stock of MSXI,
voting together as a single class (without giving effect to the attribution of
beneficial ownership as a result of any stockholders' agreement as in effect on
the Issue Date, and any amendment to the agreement that does not materially
change the allocation of voting power provided in the agreement).
"Permitted Investment" means an Investment by MSXI or any Restricted
Subsidiary in (i) MSXI; (ii) a Restricted Subsidiary or a Person that will, upon
the making of the Investment, become a Restricted Subsidiary; provided, however,
that the primary business of the Restricted Subsidiary is a Related Business;
(iii) another Person if as a result
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of the Investment the other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, MSXI or a
Restricted Subsidiary; provided, however, that the Person's primary business is
a Related Business; (iv) Temporary Cash Investments; (v) receivables owing to
MSXI or any Restricted Subsidiary if created or acquired in the ordinary course
of business and payable or dischargeable in accordance with customary trade
terms; provided, however, that the trade terms may include concessionary trade
terms as MSXI or any applicable Restricted Subsidiary deems reasonable under the
circumstances; (vi) payroll, travel and similar advances to cover matters that
are expected at the time of the advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vii) loans or advances to employees of MSXI or a Restricted Subsidiary in an
aggregate amount not to exceed $1.5 million; (viii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to MSXI or any Restricted Subsidiary or in satisfaction of
judgments; (ix) Persons other than Restricted Subsidiaries that are primarily
engaged in a Related Business or property or assets to be used primarily in a
Related Business, in an aggregate amount not to exceed $20.0 million (to the
extent utilized for an Investment, this amount will be reinstated to the extent
that MSXI or any Restricted Subsidiary receives dividends, repayments of loans
or other transfers of assets as a return of this Investment); provided, however,
that at the time of any Investment pursuant to this clause (ix), MSXI and its
Restricted Subsidiaries would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Incurrence of Indebtedness"; and (x) any Person to the extent
the Investment represents the non-cash portion of the consideration received for
an Asset Disposition as permitted pursuant to the covenant described under
"Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock."
"Permitted Investors" means (i) MascoTech and its Permitted Transferees,
(ii) the CVC Investors and (iii) the Management Investors and their Permitted
Transferees; provided that the Management Investors and their Permitted
Transferees do not in the aggregate beneficially own more than 30% of the
aggregate voting power of the Voting Stock of MSXI (without giving effect to any
attribution of beneficial ownership which may result from the Stockholders'
Agreement and any amendment to the agreement that does not materially change the
allocation of voting power provisions in the agreement).
"Permitted Lien" means (a) Liens on property of a Person existing at the
time the Person is merged into or consolidated with MSXI or any Restricted
Subsidiary; provided that the Liens were not created in anticipation of the
Person being so merged or consolidated; and (b) Liens to secure any Refinancing
Indebtedness; provided the liens cover only property which are the subject of a
lien securing the Indebtedness being Refinanced.
"Permitted Transferee" means, (a) with respect to any CVC Investor who is
an employee, officer or director of CVC or any Wholly Owned Subsidiary of CVC,
any spouse or lineal descendant (including by adoption) of the CVC Investor so
long as CVC Investor shall be an employee, officer or director of CVC; (b) with
respect to MascoTech, any direct or indirect Subsidiary or any other Person
controlled by MascoTech; and (c) with respect to any Management Investor, any
spouse or lineal descendant (including by adoption) of the Management Investor
so long as Management Investor shall be an employee, officer or director of
MSXI.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision of this government or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of corporation,
over shares of Capital Stock of any other class of corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of MSXI pursuant to an effective registration statement under the
Securities Act.
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"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 10% of the total issued and outstanding common
stock of MSXI has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Purchase Money Indebtedness" mean Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds or similar Indebtedness, in
each case where the maturity of the Indebtedness does not exceed the anticipated
useful life of the asset being financed, and (ii) Incurred to finance the
acquisition by MSXI or a Restricted Subsidiary of the asset, including additions
and improvements; provided, however, that any Lien arising in connection with
the Indebtedness shall be limited to the specified asset being financed or, in
the case of real property or fixtures, including additions and improvements, the
real property on which the asset is attached; and provided, further, however,
that the Indebtedness is Incurred within 180 days after the acquisition of the
asset by MSXI or Restricted Subsidiary.
"Qualified Finance Subsidiary" means a Subsidiary of MSXI constituting a
"finance subsidiary" within the meaning of Rule 3a-5 under the Investment
Company Act of 1940, as amended (the "1940 Act"), or an issuer of asset-backed
securities within the meaning of Rule 3a-7 of the 1940 Act or any other vehicle
under a similar exemption, formed for the purpose of engaging in a Qualified
TIPS Transaction and having no assets other than those necessary to consummate
the Qualified TIPS Transaction.
"Qualified TIPS Transaction" means an issuance by a Qualified Finance
Subsidiary of preferred trust securities or similar securities in respect of
which any dividends, liquidation preference or other obligations under these
securities are Guaranteed by MSXI to the extent required by the 1940 Act, as
amended, or customary for transactions of this type.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, the Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of MSXI or any Restricted Subsidiary existing on the Issue Date or
Incurred in compliance with the Indenture; provided, however, that (i) the
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) Refinancing Indebtedness has
an Average Life at the time the Refinancing Indebtedness is Incurred that is
equal to or greater than the Average Life of the Indebtedness being Refinanced
and (iii) the Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is equal
to or less than the aggregate principal amount (or if Incurred with original
issue discount, the aggregate accreted value) then outstanding or committed
(plus fees and expenses, including any premium and defeasance costs) under the
Indebtedness being Refinanced; provided further, however, that Refinancing
Indebtedness shall not include Indebtedness of MSXI or a Restricted Subsidiary
that Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors) to the businesses of
MSXI and the Restricted Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of MSXI.
"Restricted Payment" means, with respect to any Person, (i) the declaration
or payment of any dividends or any other distributions on or in respect of its
Capital Stock (including a payment in connection with any merger or
consolidation involving this Person) or similar payment to the holders of its
Capital Stock, except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable solely to MSXI or a Restricted Subsidiary (and, if the Restricted
Subsidiary is not wholly owned, to its other shareholders on a pro rata basis or
on a basis that results in the receipt by MSXI or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro rata
basis), (ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of MSXI held by any Person or of any Capital Stock of
a Restricted Subsidiary held by any Affiliate of MSXI (other than a Restricted
Subsidiary), including the exercise of any
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<PAGE> 87
option to exchange any Capital Stock (other than into Capital Stock of
MSXI that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of MSXI that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby MSXI or a Restricted Subsidiary transfers
the property to a Person and MSXI or a Restricted Subsidiary leases it from the
Person and the lease is reflected on this Person's balance sheet as a Capital
Lease Obligation.
"Senior Credit Facility" means the Credit Agreement dated as of January 22,
1998, as amended and restated on April 14, 1998, and as subsequently amended
from time to time, by and among MSXI, as borrower and guarantor, and certain
subsidiaries, as borrowing subsidiaries, the Lenders referred to therein and
Bank One, as agent, as the same may be amended, extended, renewed, restated,
supplemented or otherwise modified (in each case, in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions) from time to time, and any agreement governing Indebtedness Incurred
to refund, replace or refinance any borrowings and commitments then outstanding
or permitted to be outstanding under the Senior Credit Facility or any prior
agreement as the same may be amended, extended, renewed, restated, supplemented
or otherwise modified (in each case, in whole or in part, and without limitation
as to amount, terms, conditions, covenants and other provisions). The term
"Senior Credit Facility" shall include all related or ancillary documents
executed at any time, including, without limitation, any instruments, guarantee
agreements and security documents.
"Senior Indebtedness" of MSXI means (i) Indebtedness of MSXI and all Bank
Indebtedness, whether outstanding on January 16, 1998 or thereafter incurred and
(ii) accrued and unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not a claim for post-filing interest is allowed in this
proceeding) in respect of (A) indebtedness of MSXI for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which MSXI is responsible or liable unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that these obligations are subordinate in right of payment to the
Notes; provided, however, that Senior Indebtedness shall not include (1) any
obligation of MSXI to any Subsidiary, (2) any liability for Federal, state,
local or other taxes owed or owing by MSXI, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees of these or instruments evidencing these liabilities), (4)
any Indebtedness of MSXI, and any accrued and unpaid interest in respect of this
Indebtedness, which is subordinate or junior in any respect (other than as a
result of the Indebtedness being unsecured) to any other Indebtedness or other
obligation of MSXI, including any Senior Subordinated Indebtedness and any
Subordinated Obligations, (5) any obligations with respect to any Capital Stock
or (6) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture. "Senior Indebtedness" of any Subsidiary
Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" of MSXI means the Notes and any other
Indebtedness of MSXI that specifically provides that Indebtedness is to rank
pari passu with the Notes in right of payment and is not subordinated by its
terms in right of payment to any Indebtedness or other obligation of MSXI which
is not Senior Indebtedness.
"Senior Subordinated Indebtedness" of any Subsidiary Guarantor has a
correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of MSXI within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in the security as the fixed date on which the final payment of principal of the
security is due and payable, including pursuant to any mandatory redemption
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<PAGE> 88
provision (but excluding any provision providing for the repurchase of the
security at the option of the holder this security upon the happening of any
contingency unless the contingency has occurred).
"Stockholders' Agreement" means the stockholders' agreement dated January
3, 1997 by and between MSXI, MascoTech, CVC, and certain executive officers and
directors of MSXI, as amended from time to time.
"Subordinated Obligation" means any Indebtedness of MSXI (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. "Subordinated Obligation" of any Subsidiary Guarantor has a correlative
meaning.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership, business trust or other business entity of which more than 50% of
the total voting power of shares of Capital Stock or other interests (including
partnership interests or trust interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees of any of these entities is at the time owned or controlled, directly
or indirectly, by (i) the Person, (ii) this Person and one or more Subsidiaries
of this Person or (iii) one or more Subsidiaries of this Person.
"Subsidiary Guarantee" means the Guarantee by a Subsidiary Guarantor of
MSXI's obligations with respect to the Notes.
"Subsidiary Guarantor" means each Subsidiary designated as such on the
signature pages of the Indenture and any other Subsidiary that has issued a
Subsidiary Guarantee.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency of the
U.S.A., or obligations Guaranteed by the United States of America or any agency
of the U.S.A., (ii) investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition of these investments issued by a bank or trust company which is
organized under the laws of the United States of America, any state of the
U.S.A. or any foreign country recognized by the United States, and which bank or
trust company has capital, surplus and undivided profits aggregating in excess
of $250,000,000 (or the foreign currency equivalent this amount) and has
outstanding debt which is rated "A" (or a similar equivalent rating) or higher
by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by an registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate of MSXI) organized and in existence under
the laws of the United States of America, any State of the U.S.A. or the
District of Columbia or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is made of
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group, and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully Guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority of the
U.S.A, and rated at least "A" by Standard &Poor's Ratings Group or "A" by
Moody's Investors Service, Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of MSXI that at the time
of determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided above under "Certain Covenants--Designation of
Restricted and Unrestricted Subsidiaries" and (ii) any Subsidiary of an
Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in these obligations) of the United States of
America, including any agency or instrumentality of the U.S.A, for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
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<PAGE> 89
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of this Person then outstanding and
normally entitled, without regard to the occurrence of any contingency, to vote
in the election of directors, managers or trustees of this Person.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by MSXI and/or
one or more Wholly Owned Subsidiaries.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Holders of exchange notes are not entitled to any registration rights with
respect to the exchange notes. Holders of old notes are entitled to certain
registration rights pursuant to the Registration Agreement. Pursuant to the
Registration Agreement, MSXI has agreed to file with the SEC and have declared
effective within 180 days after the Issue Date a registration statement (the
"Exchange Offer Registration Statement") under the Securities Act with respect
to the Exchange Offer. MSXI also agreed that, after the effectiveness of the
Exchange Offer Registration Statement, it would, subject to certain conditions,
offer to the holders of old notes who are able to make certain representations
the opportunity to exchange their old notes for exchange notes. In the event
that applicable interpretations of the staff of the SEC do not permit MSXI to
effect the Exchange Offer ("SEC Blockage") or do not permit any holder of old
notes, subject to certain limitations, to participate in such Exchange Offer,
MSXI has agreed to file with the SEC a shelf registration statement (the "Shelf
Registration Statement") to cover resales of the applicable old notes. The
Registration Statement of which this prospectus is a part constitutes the
Exchange Offer Registration Statement.
The Registration Agreement provides that MSXI will use its reasonable best
efforts to have the Exchange Offer Registration Statement declared effective by
the SEC within 180 days after the Issue Date. If the Exchange Offer has not been
consummated within 210 days after the Issue Date (unless there exists an SEC
Blockage) (this event, a "Registration Default"), during the first 90-day period
immediately following the occurrence of the Registration Default interest will
accrue on the Notes at a rate of 0.25% per annum and shall increase by 0.25% per
annum at the end of each subsequent 90-day period until the Exchange Offer is
consummated, but in no event shall this interest exceed 1.0% per annum.
Holders of old notes will be required to make certain representations to
MSXI (as described in the Registration Agreement) in order to participate in the
Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Agreement in order to have their old notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth in the preceding sentence. In addition, for so long as the
Notes are outstanding, MSXI will continue to provide to holders of Notes and to
prospective purchasers of the Notes the information required by Rule 144A(d)(4).
MSXI will provide a copy of the Registration Agreement to prospective investors
upon request.
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<PAGE> 90
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The exchange of old notes for exchange notes pursuant to the Exchange Offer
will not result in any federal income tax consequences to U.S. Holders. When a
U.S. Holder exchanges an old note for an exchange note pursuant to the Exchange
Offer, the U.S. Holder will have the same adjusted basis and holding period in
the exchange note as in the old note immediately before the exchange.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange notes. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of exchange notes received in exchange
for old notes where the old notes were acquired as a result of market-making
activities or other trading activities. Each of MSXI and the Subsidiary
Guarantors has agreed that it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with the
resale for a period of 180 days after the expiration time. In addition, until
, 1999 (90 days after the date of this prospectus), all dealers
effecting transactions in the exchange notes may be required to deliver a
prospectus.
Neither MSXI nor the Subsidiary Guarantors will receive any proceeds from
any sales of the exchange notes by broker-dealers. exchange notes received by
brokers-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the- counter market,
in negotiated transactions, through the writing of options on the exchange notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to the prevailing market prices or at
negotiated prices. The resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any the broker-dealer and/or the purchasers of
the exchange notes. Any broker or dealer that resells exchange notes that were
received by it for its own account pursuant to the Exchange Offer or
participates in a distribution of the exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any the
resale of exchange notes and any commissions or concessions received by any of
those persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration time MSXI will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests the documents in the letter of
transmittal.
MSXI and each of the Subsidiary Guarantors has jointly and severally agreed
to pay all expenses incident to the Exchange Offer (including the expenses of
one counsel for the holders of the old notes) other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the old
notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
MSXI by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated balance sheets of MSXI as of December 27, 1997 and January
3, 1999 and the related combined statements of operations, shareholders' equity
and cash flows for the year ended December 31, 1996 and consolidated statements
of operations, shareholders' equity and cash flows for the fiscal years ended
December 28, 1997 and January 3, 1999, included in this Prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The balance sheet of Lexus Temporaries, Inc. as of October 31, 1998 and the
related statements of income and cash flows for the ten month period then ended
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
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The balance sheets of Lexstra International, Inc. as of October 31, 1998
and the related statements of income and cash flows for the ten month period
then ended included in this Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The balance sheets of Lexstra International, Inc. as of December 31, 1997
and 1996 and the related statements of income and retained earnings and cash
flows for the years then ended included in this Prospectus have been so included
in reliance on the report of Urbach Kahn & Werlin PC, independent auditors,
given on the authority of said firm as experts in accounting and auditing.
The balance sheets of Lexus Temporaries, Inc. as of December 31, 1997 and
1996 and the related statements of income and retained earnings, and cash flows
for the years then ended included in this Prospectus have been so included in
reliance on the report of Urbach Kahn & Werlin PC, independent auditors, given
on the authority of said firm as experts in accounting and auditing.
The balance sheets of MegaTech Engineering, Inc. as of December 26, 1998
and December 31, 1997 and the related statements of operations, stockholder's
equity and cash flows for the years ended December 26, 1998 and December 31,
1997 and 1996 included in this Prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
MSXI and the Subsidiary Guarantors have filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-4 (the
"Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated under the Act, covering the
exchange notes being offered. This prospectus does not contain all the
information set forth in the Exchange Offer Registration Statement. For further
information with respect to MSXI, the Subsidiary Guarantors and the Exchange
Offer, reference is made to the Exchange Offer Registration Statement.
Statements made in this prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Exchange Offer
Registration Statement, including the exhibits thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at Seven World Trade Center, Suite 1300, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such Web site is
http://www.sec.gov.
MSXI is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file periodic reports and other information with the
Commission. In the event MSXI ceases to be subject to the informational
requirements of the Exchange Act, it will be required under the Indenture to
continue to file with the Commission the annual quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, which could be required pursuant to the informational
requirements of the Exchange Act. MSXI will also furnish such other reports as
may be required by law.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MSX INTERNATIONAL, INC. (INCLUDING ITS PREDECESSOR TSG) -- YEAR ENDED DECEMBER 31, 1996
AND FISCAL YEARS ENDED DECEMBER 28, 1997 AND JANUARY 3, 1999
Report of Independent Accountants .............................................................. F-3
Consolidated Balance Sheets as of December 28, 1997 and January 3, 1999 ........................ F-4
Combined Statement of Operations for the year ended December 31, 1996 and Consolidated
Statements of Operations for the fiscal years ended December 28,
1997 and January 3, 1999 ........................................................................ F-5
Combined Statement of Cash Flows for the year ended December 31, 1996 and Consolidated
Statements of Cash Flows for the fiscal years ended December 28,
1997 and January 3, 1999 ........................................................................ F-6
Combined Statement of Shareholders' Equity (Deficit) for the year ended December 31, 1996 and
Consolidated Statement of Shareholders' Equity (Deficit) for the fiscal years ended
December 28, 1997 and January 3, 1999 ................................................... F-7
Notes to Combined and Consolidated Financial Statements ........................................ F-8
MSX INTERNATIONAL, INC. -- FISCAL QUARTERS ENDED APRIL 4, 1999 AND MARCH 29, 1998 (UNAUDITED)
Condensed Consolidated Balance Sheets as of April 4, 1999 And January 3, 1999 .................. F-34
Condensed Consolidated Statements of Operations for the Fiscal Quarters
ended April 4, 1999 and March 29, 1998 .................................................. F-35
Condensed Consolidated Statement of Cash Flows for the Fiscal Quarters
ended April 4, 1999 and March 29, 1998 F-36
Condensed Consolidated Statement of Shareholders' Equity (Deficit) for the Fiscal Quarter
ended April 4, 1999 ..................................................................... F-37
Notes to Condensed Consolidated Financial Statements ........................................... F-38
LEXSTRA INTERNATIONAL, INC.
Report of Independent Accountants .............................................................. F-48
Balance Sheet as of October 31, 1998 ........................................................... F-49
Income Statement for the ten month period ended October 31, 1998 ............................... F-50
Statement of Cash Flows for the ten month period ended October 31, 1998 ........................ F-51
Notes to Financial Statements .................................................................. F-52
Independent Auditors' Report ................................................................... F-55
Balance Sheets December 31, 1997 and 1996 ...................................................... F-56
Statements of Income and Retained Earnings Years Ended December 31, 1997 and 1996 .............. F-57
Statements of Cash Flows Years Ended December 31, 1997 and 1996 ................................ F-58
Notes to Financial Statements .................................................................. F-59
LEXUS TEMPORARIES, INC.
Report of Independent Accountants .............................................................. F-62
Balance Sheet as of October 31, 1998 ........................................................... F-63
Income Statement for the ten month period ended October 31, 1998 ............................... F-64
Statement of Cash Flows for the ten month period ended October 31, 1998 ....................... F-65
Notes to Financial Statements .................................................................. F-66
Independent Auditors' Report ................................................................... F-68
Balance Sheets December 31, 1997 and 1996 ...................................................... F-69
Statements of Income and Retained Earnings Years Ended December 31, 1997 and 1996 .............. F-70
Statements of Cash Flows Years Ended December 31, 1997 and 1996 ................................ F-71
Notes to Financial Statements .................................................................. F-72
</TABLE>
F-1
<PAGE> 94
<TABLE>
<S> <C>
MEGATECH ENGINEERING, INC.
Report of Independent Accountants .............................................................. F-74
Balance Sheets December 26, 1998 and December 31, 1997 ......................................... F-75
Statement of Operations for the Years Ended December 26, 1998 and December 31, 1997 and 1996.... F-76
Statement of Cash Flows for the Years Ended December 26, 1998 and December 31, 1997 and 1996.... F-77
Statement of Shareholders' Equity for the Years Ended December 26, 1998 and December 31, 1997
and 1996........................................................................................ F-78
Notes to Financial Statements .................................................................. F-79
</TABLE>
F-2
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of MSX International, Inc.:
In our opinion, the accompanying consolidated balance sheets at December 28,
1997 and January 3, 1999, and the related combined statements of operations,
shareholders' equity and cash flows for the year ended December 31, 1996 and
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal years ended December 28, 1997 and January 3, 1999 present fairly, in
all material respects, the financial position of MSX International, Inc. and its
subsidiaries at December 28, 1997 and January 3, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 3, 1999, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of MSXI's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 4,1999
F-3
<PAGE> 96
MSX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3,
1997 1999
------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................................... $ 11,575 $ 4,248
Receivables, net .................................................................... 178,938 208,451
Inventory ........................................................................... 1,239 2,362
Prepaid expenses and other assets ................................................... 5,638 5,559
Deferred income taxes, net .......................................................... 2,352 961
------------ -----------
Total current assets .............................................................. 199,742 221,581
Property and equipment, net ........................................................... 34,337 35,265
Buildings held for sale ............................................................... -- 15,000
Goodwill, net of accumulated amortization of $892 and $2,337, respectively ............ 31,934 58,993
Other assets .......................................................................... 8,783 13,349
Deferred income taxes, net ............................................................ 12,380 12,536
------------ -----------
Total assets ...................................................................... $ 287,176 $ 356,724
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt ................................. $ 87,930 $ 4,581
Accounts payable .................................................................... 80,366 89,886
Accrued payroll and benefits ........................................................ 16,984 23,286
Other accrued liabilities ........................................................... 20,907 26,825
Contractual acquisition obligation .................................................. -- 15,000
Deferred income taxes, net .......................................................... 984 2,192
------------ -----------
Total current liabilities ......................................................... 207,171 161,770
Long-term debt ........................................................................ 65,000 180,356
Long-term deferred compensation liability and other ................................... 5,369 4,703
Total liabilities ................................................................. 277,540 346,829
------------ -----------
Redeemable Series A Preferred Stock, authorized 500,000 shares, issued and
outstanding 360,000 shares; New Preferred Stock, authorized 1,000,000 shares, no
shares issued and outstanding........................................................ 36,000 36,000
------------ -----------
Shareholders' equity (deficit):
Common Stock, $.01 par, authorized 2,000,000 shares aggregate of Class A and Class B
Common Stock; issued and outstanding 95,004 shares and 97,004 shares of Class A
Common Stock, respectively.......................................................... 1 1
Additional paid-in capital .......................................................... (22,251) (24,764)
Other comprehensive income (loss) ................................................... (1,141) (1,140)
Accumulated deficit ................................................................. (2,973) (202)
------------ -----------
Total shareholders' equity (deficit) .............................................. (26,364) (26,105)
------------ -----------
Total liabilities and shareholders' equity (deficit) .............................. $ 287,176 $ 356,724
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 97
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
PREDECESSOR FISCAL YEAR FISCAL YEAR
YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales ....................................................... $ 228,260 $ 564,546 $ 1,081,042
Cost of sales ................................................... (192,510) (514,019) (997,014)
------------ ------------ -----------
Gross profit .................................................. 35,750 50,527 84,028
Selling, general and administrative expenses .................... (26,240) (36,007) (57,257)
Michigan Single Business Tax .................................... (1,510) (2,868) (3,516)
Restructuring costs ............................................. -- (2,000) --
------------ ------------ -----------
Operating income .............................................. 8,000 9,652 23,255
------------ ------------ -----------
Other income (expense), net:
Interest expense, net ......................................... (170) (4,383) (16,858)
Interest expense, related parties ............................. (1,140) (8,017) (558)
Other (expense), net .......................................... (70) -- --
------------ ------------ -----------
(1,380) (12,400) (17,416)
------------ ------------ -----------
Income (loss) before income taxes ........................... 6,620 (2,748) 5,839
Income tax provision ............................................ 2,800 225 3,068
------------ ------------ -----------
Net income (loss)................................................ $ 3,820 $ (2,973) $ 2,771
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 98
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
PREDECESSOR FISCAL YEAR FISCAL YEAR
YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash from (used for):
Operating activities:
Net income (loss) .................................................. $ 3,820 $ (2,973) $ 2,771
Adjustments to reconcile net income (loss)
to net cash from (used for) operating activities:
Depreciation ...................................................... 4,970 8,967 11,908
Amortization ...................................................... -- 892 2,201
Deferred taxes ..................................................... -- -- 1,038
(Gain) loss on sale of property and equipment ...................... -- -- 162
(Increase) decrease in receivables, net ............................ 1,380 (36,343) (11,829)
(Increase) decrease in inventory ................................... 530 (309) (36)
(Increase) decrease in prepaid expenses and other assets ........... 210 (1,513) 367
Increase (decrease) in current liabilities ......................... 10 30,487 19,902
Other, net ......................................................... (3,130) 2,576 (14)
------------ ------------ -----------
Net cash from operating activities ................................. 7,790 1,784 26,470
------------ ------------ -----------
Investing activities:
Capital expenditures ............................................... (4,840) (11,518) (11,559)
Acquisition of businesses, net of cash received .................... -- (159,137) (42,940)
Proceeds from sale of property and equipment ....................... -- -- 1,231
Other, net ......................................................... 70 (5) --
------------ ------------ -----------
Net cash (used for) investing activities ........................... (4,770) (170,660) (53,268)
------------ ------------ -----------
Financing activities:
Proceeds from issuance of debt ..................................... 650 70,000 180,356
Debt issuance costs ................................................ -- -- (4,637)
Payment of Senior Subordinated Notes and Bridge Loans .............. -- -- (70,000)
Changes in revolving debt .......................................... -- 73,399 (78,577)
Changes in book overdraft .......................................... -- (669) (7,963)
Sale of Redeemable Preferred Stock ................................. -- 36,000 --
Sale of Common Stock ............................................... -- 3,800 80
Increase in MascoTech, Inc net investment and advances ............. 4,110 -- --
Other, net ......................................................... (610) (938) 213
------------ ------------ -----------
Net cash from financing activities ................................. 4,150 181,592 19,472
------------ ------------ -----------
Effect of foreign exchange rate changes on cash ...................... (1,900) (1,141) (1)
------------ ------------ -----------
Cash:
Increase (decrease) for the period ................................. 5,270 11,575 (7,327)
Balance, beginning of period ....................................... 1,800 -- 11,575
------------ ------------ -----------
Balance, end of period ............................................. $ 7,070 $ 11,575 $ 4,248
============ ============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................. $ 500 $ 7,400 $ 16,800
Cash paid for income taxes ......................................... $ 3,600 $ 1,600 $ 800
Non-cash investing and financing activities:
Contractual acquisition obligation ............................... $ -- $ -- $ 15,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 99
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
TOTAL
MASCOTECH, INC. ADDITIONAL OTHER SHAREHOLDERS'
NET INVESTMENT COMMON PAID-IN COMPREHENSIVE ACCUMULATED EQUITY
AND ADVANCES STOCK CAPITAL INCOME (LOSS) DEFICIT (DEFICIT)
--------------- ------ ---------- ------------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............. $63,650 $ -- $ -- $ (890) $ -- $62,760
Comprehensive income (loss)
Net income............................. 3,820 3,820
Cumulative translation adjustment...... (1,900) (1,900)
--------
Total comprehensive income (loss)........ 1,920
MascoTech, Inc. additional net
investment and advances................ 4,770 4,770
------ ------- -------- ------- --------- --------
Balance at December 31, 1996............. 72,240 -- -- (2,790) -- 69,450
Comprehensive income (loss)
Net (loss)............................. (2,973) (2,973)
Cumulative translation adjustment...... (1,141) (1,141)
--------
Total comprehensive income (loss)........ (4,114)
Payment to MascoTech, Inc. for book
value of TSG........................... (72,240) 2,790 (69,450)
Payment to MascoTech, Inc. in excess
of book value of TSG................... (26,050) (26,050)
Sale of Common Stock..................... 1 3,799 3,800
------- ------- -------- ------- ---------- --------
Balance at December 28, 1997............. -- 1 (22,251) (1,141) (2,973) (26,364)
Comprehensive income (loss)
Net income............................. 2,771 2,771
Cumulative translation adjustment...... 1 1
Total comprehensive income (loss)........ 2,772
Adjustment due to the final
allocation of taxable temporary
differences established with the TSG
Acquisition............................ (2,593) (2,593)
Sale of Common Stock..................... 80 80
------- ----------- ------- ------- --------- --------
Balance at January 3, 1999............... $ -- $ 1 (24,764) $(1,140) $ (202) $(26,105)
======= =========== ======= ======= ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 100
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements represent the consolidated assets and
liabilities and operations of MSX International, Inc. and its subsidiaries
("MSXI" or the "Company") in fiscal 1998 and fiscal 1997, and in 1996 the
combined assets and liabilities and operations of certain subsidiaries and
divisions of subsidiaries of MascoTech, Inc. ("MascoTech") which constituted the
Technical Services Group of MascoTech ("TSG"). MSXI is a holding company formed
and owned by Citicorp Venture Capital, Ltd. ("CVC"), MascoTech and certain
members of management. MSXI was formed to consummate the acquisition of TSG
("TSG Acquisition"), in which it acquired selected assets and operations of TSG
owned by MascoTech and MascoTech Automotive Systems Group ("MASG"), as well as
the net assets of APX International ("APX"), a design and engineering services
provider, which had been acquired by MASG effective November 6, 1996. The TSG
Acquisition was effective on January 3, 1997. Effective August 31, 1997, MSXI
acquired certain service-providing operations of Ford Motor Company ("Ford")
through the acquisition of Geometric Results Incorporated ("GRI"), a
wholly-owned subsidiary of Ford. The results of operations of APX and GRI have
been included in the results of operations of MSXI from January 3, 1997 and
September 1, 1997, respectively. As a result of these acquisitions and new basis
of accounting (See Note 3), MSXI's financial statements for the periods
subsequent to the acquisitions are not comparable to the Predecessor's financial
statements for the periods prior to the acquisitions.
MSXI is principally engaged in providing purchasing support services and
outsourcing services, primarily to automobile manufacturers and suppliers in the
United States and Europe.
Until it was sold, TSG paid MascoTech a management fee for various
corporate support staff and administrative services. Such fees approximated one
percent of domestic net sales and amounted to approximately $1.5 million in
1996. Certain of TSG's employee benefit plans and insurance coverages were
administered by MascoTech. These costs, as well as other costs incurred on TSG's
behalf, were charged directly to TSG. Interest expense was also charged at
various rates for TSG's European operations on the average amounts due
MascoTech. This charge aggregated $1.1 million in 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation/Combination: The accompanying financial
statements include the accounts of MSXI and TSG, as appropriate. Significant
intercompany transactions have been eliminated. Beginning in 1997, MSXI adopted
a 52-53 week fiscal year which ends on the Sunday nearest December 31.
b. Cash and Cash Equivalents: All highly liquid investments with an
original maturity of three months or less are considered to be cash equivalents.
c. Receivables: Receivables are presented net of aggregate allowances for
doubtful accounts of $1.2 million at December 28, 1997 and $3.4 million
(including $2.0 million of allowance accounts from acquired businesses) at
January 3, 1999.
d. Inventory: Inventory is comprised of raw materials, parts and supplies
which are stated at the lower of cost or net realizable value, with cost
determined using the first-in, first-out method.
e. Property and Equipment: Property and equipment, including significant
betterments to existing facilities, are recorded at cost. Upon retirement or
disposal of property and equipment, the cost and accumulated depreciation are
removed from the accounts, and any gain or loss is included in income.
Maintenance and repair costs are charged to expense as incurred.
f. Goodwill: The excess of the purchase price over the estimated fair
values of acquired assets and assumed liabilities is being amortized using the
straight-line method over the period estimated to be benefitted, ranging from 20
to 30 years.
F-8
<PAGE> 101
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
At each balance sheet date, management assesses whether there has been a
permanent impairment of goodwill by comparing anticipated undiscounted future
cash flows from operating activities with the carrying amount of the excess of
cost over net assets of acquired companies. The factors considered by management
in performing this assessment include current operating results, business
prospects, market trends, competitive activities and other economic factors.
Based on this assessment, there was no permanent impairment related to goodwill
at January 3, 1999.
g. Fair Value of Financial Instruments: The estimated fair value of cash
and cash equivalents, accounts receivable, accounts payable, and short-term debt
approximate their carrying amounts. The estimated fair value and carrying
amounts of long-term debt borrowings are reported in Note 8.
h. Foreign Currency Translation: Net assets of operations outside of the
United States are translated into U.S. dollars using current exchange rates with
the effects of translation adjustments included in Shareholders' Equity
(Deficit) as a separate component of comprehensive income (loss). Revenues and
expenses of operations outside of the United States are translated at the
average rates of exchange during the period.
i. Revenue Recognition: Outsourcing Services revenue is primarily comprised
of revenue from fixed price contracts and time and material contracts. Revenues
from fixed price contracts are recognized using the percentage of completion
method, measured by comparing the percentage of labor costs incurred to date to
the estimated total labor costs for each contract. Revenues from time and
material contracts are valued at selling price based on contractual billing
rates. Revenues from Purchasing Support Services are recorded at the completion
of each individual service.
Contract costs include all direct material and labor costs and indirect
costs such as indirect labor, supplies, tools and repairs. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in fixed price contracts may result in revisions
to estimates of costs and revenues and are recognized in the period in which the
revisions are determined.
j. Depreciation: Depreciation is computed using the straight-line method
over the estimated useful lives of assets as follows:
<TABLE>
<CAPTION>
USEFUL LIVES
IN YEARS
------------
<S> <C>
Buildings and improvements........................... 10-15
Machinery and equipment.............................. 3-12
Computers, peripherals and software.................. 2-5
Automobiles and trucks............................... 3-5
</TABLE>
Leasehold improvements are amortized on a straight-line basis over their
estimated useful lives or the term of the lease, whichever is shorter.
k. Income Taxes: Deferred income taxes are recorded to reflect the tax
liability or benefit on future years of differences between the tax basis and
financial reporting amounts of assets and liabilities at each fiscal year end.
As of December 31, 1996, the domestic operations of TSG were included in
the consolidated federal income tax return of MascoTech. For the year ended
December 31, 1996, income tax expense and credits were computed on a separate
return basis.
l. Reclassification: Certain prior year amounts have been reclassified to
conform with current year presentation.
F-9
<PAGE> 102
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
m. 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 and the disclosure of contingent assets and liabilities at the date
of the financial statements. Such estimates and assumptions also affect the
reported amounts of revenues and expenses during the reporting periods.
Actual results may differ from such estimates and assumptions.
n. Segments: In fiscal 1998, MSXI adopted Statement of Financial Accounting
Standards ("FAS") 131, "Disclosures about Segments of an Enterprise and Related
Information". FAS 131 superceded FAS 14, "Financial Reporting for Segments of a
Business Enterprise" replacing the "industry segment" approach with the
"management" approach. The management approach reports segment information based
on how the internal organization makes operating decisions and assesses
performance. FAS 131 also requires disclosure about products and services,
geographic areas of business and major customers. The adoption of FAS 131 has
also been retroactively applied for fiscal 1997 and 1996.
o. Comprehensive Income: In fiscal 1999, MSXI adopted FAS 130, "Reporting
Comprehensive Income". This statement requires that all items recognized under
accounting standards as components of comprehensive earnings be reported in an
annual financial statement that is displayed with the same prominence as other
annual financial statements. This statement also requires that an entity
classify items of other comprehensive earnings by their nature in an annual
financial statement. Annual financial statements for prior periods have been
reclassified.
p. Recently Issued Financial Accounting Standards: In March 1998, the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position ("SOP") 98-1, "Accounting for the Cost of Computer Software Developed
or Obtained for Internal Use", and SOP 98-5, "Reporting the Cost of Start-Up
Activities", both of which are effective for fiscal 1999. MSXI believes the
adoption of these statements will have no material impact on MSXI's financial
statements.
3. ACQUISITIONS OF BUSINESSES:
On January 3, 1997, MSXI acquired selected assets and operations of the
former engineering and technical business service units of MASG and MascoTech,
as well as the net assets of APX, a design and engineering services provider
which had been acquired by MASG effective November 6, 1996 (the "TSG
Acquisition").
The purchase price of the TSG Acquisition was $145.6 million which was
financed through $3.8 million of common equity, $36 million of redeemable
preferred stock, a $20 million bridge loan provided by CVC, a $20 million bridge
loan provided by MascoTech, the issuance of a $30 million Senior Subordinated
Note to MascoTech and $35.8 million of borrowings under the Old Credit Facility
(See Note 8). The acquisition of TSG was accounted for, using the purchase
method of accounting, at carryover basis as no change in control resulted from
the acquisition. The amount paid in excess of book value for TSG of $26.1
million was recorded as a reduction of additional paid-capital. In accordance
with FAS 109, "Accounting for Income Taxes", MSXI established deferred taxes
related to the TSG Acquisition by recording an increase in additional paid-in
capital in the amount of $10.4 million. The acquisition of APX was accounted for
using the purchase method of accounting and, accordingly, the purchase price of
the acquisition was allocated to the acquired assets and assumed liabilities
based upon the estimated fair value as of the closing of the acquisition. The
excess of purchase price over the acquired net assets of APX resulted in
goodwill of $19.8 million. The determination of the purchase price for the APX
acquisition was finalized upon the resolution of certain contractual matters
during 1998 resulting in a decrease in goodwill of $4.8 million from the prior
year.
F-10
<PAGE> 103
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
3. ACQUISITIONS OF BUSINESSES: -- (CONTINUED)
MSXI acquired certain service-providing operations of Ford through the
acquisition of GRI, a wholly-owned subsidiary of Ford, pursuant to the stock
purchase agreement dated August 31, 1997. As part of Ford, GRI used automated
processes to manage the procurement of staffing, training and other professional
services for Ford. The purchase price of $60 million was financed with
borrowings under the Old Credit Facility, offset in part by substantial cash
balances acquired. The acquisition of GRI was accounted for using the purchase
method of accounting and, accordingly, the purchase price of the acquisition was
allocated to the acquired assets and assumed liabilities based upon the
estimated fair values as of the closing of the acquisition. The excess of
purchase price over the acquired net assets of GRI resulted in goodwill of $13.3
million. The allocation of the purchase price of GRI was completed during fiscal
year 1998, resulting in an increase in goodwill from the prior year of $5.1
million. The increase in goodwill will be amortized to expense over the
remaining amortization period.
Effective October 31, 1998, MSXI consummated its acquisition of Lexstra
International, Inc. and Lexus Temporaries, Inc. (the "Lexus Acquisition")
pursuant to an Asset Purchase Agreement dated October 23, 1998. These companies
are providers of contract computer consultants, systems analysts, and network
support personnel. Under the Asset Purchase Agreement, a wholly-owned subsidiary
of MSX International, Inc. purchased substantially all of the assets and assumed
substantially all of the operating liabilities of Lexstra International, Inc.
and Lexus Temporaries, Inc. MSXI did not assume any bank debt. The total
purchase price for these net assets was $24 million at the closing with
additional payments due contingent on achieving certain operating results for
the years 1998 through 2000. No such contingent payments have been accrued as of
January 3, 1999. Funding for the transaction was provided by borrowings under
the Credit Facility (See Note 8). The acquisition was accounted for under the
purchase method of accounting, resulting in goodwill of $15.1 million.
Effective December 26, 1998, MSXI consummated its acquisition of MegaTech
Engineering, Inc. ("MEI") from Johnson Controls, Incorporated ("JCI") pursuant
to the Stock Purchase Agreement dated as of December 22, 1998. MEI offers
technical staffing and product development services specializing in vehicle
interiors, HVAC and electrical design. Under the Stock Purchase Agreement, a
wholly-owned subsidiary of MSX International, Inc. purchased one hundred percent
of the outstanding shares of MEI from Becker Group, Inc., a wholly-owned
subsidiary of Johnson Controls, Inc. (the "MegaTech Acquisition"). MSXI did not
assume any bank debt. The total purchase price for the stock of MEI was $30
million of which $15 million was paid at the closing using borrowings under the
Credit Facility. The remaining $15 million (which is non-interest bearing) is
due to JCI no later than June 30, 1999, and is expected to be provided by the
proceeds from the sale of the real property acquired. Such real property has
been presented as buildings held for sale and the related amount due to JCI has
been presented as a contractual acquisition obligation. The acquisition was
accounted for under the purchase method of accounting, resulting in goodwill of
$5.4 million.
Also during 1998, MSXI acquired Pilot Computer Services, Inc. (the "Pilot
Acquisition") and Gold Arrow Contract Services, Ltd. (the "Gold Arrow
Acquisition") for an aggregate purchase price of $9.4 million. Pilot Computer
Services, Inc. is a provider of computer professionals experienced in all
aspects of systems development, systems enhancement and project management,
which is headquartered in Concord, California. Gold Arrow Contract Services,
Ltd. is an information technology and technical staffing company, which is
headquartered in Basildon, Essex, England. The Pilot and Gold Arrow
Acquisitions were accounted for under the purchase method of accounting
resulting in goodwill of $7.9 million.
The following unaudited pro forma consolidated results of operations for
the fiscal years ended December 28, 1997 and January 3, 1999 are presented as if
the GRI, Lexus, MegaTech, Gold Arrow and Pilot Acquisitions had been made at the
beginning of each period presented. The unaudited pro forma information is not
necessarily indicative of either the results of operations that would have
occurred had the acquisitions been made during the period presented or the
future results of the combined operations.
F-11
<PAGE> 104
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR ENDED
ENDED DECEMBER 28, JANUARY 3,
1997 1999
(UNAUDITED) (UNAUDITED)
------------------ -----------------
<S> <C> <C>
Net sales...................................... $1,066,675 $1,180,271
Income before income taxes .................... 3,191 9,586
Net income..................................... 507 5,182
</TABLE>
4. ACCOUNTS RECEIVABLE, NET:
Receivables arise from services provided pursuant to contracts or
agreements with customers for such services. The primary users of MSXI's and
TSG's services are manufacturers in the automotive industry. Sales to one
customer were 25.5%, 56.8% and 74.4% of total sales in 1996, fiscal 1997 and
fiscal 1998, respectively; sales to a second customer were 21.7%, 13.7% and 8.1%
of total sales in 1996, fiscal 1997 and fiscal 1998, respectively; and sales to
a third customer were 19.9%, 13.3% and 7.7% of total sales in 1996, fiscal 1997
and fiscal 1998, respectively. At December 31, 1996, December 28, 1997 and
January 3, 1999, the foregoing three customers accounted for approximately 67%,
69% and 67%, respectively, of the billed accounts receivable balance.
Accounts receivable include both billed and unbilled receivables. Unbilled
receivables amounted to $74.9 million and $82.2 million at December 28, 1997 and
at January 3, 1999, respectively. All such billings are expected to be collected
within the ensuing year.
5. PROPERTY AND EQUIPMENT, NET:
<TABLE>
<CAPTION>
AT DECEMBER 28, AT JANUARY 3,
1997 1999
-------------- ------------
<S> <C> <C>
Cost:
Land and improvements.............................. $ 108 $ 1,309
Buildings and improvements......................... 9,927 9,095
Machinery and equipment............................ 45,972 48,389
Computers, peripherals and software................ 21,146 26,514
Automobiles and trucks............................. 1,609 1,821
---------- ----------
78,762 87,128
Less accumulated depreciation...................... (44,425) (51,863)
---------- ----------
34,337 35,265
========== ===========
Buildings held for sale.............................. $ -- $ 15,000
========== ===========
</TABLE>
Buildings held for sale represent the estimated fair value (based on
appraisals dated December 1998) of the buildings acquired in the purchase of
MegaTech less the estimated selling costs. MSXI intends to sell and lease back
these buildings pursuant to an operating lease and does not anticipate any
significant gain or loss on disposition.
F-12
<PAGE> 105
MSX INTERNATIONAL, INC.
(Including its Predecessor TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
6. OTHER ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
AT DECEMBER 28, AT JANUARY 3,
1997 1999
----------------- ---------------
<S> <C> <C>
Income and other taxes ............. $ 911 $ 1,283
Restructuring costs ................ 6,097 1,272
Deferred income .................... 4,078 11,224
Interest ........................... 4,979 5,639
Other .............................. 4,842 7,407
----------- ------------
$ 20,907 $ 26,825
=========== ============
</TABLE>
7. RESTRUCTURING ACTIONS:
During fiscal 1997, restructuring costs aggregated $6.7 million. These
costs were comprised of $2.7 million of severance pay for certain employees of
an acquired business, facility closure costs of $2.0 million which were
primarily remaining operating lease obligations of acquired facilities closed
subsequent to the acquisition, and $2.0 million of remaining lease obligations
and other costs related to the closure of MSXI facilities. Restructuring costs
accounted for in the purchase of the related businesses and costs charged to
operations were $4.7 million and $2.0 million, respectively. Restructuring
charges were accounted for in accordance with approved management plans and are
expected to be completed in fiscal 1999. Remaining accrued restructuring costs
totaled $1.3 million as of January 3, 1999, which are expected to be paid in
fiscal 1999.
8. DEBT:
Debt is comprised of the following:
<TABLE>
<CAPTION>
Outstanding at
-----------------------------
Interest Rates at December 28, January 3,
January 3, 1999 1997 1999
------------------- -------------- --------------
<S> <C> <C> <C>
Senior Subordinated Notes ..................................... 11.375% $ -- $ 100,000
Credit Facilities, as amended and restated:
Revolving line of credit notes................................. 7.03 - 7.75% 40,000 26,238
Swingline notes ............................................... 6.75 - 7.81% 35,450 24,118
Term Notes..................................................... 7.29% -- 30,000
Bridge loans due to:
CVC ........................................................... -- 20,000 --
MascoTech ..................................................... -- 20,000 --
MascoTech Senior Subordinated Notes ........................... -- 30,000 --
Ford Motor Company Limited, line of credit. ................... 8.69% 7,480 4,581
--------------- --------------
152,930 184,937
Less current portion ......................................... 87,930 4,581
--------------- --------------
Total long-term debt........................................... $ 65,000 $ 180,356
=============== ==============
</TABLE>
F-13
<PAGE> 106
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
8.DEBT: -- (CONTINUED)
Senior Subordinated Notes
On January 22, 1998, MSXI issued, in a private placement, $100 million
aggregate principal amount of 11 3/8% unsecured senior subordinated notes
maturing January 15, 2008. On August 20, 1998, MSXI consummated an offer to
exchange 11 3/8% Senior Subordinated Notes which had been registered under the
Securities Act of 1933 for any and all outstanding Notes. MSXI's Registration
Statement on Form S-4 with the Securities and Exchange Commission became
effective on July 22, 1998. Interest on the Notes is payable semi-annually at
11 3/8% per annum and commenced July 15, 1998. The Notes may be redeemed
subsequent to January 15, 2003 at premiums, which begin at 105.6875% and decline
each year to face for redemptions taking place after January 15, 2006. In
addition, at any time prior to January 15, 2001, MSXI may redeem up to 35% of
the original aggregate principal amount of the Notes with the proceeds of one or
more public equity offerings at a redemption price of 111.375% plus accrued and
unpaid interest, if any. Also, upon the occurrence of a Change of Control, as
defined in the Indenture (the "Indenture"), the Notes may be redeemed at the
option of the Note holders at a premium of one percent, plus accrued and unpaid
interest, if any. The Notes contain covenants which, among others, limit the
incurrence of additional indebtedness and restrict capital transactions,
distributions and asset dispositions of certain subsidiaries.
In connection with the Notes offering, each of MSXI's domestic restricted
subsidiaries, as defined in the Indenture (the "Guarantor Subsidiaries"),
irrevocably and unconditionally guarantee MSXI's performance under the Notes as
primary obligors.
Credit Facilities
Concurrently with the private placement, MSXI entered into a Credit
Facility with Bank One Corporation (the "Credit Facility"), with a borrowing
base of up to $100 million, as defined, to replace the prior Credit Facility
(the "Old Credit Facility"). On April 14, 1998, MSXI syndicated the Credit
Facility to add additional commercial lenders and amended and restated the
Credit Facility to add a $30 million term loan portion. On the same date, MSXI
borrowed the full amount available under the term loan and used the funds to
reduce outstanding balances under the revolving loan portion of the Credit
Facility as amended and restated. Term loan borrowings are subject to
satisfaction of the same borrowing base requirements and financial reporting and
operating covenants as are other borrowings under the Credit Facility. The
Credit Facility provides for borrowings as revolving credit loans, letters of
credit, swingline loans and term loans. This Facility expires January 22, 2003.
Revolving credit loans, swingline loans and letters of credit (collectively
"Revolving Debt") are payable on demand. Term loans are issued with a five-year
maturity. Interest on the loans under the Credit Facility is payable quarterly
or, if earlier, at the end of each interest period and accrues at an annual rate
equal to a floating rate, as defined, or except for swingline loans which accrue
at an annual rate equal to a fixed or floating rate as negotiated at the time of
borrowing.
Each significant domestic subsidiary of MSXI guarantees all obligations of
MSXI under the Credit Facility. In addition, MSXI has pledged the stock of such
domestic subsidiaries and 65% of the stock of the significant foreign
subsidiaries. Additionally, a first lien exists on substantially all assets of
such domestic subsidiaries. The obligations of MSXI under the Credit Facility
rank senior to all other indebtedness of MSXI, including the Notes.
F-14
<PAGE> 107
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
8. DEBT: -- (CONTINUED)
The Credit Facility contains certain reporting covenants, customary
affirmative covenants and various negative covenants including, but not limited
to, certain limitations on mergers, sales of assets, acquisitions, liens,
investments, indebtedness, contingent obligations, dividends, subsidiaries'
ability to agree to dividend restrictions, affiliate transactions and changes of
business. The Credit Facility also contains certain covenants with respect to
employee benefit arrangements and environmental matters and certain financial
covenants including, but not limited to, a ratio of total debt to EBITDA, a
fixed charge coverage ratio and a minimum net worth requirement, each as
defined.
The net proceeds from the issuance of Senior Subordinated Notes and the
Credit Facility were used to retire the bridge loans to CVC and MascoTech, the
Senior Subordinated Notes and the outstanding amount under the Old Credit
Facility.
As of January 3, 1999, $80.4 million was outstanding under the Credit
Facility and has been classified as long-term debt as MSXI has both the ability
and intent to refinance such amounts under the Credit Facility.
Fair Value of Debt
The estimated fair values and carrying amounts of debt borrowings are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 28, AT JANUARY 3,
1997 1999
--------------- --------------
<S> <C> <C>
Fair value................................. $ 65,000 $ 177,856
Carrying amounts........................... $ 65,000 $ 180,356
</TABLE>
The fair value of $100 million aggregate principle amount of 11 3/8% Senior
Subordinated Notes as of January 3, 1999 was determined to be approximately
$97.5 million based on a quoted market price. The fair values of amounts
outstanding under the Credit Facility of $65.0 million and $80.4 million as of
December 28, 1997 and January 3, 1999, respectively, approximate their carrying
amounts as the variable rates inherent in the related financial instrument
reflect changes in the overall market interest rates.
9. BOOK OVERDRAFTS:
Book overdrafts represent checks drawn on zero balance accounts that have
not yet been presented to MSXI's banks for funding. Such overdrafts are funded
when the related checks are presented and are not subject to finance charges.
There were aggregate book overdrafts of $21.9 million and $14.3 million at
December 28, 1997 and January 3, 1999, respectively. Such balances are included
in Accounts Payable in the Consolidated Balance Sheets.
10. LEASE COMMITMENTS:
MSXI and its subsidiaries have leases for real estate and equipment
utilized in its business. In most cases, management expects that in the normal
course of business these leases will be renewed or replaced by other leases.
Future minimum rental payments required under leases that have an initial or
remaining non-cancelable lease term in excess of one year are as follows:
F-15
<PAGE> 108
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
<TABLE>
<CAPTION>
OTHER
CAPITAL OPERATING
TOTAL LEASES LEASES
--------- --------- -----------
<S> <C> <C> <C>
Fiscal year ended:
1999............................................. $ 21,672 $ 69 $21,603
2000............................................. 16,531 68 16,463
2001............................................. 10,937 27 10,910
2002............................................. 4,493 -- 4,493
2003............................................. 3,611 -- 3,611
Thereafter....................................... 8,901 -- 8,901
-------- ----- -------
$ 66,145 164 $65,981
======== =======
Less amount representing interest ............... 20
-----
Present value of minimum payments................ $ 144
=====
</TABLE>
Rental expense was approximately $17.6 million and $22.3 million for the
fiscal years ended December 28, 1997 and January 3, 1999, respectively. Rental
expense for the Technical Service Group was approximately $5.4 million in 1996.
11. PREFERRED STOCK:
In connection with the TSG Acquisition, MSXI issued 360,000 shares of 12%
Series A Cumulative Redeemable Preferred Stock ("the Preferred Stock") with a
stated value and redemption value of $100 per share or $36 million. MSXI is
authorized to issue up to 1,500,000 shares of Preferred Stock, divided into two
classes: 500,000 shares of Redeemable Series A Preferred Stock, par value
$0.01, and 1,000,000 shares of New Preferred Stock, par value $0.01.
Dividends on the issued Preferred Stock are payable in cash at the rate
per annum equal to 12% of the stated value plus an amount equal to any accrued
and unpaid dividends. As of January 3, 1999, MSXI has not declared any
dividends. Accordingly, no dividends have been paid or accrued. Dividends
accumulated, but not declared, aggregate approximately $9.4 million as of
January 3, 1999. MSXI may not declare or pay any dividends or other distribution
with respect to any common stock or other class or series of stock ranking
junior to the Preferred Stock without first complying with restrictions
specified in the Stockholders' Agreement. The Preferred Stock, which has no
voting rights, is mandatorily redeemable at the earlier of December 31, 2008 or
the date on which a sale transaction, as defined, occurs. MSXI may redeem any or
all of the Preferred Stock at its election prior to December 31, 2008. MSXI may
also elect to acquire shares of the Preferred Stock from time to time without
redeeming or otherwise acquiring all or any other issued shares of the Preferred
Stock pursuant to the terms of the Stockholders' Agreement. As of January 3,
1999, no Preferred Stock has been redeemed or acquired by MSXI.
F-16
<PAGE> 109
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
12. SHAREHOLDERS' EQUITY (DEFICIT):
MSXI is authorized to issue 2,000,000 shares of common stock, divided
into two classes: Class A Common Stock and Class B Common Stock. Class A Common
Stock is divided into five series consisting of 125,000 shares each. Class B
Common Stock is divided into five series consisting of 125,000 shares of each
and 500,000 shares of Series II Common Stock. The holders of Class A stock are
entitled to one vote for each share held; the holders of Class B stock have no
voting rights except as required by law. The shares issued and outstanding at
December 28, 1997 and January 3, 1999 were Class A Common Stock.
Holders of Class A Common Stock can convert their shares into Class B
Common Stock and holders of Class B Common Stock can convert their shares into
Class A Common Stock, within each respective series. The holders of all
classes of Common Stock receive dividends ratably.
The common stock at par value resulted from the initial capitalization of
MSXI by MascoTech, CVC and certain members of management. The additional paid-in
capital amount at December 28, 1997 of approximately $(22.3) million represented
amounts received from the issuance of common stock in excess of par value of
$3.8 million, reduced by amounts paid to MascoTech for the acquisition of TSG in
excess of book value as of December 31, 1996 of $(26.1) million. As the
acquisition of TSG did not involve a change in control, the acquisition was
recorded at carryover basis. In accordance with FAS 109, "Accounting for Income
Taxes", MSXI established deferred taxes related to the TSG Acquisition by
recording an increase in additional paid-in capital in the amount of $10.4
million. In 1998, in connection with preparing the initial tax returns of MSXI,
which incorporated the opening balance sheet of TSG, certain adjustments to the
estimated tax assets and liabilities acquired were identified when the final
allocation of taxable temporary differences related to the acquisition was
completed. These adjustments have been reflected as a change in additional
paid-in capital.
13. EMPLOYEE BENEFIT PLANS:
MSXI maintains a qualified cash or deferred compensation plan under Section
401(k) of the Internal Revenue Code. Participation in this plan is available to
substantially all salaried employees and to certain groups of hourly employees.
Under the plan, employees may elect to defer up to 20 percent of their annual
wages, subject to the limitations of the Internal Revenue Code. Third party
administrative costs paid by the plan approximated $0.1 million for fiscal 1998.
Contributions to union-sponsored, multi-employer pension plans were
approximately $0.5 million in 1996, $0.7 million for the fiscal year ended
December 28, 1997 and $0.7 million for the fiscal year ended January 3, 1999.
These plans are not administered by MSXI and contributions are determined in
accordance with provisions of negotiated labor contracts. MSXI has no present
intention of withdrawing from any of these plans, nor has MSXI been informed
that there is any intention to terminate such plans.
MSXI has an unfunded deferred compensation plan for certain salaried
employees. Individual participants make pre-tax contributions to the plan and
MSXI matches up to 5 percent of the individual's annual salary. MSXI
contributions vest over a period of time. Individuals may elect to receive lump
sum or defined payments of vested balances upon retirement or termination. The
deferred compensation plan liability at December 28, 1997 and January 3, 1999
was $3.2 million and $3.4 million, respectively. This is an unfunded and
unsecured obligation of MSXI. However, MSXI has, through deposits to a grantor
trust, restricted certain corporate assets having a fair value of $1.6 million
at both December 28, 1997 and January 3, 1999 that are intended to be used to
settle a portion of the obligation.
With the APX Acquisition, MSXI acquired certain obligations with respect to
a frozen defined benefit pension plan. The plan was frozen in 1988 and covers
certain union and non-union employees who were employed by Autodynamics
Corporation of America, Inc., a company acquired previously by one of the
companies that comprised APX. This plan is not administered by MSXI.
Contributions are determined in accordance with provisions of the plan.
F-17
<PAGE> 110
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
13. EMPLOYEE BENEFIT PLANS: -- (CONTINUED)
The Autodynamics plan status as of June 30, 1998, the date of the most
recent actuarial report, was as follows:
<TABLE>
<CAPTION>
<S> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation.................................. $ 767
=====
Accumulated benefit obligation............................. $ 767
=====
Projected benefit obligation............................... $ 767
Plan assets at fair value.................................. $ 829
-----
Plan assets in excess of projected benefit obligation...... $ 62
=====
</TABLE>
F-18
<PAGE> 111
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
14. INCOME TAXES:
<TABLE>
<CAPTION>
YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ -----------
<S> <C> <C> <C>
Income (loss) before income taxes
Domestic....................................................$ 1,700 $ 3,236 $ 2,898
Foreign..................................................... 4,920 (5,984) 2,941
--------- --------- ---------
$ 6,620 $ (2,748) $ 5,839
========= ========= =========
Provision for income taxes (benefit):
Currently payable:
Federal...................................................$ 2,810 $ 1,049 $ (573)
Foreign................................................... 1,950 (640) 2,178
State..................................................... -- -- 104
Deferred:
Federal................................................... (2,170) 315 1,871
Foreign................................................... 210 (499) (512)
--------- --------- ---------
$ 2,800 $ 225 $ 3,068
========= ========= =========
Deferred tax assets (liabilities):
Amortizable goodwill........................................$ -- $ 9,111 $ 7,890
Accrued interest expense.................................... -- 2,023 1,019
Accrued liabilities and deferred compensation............... 3,480 863 (1,662)
Net operating loss.......................................... -- 360 3,604
German tax benefit.......................................... 240 332 --
Property and equipment...................................... (700) 1,937 1,264
Contractual advances........................................ 1,300 -- --
Accounts receivable......................................... (800) (984) (587)
Valuation allowance......................................... -- (535) (736)
Unrealized foreign gain..................................... -- -- 181
Other net................................................... 70 641 332
--------- --------- ---------
Net deferred tax asset....................................$ 3,590 $ 13,748 $ 11,305
========= ========= =========
</TABLE>
F-19
<PAGE> 112
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
14. INCOME TAXES: -- (CONTINUED)
The following is a reconciliation of the tax at the U.S. federal statutory
rate to the provision for income taxes allocated to income before income taxes:
<TABLE>
<CAPTION>
YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ -----------
35% 35% 35%
<S> <C> <C> <C>
Tax at U.S. statutory rate ........... $2,320 $(961) $2,043
Valuation allowance .................. -- 535 201
Higher effective foreign taxes ....... 440 351 367
Other, net ........................... 40 300 457
------ ----- ------
$2,800 $ 225 $3,068
====== ===== ======
</TABLE>
As of December 31, 1996, December 28, 1997 and January 3, 1999, a provision
had not been made for U.S. or additional foreign taxes on approximately $8.7
million, $1.4 million, and $2.3 million, respectively, of undistributed earnings
of foreign subsidiaries, as those earnings were intended to be permanently
reinvested. Generally, such earnings become taxable upon the remittance of
dividends and under certain other circumstances. It was not practicable to
estimate the amount of deferred tax liability on such undistributed earnings.
Income taxes paid were approximately $3.6 million, $1.6 million and $0.8
million in 1996, fiscal 1997 and fiscal 1998, respectively.
15. SEGMENT INFORMATION:
MSXI has adopted FAS 131, "Disclosures about Segments of an Enterprise and
Related Information" for 1996, fiscal 1997 and fiscal 1998. MSXI has two
reportable segments which are Purchasing Support Services and Outsourcing
Services. In 1996 MSXI's operations were comprised totally of Outsourcing
Services.
In its Purchasing Support Services segment, MSXI provides administrative
support to large companies for the purchase of various services. The customers
in this segment use MSXI and its automated processes to manage the procurement
of staffing, training and other professional services. Sales for this segment
include the billings from sub-suppliers for their services rendered, plus a
small mark-up for management and processing.
F-20
<PAGE> 113
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
15. SEGMENT INFORMATION: -- (CONTINUED)
In its Outsourcing Services segment, MSXI provides technical support
services, including technical and professional contract staffing, product
development support and other business services. Sales in this segment are based
principally on fees charged for resources provided to support customers'
development, manufacturing and distribution of their products and services.
The segment data includes intersegment sales as well as charges allocating
corporate selling, general and administrative expenses to each of the operating
segments. MSXI evaluates performance based on earnings before interest and
taxes, including the Michigan Single Business Tax and other (expense), net
(EBIT), as defined.
Summarized below is the segment information for 1996, fiscal 1997 and
fiscal 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, FISCAL YEAR ENDED FISCAL YEAR ENDED
1996 DECEMBER 28, 1997 JANUARY 3, 1999
----------- ---------------------------------- ----------------------------------
PURCHASING PURCHASING
OUTSOURice CohenNG SUPPORT OUTSOURice CohenNG SUPPORT OUTSOURice CohenNG
SERVICES SERVICES SERVICES TOTAL SERVICES SERVICES TOTAL
----------- ---------- ----------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................ $228,260 $197,186 $374,207 $571,393 $591,538 $515,880 $1,107,418
EBIT................. $ 9,440 $ 2,152 $ 10,368 $ 12,520 $ 4,432 $ 22,339 $ 26,771
</TABLE>
During fiscal 1997, the Outsourcing Services segment incurred $2 million of
restructuring costs which are included in the above operating results. Refer to
Note 7 for more details.
A reconciliation of total segment sales and EBIT to MSXI's consolidated
sales and EBIT are as follows:
<TABLE>
<CAPTION>
YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ----------------- -----------------
<S> <C> <C> <C>
SALES
Total segment sales $228,260 $571,393 $1,107,418
Elimination of intersegment sales -- (6,847) (26,376)
-------- -------- ----------
Consolidated sales $228,260 $564,546 $1,081,042
======== ======== ==========
</TABLE>
F-21
<PAGE> 114
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
15. SEGMENT INFORMATION: -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ----------------- -----------------
<S> <C> <C> <C>
EBIT
Total EBIT................................ $ 9,440 $ 12,520 $ 26,771
Interest expense........................... (1,310) (12,400) (17,416)
Michigan Single Business Tax............... (1,510) (2,868) (3,516)
------- -------- --------
Consolidated income (loss) before taxes.... $ 6,620 $ (2,748) $ 5,839
======= ======== ========
</TABLE>
Sales and long-lived asset information by geographic area are as follows:
<TABLE>
<CAPTION>
SALES LONG-LIVED ASSETS
------------------------------------------------------------------------------------
YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED AS OF AS OF AS OF
DECEMBER 31, DECEMBER 28, JANUARY 3, DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999 1996 1997 1999
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States............. $140,770 $463,141 $ 909,803 $15,861 $63,436 $106,580
Foreign:
United Kingdom ......... 72,118 72,105 110,362 5,089 7,593 12,144
Other Foreign .......... 15,372 29,300 60,877 2,740 4,025 3,883
-------- -------- ---------- ------- ------- --------
$228,260 $564,546 $1,081,042 $23,690 $75,054 $122,607
======== ======== ========== ======= ======= ========
</TABLE>
Major Customers
MSXI's Purchasing Support Services segment obtains its sales from primarily
one customer. The Outsourcing Services segment obtains its sales from various
customers of which three customers account for 25.2%, 21.5% and 19.7% of the
segment's total sales in 1996; 34.7%, 20.7% and 20.0% of the segment's total
sales in fiscal 1997; and 47.0%, 17.0% and 16.2% of the segment's total sales in
fiscal 1998.
16. SUBSEQUENT EVENT:
Cadform Investment
On January 8,1999, MSXI acquired an approximate 25% interest in Cadform
GmbH ("Cadform"), a German company with sales of approximately $22 million that
provides product design and tooling services to the automotive industry. Based
in Homberg (Ohm), Germany, Cadform specializes in automotive interior systems
and cast aluminum products. Cadform plans to engage in joint projects with MSXI.
As part of the investment, MSXI obtained an option to acquire an additional
interest in Cadform.
F-22
<PAGE> 115
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:
In connection with the Notes Offering on January 22, 1998, each of MSXI's
domestic restricted subsidiaries, as defined in the Indenture ("the Guarantor
Subsidiaries")that is an obligor or Guarantor w/ respect to any obligations
under one or more Bank Credit Agreements, irrevocably and unconditionally
guaranteed MSXI's performance under the Notes as primary obligors. The following
condensed consolidating and combining financial data provides information
regarding the financial position, results of operations and cash flows of the
Issuer and Guarantor Subsidiaries (including Predecessor combining financial
data for the year ended December 31, 1996) as set forth. Separate financial
statements of the Guarantor Subsidiaries are not presented because management
has determined those would not be material to the holders of the Notes.
Seller and the Guarantor Subsidiaries account for their investments in
subsidiaries, if any, on the equity method. The principal elimination entries
are to eliminate the investments in subsidiaries and intercompany balances and
transactions.
GRI is a guarantor subsidiary. The statements of operations and of cash
flows for the year ended December 31, 1996 and for the eight months in the
period ended August 31, 1997 are separately included on a consolidated basis
with its subsidiaries.
F-23
<PAGE> 116
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1999
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ -- $ 1,690 $ 2,558 $ -- $ 4,248
Receivables, net............................... -- 145,715 62,736 -- 208,451
Inventory...................................... -- 2,315 47 -- 2,362
Prepaid expenses and other assets.............. 530 3,499 1,530 -- 5,559
Deferred income taxes.......................... -- -- 961 -- 961
--------- --------- --------- --------- ---------
Total current assets......................... 530 153,219 67,832 -- 221,581
Property and equipment, net...................... -- 23,255 12,010 -- 35,265
Buildings held for sale.......................... -- 15,000 -- -- 15,000
Goodwill, net.................................... -- 55,335 3,658 -- 58,993
Investment in subsidiaries....................... 157,918 33,703 -- (191,621) --
Other assets..................................... 4,801 8,189 359 -- 13,349
Deferred income taxes............................ 911 8,800 2,825 -- 12,536
--------- --------- --------- --------- ---------
Total assets................................. $ 164,160 $ 297,501 $ 86,684 $(191,621) $ 356,724
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of
long-term debt............................... $ -- $ -- $ 4,581 $ -- $ 4,581
Accounts payable................................. -- 74,705 15,181 -- 89,886
Accrued liabilities............................ 695 40,362 9,086 (32) 50,111
Contractual acquisition obligation............. -- 15,000 -- -- 15,000
Deferred income taxes.......................... -- 930 1,262 -- 2,192
--------- --------- --------- --------- ---------
Total current liabilities...................... 695 130,997 30,110 (32) 161,770
Long-term debt................................... 173,238 -- 7,118 -- 180,356
Intercompany accounts............................ (55,748) 26,916 28,832 -- --
Long-term deferred compensation liability
and other...................................... -- 4,629 74 -- 4,703
--------- --------- --------- --------- ---------
Total liabilities............................ 118,185 162,542 66,134 (32) 346,829
--------- --------- --------- --------- ---------
Redeemable Series A Preferred Stock.............. 36,000 -- -- -- 36,000
--------- --------- --------- --------- ---------
Shareholders' equity (deficit)................... 9,975 134,959 20,550 (191,589) (26,105)
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity (deficit)............ $ 164,160 $ 297,501 $ 86,684 $(191,621) $ 356,724
========= ========= ========= ========= =========
</TABLE>
F-24
<PAGE> 117
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 28, 1997
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $ -- $ 2,449 $ 9,126 $ -- $ 11,575
Receivables, net ............................. -- 130,404 48,534 -- 178,938
Inventory .................................. -- 1,204 35 -- 1,239
Prepaid expenses and other assets .......... -- 2,106 3,532 -- 5,638
Deferred income taxes ...................... -- 863 1,489 -- 2,352
--------- --------- --------- --------- ---------
Total current assets ..................... -- 137,026 62,716 -- 199,742
Property and equipment, net .................. -- 23,208 11,129 -- 34,337
Goodwill, net ................................ -- 31,934 -- -- 31,934
Investment in subsidiaries ................... 144,588 20,583 -- (165,171) --
Other assets ................................. -- 8,294 489 -- 8,783
Deferred income taxes ........................ -- 11,036 1,344 -- 12,380
--------- --------- --------- --------- ---------
Total assets ............................. $ 144,588 $ 232,081 $ 75,678 $(165,171) $ 287,176
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of
long-term debt............................ $ 71,275 $ 5 $ 16,650 $ -- $ 87,930
Accounts payable ........................... -- 73,726 6,640 -- 80,366
Accrued liabilities ........................ 900 30,852 6,171 (32) 37,891
Deferred income taxes ...................... -- -- 984 -- 984
--------- --------- --------- --------- ---------
Total current liabilities ................ 72,175 104,583 30,445 (32) 207,171
Long-term debt ............................... 65,000 -- -- -- 65,000
Intercompany accounts ........................ (38,959) 7,570 31,389 -- --
Long-term deferred compensation liability
and other................................... -- 4,970 399 -- 5,369
--------- --------- --------- --------- ---------
Total liabilities ........................ 98,216 117,123 62,233 (32) 277,540
--------- --------- --------- --------- ---------
Redeemable Series A Preferred Stock .......... 36,000 -- 32 (32) 36,000
--------- --------- --------- --------- ---------
Shareholders' equity (deficit) ............... 10,372 114,958 13,413 (165,107) (26,364)
--------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity (deficit) ....................... $ 144,588 $ 232,081 $ 75,678 $(165,171) $ 287,176
========= ========= ========= ========= =========
</TABLE>
F-25
<PAGE> 118
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996
Net sales .................................... $ -- $ 140,770 $ 87,490 $ -- $ 228,260
Cost of sales ................................ -- (120,614) (71,896) -- (192,510)
--------- --------- --------- --------- ----------
Gross profit ............................... -- 20,156 15,594 -- 35,750
Selling, general and administrative expenses.. -- (16,775) (9,465) -- (26,240)
Michigan Single Business Tax ................. -- (1,510) -- -- (1,510)
--------- --------- --------- --------- ----------
Operating income ........................... -- 1,871 6,129 -- 8,000
Other (expense), net ......................... -- (171) (1,209) -- (1,380)
--------- --------- --------- --------- ----------
Income before income taxes ................. -- 1,700 4,920 -- 6,620
Income tax provision ......................... -- 640 2,160 -- 2,800
--------- --------- --------- --------- ----------
Net income ................................. $ -- $ 1,060 $ 2,760 $ -- $ 3,820
========= ========= ========= ========= ==========
FISCAL YEAR ENDED DECEMBER 28, 1997
Net sales .................................... $ -- $ 463,141 $ 101,405 $ -- $ 564,546
Cost of sales ................................ -- (420,999) (93,020) -- (514,019)
--------- --------- --------- --------- ----------
Gross profit ............................... -- 42,142 8,385 -- 50,527
Selling, general and administrative expenses.. -- (24,572) (11,435) -- (36,007)
Michigan Single Business Tax ................. -- (2,868) -- -- (2,868)
Restructuring costs .......................... -- (2,000) -- -- (2,000)
--------- --------- --------- --------- ----------
Operating income (loss) .................... -- 12,702 (3,050) -- 9,652
Other (expense), net ......................... (9,542) 76 (2,934) -- (12,400)
Equity in subsidiary earnings (loss) ......... 3,324 (4,845) -- 1,521 --
--------- --------- --------- --------- ----------
Loss before income taxes ................... (6,218) 7,933 (5,984) 1,521 (2,748)
Income tax provision (benefit) ............... (3,245) 4,609 (1,139) -- 225
--------- --------- --------- --------- ----------
Net (loss) ................................. $ (2,973) $ 3,324 $ (4,845) $ 1,521 $ (2,973)
========= ========= ========= ========= ==========
FISCAL YEAR ENDED JANUARY 3, 1999
Net sales .................................... $ -- $ 909,803 $ 171,239 $ -- $1,081,042
Cost of sales ................................ -- (850,859) (146,155) -- (997,014)
--------- --------- --------- --------- ----------
Gross profit ............................... -- 58,944 25,084 -- 84,028
Selling, general and administrative expenses.. -- (38,540) (18,717) -- (57,257)
Michigan Single Business Tax ................. -- (3,516) -- -- (3,516)
--------- --------- --------- --------- ----------
Operating income ........................... -- 16,888 6,367 -- 23,255
Other (expense), net ......................... (16,064) 2,074 (3,426) -- (17,416)
Equity in subsidiary earnings ................ 13,334 1,274 -- (14,608) --
--------- --------- --------- --------- ----------
Income before income taxes ................. (2,730) 20,236 2,941 (14,608) 5,839
Income tax provision (benefit) ............... (5,501) 6,902 1,667 -- 3,068
--------- --------- --------- --------- ----------
Net income ................................ $ 2,771 $ 13,334 $ 1,274 $ (14,608) $ 2,771
========= ========= ========= ========= ==========
</TABLE>
F-26
<PAGE> 119
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED JANUARY 3, 1999
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash from (used for):
Operating activities:
Net income (loss) ......................... $ (10,563) $ 12,060 $ 1,274 $ -- $ 2,771
Equity in earning of subsidiaries ......... 13,334 1,274 -- (14,608) --
Adjustments to reconcile net income (loss)
to net cash from (used for) operating
activities:
Depreciation .............................. -- 7,607 4,301 -- 11,908
Amortization .............................. 511 1,583 107 -- 2,201
Deferred taxes .............................. (911) 3,217 (1,268) -- 1,038
(Gain) loss of sale of property and
equipment ................................. -- 194 (32) -- 162
(Increase) decrease in receivables, net ..... -- 1,249 (13,078) -- (11,829)
(Increase) decrease in inventory ............ -- (25) (11) -- (36)
(Increase) decrease in prepaid expenses
and other assets .......................... (530) (1,264) 2,161 -- 367
Increase (decrease) in current liabilities .. 695 13,155 6,052 -- 19,902
Other, net .................................... (676) 1,039 2,470 (2,847) (14)
--------- --------- --------- --------- ---------
Net cash from (used for) operating activities 1,860 40,089 1,976 (17,455) 26,470
--------- --------- --------- --------- ---------
Investing activities:
Capital expenditures ........................ -- (6,025) (5,534) -- (11,559)
Acquisition of businesses, net of cash
received .................................. -- (38,460) (4,480) -- (42,940)
Proceeds from sale of property and
equipment ................................. -- 764 467 -- 1,231
--------- --------- --------- --------- ---------
Net cash used for investing activities ...... -- (43,721) (9,547) -- (53,268)
--------- --------- --------- --------- ---------
Financing activities:
Intercompany ................................ (20,933) 23,524 (2,591) -- --
Investment in subsidiaries .................. -- (15,970) 10,645 5,325 --
Equity of subsidiaries ...................... (13,334) 6,780 (4,174) 10,728 --
Proceeds from the issuance of debt .......... 173,239 -- 7,117 -- 180,356
Debt issuance costs ......................... (4,637) -- -- -- (4,637)
Payment of Senior Subordinated Notes
and Bridge Loans .......................... (70,000) -- -- -- (70,000)
Changes in revolving debt ................... (66,275) (234) (12,068) -- (78,577)
Changes in book overdraft ................... -- (9,762) 1,799 -- (7,963)
Sale of Common Stock ........................ 80 -- -- -- 80
Other, net .................................. -- 1 212 -- 213
--------- --------- --------- --------- ---------
Net cash from financing activities .......... (1,860) 4,339 940 16,053 19,472
--------- --------- --------- --------- ---------
Effect of foreign exchange rates changes on
cash ........................................ -- (1,466) 63 1,402 (1)
--------- --------- --------- --------- ---------
Cash:
(Decrease) for the period ................... -- (759) (6,568) -- (7,327)
Balance, beginning of period ................ -- 2,449 9,126 -- 11,575
--------- --------- --------- --------- ---------
Balance, end of period ...................... $ -- $ 1,690 $ 2,558 $ -- $ 4,248
========= ========= ========= ========= =========
</TABLE>
F-27
<PAGE> 120
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash from (used for):
Operating activities:
Net income (loss) ............................. $ (6,297) $ 8,169 $ (4,845) $ -- $ (2,973)
Equity in earnings of subsidiaries ............ 3,324 (4,845) -- 1,521 --
Adjustments to reconcile net income
(loss) to net cash from (used for)
operating activities:
Depreciation .................................. -- 5,523 3,444 -- 8,967
Amortization .................................. -- 892 -- -- 892
(Increase) decrease in receivables, net ....... -- (28,394) (7,949) -- (36,343)
(Increase) decrease in inventory .............. -- (310) 1 -- (309)
(Increase) decrease in prepaid expenses and
other assets................................. -- (828) (685) -- (1,513)
(Increase) decrease in current liabilities .... 4,144 28,414 (2,071) -- 30,487
Other net ................................... -- 2,861 (285) -- 2,576
--------- --------- ---------- --------- ---------
Net cash from (used for) operating activities.. 1,171 11,482 (12,390) 1,521 1,784
--------- --------- ---------- --------- ---------
Investing activities:
Capital expenditures .......................... -- (7,433) (4,085) -- (11,518)
Acquisition of business, net of cash received.. (141,260) 18,454 (30,327) (6,004) (159,137)
Investment in foreign subsidiaries ............ -- (24,378) -- 24,378 --
Other, net .................................... -- (8) 3 -- (5)
--------- --------- ---------- --------- ---------
Net cash (used for) investing activities ...... (141,260) (13,365) (34,409) 18,374 (170,660)
--------- --------- ---------- --------- ---------
Financing activities:
Intercompany .................................. (32,662) 2,052 30,610 -- --
Investment in subsidiaries .................... -- 8 19,385 (19,393) --
Equity of subsidiaries ........................ (3,324) 3,794 -- (470) --
Proceeds from the issuance of debt ............ 70,000 -- -- -- 70,000
Changes in revolving debt ..................... 66,275 -- 7,124 -- 73,399
Change in book overdraft ...................... -- (669) -- -- (669)
Sale of Redeemable Preferred Stock ............ 36,000 -- -- -- 36,000
Sale of Common Stock .......................... 3,800 -- -- -- 3,800
Other, net .................................... -- (830) (76) (32) (938)
--------- --------- ---------- --------- ---------
Net cash from financing activities ............ 140,089 4,355 57,043 (19,895) 181,592
--------- --------- ---------- --------- ---------
Effect of foreign exchange rates changes ........ -- (23) (1,118) -- (1,141)
--------- --------- ---------- --------- ---------
Cash:
Increase for the period ....................... -- 2,449 9,126 -- 11,575
Balance, beginning of period .................. -- -- -- -- --
--------- --------- ---------- --------- ---------
Balance, end of period ........................ $ -- $ 2,449 $ 9,126 $ -- $ 11,575
========= ========= ========== ========= =========
</TABLE>
F-28
<PAGE> 121
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES COMBINED
------------ ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash from (used for):
Operating activities:
Net income (loss) ..................................................... $ 1,060 $ 2,760 $ 3,820
Adjustments to reconcile net income (loss) to net cash from (used
for) operating activities:
Depreciation and amortization ....................................... 2,373 2,597 4,970
Decrease in receivables, net ........................................ 412 968 1,380
(Increase) decrease in inventory .................................... 533 (3) 530
(Increase) decrease in prepaid expenses and other assets ............ 630 (420) 210
Increase (decrease) in current liabilities .......................... 2,800 (2,790) 10
Other, net .......................................................... (1,537) (1,593) (3,130)
------- ------- -------
Net cash from operating activities .................................... 6,271 1,519 7,790
------- ------- -------
Investing activities:
Capital expenditures, net ............................................. (2,178) (2,592) (4,770)
------- ------- -------
Net cash used for investing activities .................................. (2,178) (2,592) (4,770)
------- ------- -------
Financing activities:
Proceeds from the issuance of debt .................................... -- 650 650
Increase (decrease) in MascoTech Inc., net investment and
advances ............................................................ (3,237) 7,347 4,110
Other, net ............................................................ (670) 60 (610)
------- ------- -------
Net cash from (used for) financing activities ......................... (3,907) 8,057 4,150
------- ------- -------
Effect of foreign exchange rates changes on cash ........................ -- (1,900) (1,900)
------- ------- -------
Cash:
Increase for the period ............................................... 186 5,084 5,270
Balance, beginning of period .......................................... 154 1,646 1,800
------- ------- -------
Balance, end of period ................................................ $ 340 $ 6,730 $ 7,070
======= ======= =======
</TABLE>
F-29
<PAGE> 122
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
GEOMETRIC RESULTS INCORPORATED - SERVICES
(A FORMER BUSINESS UNIT OF GEOMETRIC RESULTS INCORPORATED AND SUBSIDIARIES)
CONDENSED CONSOLIDATED CARVE-OUT STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE EIGHT-MONTH PERIOD ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
FOR THE
FOR THE EIGHT MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, AUGUST 31,
1996 1997
------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales ..................................... $ 690,468 $ 431,134
Cost of sales ................................. (665,661) (411,518)
--------- ---------
Gross profit .................................. 24,807 19,616
Selling, general and administrative expenses... (21,576) (13,636)
Michigan Single Business Tax .................. (251) (239)
--------- ---------
Operating income .............................. 2,980 5,741
Other income, net ............................. 2,511 1,136
--------- ---------
Income before income taxes .................... 5,491 6,877
Income tax provision .......................... 2,530 2,908
--------- ---------
Net income .................................... $ 2,961 $ 3,969
========= =========
</TABLE>
F-30
<PAGE> 123
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
GEOMETRIC RESULTS INCORPORATED -- SERVICES
(A FORMER BUSINESS UNIT OF GEOMETRIC RESULTS INCORPORATED AND SUBSIDIARIES)
CONDENSED CONSOLIDATED CARVE-OUT CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE EIGHT-MONTH PERIOD ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
FOR THE
FOR THE EIGHT MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, AUGUST 31,
1996 1997
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash from (used for):
Operating Activities:
Net income .................................................... $ 2,961 $ 3,969
Adjustment to reconcile net income to net cash from (used for) operating
activities:
Depreciation .................................................. 5,111 3,960
Loss on disposal of assets .................................... 481 8
Provision for doubtful accounts ............................... (62) (2)
Deferred income taxes ......................................... (101) 262
(Increase) decrease in receivables ............................ (15,602) 39,865
(Increase) decrease in prepaid expenses and other assets ...... (2,588) (1,071)
Increase (decrease) in accounts payable ....................... (8,571) (10,750)
Increase (decrease) in accrued payroll and benefits ........... 2,162 (1,962)
Increase (decrease) in income taxes due to parent ............. 4,618 2,192
Increase (decrease) in accrued expenses ....................... (656) (248)
------- -------
Net cash from (used for) operating activities ........ (12,247) 36,223
------- -------
Investing activities:
Proceeds from sale of assets .................................. 333 --
Capital expenditures .......................................... (3,676) (4,047)
------- -------
Net cash used for investing activities ............... (3,343) (4,047)
------- -------
Financing activities:
Net borrowings on lines of credit from parent ................. (3,231) 2,135
Divisional equity transfer .................................... 10,215 1,007
Increase in cash overdraft .................................... 9,273 4,221
------- -------
Net cash from financing activities ................... 16,257 7,363
Effect of exchange rate change on cash ................................. 117 (441)
------- -------
Cash and cash investments:
Increase for the period ....................................... 784 39,098
At January 1 .................................................. 16,496 17,280
------- -------
At end of period .............................................. $17,280 $56,378
======= =======
</TABLE>
F-31
<PAGE> 124
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
APX INTERNATIONAL
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 31, 1995 TO NOVEMBER 6, 1996
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 31, 1995 TO
NOVEMBER 6, 1996
-----------------------------------------
GUARANTOR NON-GUARANTOR APX
SUBSIDIARIES SUBSIDIARIES COMBINED
------------ ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Sales .................................. $126,853 $ 8,197 $ 135,050
Cost of sales .............................. (118,566) (8,554) (127,120)
-------- ------- ---------
Gross profit (loss) ............... 8,287 (357) 7,930
Selling, general and administrative expenses (7,357) (528) (7,885)
Michigan Single Business Tax ............... (806) -- (806)
Operating profit (loss) ........... 124 (885) (761)
-------- ------- ---------
Other expense, net ......................... (2,126) (3) (2,129)
-------- ------- ---------
Loss before income tax benefit .... (2,002) (888) (2,890)
Income tax benefit ......................... 195 -- 195
-------- ------- ---------
Net loss .......................... $ (1,807) $ (888) $ (2,695)
======== ======= =========
</TABLE>
F-32
<PAGE> 125
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: -- (CONTINUED)
APX INTERNATIONAL
CONDENSED COMBINING STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 31, 1995 TO NOVEMBER 6, 1996
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 31, 1995 TO
NOVEMBER 6, 1996
-----------------------------------
GUARANTOR NON-GUARANTOR APX
SUBSIDIARIES SUBSIDIARIES COMBINED
------------ ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash from (used for):
Operating Activities:
Net loss ......................................................... $(1,807) $ (888) $(2,695)
Adjustments to reconcile net income to net cash from (used for)
operating activities:
Depreciation and amortization .................................. 1,745 97 1,842
Loss on disposal of fixed assets ............................... 633 -- 633
Changes in assets and liabilities:
Accounts receivable ............................................ 2,914 (1,153) 1,761
Inventory ...................................................... 1,503 -- 1,503
Prepaid expenses and other current assets ...................... (834) 170 (664)
Accounts payable ............................................... 764 2 766
Accrued expenses ............................................... 3,980 (25) 3,955
------- ------- -------
Net cash provided (used) by operating activities ............... 8,898 (1,797) 7,101
------- ------- -------
Investing Activities:
Purchases of equipment ............................................. (444) (162) (606)
------- ------- -------
Net cash used for investing activities ......................... (444) (162) (606)
------- ------- -------
Financing activities:
Advances from affiliates ......................................... (9,969) 1,802 (8,167)
Capital lease payments ........................................... (394) -- (394)
Bank overdraft ................................................... 1,455 -- 1,455
Other ............................................................ (164) 164 --
------- ------- -------
Net cash from (used for) financing activities .................. (9,072) 1,966 (7,106)
------- ------- -------
Net increase (decrease) in cash .................................... (618) 7 (611)
Cash, beginning of period .......................................... 657 80 737
------- ------- -------
Cash, end of period ................................................ $ 39 $ 87 $ 126
======= ======= =======
</TABLE>
F-33
<PAGE> 126
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF APRIL 4, 1999 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1999 1999
------------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 3,642 $ 4,248
Receivables, net .............................................. 230,905 208,451
Inventory ..................................................... 1,435 2,362
Prepaid expenses and other assets ............................. 7,951 5,559
Deferred income taxes ......................................... 900 961
-------- --------
Total current assets ....................................... 244,833 221,581
Property and equipment, net of accumulated depreciation ......... 35,500 35,265
of $54,513 and $51,863, respectively
Buildings held for sale ......................................... 15,000 15,000
Goodwill, net of accumulated amortization ....................... 58,369 58,993
of $2,952 and $2,337, respectively
Other assets .................................................... 15,645 13,349
Deferred income taxes ........................................... 12,318 12,536
-------- --------
Total assets ............................................... $381,665 $356,724
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt ........... $ 4,572 $ 4,581
Accounts payable .............................................. 98,967 89,886
Accrued payroll and benefits .................................. 25,318 23,286
Other accrued liabilities ..................................... 21,733 26,825
Contractual acquisition obligation ............................ 15,000 15,000
Deferred income taxes ......................................... 1,736 2,192
-------- --------
Total current liabilities .................................. 167,326 161,770
Long-term debt .................................................. 198,754 180,356
Long-term deferred compensation liability and other ............. 4,394 4,703
-------- --------
Total liabilities .......................................... 370,474 346,829
-------- --------
Redeemable Series A Preferred Stock, authorized 500,000 shares;
issued and outstanding, 360,000 shares 36,000 36,000
Shareholders' equity (deficit):
Common stock, $.01 par, authorized 2,000,000 shares; issued ... 1 1
and outstanding 100,003 shares and 97,004 shares, respectively
Additional paid-in capital .................................... (24,644) (24,764)
Accumulated other comprehensive income (loss) ................. (2,414) (1,140)
Retained earnings (accumulated deficit) ....................... 2,248 (202)
-------- --------
Total shareholders' equity (deficit) ....................... (24,809) (26,105)
-------- --------
Total liabilities and shareholders' equity (deficit) ....... $381,665 $356,724
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-34
<PAGE> 127
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL QUARTERS ENDED APRIL 4, 1999 AND MARCH 29, 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Net sales.............................................................. $ 339,488 $ 255,056
Cost of sales.......................................................... (315,184) (236,719)
--------- ---------
Gross profit......................................................... 24,304 18,337
Selling, general and administrative expenses........................... (14,151) (12,504)
Michigan Single Business Tax........................................... (1,315) (772)
--------- ---------
Operating income..................................................... 8,838 5,061
--------- ---------
Interest expense, net.................................................. (4,659) (3,755)
Interest expense, related parties...................................... -- (558)
--------- ---------
(4,659) (4,313)
--------- ---------
Income before income taxes........................................... 4,179 748
Income tax provision................................................... 1,729 370
--------- ---------
Net income........................................................... $ 2,450 $ 378
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-35
<PAGE> 128
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL QUARTERS ENDED APRIL 4, 1999 AND MARCH 29, 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash from (used for) operating activities:
Net income............................................................... $ 2,450 $ 378
Adjustments to reconcile net income to net cash from (used
for) operating activities:
Depreciation............................................................ 2,731 3,487
Amortization............................................................ 775 352
Deferred taxes.......................................................... (177) --
(Increase) decrease in receivables, net................................. (22,454) 1,002
(Increase) decrease in inventory........................................ 927 64
(Increase) decrease in prepaid expenses and other assets................ (2,392) 966
Increase (decrease) in current liabilities.............................. 7,485 (6,292)
Other, net.............................................................. (229) (165)
-------- -------
Net cash (used for) investing activities.............................. (10,884) (208)
-------- -------
Cash from (used for) investing activities:
Capital expenditures..................................................... (3,010) (1,763)
Acquisition of businesses, net of cash received.......................... (2,429) --
Proceeds from sale of property and equipment............................. 38 --
-------- -------
Net cash (used for) investing activities.............................. (5,401) (1,763)
-------- -------
Cash from (used for) financing activities:
Proceeds from long-term debt issues...................................... -- 96,778
Payment of long-term debt................................................ -- (70,000)
Changes in revolving debt................................................ 18,503 (22,083)
Changes in book overdraft................................................ (1,463) 1,839
Sale of common stock..................................................... 120 --
Other, net............................................................... (207) (324)
-------- -------
Net cash from financing activities.................................... 16,953 6,210
-------- -------
Effect of foreign exchange rate changes on cash............................ (1,274) (776)
-------- -------
Cash:
Increase (decrease) for the period....................................... (606) 3,463
Balance, beginning of period............................................. 4,248 11,575
-------- -------
Balance, end of period................................................... $ 3,642 $15,038
======== =======
</TABLE>
F-36
<PAGE> 129
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL QUARTER ENDED APRIL 4, 1999
<TABLE>
<CAPTION>
RETAINED
OTHER EARNINGS TOTAL
COMMON ADDITIONAL COMPREHENSIVE (ACCUMULATED SHAREHOLDERS'
STOCK PAID-IN CAPITAL INCOME (LOSS) DEFICIT) EQUITY (DEFICIT)
------ --------------- ------------- ----------- ---------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at January 3, 1999................ $ 1 $ (24,764) $ (1,140) $ (202) $ (26,105)
Comprehensive income (loss)...............
Net income.............................. 2,450 2,450
Cumulative translation adjustment....... (1,274) (1,274)
------ ------------- ------------- ---------- -------------
Total comprehensive income (loss)......... 1,176
Sale of common stock...................... 120 120
------ ------------- ------------- ---------- -------------
Balance at April 4, 1999.................. $ 1 $ (24,644) $ (2,414) $ 2,248 $ (24,809)
====== ============= ============= ========== =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-37
<PAGE> 130
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements represent the consolidated assets and
liabilities and operations of MSX International, Inc. and its subsidiaries
("MSXI"). MSXI is principally engaged in the business of providing technical
support services, primarily to automobile manufacturers and suppliers in the
United States and Europe.
MSXI adopted a 52-53 week fiscal year which ends on the Sunday nearest
December 31.
In the opinion of MSXI, the accompanying unaudited condensed consolidated
financial statements contain all adjustments which are normal and recurring in
nature necessary to present fairly its financial position at April 4, 1999, its
shareholders' equity (deficit) as of April 4, 1999, its results of operations
for the fiscal quarters ended April 4, 1999 and March 29, 1998 and its cash
flows for the fiscal quarters ended April 4, 1999 and March 29, 1998. The
operating results for the fiscal quarters ended April 4, 1999 and March 29, 1998
are not necessarily indicative of the results of operations for the entire year.
Reference should be made to the consolidated financial statements included for
the fiscal year ended January 3, 1999 included in this Registration Statement.
2. REDEEMABLE SERIES A PREFERRED STOCK:
Dividends on preferred stock are payable in cash at a rate per annum equal
to 12 percent of the stated value plus an amount equal to any accrued and unpaid
dividends. As of April 4, 1999, MSXI had not declared any dividends.
Accordingly, no dividends have been paid or accrued. Dividends accumulated but
not declared aggregated approximately $10.8 million as of April 4, 1999.
3. DEBT:
Debt is comprised of the following:
<TABLE>
<CAPTION>
INTEREST RATE AT OUTSTANDING AT
-------------------------- -------------------------
APRIL 4, JANUARY 3, APRIL 4, JANUARY 3,
1999 1999 1999 1999
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Senior Subordinated Notes......................... 11.375% 11.375% $100,000 $100,000
Credit Facilities, as amended and restated:
Revolving line of credit notes.................... 6.34-7.75% 7.03-7.75% 46,393 26,238
Swingline notes................................... 6.44-7.06% 6.75-7.81% 22,361 24,118
Term notes........................................ 6.69% 7.29% 30,000 30,000
Ford Motor Company Limited, line of credit........ 7.34% 8.69% 4,572 4,581
-------- --------
203,326 184,937
Less current portion.............................. 4,572 4,581
-------- --------
Total long-term debt.............................. $198,754 $180,356
======== ========
</TABLE>
F-38
<PAGE> 131
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
(UNAUDITED)
Senior Subordinated Notes
On January 22, 1998, MSXI issued, in a private placement, $100 million
aggregate principal amount of 11-3/8% unsecured senior subordinated notes
maturing January 15, 2008 (the "Series A Notes"). On August 20, 1998, MSXI
consummated an offer to exchange 11-3/8% Senior Subordinated Notes which had
been registered under the Securities Act of 1933 for any and all outstanding
Series A Notes. MSXI's Registration Statement on Form S-4 with the Securities
and Exchange Commission became effective on July 22, 1998. Interest on the
Series A Notes is payable semi-annually at 11- 3/8% per annum. The Series A
Notes may be redeemed subsequent to January 15, 2003 at premiums, which begin at
105.6875% and decline each year to face for redemptions taking place after
January 15, 2006. In addition, at any time prior to January 15, 2001, MSXI may
redeem up to 35% of the original aggregate principal amount of the Series A
Notes with the proceeds of one or more public equity offerings at a redemption
price of 111.375% plus accrued and unpaid interest, if any. Also, upon the
occurrence of a Change of Control, as defined in the Indenture dated January 15,
1998 (the "Indenture"), the Series A Notes may be redeemed at the option of the
Note holders at a premium of one percent, plus accrued and unpaid interest, if
any. The Series A Notes contain covenants which, among others, limit the
incurrence of additional indebtedness and restrict capital transactions,
distributions and asset dispositions of certain subsidiaries.
In connection with the Series A Notes offering, each of MSXI's domestic
restricted subsidiaries, as defined in the Indenture (the "Guarantor
Subsidiaries"), irrevocably and unconditionally guarantee MSXI's performance
under the Notes as primary obligors.
Credit Facilities
Concurrently with the private placement, MSXI entered into a credit
facility with Bank One Corporation (the "Credit Facility"), with a borrowing
base of up to $100 million, as defined, to replace the prior Credit Facility
(the "Old Credit Facility"). On April 14, 1998, MSXI syndicated the Credit
Facility to add additional commercial lenders and amended and restated the
Credit Facility to add a $30 million term loan portion. On the same date, MSXI
borrowed the full amount available under the term loan and used the funds to
reduce outstanding balances under the revolving loan portion of the Credit
Facility as amended and restated. Term loan borrowings are subject to
satisfaction of the same borrowing base requirements and financial reporting and
operating covenants as are other borrowings under the Credit Facility. The
Credit Facility provides for borrowings as revolving credit loans, letters of
credit, swingline loans and term loans. This Facility expires January 22, 2003.
Revolving credit loans, swingline loans and letters of credit (collectively
"Revolving Debt") are payable on demand. The term loan was issued with a
five-year maturity. Interest on the loans under the Credit Facility is payable
quarterly or, if earlier, at the end of each interest period and accrues at an
annual rate equal to a floating rate, as defined, for swingline loans which
accrue at an annual rate equal to a fixed or floating rate as negotiated at the
time of each borrowing.
Each significant domestic subsidiary of MSXI guarantees all obligations of
MSXI under the Credit Facility. In addition, MSXI has pledged the stock of such
domestic subsidiaries and 65% of the stock of the significant foreign
subsidiaries. Additionally, a first lien exists on substantially all assets of
such domestic subsidiaries. The obligations of MSXI under the Credit Facility
rank senior to all other indebtedness of MSXI.
The Credit Facility contains certain reporting covenants, customary
affirmative covenants and various negative covenants including, but not limited
to, certain limitations on mergers, sales of assets, acquisitions, liens,
investments, indebtedness, contingent obligations, dividends, subsidiaries'
ability to agree to dividend restrictions, affiliate
F-39
<PAGE> 132
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
(UNAUDITED)
transactions and changes of business. The Credit Facility also contains certain
covenants with respect to employee benefit arrangements and environmental
matters and certain financial covenants including, but not limited to, a ratio
of total debt to EBITDA, a fixed charge coverage ratio and a minimum net worth
requirement, each as defined.
The net proceeds from the issuance of Series A Notes and the Credit
Facility were used to retire the bridge loans with CVC and MascoTech, the
MascoTech Subordinated Notes and the outstanding amount under the Old Credit
Facility.
As of April 4, 1999, $98.8 million was outstanding under the Credit
Facility and has been classified as long-term debt as MSXI has both the ability
and intent to refinance such amounts under the Credit Facility.
4. BOOK OVERDRAFTS:
Book overdrafts represent checks drawn on zero balance accounts that have
not yet been presented to MSXI's banks for funding. Such overdrafts are funded
when the related checks are presented and are not subject to finance charges.
Accordingly, there were negative book balances of $12.8 million and $14.3
million at April 4, 1999 and January 3, 1999, respectively. Such balances are
included in Accounts Payable in the Condensed Consolidated Balance Sheets.
5. INCOME TAXES:
For the fiscal quarters ended April 4, 1999 and March 29, 1998, the
effective income tax rate was 41.4% and 49.5%, respectively. The decrease in
MSXI's effective income tax rate resulted from the expected increased ratio of
earnings to non-deductible expenses and a decrease in certain foreign statutory
income tax rates.
6. SEGMENT INFORMATION:
MSXI has two reportable segments: Purchasing Support Services and
Outsourcing Services.
In its Purchasing Support Services segment, MSXI provides administrative
support to large companies for the purchase of various services. The customers
in this segment use MSXI and its automated processes to manage the procurement
of staffing, training and other professional services. Sales for this segment
include the billings from sub-suppliers for their services rendered, plus a
small mark-up for management and processing.
In its Outsourcing Services segment, MSXI provides technical support
services, including technical and professional contract staffing, product
development support and other business services. Sales in this segment are based
principally on fees charged for resources provided to support customers'
development, manufacturing and distribution of their products and services.
The segment data includes intersegment sales as well as charges allocating
corporate selling, general and administrative expenses to each of the operating
segments. MSXI evaluates performance based on earnings before interest and taxes
(EBIT), including the Michigan Single Business Tax.
Summarized below is the segment information for fiscal quarters ended April
4, 1999 and March 29, 1998:
F-40
<PAGE> 133
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL QUARTER ENDED
APRIL 4, 1999 MARCH 29, 1998
------------------------------------ -------------------------------------
PURCHASING PURCHASING
SUPPORT OUTSOURICE COHENNG SUPPORT OUTSOURICE COHENNG
SERVICES SERVICES TOTAL SERVICES SERVICES TOTAL
-------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales........................... $170,312 $178,375 $348,687 $145,240 $114,698 $259,938
EBIT............................ $ 1,272 $ 8,881 $ 10,153 $ 637 $ 5,196 $ 5,833
</TABLE>
A reconciliation of total segment sales and EBIT to MSXI'S consolidated
sales and EBIT are as follows:
<TABLE>
<CAPTION>
FISCAL QUARTER FISCAL QUARTER
ENDED APRIL 4, 1999 ENDED MARCH 29, 1998
------------------- --------------------
<S> <C> <C>
SALES
Total segment sales.................... $348,687 $259,938
Elimination of intersegment sales...... (9,199) (4,882)
-------- --------
Consolidated sales..................... $339,488 $255,056
======== ========
<CAPTION>
FISCAL QUARTER FISCAL QUARTER
ENDED APRIL 4, 1999 ENDED MARCH 29, 1998
------------------- --------------------
<S> <C> <C>
EBIT
Total EBIT.................................. $ 10,153 $ 5,833
Interest expense............................ (4,659) (4,313)
Michigan Single Business Tax................ (1,315) (772)
-------- --------
Consolidated income before income taxes..... $ 4,179 $ 748
======== ========
</TABLE>
7. SUBSEQUENT EVENTS:
On May 18, 1999, MSXI issued, in a private placement, $30 million aggregate
principal amount of 11-3/8% unsecured senior subordinated notes maturing January
15, 2008 (the "Series B Notes"). The Series B Notes were issued, net of
discount, at an aggregate amount of $29.4 million. These Series B Notes are
substantially identical to, and rank pari passu in right of payment with, the
Series A Notes issued by the Company on January 22, 1998. These Series B Notes
and the previously issued Series A Notes will trade as separate securities prior
to the consummation of an Exchange Offer (an "Exchange Offer"). It is
anticipated that an Exchange Offer will be consummated pursuant to an effective
registration statement within 210 days of the issuance of the Series B Notes.
The net proceeds received from the issuance of the notes were used to repay
outstanding indebtedness under MSXI's Credit Facility.
In early April 1999, MSXI acquired Rice Cohen International, a permanent
placement staffing company based in Yardley, Pennsylvania with annual sales of
approximately $5 million.
F-41
<PAGE> 134
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
(UNAUDITED)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:
In connection with the Series A Notes offering on January 22, 1998, each of
MSXI's domestic restricted subsidiaries that is an obligor or Guarantor with
respect to any obligations under one or more Bank Credit Agreements, as defined
in the Indenture (the "Guarantor Subsidiaries"), irrevocably and unconditionally
guaranteed the Company's performance under the Series A Notes as primary
obligors. The following condensed consolidating financial data provides
information regarding the financial position, results of operations and cash
flows of the Guarantor Subsidiaries as set forth below. Separate financial
statements of the Guarantor Subsidiaries are not presented because management
has determined those would not be material to the holders of the Series A Notes.
The Guarantor Subsidiaries account for their investments in the
non-guarantor subsidiaries, if any, on the equity method. The principal
elimination entries are to eliminate the investments in subsidiaries and
intercompany balances and transactions.
F-42
<PAGE> 135
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF APRIL 4, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $ -- $ 480 $ 3,162 $ -- $ 3,642
Receivables, net ............................. -- 169,937 60,968 -- 230,905
Inventory .................................... -- 1,390 45 -- 1,435
Prepaid expenses and other assets ............ 490 5,008 2,453 -- 7,951
Deferred income taxes ........................ -- 807 93 -- 900
--------- -------- -------- --------- ---------
Total current assets ....................... 490 177,622 66,721 -- 244,833
Property and equipment, net .................... -- 22,666 12,834 -- 35,500
Buildings held for sale ........................ -- 15,000 -- -- 15,000
Goodwill, net .................................. -- 54,794 3,575 -- 58,369
Investment in subsidiaries ..................... 163,277 33,593 3,697 (200,567) --
Other assets ................................... 4,656 8,138 2,851 -- 15,645
Deferred income taxes .......................... 1,071 8,430 2,817 -- 12,318
--------- -------- -------- --------- ---------
Total assets ............................... $ 169,494 $320,243 $ 92,495 $(200,567) $ 381,665
========= ======== ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of
long-term debt ........................... $ -- $ -- $ 4,572 $ -- $ 4,572
Accounts payable ........................... -- 84,130 14,837 -- 98,967
Accrued liabilities ........................ (3,197) 41,453 8,827 (32) 47,051
Contractual acquisition obligation ......... -- 15,000 -- -- 15,000
Deferred income taxes ...................... -- 1,738 (2) -- 1,736
--------- -------- -------- --------- ---------
Total current liabilities ................ (3,197) 142,321 28,234 (32) 167,326
Long-term debt ............................... 186,450 -- 12,304 -- 198,754
Intercompany accounts ........................ (62,304) 33,839 28,465 -- --
Long-term deferred compensation
liability and other ........................ -- 4,394 -- -- 4,394
--------- -------- -------- --------- ---------
Total liabilities ........................ 120,949 180,554 69,003 (32) 370,474
--------- -------- -------- --------- ---------
Redeemable Series A Preferred Stock .......... 36,000 -- -- -- 36,000
--------- -------- -------- --------- ---------
Shareholders' equity (deficit) ............... (12,545) 139,689 23,492 (200,535) (24,809)
--------- -------- -------- --------- ---------
Total liabilities and shareholders'
equity (deficit) ....................... $ 169,494 $320,243 $ 92,495 $(200,567) $ 381,665
========= ======== ======== ========= =========
</TABLE>
F-43
<PAGE> 136
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1999
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................ $ -- $ 1,690 $ 2,558 $ -- $ 4,248
Receivables, net ......................... -- 145,715 62,736 -- 208,451
Inventory ................................ -- 2,315 47 -- 2,362
Prepaid expenses and other assets ........ 530 3,499 1,530 -- 5,559
Deferred income taxes .................... -- -- 961 -- 961
-------- -------- ------- ---------- --------
Total current assets .................. 530 153,219 67,832 -- 221,581
Property and equipment, net ................. -- 23,255 12,010 -- 35,265
Buildings held for sale ..................... -- 15,000 -- -- 15,000
Goodwill, net ............................... -- 55,335 3,658 -- 58,993
Investment in subsidiaries .................. 157,918 33,703 -- (191,621) --
Other assets ................................ 4,801 8,189 359 -- 13,349
Deferred income taxes ....................... 911 8,800 2,825 -- 12,536
-------- -------- ------- ---------- --------
Total assets $164,160 $297,501 $86,684 $ (191,621) $356,724
======== ======== ======= ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of
long-term debt ........................ $ -- $ -- $ 4,581 $ -- $ 4,581
Accounts payable ......................... -- 74,705 15,181 -- 89,886
Accrued liabilities ...................... 695 40,362 9,086 (32) 50,111
Contractual acquisition obligation ....... -- 15,000 -- -- 15,000
Deferred income taxes .................... -- 930 1,262 -- 2,192
-------- -------- ------- ---------- --------
Total current liabilities ............. 695 130,997 30,110 (32) 161,770
Long-term debt .............................. 173,238 -- 7,118 -- 180,356
Intercompany accounts ....................... (55,748) 26,916 28,832 -- --
Long-term deferred compensation
liability and other ...................... -- 4,629 74 -- 4,703
-------- -------- ------- ---------- --------
Total liabilities ..................... 118,185 162,542 66,134 (32) 346,829
-------- -------- ------- ---------- --------
Redeemable Series A Preferred Stock ......... 36,000 -- -- -- 36,000
-------- -------- ------- ---------- --------
Shareholders' equity (deficit) .............. 9,975 134,959 20,550 (191,589) (26,105)
-------- -------- ------- ---------- --------
Total liabilities and shareholders'
equity (deficit) ................... $164,160 $297,501 $86,684 $ (191,621) $356,724
======== ======== ======= ========== ========
</TABLE>
F-44
<PAGE> 137
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL QUARTERS ENDED APRIL 4, 1999 AND MARCH 29, 1998
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales ............................. $ -- $ 287,855 $ 51,633 $ -- $ 339,488
Cost of sales ......................... -- (271,204) (43,980) -- (315,184)
-------- --------- --------- -------- ---------
Gross profit ........................ -- 16,651 7,653 -- 24,304
Selling, general and administrative
expenses ............................ -- (9,045) (5,106) -- (14,151)
Michigan Single Business Tax .......... -- (1,315) -- -- (1,315)
-------- --------- --------- -------- ---------
Operating income .................... -- 6,291 2,547 -- 8,838
Interest expense, net ................. (4,321) 261 (599) -- (4,659)
Equity in subsidiary earnings ......... 5,358 1,246 -- (6,604) --
-------- --------- --------- -------- ---------
Income before income taxes .......... 1,037 7,798 1,948 (6,604) 4,179
Income tax provision (benefit)......... (1,413) 2,440 702 -- 1,729
-------- --------- --------- -------- ---------
Net income .......................... $ 2,450 $ 5,358 $ 1,246 $ (6,604) $ 2,450
======== ========= ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales ............................. $ -- $ 217,966 $ 37,090 $ -- $ 255,056
Cost of sales ......................... -- (205,300) (31,419) -- (236,719)
-------- --------- --------- -------- ---------
Gross profit ........................ -- 12,666 5,671 -- 18,337
Selling, general and administrative
expenses ............................ -- (8,638) (3,866) -- (12,504)
Michigan Single Business Tax .......... -- (772) -- -- (772)
-------- --------- --------- -------- ---------
Operating income .................... -- 3,256 1,805 -- 5,061
Interest expense, net ................. (3,412) 32 (933) -- (4,313)
Equity in subsidiary earnings ......... 2,596 450 -- (3,046) --
-------- --------- --------- -------- ---------
Income before income taxes .......... (816) 3,738 872 (3,046) 748
Income tax provision (benefit) ........ (1,194) 1,142 422 -- 370
-------- --------- --------- -------- ---------
Net income .......................... $ 378 $ 2,596 $ 450 $ (3,046) $ 378
======== ========= ========= ======== =========
</TABLE>
F-45
<PAGE> 138
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL QUARTER ENDED APRIL 4, 1999
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash from (used for) operating activities:
Net income ................................. $ (2,909) $ 4,113 $ 1,246 $ -- $ 2,450
Equity in earnings of subsidiaries ......... 5,359 1,246 -- (6,605) --
Adjustments to reconcile net income to
net cash from (used for) operating
activities:
Depreciation ............................... -- 2,218 513 -- 2,731
Amortization ............................... 147 582 46 -- 775
Deferred taxes ............................. (161) 372 (388) -- (177)
(Increase) decrease in receivables, net .... -- (24,385) 1,931 -- (22,454)
(Increase) decrease in inventory ........... -- 926 1 -- 927
(Increase) decrease in prepaid expenses
and other assets ......................... 39 (1,517) (914) -- (2,392)
Increase (decrease) in current liabilities ... (3,892) 10,267 1,110 -- 7,485
Other, net ................................... -- (259) 176 (146) (229)
--------- -------- -------- -------- ----------
Net cash (used for) operating activities.. (1,417) (6,437) 3,721 (6,751) (10,884)
--------- -------- -------- -------- ----------
Cash from (used for) investing activities: --
Capital expenditures ....................... -- (1,730) (1,280) -- (3,010)
Acquisition of businesses, net of cash
received ................................. -- (77) (2,352) -- (2,429)
Proceeds from sale of property and
equipment ................................ -- -- 38 -- 38
--------- -------- -------- -------- ----------
Net cash (used for) investing activities -- (1,807) (3,594) -- (5,401)
--------- -------- -------- -------- ----------
Cash from (used for) financing activities:
Intercompany ............................... (6,556) 7,963 (1,407) -- --
Investment in subsidiaries ................. -- (3,545) (146) 3,691 --
Equity in subsidiaries ..................... (5,359) 3,406 (205) 2,158 --
Changes in revolving debt .................. 13,212 113 5,178 -- 18,503
Changes in book overdraft .................. -- (1) (1,462) -- (1,463)
Sale of Common Stock ....................... 120 -- -- -- 120
Other, net ................................. -- -- (207) -- (207)
--------- -------- -------- -------- ----------
Net cash from financing activities ....... 1,417 7,936 1,751 5,849 16,953
--------- -------- -------- -------- ----------
Effect of foreign exchange rate changes on
cash ....................................... -- (902) (1,274) 902 (1,274)
--------- -------- -------- -------- ----------
Cash: --
Increase (decrease) for the period ......... -- (1,210) 604 -- (606)
Balance, beginning of period ............... -- 1,690 2,558 -- 4,248
--------- -------- -------- -------- ----------
Balance, end of period ..................... $ -- $ 480 $ 3,162 $ -- $ 3,642
========= ======== ======== ======== ==========
</TABLE>
F-46
<PAGE> 139
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL QUARTER ENDED MARCH 29, 1998
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash from (used for) operating activities:
Net income .................................. $ (2,218) $ 2,146 $ 450 $ -- $ 378
Equity in earnings of subsidiaries .......... 2,596 450 -- (3,046) --
Adjustments to reconcile net income to
net cash from (used for) operating
activities:
Depreciation ................................ -- 2,158 1,329 -- 3,487
Amortization ................................ -- 352 -- -- 352
(Increase) decrease in receivables .......... -- 9,051 (8,049) -- 1,002
(Increase) decrease in inventory ............ -- 64 -- -- 64
(Increase) decrease in prepaid expenses
and other assets ......................... (337) (873) 2,176 -- 966
Increase (decrease) in current liabilities .. 1,040 (14,812) 7,480 -- (6,292)
Other, net .................................. -- 199 (315) (49) (165)
-------- -------- --------- ------- --------
Net cash (used for) operating activities .. 1,081 (1,265) 3,071 (3,095) (208)
-------- -------- --------- ------- --------
Cash from (used for) investing activities:
Capital expenditures ........................ -- (895) (868) -- (1,763)
-------- -------- --------- ------- --------
Net cash (used for) investing activities .. -- (895) (868) -- (1,763)
-------- -------- --------- ------- --------
Cash from (used for) financing activities:
Intercompany ................................ (579) (985) 1,564 -- --
Investment in subsidiaries .................. -- (210) 101 109 --
Equity in subsidiaries ...................... (2,596) (450) -- 3,046 --
Payment of long-term debt issues ............ 96,339 439 -- -- 96,778
Payment of long-term debt ................... (70,000) -- -- -- (70,000)
Changes in revolving debt ................... (24,245) (307) 2,469 -- (22,083)
Changes in book overdraft ................... -- 1,839 -- -- 1,839
Other, net .................................. -- (321) (3) -- (324)
-------- -------- --------- ------- --------
Net cash from financing activities ........ (1,081) 5 4,131 3,155 6,210
-------- -------- --------- ------- --------
Effect of foreign exchange rate changes on
cash ........................................ -- (18) (698) (60) (776)
-------- -------- --------- ------- --------
Cash:
Increase (decrease) for the period .......... -- (2,173) 5,636 -- 3,463
Balance, beginning of period ................ -- 2,449 9,126 -- 11,575
-------- -------- --------- ------- --------
Balance, end of period ...................... $ -- $ 276 $ 14,762 $ -- $ 15,038
======== ======== ========= ======= ========
</TABLE>
F-47
<PAGE> 140
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Lexstra International, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
income and cash flows present fairly, in all material respects, the financial
position of Lexstra International, Inc. at October 31, 1998, and the results of
its operations and its cash flows for the ten month period then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of MSXI's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
January 7, 1999
F-48
<PAGE> 141
LEXSTRA INTERNATIONAL, INC.
BALANCE SHEET
AS OF OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................................ $1,582,941
Accounts receivable, net ................................................................. 5,038,461
Prepaid expenses and other current assets ................................................ 29,255
Due from Lexus Temporaries, Inc. ......................................................... 757,250
----------
Total current assets ................................................................... 7,407,907
Furniture and equipment, net ............................................................... 92,634
Due from employees ......................................................................... 10,449
Due from stockholders ...................................................................... 62,782
Other assets ............................................................................... 33,365
----------
$7,607,137
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................................... $ 530,639
Commissions payable ...................................................................... 458,459
Discounts payable ........................................................................ 406,220
Accrued payroll and benefits ............................................................. 636,476
----------
Total current liabilities .............................................................. 2,031,794
Stockholders' equity:
Common stock, no par value; 200 shares authorized, 100 shares issued and outstanding...... 50,000
Retained earnings ........................................................................ 5,525,343
----------
Total stockholders' equity ............................................................. 5,575,343
----------
$7,607,137
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE> 142
LEXSTRA INTERNATIONAL, INC.
INCOME STATEMENT
FOR THE TEN MONTH PERIOD ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
Net revenues ...................................................... $21,268,061
Cost of revenues .................................................. 15,859,015
-----------
Gross profit ................................................... 5,409,046
-----------
Operating expenses:
Officers salaries and related benefits.......................... 343,655
Selling ........................................................ 2,242,465
General and administration ..................................... 642,451
Interest ....................................................... 3,750
-----------
Total operating expenses ..................................... 3,232,321
-----------
Net income ................................................... $ 2,176,725
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE> 143
LEXSTRA INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTH PERIOD ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
Cash flows from (used in) operating activities:
Net income ..................................................................... $ 2,176,725
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation ................................................................. 24,148
Bad debt expense ............................................................. 58,000
Changes in:
Accounts receivable ........................................................ (504,937)
Prepaid expenses and other current assets .................................. 56,861
Accounts payable, accrued expenses and other current liabilities ........... 724,794
-----------
Net cash provided by operating activities .................................... 2,535,591
-----------
Cash flows used in investing activities, acquisitions of property and equipment... (51,372)
-----------
Net cash used in investing activities ........................................ (51,372)
-----------
Cash flows from (used in) financing activities:
Due from bank .................................................................. 583,412
Advances to related party ...................................................... (1,500,000)
Due from employees ............................................................. (10,449)
-----------
Net cash used in financing activities ........................................ (927,037)
-----------
Net increase in cash and cash equivalents ........................................ 1,557,182
Cash and cash equivalents, beginning of period ................................... 25,759
-----------
Cash and cash equivalents, end of period ......................................... $ 1,582,941
===========
Supplemental disclosures of cash flow information:
Cash payments for:
Interest ..................................................................... $ 3,750
===========
Income taxes ................................................................. $ 8,236
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE> 144
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
a. Nature of Business: Lexstra International, Inc. ("Lexstra") provides
computer consulting services for high technical content positions in the
computer software development field. Services are provided to a diverse
corporate client base located primarily in the Northeastern United States.
Effective October 31, 1998, the stockholders of Lexstra sold substantially
all of the assets and liabilities of Lexstra to MSX International, Inc.
b. Cash and Cash Equivalents: Lexstra considers all short-term
investments with an original maturity of three months or less to be cash
equivalents.
c. Revenue Recognition: Revenues are recognized as contract costs are
incurred, and are valued at selling price based on contractual billing rates.
Contract costs include direct labor costs and reimbursable expenses.
d. Income Taxes: Lexstra, with the consent of its stockholders, has
elected to be taxed under Subchapter-S of the Internal Revenue Code, which
provides that, in lieu of corporate income taxes, the stockholders are taxed
individually on their pro rata share of Lexstra's taxable income. Accordingly,
no provision or liability for federal or certain state income taxes is reflected
in the financial statements. State and local tax provisions, which are not
material, have been included in general and administration expenses.
e. 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 and the disclosure of contingent assets and liabilities at the date
of the financial statements. Such estimates and assumptions also affect the
reported amounts of revenue and expenses during the reporting periods. Actual
results may differ from such estimates and assumptions.
f. Advertising: Lexstra charges advertising costs to expense as incurred.
Advertising costs charged to expense for the ten month period ended October 31,
1998 were approximately $45,000.
2. ACCOUNTS RECEIVABLE, NET:
Receivables are presented net of aggregate allowances for doubtful accounts
of $758,000 at October 31, 1998. Receivables arise from services provided
pursuant to contracts or agreements with customers for such services. Accounts
receivable include both billed and unbilled receivables. Unbilled receivables
amounted to $2,021,925 at October 31, 1998. All billings are expected to be
collected within the ensuing year.
3. NOTE PAYABLE:
Lexstra was involved in a banking agreement with a commercial lender. Under
that agreement, Lexstra could borrow up to 80 percent of outstanding accounts
receivable subject to certain limitations as defined in the agreement. The
borrowings, which bore interest at the lender's base rate plus two percent were
collateralized by substantially all of Lexstra's assets and were guaranteed by
the stockholders. The note was paid in full during 1998 and the banking
agreement has been terminated.
F-52
<PAGE> 145
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
4. COMMITMENT:
Lexstra leases office space for its corporate headquarters in New York City
under a ten year lease agreement which expires in 2007. Lexstra also leases
office space in several other locations which expire between April 1999 and
January 2000.
Aggregate annual rentals under the agreement are as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
1998 remaining.................................................... $ 26,167
1999.............................................................. 148,317
2000.............................................................. 128,770
2001.............................................................. 131,817
2002.............................................................. 135,771
Thereafter........................................................ 742,473
</TABLE>
Rent expense for the ten months ended October 31, 1998 was approximately
$65,000.
5. COMMON STOCK:
Eight shares of the issued and outstanding common stock have no voting
rights.
6. MAJOR CUSTOMERS AND CREDIT RISK CONCENTRATION:
For the ten months ended October 31, 1998, two clients, engaged in the
banking and financial services industries, respectively, accounted for, in
aggregate, approximately 34 percent of total revenues. Amounts due from these
clients represented approximately 40 percent of total accounts receivable at
October 31, 1998.
7. RELATED PARTY TRANSACTIONS:
a. Lexus Temporaries, Inc.: Lexstra shares office space and certain other
resources with Lexus Temporaries, Inc. ("Lexus"), an entity which is owned by
two stockholders of Lexstra. Due from Lexus Temporaries, Inc. represents net
non-interest bearing advances made to Lexus.
b. Due from Stockholders: Due from stockholders represents non-interest
bearing advances made by Lexstra to certain stockholders.
8. STOCKHOLDERS' EQUITY:
<TABLE>
<CAPTION>
AT OCT 31, 1998
---------------
<S> <C>
Balance, beginning of period................................... $ 3,398,618
Net income..................................................... 2,176,725
-----------
Balance, end of period......................................... $ 5,575,343
===========
</TABLE>
F-53
<PAGE> 146
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. RETIREMENT PLAN:
Lexstra maintains a 401(k) Retirement Plan for all of its employees. The
Plan allows each employee the opportunity to contribute up to a maximum of
$10,000 per year. Lexstra is not obligated to contribute to the Plan. Lexstra
made no contributions to the Plan during the ten months ended October 31, 1998.
10. SUBSEQUENT EVENT:
The stockholders of Lexstra entered into an agreement dated October 23,
1998, whereby the stockholders sold substantially all of the assets and
liabilities of Lexstra, effective October 31, 1998. The sale price was in excess
of book value.
No effect has been given to this transaction in the accompanying financial
statements.
F-54
<PAGE> 147
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Lexstra International, Inc.
We have audited the accompanying balance sheets of Lexstra International,
Inc. as of December 31, 1997 and 1996, and the related statements of income and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of Lexstra's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lexstra International, Inc.
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ URBACH KAHN & WERLIN PC
New York, New York
March 27, 1998
F-55
<PAGE> 148
LEXSTRA INTERNATIONAL, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................. $ 25,759 $ 190,823
Accounts receivable-- trade, net of allowances of $180,000 -- 1997 and
$194,000 - 1996 4,591,524 3,006,575
Prepaid expenses and other current assets ................................. 86,116 37,890
Due from bank ............................................................. 583,412 --
Due from stockholders ..................................................... 62,782 --
---------- ----------
Total current assets ................................................... 5,349,593 3,235,288
FURNITURE AND EQUIPMENT, net ................................................. 65,410 17,262
OTHER ASSETS ................................................................. 33,365 --
---------- ----------
Total assets ........................................................... $5,448,368 $3,252,550
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank ........................................................... $ -- $ 350,000
Due to Lexus Temporaries, Inc. ............................................... 742,750 75,000
Due to stockholders .......................................................... -- 34,670
Accounts payable and accrued expenses ........................................ 1,307,000 761,792
---------- ----------
Total current liabilities ............................................. 2,049,750 1,221,462
---------- ----------
COMMITMENTS .................................................................. -- --
STOCKHOLDERS' EQUITY
Common stock, no par value; 200 shares authorized, 100 shares issued and
outstanding................................................................ 50,000 50,000
Retained earnings ............................................................ 3,348,618 1,981,088
---------- ----------
Total stockholders' equity ............................................ 3,398,618 2,031,088
---------- ----------
Total liabilities and stockholders' equity ............................ $5,448,368 $3,252,550
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-56
<PAGE> 149
LEXSTRA INTERNATIONAL, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
Revenues:
<S> <C> <C>
Consulting .................................... $ 19,003,678 $ 11,152,164
Commissions ................................... 398,116 168,510
------------ ------------
19,401,794 11,320,674
------------ ------------
Cost of revenues
Personnel ..................................... 13,785,713 8,807,186
Referral fees and recruiting expenses ......... 660,577 431,317
------------ ------------
14,446,290 9,238,503
------------ ------------
Gross profit ........................... 4,955,504 2,082,171
------------ ------------
Operating expenses:
Officers' salaries and related benefits ....... 1,115,069 272,595
Selling ....................................... 1,671,886 743,124
General and administration .................... 768,128 328,333
Interest ...................................... 32,891 11,561
------------ ------------
Total operating expenses .............. 3,587,974 1,355,613
------------ ------------
Income from operations ........................... 1,367,530 726,558
Other income:
Interest ...................................... -- 11,710
------------ ------------
Net income ....................................... 1,367,530 738,268
Retained earnings, beginning of year ............. 1,981,088 1,674,338
Distributions .................................... -- (431,518)
------------ ------------
Retained earnings, end of year ................... $ 3,348,618 $ 1,981,088
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-57
<PAGE> 150
LEXSTRA INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................................. $ 1,367,530 $ 738,268
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation .............................................................. 17,300 6,025
Changes in:
Accounts receivable .................................................... (1,584,949) (1,406,523)
Prepaid expenses and other current assets .............................. (48,226) (22,515)
Accounts payable and accrued expenses and other accrued liabilities .... 545,208 521,101
----------- -----------
Net cash provided by (used in) operating activities ................. 296,863 (163,644)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment ...................................... (65,448) (10,159)
Other assets ................................................................ (33,365) --
----------- -----------
Net cash provided by (used in) investing activities .................... (98,813) (10,159)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable, net ............................................ (933,412) 350,000
Repayments to stockholders, net ............................................. (97,452) (50,000)
Advances from related party, net ............................................ 667,750 75,000
Stockholders' distributions ................................................. -- (431,518)
----------- -----------
Net cash provided by (used in) financing activities .................... (363,114) (56,518)
----------- -----------
Net increase (decrease) in cash and cash equivalents ........................... (165,064) (230,321)
Cash and cash equivalents, beginning of year ................................... 190,823 421,144
----------- -----------
Cash and cash equivalents, end of year ......................................... $ 25,759 $ 190,823
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest .............................................................. $ 32,891 $ 11,562
=========== ===========
Income taxes .......................................................... $ 21,982 $ 60,656
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-58
<PAGE> 151
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Lexstra International, Inc. ("Lexstra") provides per diem computer software
development field consulting services for high technical content positions to a
diverse client base located primarily in the Northeastern United States.
REVENUE RECOGNITION
Consulting revenues are recognized as the related services are provided.
CASH AND CASH EQUIVALENTS
Lexstra considers all short-term investments with an original maturity of
three months or less to be cash equivalents.
INCOME TAXES
Lexstra, with the consent of its stockholders, has elected to be taxed as
an "S" Corporation under the Internal Revenue Code, which provides that, in lieu
of corporate income taxes, the stockholders are taxed individually on their
pro-rata share of Lexstra's taxable income. Accordingly, no provision or
liability for Federal or certain state income taxes is reflected in the
financial statements. State and local tax provisions, which are not material,
have been included in general and administration expenses.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ADVERTISING
Lexstra charges advertising costs to expense as incurred. Advertising costs
charged to expense for the year ended December 31, 1997 and 1996 was
approximately $90,000 and $44,000.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform with the presentation for 1997.
NOTE 2. NOTE PAYABLE/DUE FROM BANK
Lexstra entered into a new banking agreement with a commercial lender in
March, 1997. Under this agreement, Lexstra may borrow up to 80% of outstanding
accounts receivable subject to certain limitations as defined in the agreement.
The borrowings, which bear interest at the lender's base rate plus 2% are
collateralized by substantially all of Lexstra's assets and are guaranteed by
the stockholders. Amounts due from bank represent collections of accounts
receivable, which have not been remitted to Lexstra, and are being held as
collateral for amounts due the bank from Lexus Temporaries, Inc. (Note 3).
F-59
<PAGE> 152
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. RELATED PARTY TRANSACTIONS
LEXUS TEMPORARIES, INC.
Lexstra shares office space and certain other resources with Lexus
Temporaries, Inc. ("Lexus"), an entity which is owned by shareholders of
Lexstra. Amounts due to Lexus represent non-interest bearing advances made to
Lexstra.
STOCKHOLDERS
Due from stockholders at December 31, 1997 are non-interest bearing
advances.
Due to stockholders at December 31, 1996 consisted of non-interest bearing
advances.
NOTE 4. MAJOR CUSTOMERS AND CREDIT RISK CONCENTRATION
For the year ended December 31, 1997 and 1996, two clients in the banking
and financial services industries, accounted for approximately 44% and 24% of
total revenues, respectively. Amounts due from these clients represented
approximately 38% and 36% of total accounts receivable at December 31, 1997 and
1996, respectively.
NOTE 5. COMMON STOCK
Five shares of the issued and outstanding common stock have no voting
rights.
NOTE 6. RETIREMENT PLAN
Lexstra maintains a 401(K) Retirement Plan for all of its employees. The
Plan allows each employee the opportunity to contribute up to a maximum of
$10,000 per year. Lexstra is not obligated to contribute to the Plan. Lexstra
made no contributions to the Plan during the years ended December 31, 1997 and
1996.
NOTE 7. COMMITMENTS
LEASES
Lexstra leases office space in New York City under a ten year lease
agreement which expires in 2007. Lexstra also leases office space in Boston
under a lease agreement which expires in 1998.
F-60
<PAGE> 153
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Aggregate annual rentals under the agreements are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------
<C> <C>
1998................................. $ 60,624
1999................................. $ 63,519
2000................................. $ 65,433
2001................................. $ 67,392
2002................................. $ 69,414
Thereafter........................... $ 318,795
</TABLE>
Rent expense for the year ended December 31, 1997 and 1996 was
approximately $53,000 and $31,000.
F-61
<PAGE> 154
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Lexus Temporaries, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
income and cash flows present fairly, in all material respects, the financial
position of Lexus Temporaries, Inc. at October 31, 1998, and the results of its
operations and its cash flows for the ten month period then ended, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
January 7, 1999
F-62
<PAGE> 155
LEXUS TEMPORARIES, INC.
BALANCE SHEET
AS OF OCTOBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents ........................................................ $ 322,478
Accounts receivable, net ......................................................... 4,199,442
Prepaid expenses and other current assets ........................................ 15,064
----------
Total current assets .......................................................... 4,536,984
Furniture and equipment, net ........................................................ 20,035
Other assets ........................................................................ 33,000
Due from stockholder ................................................................ 30,000
Due from employees .................................................................. 2,851
----------
$4,622,870
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to Lexstra International, Inc. .............................................. $ 757,250
Accounts payable ................................................................ 73,132
Accrued payroll and benefits .................................................... 403,474
Accrued, other .................................................................. 21,000
----------
Total current liabilities .................................................... 1,254,856
Stockholders' equity:
Common stock, no par value; 100 shares authorized, issued and outstanding ....... 45,000
Retained earnings ............................................................... 3,323,014
----------
Total stockholders' equity .................................................. 3,368,014
----------
$4,622,870
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE> 156
LEXUS TEMPORARIES, INC.
INCOME STATEMENT
FOR THE TEN MONTH PERIOD ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
Net revenues .......................................... $17,509,456
Cost of revenues ...................................... 14,799,296
-----------
Gross profit ....................................... 2,710,160
-----------
Operating expenses:
Officers salaries and related benefits ............. 391,842
Selling ............................................ 108,958
General and administration ......................... 765,055
Interest ........................................... 89,786
-----------
Total operating expenses ....................... 1,355,641
-----------
Net income ..................................... $ 1,354,519
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-64
<PAGE> 157
LEXUS TEMPORARIES, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTH PERIOD ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
Cash flows from (used in) operating activities:
Net income ....................................................................... $ 1,354,519
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation .................................................................. 5,793
Bad debt expense .............................................................. 361,000
Changes in:
Accounts receivable ........................................................... (1,566,307)
Accounts payable, accrued expenses and other current liabilities .............. (135,110)
-----------
Net cash provided by operating activities ........................................ 19,895
-----------
Cash flows used in investing activities, acquisitions of property and equipment ..... (6,042)
-----------
Net cash used in investing activities ............................................ (6,042)
-----------
Cash flows from (used in) financing activities:
Repayment of note payable, bank, net ............................................. (1,236,362)
Advances from related party ...................................................... 1,500,000
Due from employee ................................................................ (2,851)
-----------
Net cash provided by financing activities .................................... 260,787
-----------
Net increase in cash and cash equivalents ........................................... 274,640
Cash and cash equivalents, beginning of period ...................................... 47,838
-----------
Cash and cash equivalents, end of period ............................................ $ 322,478
===========
Supplemental disclosures of cash flow information:
Cash payments for:
Interest .................................................................... $ 89,786
===========
Income taxes ................................................................ $ 5,204
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-65
<PAGE> 158
LEXUS TEMPORARIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
a. Nature of Business: Lexus Temporaries, Inc. ("Lexus") provides temporary
services to corporations, including special technical content jobs, such as PC
technicians and low technical content positions, such as secretarial and
clerical.
Effective October 31, 1998, the stockholders of Lexus sold substantially
all of the assets and liabilities of Lexus to MSX International, Inc.
b. Cash and Cash Equivalents: Lexus considers all short-term investments
with an original maturity of three months or less to be cash equivalents.
c. Revenue Recognition: Revenues are recognized as contract costs are
incurred and are valued at selling price based on contractual billing rates.
Contract costs include direct labor costs and reimbursable expenses.
d. Income Taxes: Lexus, with the consent of its stockholders, has elected
to be taxed under Subchapter-S of the Internal Revenue Code, which provides
that, in lieu of corporate income taxes, the stockholders are taxed individually
on their pro-rata share of Lexus' taxable income. Accordingly, no provision or
liability for Federal or certain state income taxes is reflected in the
financial statements. State and local tax provisions, which are generally not
material, have been included in general and administration expenses.
e. 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 and the disclosure of contingent assets and liabilities at the date
of the financial statements. Such estimates and assumptions also affect the
reported amounts of revenue and expenses during the reporting periods. Actual
results may differ from such estimates and assumptions.
f. Advertising: Lexus charges advertising costs to expense as incurred.
Advertising costs charged to expense for the ten month period ended October 31,
1998 were approximately $57,000.
2. ACCOUNTS RECEIVABLE, NET:
Receivables are presented net of aggregate allowances for doubtful accounts
of $511,000 at October 31, 1998. Receivables arise from services provided
pursuant to contracts or agreements with customers for such services.
3. NOTE PAYABLE:
Lexus was involved in a banking agreement with a commercial lender. Under
that agreement, Lexus could borrow up to 80 percent of outstanding accounts
receivable subject to certain limitations as defined in the agreement. The
borrowings, which bore interest at the lender's base rate plus two percent were
collateralized by substantially all of Lexus' assets and were guaranteed by the
stockholders. The note was paid in full during 1998 and the banking agreement
has been terminated.
4. COMMITMENT:
Lexus leases office space for its corporate headquarters in New York City
under a ten year lease agreement which expires in 2007. Lexus also leases office
space in several other locations under leases which expire between April 1999
and January 2000.
F-66
<PAGE> 159
LEXUS TEMPORARIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Aggregate annual rentals under the agreement are as follows:
AMOUNT
------
1998 remaining..................................... $ 26,167
1999............................................... 148,317
2000............................................... 128,770
2001............................................... 131,817
2002............................................... 135,771
Thereafter......................................... 742,473
Rent expense for the ten months ended October 31, 1998 was approximately
$64,000.
5. RELATED PARTY TRANSACTIONS:
a. Lexstra International, Inc.: Lexus shares office space and certain other
resources with Lexstra International, Inc. ("Lexstra"), an entity which is
primarily owned by the two stockholders of Lexus. Due to Lexstra International,
Inc. represents net non-interest bearing advances received from Lexstra.
b. Due from Stockholders: Due from stockholders represents non-interest
bearing advances made by Lexus to the stockholders.
6. MAJOR CUSTOMER AND CREDIT RISK CONCENTRATION:
Approximately 93 percent of Lexus' service fees for the ten months ended
October 31, 1998, are attributable to one customer, a regional telephone
company. Amounts due from this client represented approximately 92 percent of
total accounts receivable at October 31, 1998.
7. STOCKHOLDERS' EQUITY:
<TABLE>
<CAPTION>
AT OCT 31, 1998
---------------
<S> <C>
Balance, beginning of period.............................$2,013,495
Net income............................................... 1,354,519
Balance, end of period...................................$3,368,014
</TABLE>
8. RETIREMENT PLAN:
Lexus maintains a 401(k) Retirement Plan for all of its employees. The Plan
allows each employee the opportunity to contribute up to a maximum of $10,000
per year. Lexus is not obligated to contribute to the Plan. Lexus made no
contributions to the Plan during the 10 months ended October 31, 1998.
9. SUBSEQUENT EVENT:
The stockholders of Lexus entered into an agreement dated October 23, 1998,
whereby the stockholders sold substantially all of the assets and liabilities of
Lexus, effective October 31, 1998. The sale price was in excess of book value.
No effect has been given to these transactions in the accompanying
financial statements.
F-67
<PAGE> 160
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Lexus Temporaries, Inc.
We have audited the accompanying balance sheets of Lexus Temporaries, Inc.
as of December 31, 1997 and 1996, and the related statements of income and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of Lexus' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lexus Temporaries, Inc. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ URBACH KAHN & WERLIN PC
New York, New York
March 27, 1998
F-68
<PAGE> 161
LEXUS TEMPORARIES, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................................ $ 47,838 $ 70,018
Accounts receivable - trade, net of allowances of $150,000 in
1997 and $57,000 in 1996 .................................... 2,994,135 2,240,963
Prepaid expenses and other current assets ............................ 15,066 1,924
Due from Lexstra International, Inc. ................................. 742,750 75,000
Due from stockholders ................................................ 30,000 30,000
---------- ----------
Total current assets ........................................ 3,829,789 2,417,905
FURNITURE AND EQUIPMENT, net .................................................. 19,783 20,449
OTHER ASSETS .................................................................. 33,000 5,805
---------- ----------
Total assets ................................................ $3,882,572 $2,444,159
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank ................................................... $1,236,361 $ 387,500
Note payable, related party .......................................... -- 300,000
Accounts payable and accrued expenses ................................ 632,716 311,074
---------- ----------
Total current liabilities ................................... 1,869,077 998,574
---------- ----------
COMMITMENTS ................................................................... -- --
STOCKHOLDERS' EQUITY
Common stock, no par value; 100 shares authorized, issued and
outstanding ................................................. 45,000 45,000
Retained earnings .................................................... 1,968,495 1,400,585
---------- ----------
Total stockholders' equity .................................. 2,013,495 1,445,585
---------- ----------
Total liabilities and stockholders' equity .................. $3,882,572 $2,444,159
========== ==========
</TABLE>
The accompanying notes are an Integral part of the financial statements.
F-69
<PAGE> 162
LEXUS TEMPORARIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues:
Service fees ........................... $15,167,201 $ 9,261,261
----------- -----------
Cost of revenues:
Personnel .............................. 12,820,119 6,825,266
Referral fees and recruiting expenses... 28,213 72,732
----------- -----------
12,848,332 6,897,998
----------- -----------
Gross profit .................................... 2,318,869 2,363,263
----------- -----------
Operating expenses:
Officers salaries and related benefits.. 811,641 1,524,416
Selling ................................ 339,190 244,413
General and administration ............. 503,106 350,751
Interest ............................... 97,022 28,938
----------- -----------
1,750,959 2,148,518
----------- -----------
Income from operations .......................... 567,910 214,745
Other income:
Interest ............................... -- 12,883
----------- -----------
Net income ...................................... 567,910 227,628
Retained earnings, beginning of year ............ 1,400,585 1,245,941
Distributions ................................... -- (72,984)
----------- -----------
Retained earnings, end of year .................. $ 1,968,495 $ 1,400,585
=========== ===========
</TABLE>
The accompanying notes are an Integral part of the financial statements.
F-70
<PAGE> 163
LEXUS TEMPORARIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................... $ 567,910 $ 227,628
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation ................................................. 9,054 8,965
Changes in:
Accounts receivable .......................................... (753,172) (790,249)
Prepaid expenses and other current assets .................... (13,142) 491
Accounts payable and accrued expenses ........................ 321,642 109,720
--------- ---------
Net cash provided by (used in) operating activities .......... 132,292 (443,445)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment .......................... (8,388) (13,034)
Other assets .................................................... (27,195) (1,005)
Advances to related party, net .................................. (667,750) (75,000)
--------- ---------
Net cash used in investing activities ........................ (703,333) (89,039)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on note payable, bank, net ........................... 848,861 387,500
Borrowings (repayments) on note from related party .............. (300,000) 300,000
Repayments on loans from stockholders, net ...................... -- (48,176)
--------- ---------
Stockholders' distributions ..................................... -- (72,984)
--------- ---------
Net cash provided by financing activities .................... 548,861 566,340
Net increase (decrease) in cash and cash equivalents ..................... (22,180) 33,856
Cash and cash equivalents, beginning of year ............................. 70,018 36,162
--------- ---------
Cash and cash equivalents, end of year ................................... $ 47,838 $ 70,018
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest ..................................................... $ 84,420 $ 17,383
========= =========
Income taxes ................................................. $ 51,317 $ 27,938
========= =========
</TABLE>
The accompanying notes are an Integral part of the financial statements.
F-71
<PAGE> 164
LEXUS TEMPORARIES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Lexus Temporaries, Inc. ("Lexus") provides temporary personnel services to
business organizations, including special technical content jobs such as PC
technicians, and low technical content positions such as secretarial and
clerical. Substantially all of Lexus' service fees (97% in 1997 and 94% in 1996)
were attributable to one client, a regional telephone company. Amounts due from
this client represented approximately 96% and 90% of total accounts receivable
at December 31, 1997 and 1996.
CASH AND CASH EQUIVALENTS
Lexus considers all short-term investments with an original maturity of
three months or less to be cash equivalents.
INCOME TAXES
Lexus, with the consent of its stockholders, has elected to be taxed as an
"S" Corporation under the Internal Revenue Code, which provides that, in lieu of
corporate income taxes, the stockholders are taxed individually on their
pro-rata share of Lexus's taxable income. Accordingly, no provision or liability
for Federal or certain state income taxes is reflected in the financial
statements. State and local tax provisions, which are generally not material,
have been included in general and administration expenses.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ADVERTISING
Lexus charges advertising costs to expense as incurred. Advertising costs
charged to expense for the year ended December 31, 1997 and 1996 was
approximately $74,000 and $122,000.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform with the presentation for 1997.
NOTE 2. NOTE PAYABLE, BANK
Lexus entered into a new banking agreement with a commercial lender in
March, 1997. Under this agreement, Lexus may borrow up to 80% of outstanding
accounts receivable subject to certain limitations as defined in the agreement.
The borrowings, which bear interest at the lenders base rate plus 2% are
collateralized by substantially all of Lexus' assets and are guaranteed by the
stockholders. At December 31, 1997, approximately $583,000 in cash collections
from Lexstra International, Inc. (Note 3) were being held as collateral for
Lexus borrowings.
F-72
<PAGE> 165
LEXUS TEMPORARIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. RELATED PARTY TRANSACTIONS
LEXSTRA INTERNATIONAL, INC.
Lexus shares office space and certain other resources with Lexstra
International, Inc. ("Lexstra"), an entity which is owned by the stockholders of
Lexus. Amounts due from related party represent non-interest bearing advances
made by Lexus.
RELATED PARTY
Note payable, related party, at December 31, 1996, represented a loan made
to Lexus by a relative of one of the stockholders. The loan, with interest at
9%, was repaid in January, 1997.
DUE FROM STOCKHOLDERS
Due from stockholders represents non-interest bearing advances made by
Lexus.
NOTE 4. RETIREMENT PLAN
Effective November 1, 1996, Lexus established a 401(K) Retirement Plan for
all of its employees. The Plan allows each employee the opportunity to
contribute up to a maximum of $10,000 per year. Lexus is not obligated to
contribute to the Plan. Lexus made no contributions to the Plan during the years
ended December 31, 1997 and 1996
NOTE 5. COMMITMENT
Lexus leases office space in New York City under a ten year lease agreement
which expires in 2007. Lexus also leases office space in Boston under a lease
agreement which expires in 1998.
Aggregate annual rentals under the agreements are as follows:
YEAR AMOUNT
---- ------
1998....................... $ 60,624
1999....................... $ 63,519
2000....................... $ 65,433
2001....................... $ 67,392
2002....................... $ 69,417
Thereafter................. $318,795
Rent expense for the year ended December 31, 1997 and 1996 was
approximately $41,000 and $19,000, respectively.
F-73
<PAGE> 166
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
MSX International, Inc.:
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, stockholder's equity and cash flows present
fairly, in all material respects, the financial position of MegaTech
Engineering, Inc. at December 26, 1998 and December 31, 1997, and the results of
its operations and its cash flows for the years ended December 26, 1998 and
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles. 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 audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers LLP
Detroit, Michigan
June 18, 1999
<PAGE> 167
MEGATECH ENGINEERING, INC.
COMBINED BALANCE SHEETS
AS OF DECEMBER 26, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 31,
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash ......................................................................... $ -- $ 147
Accounts receivable, (net of allowance for doubtful accounts of $114 and $0 at
December 26, 1998 and December 31, 1997, respectively)........................ 8,569 6,009
Prepaid expenses and other current assets .................................... 120 475
Federal income tax refund receivable ......................................... -- 1,220
Deferred income taxes ........................................................ 201 253
-------- --------
Total current assets .................................................... 8,890 8,104
Property, plant & equipment, net ................................................ 21,535 3,391
Investment in EASi MegaTech Engineering LLC ..................................... -- 1,738
Deferred income taxes ........................................................... 1,096 1,251
Other long-term assets .......................................................... 24 141
-------- --------
Total assets ............................................................ $ 31,545 $ 14,625
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ............................................ $ -- $ 566
Cash overdraft ............................................................... 304 105
Accounts payable ............................................................. 728 1,847
Accrued payroll and benefits ................................................. 950 596
Accrued expenses ............................................................. 1,081 1,256
-------- --------
Total current liabilities ............................................... 3,151 4,370
Long-term debt .................................................................. -- 2,750
Stockholder's equity:
Common stock ................................................................. 78 78
Additional paid-in capital ................................................... 935 935
Retained earnings ............................................................ 15,579 15,004
Other comprehensive loss ..................................................... -- (104)
Net investment and advances from (to) affiliates ............................. 11,890 (8,408)
-------- --------
Stockholder's equity ................................................... 28,482 7,505
-------- --------
Total liabilities and stockholders equity............................... $ 31,545 $ 14,625
======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-75
<PAGE> 168
MEGATECH ENGINEERING, INC.
COMBINED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 26, 1998 AND DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales ......................................................... $ 44,135 $ 44,759 $ 48,768
Rental income ..................................................... 4,474 4,003 3,983
-------- -------- --------
Total revenue ............................................ 48,609 48,762 52,751
Cost of sales ..................................................... 39,937 44,270 42,068
-------- -------- --------
Gross profit ......................................... 8,672 4,492 10,683
Selling, general and administrative expenses ...................... 6,562 8,808 8,025
Michigan Single Business Tax ...................................... 522 408 587
-------- -------- --------
Operating income (loss) .............................. 1,588 (4,724) 2,071
Other income (expense), net:
Equity in net loss of EASi MegaTech LLC .................. (280) (99) (133)
Interest income (expense), net ........................... (66) 464 754
Other income ............................................. -- 5 281
-------- -------- --------
(346) 370 902
-------- -------- --------
Income (loss) before income tax provision (benefit)... 1,242 (4,354) 2,973
Income tax provision (benefit) .................................... 667 (1,610) 1,035
-------- -------- --------
Net income (loss) .................................... $ 575 $ (2,744) $ 1,938
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-76
<PAGE> 169
MEGATECH ENGINEERING, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 26, 1998 AND DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 575 $(2,744) $ 1,938
Adjustments to reconcile net income (loss) to net cash from (used for)
operating activities:
Depreciation ......................................................... 1,492 1,476 1,359
Deferred taxes ....................................................... 206 (492) (207)
Equity in net loss of EASi MegaTech Engineering LLC .................. 280 99 133
Federal income tax refund ............................................ (1,220) --
(Increase) decrease in accounts receivable, net ...................... (1,682) 430 (75)
(Increase) decrease in prepaid expenses and other assets ............. 160 (385) 27
Increase (decrease) in accounts payable .............................. (422) 765 (823)
Increase (decrease) in accrued payroll and benefits .................. 89 (1,721) 142
Increase (decrease) in accrued expenses .............................. 385 241 (793)
------- ------- -------
Net cash provided by (used for) operating activities ................. 1,083 (3,551) 1,701
------- ------- -------
Investing activities:
Purchases of equipment ............................................... (1,051) (1,236) (1,572)
Investment in EASi MegaTech Engineering LLC .......................... -- (151) (1,818)
------- ------- -------
Net cash used in investing activities ................................ (1,051) (1,387) (3,390)
Financing activities:
Net investment and advances from affiliate ........................... 31 5,904 1,752
Payments on long term debt ........................................... (513) (44) --
Dividends ............................................................ -- (840) --
Cash overdraft ....................................................... 199 (160) 265
------- ------- -------
Net cash provided by financing activities ............................ (283) 4,860 2,017
------- ------- -------
Effect of foreign exchange rates on cash ............................... 104 (66) (38)
Net increase (decrease) in cash ........................................ (147) (144) 290
Cash, beginning of period .............................................. 147 291 1
------- ------- -------
Cash, end of period .................................................... $ 0 $ 147 $ 291
======= ======= =======
Supplemental cash flow information :
Non-cash transactions
Seller contributed assets, net $21,214 $ - $ -
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-77
<PAGE> 170
MEGATECH ENGINEERING, INC.
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 26, 1998 AND DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL OTHER NET INVESTMENTS
PAID-IN COMPREHENSIVE AND ADVANCES (TO)
COMMON STOCK CAPITAL RETAINED EARNINGS INCOME (LOSS) FROM AFFILIATES TOTAL
------------ ------- ----------------- ------------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ........ $ 78 $ 935 $ 21,948 $ (38) $(14,312) $ 8,611
Net loss ....................... (2,744) (2,744)
Other comprehensive loss ....... (66) (66)
--------
Total comprehensive loss .......... (2,810)
Dividends paid .................... (4,200) (4,200)
Other net advances from affiliate.. 5,904 5,904
------ ----- -------- ------ -------- --------
Balance, December 31, 1997 ........ 78 935 15,004 (104) (8,408) 7,505
Net income ........................ 575 575
Other comprehensive income ........ 104 104
--------
Total comprehensive income ........ 679
Seller contributed assets, net..... $ 21,214 $ 21,214
Other net advances to affiliate.... (916) (916)
------ ----- -------- ------ -------- --------
Balance, December 26, 1998 ........ $ 78 $ 935 $ 15,579 $ 0 $ 11,890 $ 28,482
====== ===== ======== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-78
<PAGE> 171
MEGATECH ENGINEERING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
MegaTech Engineering, Inc. ("MEI") offers technical staffing and product
development services specializing in vehicle interiors, HVAC and electrical
design.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Basis of Preparation: MEI was affiliated with Becker Group, Inc.
("Becker") through common stock ownership and management. The Company was
included in the consolidating financial statements of Becker through June 30,
1998. Effective June 30, 1998, Becker was acquired by JCI. Subsequent to
December 26, 1998, MEI was sold by JCI to MSX International, Inc. ("MSXI").
These financial statements include the accounts of the following companies and
operations (collectively, MEI), all affiliated through common stock ownership
and management that are engaged in the similar lines of business.
MegaTech Engineering, Inc.
MegaTech Engineering Europe GmbH
Tooling Concepts (From December 22, 1998)
Intercompany transactions and accounts have been eliminated.
b. Revenue and Cost Recognition: Revenue consists of amounts recognized on
time and material and fixed price contracts. Revenue from time and material
contracts is based on time incurred at agreed upon billing rates. Revenue from
fixed priced contracts is recognized on the percentage of completion method,
measured by the percentage of costs incurred to date to estimated total costs
for each contract.
Contract costs include all direct material and labor costs and indirect
costs such as indirect labor, supplies, tools and repairs. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in fixed price contracts may result in revisions
to costs and income and are recognized in the period in which the revisions are
determined.
c. Property, Plant and Equipment: Property, plant and equipment is stated
at cost and is depreciated on a straight-line basis over the estimated useful
lives. Leasehold improvements are amortized on a straight-line basis over the
lesser of the lease term or the estimated useful life. Upon retirement or
disposal of property, plant and equipment, the cost and accumulated depreciation
are removed from the accounts and any gain or loss is included in income. Repair
and maintenance costs are charged to expense as incurred.
F-79
<PAGE> 172
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES, CONTINUED:
d. Investment: The investment in EASi MegaTech Engineering LLC was a joint
venture between Engineering Analysis Services, Inc. and MEI. Joint venture
earnings and losses were recorded based on the provisions of the joint venture
agreement.
e. Foreign Currency Translation: The financial statements of foreign
subsidiaries and affiliates are translated into U.S. dollars using the current
exchange rate with the effects of translation adjustments included
as other comprehensive income (loss). Revenues and expenses are translated at
the average rates of exchange during the period. Gains and losses on foreign
currency transactions are not significant.
f. Income Taxes: Income tax expense and credits are computed on a separate
return basis. Deferred income taxes result principally from temporary
differences in the bases of assets and liabilities for tax and reporting
purposes.
g. Selling, General and Administrative Expenses: Selling, general and
administrative expenses include costs for various corporate support staff,
administration services and group costs charged to MEI by Becker and JCI. The
charges aggregated $1,302, $3,707 and $3,387 in 1998, 1997 and 1996,
respectively. The related advances are included in net investment and advances
in the accompanying balance sheets.
h. Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make assumptions
that affect the amounts reported in MEI's combined financial statements and
accompanying notes. Actual results may differ from these estimates.
3. ACCOUNTS RECEIVABLE:
Receivables arise from services provided pursuant to contracts or
agreements with customers for such services. The primary users of MEI's services
are manufacturers in the automotive industry. At December 26, 1998 and December
31, 1997, General Motors, accounted for approximately 79 percent and 77 percent
of MEI's accounts receivable balance, respectively. General Motors also
accounted for 85.4 percent, 83.3 percent and 72.9 percent in total sales in
1998, 1997 and 1996, respectively.
Accounts receivable include both billed and unbilled receivables. Unbilled
receivables, which consist of amounts for services rendered under time and
materials contracts which have not yet been billed and amounts for services
rendered under fixed price contracts in excess of amounts already billed,
totalled $3,275 and $1,039 as of December 26, 1998 and December 31, 1997,
respectively. All such billings can be rendered and should be collected within
the ensuing year. MEI generally does not bill in advance of providing services.
F-80
<PAGE> 173
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment as of December 26, 1998 and December 31, 1997
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land.......................................................... $ 2,419 $ --
Land improvements............................................. 547 --
Buildings..................................................... 15,828 --
Machinery and computer equipment.............................. 9,515 3,778
Office equipment.............................................. 1,705 1,898
Computer software............................................. 488 --
Leasehold improvements........................................ 5,613 4,561
-------- -------
36,115 10,237
Less accumulated depreciation............................... 14,580 6,846
-------- -------
$ 21,535 $ 3,391
======== =======
</TABLE>
5. ACCRUED EXPENSES:
Accrued expenses consist of the following at December 26, 1998 and December
31, 1997 respectively:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Accrued health insurance.................................... $ 363 $ 595
Accrued taxes............................................... 626 151
Other....................................................... 92 510
------- ------
$ 1,081 $1,256
======= ======
</TABLE>
6. INCOME TAXES:
The provision for income taxes for the years ended December 26, 1998, and
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income (loss) before income tax provision (benefit)
Domestic ...................................... $ 6 $(3,548) $ 2,928
Foreign ....................................... 1,236 (806) 45
------- ------- -------
$ 1,242 $(4,354) $ 2,973
======= ======= =======
Income tax provision (benefit)
Current
Domestic ...................................... $ 236 $(1,118) $ 1,218
Foreign ....................................... 225 -- 24
Deferred ........................................
Domestic ...................................... (221) (65) (207)
Foreign ....................................... 427 (427) --
------- ------- -------
$ 667 $(1,610) $ 1,035
======= ======= =======
U.S. federal statutory rate ....................... 34% 34% 34%
Provision (benefit) at U.S. statutory rate ........ $ 422 $(1,481) $ 1,011
Higher effective foreign tax rate................. 235 (153) --
Other ............................................. 10 24 24
------- ------- -------
Income tax provision (benefit) .................... $ 667 $(1,610) $ 1,035
======= ======= =======
Deferred tax assets:
Property and equipment .......................... $ 1,091 $ 819 $ 586
Accrued liabilities ............................. 240 245 420
Accounts receivable ............................. 39 -- --
Net operating loss carryforward.................. -- 427 --
Other ........................................... (73) 13 6
------- ------- -------
Net deferred tax asset ........................ $ 1,297 $ 1,504 $ 1,012
======= ======= =======
</TABLE>
F-81
<PAGE> 174
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
7. COMMITMENTS:
The Company leases certain office and data processing equipment. The leases
expire on various dates through 2000. Future minimum lease commitments in effect
at December 26, 1998 under all noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
------
<S> <C>
Year ended December 31:
1999 $ 902
2000 250
-------
$ 1,152
=======
</TABLE>
Rent expense was approximately $1,766, $2,919 and $2,400 for the years
ended December 26, 1998 and December 31, 1997 and 1996, respectively.
MEI owns approximately 210,000 square feet of office and storage space
which it leases to its primary customer, General Motors. Rental income resulting
from these leases totaled $4.5 million, $4.0 million and $4.0 million for the
fiscal year ended December 26, 1998 and for the years ended December 31, 1997
and 1996, respectively.
8. RELATED-PARTY TRANSACTIONS:
Concurrent with the sale, effective December 26, 1998, of MEI to MSXI, the
seller contributed the net assets of certain businesses to MEI and retained
certain net assets not acquired by MSXI. The book value of net assets
contributed to MEI aggregate $21,214.
Included in accounts receivable are amounts due from various affiliates
aggregating $773 and $1,426 at December 26, 1998 and December 31, 1997,
respectively. Included in accounts payable are amounts due to various affiliates
aggregating $50 and $593 at December 26, 1998 and December 31, 1997,
respectively.
9. SUBSEQUENT EVENT:
JCI entered into an agreement dated December 22, 1998, whereby JCI sold all
of the shares of MEI to MSXI, effective December 26, 1998. The sales price was
in excess of book value.
No effect has been given to this transaction in the accompanying financial
statements.
F-82
<PAGE> 175
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General incorporation Law provides, generally,
that a corporation shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any action, suit or proceeding
(except actions by or in the right of the corporation) by reason of the fact
that such person is or was a director or officer of the corporation against all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had not reasonable cause to believe his conduct
was unlawful. A corporation may similarly indemnify such person for expenses
actually and reasonably incurred by him in connection with the defense or
settlement of any action or suit by or in the right of the corporation, provided
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and, in the case of
claims, issues and matters as to which such person shall have been adjudged
liable to the corporation, provided that a court shall have determined, upon
application, that, despite the adjudication of liability but in view of all of
the circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses which such court shall deem proper.
Section 102(b)(7) of the Delaware General Corporation Law provides,
generally, that the certificate of incorporation may contain a provisions
elimination or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision may not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law, (iii) under
section 174 of Title 8, or (iv) for any transaction form which the director
derived an improper personal benefit. No such provision may eliminate or limit
the liability of a director for any act or omission occurring prior to the date
which such provision becomes effective.
Article FOUR, Section 1 of the Company's By-laws provides as follows:
"The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or
was or has agreed to become a Director of officer of the Corporation,
or is or was serving or has agreed to serve at the request of the
Corporation as a Director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of
any action alleged to have been taken or omitted in such capacity, and
may indemnify any person who was or is a party or is threatened to be
made a party to such an action, suit or proceeding by reason of the
fact that he is or was or has agreed to become an employee or agent of
the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action suit or proceeding and
any appeal therefrom, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful; except that in the case of an action or suit by or in the
right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys'
fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Corporation unless
and only to the extent that the Delaware Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
<PAGE> 176
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to be believed that his conduct was
unlawful."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 -- Stock Purchase Agreement dated as of December 22, 1998 among
MegaTech Engineering, Inc., Becker Group, Inc. and MSX
International Engineering Services, Inc. (4)
3.1 -- Restated Certificate of Incorporation of the Company. (1)
3.2 -- Amended and Restated By-laws of the Company. (1)
4.1 -- Indenture dated as of January 15, 1998 by and between the
Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust
Company, as trustee, in respect of the 11 3/8% Senior
Subordinated Notes due 2008. (1)
4.2 -- Form of Old Notes issued pursuant to Rule 144A and Regulation S.
4.3 -- Form of Exchange Notes to be issued the Exchange Offer.
4.4 -- Registration Agreement dated as of May 18, 1999 by and among the
Company, the Subsidiary Guarantors and Salomon Brothers Inc.,
Lehman Brothers Inc. and First Chicago Capital Markets, Inc.
5.1 -- Opinion of Davis Polk & Wardwell as to the validity of the
Exchange Notes and the related guarantees.
10.1 -- Stockholders' Agreement dated as of January 3, 1997 among the
Company, MascoTech, Inc. ("MascoTech"), Citicorp Venture Capital,
Ltd. ("CVC") and certain executive officers and directors of the
Company (1) and Amendment to Stockholders' Agreement dated August
10, 1998. (3)
10.2 -- Registration Rights Agreement dated as of January 3, 1997 among
the Company, CVC, MascoTech and certain executive officers and
directors of the Company. (1)
10.3 -- Amended and Restated Credit Agreement dated as of April 14, 1998
among the Company, the Subsidiary Guarantors and NBD Bank as
agent to the lenders party thereto. (1)
10.4 -- Master Vendor Agreement dated as of August 31, 1997 between the
Company and Ford Motor Company ("Ford"). (1)
10.5 -- Master Supply Agreement dated as of August 31, 1997 between the
Company and Ford. (1)
10.6 -- MascoTech Subscription Agreement dated as of January 3, 1997
between the Company and MascoTech. (1)
10.7 -- CVC Subscription Agreement dated as of January 3, 1997 between
the Company and CVC. (1)
10.8 -- Management Subscription Agreement dated as of January 3, 1997
between the Company and certain executive officers of the
Company. (1)
10.9 -- Stock Purchase Agreement dated as of July 25, 1997 between MSX
International (Holdings), Inc. and Ford. (1)
10.10 -- Acquisition Agreement dated as of November 12, 1996 among the
Company, MascoTech and ASG Holdings Inc. (1)
10.11 -- Employment Agreement dated as of January 3, 1997 between the
Company and Ralph L. Miller (1) and the amendment thereto dated
May 1, 1998 (3)
10.12 -- Employment Agreement dated as of January 3, 1997 between the
Company and Frederick K. Minturn. (1)
10.13 -- Asset Purchase Agreement dated as of October 23, 1998, between
MSX International Engineering Services, Inc. and Lexstra
International, Inc. and Lexus Temporaries, Inc. (2)
10.14 -- Deferred Compensation Plan. (1)
II-2
<PAGE> 177
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.15 -- Services Agreement dated as of May 21, 1998 between MSX
International, Inc., and St. Clair Group, Inc. (3)
12.1 -- Statement re: Computation of Ratio of Earnings to Fixed
Charges.
21.1 -- Subsidiaries of the Company. (3)
23.1 -- Consent of PricewaterhouseCoopers LLP re: MSX International, Inc.
23.2 -- Consent of PricewaterhouseCoopers LLP re: MegaTech Engineering,
Inc.
23.3 -- Consent of PricewaterhouseCoopers LLP re: Lexus Temporaries, Inc.
23.4 -- Consent of PricewaterhouseCoopers LLP re: Lexstra International,
Inc.
23.5 -- Consent of Urbach Kahn & Werlin re: Lexstra International, Inc.
23.6 -- Consent of Urbach Kahn & Werlin re: Lexus Temporaries, Inc.
23.7 -- Consent of Davis Polk & Wardwell (contained in Exhibit 5.1).
25.1 -- Statement of eligibility of Trustee on Form T-1. (1)
99.1 -- Letter of Transmittal.
99.2 -- Notice of Guaranteed Delivery.
99.3 -- Instruction to Registered Holder and/or Book-entry transfer of
Participant.
99.4 -- Form of Letter to Clients.
99.5 -- Form of Letter to Registered Holders and Depository Trust Company
Participants.
- -------------------
(1) Incorporated by reference to the Exhibits filed with MSX
International's Registration Statement on Form S-4 filed
July 21, 1998, File No. 333-49821.
(2) Incorporated by reference to the Exhibits filed with MSX
International's Current Report on Form 8-K filed October 28,
1998.
(3) Incorporated by reference to the Exhibits filed with MSX
International's Annual Report on Form 10-K for the year ended
January 3, 1999.
(4) Incorporated by reference to the Exhibits filed with MSX
International's Current Report on Form 8-K filed June 30, 1999.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) (i) that is filed pursuant to paragraph (1) immediately
preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 178
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant had been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE> 179
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Auburn Hills, State of
Michigan on June 30, 1999.
MSX INTERNATIONAL, INC.
By: /s/ FREDERICK K. MINTURN
---------------------------------
Frederick K. Minturn
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward Mannino and Frederick K. Minturn, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and revocation, for him or her and in his or her name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments to this Registration Statement) and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons, in the
capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ ERWIN H. BILLIG Chief Executive Officer; Chairman of the Board of
- ------------------------------------------- Directors
Erwin H. Billig
/s/ FREDERICK K. MINTURN Executive Vice President and Chief Financial Officer
- -------------------------------------------
Frederick K. Minturn
/s/ RICHARD A. MANOOGIAN Director
- -------------------------------------------
Richard A. Manoogian
/s/ RICHARD M. CASHIN, JR. Director
- -------------------------------------------
Richard M. Cashin, Jr.
/s/ MICHAEL A. DELANEY Director
- -------------------------------------------
Michael A. Delaney
/s/ DAVID E. COLE Director
- -------------------------------------------
David E. Cole
/s/ LEE GARDNER Director
- -------------------------------------------
Lee Gardner
</TABLE>
II-5
<PAGE> 180
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Auburn Hills, State of
Michigan on June 30, 1999.
MSX INTERNATIONAL TECHNOLOGY
SERVICES, INC.
By: /s/ FREDERICK K. MINTURN
---------------------------------
Frederick K. Minturn
Vice President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward Mannino and Frederick K. Minturn, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and revocation, for him or her and in his or her name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments to this Registration Statement) and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons, in the
capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ ERWIN H. BILLIG Chief Executive Officer; Director
- -------------------------------------------
Erwin H. Billig
/s/ ROGER FRIDHOLM President; Director
- -------------------------------------------
Roger Fridholm
/s/ FREDERICK K. MINTURN
- ------------------------------------------- Vice President, Treasurer and Secretary; Director
Frederick K. Minturn
</TABLE>
II-6
<PAGE> 181
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Auburn Hills, State of
Michigan on June 30, 1999.
MSX INTERNATIONAL BUSINESS SERVICES, INC.
By: /s/ JOHN W. RISK
--------------------------------------
John W. Risk
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward Mannino and Frederick K. Minturn, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and revocation, for him or her and in his or her name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments to this Registration Statement) and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons, in the
capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ ERWIN H. BILLIG Chief Executive Officer; Director
- -------------------------------------------
Erwin H. Billig
/s/ JOHN W. RISK President; Director
- -------------------------------------------
John W. Risk
/s/ FREDERICK K. MINTURN Vice President, Treasurer and Assistant Secretary;
- ------------------------------------------- Director
Frederick K. Minturn
</TABLE>
II-7
<PAGE> 182
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Auburn Hills, State of
Michigan on June 30, 1999.
MSX INTERNATIONAL ENGINEERING SERVICES,
INC.
By: /s/ FREDERICK K. MINTURN
--------------------------------------
Frederick K. Minturn
Vice President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward Mannino and Frederick K. Minturn, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and revocation, for him or her and in his or her name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments to this Registration Statement) and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons, in the
capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ ERWIN H. BILLIG Chief Executive Officer; Director
- -------------------------------------------
Erwin H. Billig
/s/ ROGER FRIDHOLM President; Director
- -------------------------------------------
Roger Fridholm
/s/ FREDERICK K. MINTURN Vice President, Treasurer and Secretary; Director
- -------------------------------------------
Frederick K. Minturn
</TABLE>
II-8
<PAGE> 183
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Auburn Hills, State of
Michigan on June 30, 1999.
MSX INTERNATIONAL (HOLDINGS), INC.
By: /s/ FREDERICK K. MINTURN
-----------------------------
Frederick K. Minturn
Vice President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward Mannino and Frederick K. Minturn, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and revocation, for him or her and in his or her name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments to this Registration Statement) and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons, in the
capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Chief Executive Officer; Director
/s/ ERWIN H. BILLIG
- -------------------------------------------
Erwin H. Billig
President; Director
/s/ ROGER FRIDHOLM
- -------------------------------------------
Roger Fridholm
/s/ FREDERICK K. MINTURN Vice President, Treasurer and Secretary; Director
- -------------------------------------------
Frederick K. Minturn
</TABLE>
11-9
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Auburn Hills, State of
Michigan on June 30, 1999.
MSX INTERNATIONAL (USA), INC.
By: /s/ FREDERICK K. MINTURN
---------------------------
Frederick K. Minturn
Vice President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward Mannino and Frederick K. Minturn, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and revocation, for him or her and in his or her name,
place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments to this Registration Statement) and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons, in the
capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Chief Executive Officer; Director
/s/ ERWIN H. BILLIG
- -------------------------------------------
Erwin H. Billig
President; Director
/s/ ROGER FRIDHOLM
- -------------------------------------------
Roger Fridholm
Vice President, Treasurer and Secretary; Director
/s/ FREDERICK K. MINTURN
- -------------------------------------------
Frederick K. Minturn
</TABLE>
II-10
<PAGE> 185
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.7 -- Stock Purchase Agreement dated as of December 22, 1998 among
MegaTech Engineering, inc. and Becker Group, Inc. and MSX
International Engineering Services, Inc. (4)
3.1 -- Restated Certificate of Incorporation of the Company. (1)
3.2 -- Amended and Restated By-laws of the Company. (1)
4.1 -- Indenture dated as of January 15, 1998 by and between the
Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust
Company, as trustee, in respect of the 11 3/8% Senior
Subordinated Notes due 2008. (1)
4.2 -- Form of Old Notes issued pursuant to Rule 144A and Regulation S.
4.3 -- Form of New Notes to be issued the Exchange Offer.
4.4 -- Registration Agreement dated as of May 18, 1999 by and among the
Company, the Subsidiary Guarantors and Salomon Brothers Inc.,
Lehman Brothers Inc. and First Chicago Capital Markets, Inc.
5.1 -- Opinion of Davis Polk & Wardwell as to the validity of the
Exchange Notes and the related guarantees.
10.1 -- Stockholders' Agreement dated as of January 3, 1997 among the
Company, MascoTech, Inc. ("MascoTech"), Citicorp Venture Capital,
Ltd. ("CVC") and certain executive officers and directors of the
Company and Amendment to Stockholders' Agreement dated August 10,
1998. (3)
10.2 -- Registration Rights Agreement dated as of January 3, 1997 among
the Company, CVC, MascoTech and certain executive officers and
directors of the Company. (1)
10.3 -- Amended and Restated Credit Agreement dated as of April 14, 1998
among the Company, the Subsidiary Guarantors and NBD Bank as
agent to the lenders party thereto. (1)
10.4 -- Master Vendor Agreement dated as of August 31, 1997 between the
Company and Ford Motor Company ("Ford"). (1)
10.5 -- Master Supply Agreement dated as of August 31, 1997 between the
Company and Ford. (1)
10.6 -- MascoTech Subscription Agreement dated as of January 3, 1997
between the Company and MascoTech. (1)
10.7 -- CVC Subscription Agreement dated as of January 3, 1997 between
the Company and CVC. (1)
10.8 -- Management Subscription Agreement dated as of January 3, 1997
between the Company and certain executive officers of the
Company. (1)
10.9 -- Stock Purchase Agreement dated as of July 25, 1997 between MSX
International (Holdings), Inc. and Ford. (1)
10.10 -- Acquisition Agreement dated as of November 12, 1996 among the
Company, MascoTech and ASG Holdings Inc. (1)
10.11 -- Employment Agreement dated as of January 3, 1997 between the
Company and Ralph L. Miller. (3)
10.12 -- Employment Agreement dated as of January 3, 1997 between the
Company and Frederick K. Minturn. (1)
10.13 -- Asset Purchase Agreement dated as of October 23, 1998, between
MSX International Engineering Services, Inc. and Lexstra
International, Inc. and Lexus Temporaries, Inc. (2)
10.14 -- Deferred Compensation Plan. (1)
10.15 -- Services Agreement dated as of May 21, 1998 between MSX
International, Inc., and St. Clair Group, Inc. (3)
12.1 -- Statement re: Computation of Ratio of Earnings to Fixed
Charges.
21.1 -- Subsidiaries of the Company. (3)
23.1 -- Consent of PricewaterhouseCoopers LLP re: MSX International, Inc.
23.2 -- Consent of PricewaterhouseCoopers LLP re: MegaTech Engineering,
Inc.
23.3 -- Consent of PricewaterhouseCoopers LLP re: Lexus Temporaries, Inc.
23.4 -- Consent of PricewaterhouseCoopers LLP re: Lexstra International,
Inc.
23.5 -- Consent of Urbach Kahn & Werlin re: Lexstra International, Inc.
23.6 -- Consent of Urbach Kahn & Werlin re: Lexus Temporaries, Inc.
23.7 -- Consent of Davis Polk & Wardwell (contained in Exhibit 5.1).
25.1 -- Statement of eligibility of Trustee on Form T-1. (1)
99.1 -- Letter of Transmittal.
99.2 -- Notice of Guaranteed Delivery.
99.3 -- Instruction to Registered Holder and/or Book-entry transfer of
Participant.
99.4 -- Form of Letter to Clients.
99.5 -- Form of Letter to Registered Holders and Depository Trust Company
Participants.
- -------------------
(1) Incorporated by reference to the Exhibits filed with MSX
International's Registration Statement on Form S-4 filed
July 21, 1998, File No. 333-49821.
(2) Incorporated by reference to the Exhibits filed with MSX
International's Current Report on Form 8-K filed October 28,
1998.
(3) Incorporated by reference to the Exhibits filed with MSX
International's Annual Report on Form 10-K for the year ended
January 3, 1999.
(4) Incorporated by reference to the Exhibits filed with MSX
International's Current Report on Form 8-K filed June 30, 1999.
<PAGE> 1
EXHIBIT 4.2
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY
OF THE ISSUANCE HEREOF (OR A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED
BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), AND, IF SUCH TRANSFER
IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE (AS DEFINED
BELOW) PRIOR TO THE EXPIRATION OF THE "40 DAY RESTRICTED PERIOD" (WITHIN THE
MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT), A
CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE IS DELIVERED
BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (4) TO AN INSTITUTION THAT IS
AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
1
<PAGE> 2
(3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY) THAT
IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND
A CERTIFICATE IN THE FORM ATTACHED TO THIS SECURITY IS DELIVERED BY THE
TRANSFEREE TO THE COMPANY AND THE TRUSTEE (PROVIDED THAT CERTAIN HOLDERS
SPECIFIED IN THE INDENTURE MAY NOT TRANSFER THIS SECURITY PURSUANT TO THIS
CLAUSE (4) PRIOR TO THE EXPIRATION OF THE "40 DAY RESTRICTED PERIOD" (WITHIN THE
MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT)), (5)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT
WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES, LEGAL OPINIONS
AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY
TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE
HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE
BENEFIT OF THE COMPANY THAT (1) IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) IT IS AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) IT IS A NON-U.S. PERSON
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE
REQUIREMENTS OF PARAGRAPH (o)(2) OR RULE 902 UNDER) REGULATION S UNDER THE
SECURITIES ACT.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE
OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY
OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN
2
<PAGE> 3
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
3
<PAGE> 4
No. 1
$30,000,000
11 3/8% Senior Subordinated Notes Due 2008
CUSIP No. 553758AD5
MSX INTERNATIONAL, INC., a Delaware corporation, promises to pay
to Cede & Co., or registered assigns, the principal sum of Ninety-Nine Million
Eight Hundred Fifty Thousand U.S. Dollars on January 15, 2008.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
Additional provisions of this Security are set forth on the
reverse side of this Security.
4
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
MSX INTERNATIONAL, INC.
By:
---------------------------------
Name:
Title:
Dated:
5
<PAGE> 6
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ Schroder Bank & Trust Company, as Trustee, certifies that this is one of the
Securities referred to in the within-mentioned Indenture.
By: IBJ WHITEHALL BANK & TRUST
COMPANY, as Trustee
By:
----------------------------------
Name:
Title:
Date of Authentication:
6
<PAGE> 7
[REVERSE OF SECURITY]
11 3/8% SENIOR SUBORDINATED SECURITY DUE 2008
1. Interest
MSX INTERNATIONAL, INC., a Delaware corporation (such entity, and
its successors and assigns under the Indenture hereinafter referred to, and each
other entity which is required to become the Company pursuant to the Indenture,
and its successors and assigns under the Indenture, being herein called the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. The Company will pay interest semi-annually on
January 15 and July 15 of each year, commencing July 15, 1998. Interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from January 22, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The Company
shall pay interest on overdue principal at 1% per annum in excess of the rate
borne by the Securities, and it shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the record date immediately preceding the interest payment date
even if Securities are canceled on registration of transfer or registration of
exchange (including pursuant to an Exchange Offer (as defined in the applicable
Registration Agreement)) after the record date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by its check payable in such
U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder's registered address.
3. Paying Agent and Registrar
Initially, IBJ Whitehall Bank & Trust Company, a national banking
corporation ("Trustee"), will act as Paying
7
<PAGE> 8
Agent and Registrar. The Company may appoint and change any Paying Agent,
Registrar or co-registrar without notice. The Company may act as Paying Agent,
Registrar, co-Registrar or transfer agent.
4. Indenture
The Company issued the Securities under an Indenture dated as of
January 15, 1998 (the "Indenture"), among the Company, the Subsidiary Guarantors
and the Trustee. This Security is one of a duly authorized issue of Initial
Securities of the Company designated as its 11 3/8% Senior Subordinated Notes
due 2008 (the "Initial Securities"). The Securities include the Initial
Securities and the Exchange Securities (as defined in the Indenture) issued in
exchange for the Initial Securities pursuant to the Registration Agreement. The
Initial Securities and the Exchange Securities are treated as a single class of
securities under the Indenture. The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. ss. 77aaa-77bbbb) as in effect on the date of
the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are subject
to all such terms, and Securityholders are referred to the Indenture and the TIA
for a statement of those terms. Any conflict between this Security and the
Indenture will be governed by the Indenture.
The Securities are unsecured senior subordinated obligations of
the Company limited to $130,000,000 aggregate principal amount. The Indenture
imposes certain limitations on the Incurrence of Indebtedness by the Company and
its Restricted Subsidiaries, the existence of liens, the payment of dividends
on, and redemption of, the Capital Stock of the Company and its Subsidiaries,
restricted payments, the sale or transfer of assets and Subsidiary stock, the
issuance or sale of Capital Stock of Restricted Subsidiaries, the investments of
the Company and its Restricted Subsidiaries, consolidations, mergers and
transfers of all or substantially all the assets of the Company, and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and certain of its Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal,
premium and interest, if any, on the Securities and
8
<PAGE> 9
all other amounts payable by the Company under the Indenture and the Securities
when and as the same shall be due and payable, whether at maturity, by
acceleration or otherwise, according to the terms of the Securities and the
Indenture, the Subsidiary Guarantors have unconditionally guaranteed the
Obligations on a senior subordinated basis pursuant to the terms of the
Indenture.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not
be redeemed at the option of the Company prior to January 15, 2003. Thereafter,
the Securities will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date) if
redeemed during the 12-month period commencing on January 15 of the years set
forth below:
Period Percentage
------ ----------
2003........................................ 105.6875%
2004........................................ 103.7917%
2005........................................ 101.8958%
2006 and thereafter......................... 100.0000%
In addition, at any time and from time to time prior to January
15, 2001, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the proceeds of one or more Public
Equity Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 111.375% plus accrued and
unpaid interest, if any, to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% of the original
aggregate principal amount of the Securities must remain outstanding after each
such redemption.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least
30 days but not more than 60 days before the re-
9
<PAGE> 10
demption date to each Holder of Securities to be redeemed at his registered
address. Securities in denominations larger than $1,000 may be redeemed in part
but only in whole multiples of $1,000. If money sufficient to pay the redemption
price of and accrued interest on all Securities (or portions thereof) to be
redeemed on the redemption date is deposited with the Paying Agent on or before
the redemption date and certain other conditions are satisfied, on and after
such date interest ceases to accrue on such Securities (or such portions
thereof) called for redemption. If a notice or communication is sent in the
manner provided in the Indenture, it is duly given, whether or not the addressee
receives it. Failure to send a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
In addition, in the event of certain Asset Dispositions, the
Company will be required to make an offer to purchase Securities at a purchase
price of 100% of their principal amount plus accrued interest to the date of
purchase (subject to the rights of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date) as provided in,
and subject to the terms of, the Indenture.
7. Change of Control
Upon a Change of Control, each Holder of Securities will have the
right to require the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price in cash equal to 101% of the principal amount
of the Securities to be repurchased plus accrued and unpaid interest to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
8. The Registration Agreement
The holder of this Security is entitled to the benefits of a
Registration Agreement, dated as of January 22, 1998, among the Company, the
Subsidiary Guarantors and the Initial Purchasers named therein (as such may be
amended from time to time, the "Registration Agreement"). Capitalized terms used
in this subsection but not defined herein have the meanings assigned to them in
the Registration Agreement.
10
<PAGE> 11
In the event that (i) neither the Exchange Offer Registration
Statement nor the Shelf Registration Statement has been filed with the
Commission within 90 days after the Issue Date, (ii) within 180 days after the
Issue Date, either the Exchange Offer Registration Statement or the Shelf
Registration Statement has not been declared effective (provided that this
clause (ii) shall not apply to any Securities as to which a Shelf Registration
Statement is requested by an Initial Purchaser), (iii) within 210 days of the
Issue Date, the Exchange Offer has not been consummated or, with respect to any
Securities as to which a Shelf Registration Statement is requested by an Initial
Purchaser, such Shelf Registration Statement has not been declared effective
within 240 days after the Issue Date, or (iv) after either the Exchange Offer
Registration Statement or the Shelf Registration Statement has been declared
effective, such Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions set forth in the Registration Agreement)
in connection with resales of the Securities or the Exchange Securities at any
time that the Company is obligated to maintain the effectiveness thereof
pursuant to the Registration Agreement (each such event referred to in clauses
(i) through (iv) above being referred to herein as a "Registration Default"),
interest ("Special Interest") will accrue on the Securities and the Exchange
Securities (in addition to the interest described above) from and including the
date on which any Registration Default shall occur but excluding the date on
which all such Registration Defaults have been cured. Special Interest shall
accrue at a rate of 0.25% per annum during the 90-day period immediately
following the occurrence of any Registration Default and shall increase by 0.25%
per annum at the end of each subsequent 90-day period, but in no event shall
such Special Interest exceed 1.00% per annum.
9. Subordination
The Securities are subordinated to Senior Indebtedness of the
Company, as defined in the Indenture. To the extent provided in the Indenture,
Senior Indebtedness of the Company must be paid before the Securities may be
paid. In addition, each Subsidiary Guarantee is subordinated to Senior
Indebtedness of the relevant Subsidiary Guarantor, as defined in the Indenture.
The Company and each Subsidiary Guarantor agrees, and each Holder by accepting a
Security agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give it effect and appoints the Trustee as
attorney-in-fact for such purpose.
11
<PAGE> 12
10. Denominations; Transfer; Exchange
The Securities are in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture, including any transfer tax or other similar governmental charge
payable in connection therewith. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner
of it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and the Indenture
if the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the consent of the Holders of at
least a majority in principal amount outstanding of the Securities and (ii) any
past default
12
<PAGE> 13
or compliance with any provision may be waived with the consent of the Holders
of a majority in principal amount outstanding of the Securities. Subject to
certain exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company, the Subsidiary Guarantors and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, to comply with Article 5 of the Indenture, to provide for
uncertificated Securities in addition to or in place of certificated Securities,
to add guarantees with respect to the Securities, to secure the Securities, to
add additional covenants or surrender rights and powers conferred on the
Company, to make any change that does not adversely affect the rights of any
Securityholder or to comply with any request of the SEC in connection with
qualifying the Indenture under the TIA.
15. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on any Security when due at its Stated Maturity, upon redemption
pursuant to paragraphs 5 or 6 above, upon required repurchase, upon acceleration
or otherwise, (iii) failure by the Company to comply for 60 days after notice
with any of its obligations under Sections 4.3, 4.5, 4.7 and 5.1 of the
Indenture; (iv) failure by the Company to comply for 60 days after notice with
other agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (v) failure by the Company or any Significant
Subsidiary to pay any Indebtedness within any applicable grace period after
final maturity or acceleration by the Holders thereof because of a default and
the total amount of such Indebtedness unpaid or accelerated exceeds $5.0
million; (vi) certain events of bankruptcy, insolvency or reorganization of the
Company or any Significant Subsidiary; and (vii) the rendering of any judgments
or decrees for the payment of money in excess of $5.0 million is rendered
against the Company or a Restricted Subsidiary.
If an Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the Securities then
outstanding may declare all the Securities to be due and payable. Certain events
of bankruptcy or insolvency are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
13
<PAGE> 14
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or any of its Affiliates and may otherwise
deal with the Company or any of its Affiliates with the same rights it would
have if it were not Trustee.
17. No Recourse Against Others
No recourse for the payment of the principal of, premium, if any,
or interest on any of the Securities or for any claim based thereon or otherwise
in respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture, or in any of the Securities or
because of the creation of any Indebtedness represented hereby and thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company, a Subsidiary Guarantor or any Successor
Person thereof. Each Holder, by accepting a Security, waives and releases all
such liability.
18. Guarantees
This Security will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
14
<PAGE> 15
19. Governing Law
The Indenture and the Securities shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflict of laws to the extent that the
application of the laws of another jurisdiction would be required thereby.
20. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
21. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with rights of survivorship
and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift
to Minors Act).
22. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and have directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written
request and without charge to the Securityholder a copy of the Indenture.
Requests may be made as follows:
If to the Company:
MSX International, Inc.
275 Rex Boulevard
Auburn Hills, MI 48326
15
<PAGE> 16
If to the Trustee:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
Attention: Corporate Trust Department
Facsimile: (212) 858-2932
Telephone: (212) 858-2000
16
<PAGE> 1
EXHIBIT 4.3
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE
OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY
OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
<PAGE> 2
-2-
No.
$30,000,000
11 3/8% SENIOR SUBORDINATED NOTES DUE 2008
CUSIP No. [ ]
MSX INTERNATIONAL, INC., a Delaware corporation, promises to
pay to Cede & Co., or registered assigns, the principal sum of
Dollars on January 15, 2008.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
Additional provisions of this Security are set forth on the
reverse side of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
MSX INTERNATIONAL, INC.
By:
Name:
Title:
Dated:
<PAGE> 3
-3-
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ Whitehall Bank & Trust Company, as Trustee, certifies that this is one of
the Securities referred to in the within-mentioned Indenture.
By: IBJ WHITEHALL BANK & TRUST
COMPANY,
as Trustee
----------------------------
Authorized Signatory
Date of Authentication:
<PAGE> 4
-4-
[REVERSE OF SECURITY]
11 3/8% SENIOR SUBORDINATED NOTE DUE 2008
1. Interest
MSX INTERNATIONAL, INC., a Delaware corporation (such entity,
and its successors and assigns under the Indenture hereinafter referred to, and
each other entity which is required to become the Company pursuant to the
Indenture, and its successors and assigns under the Indenture, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay interest
semi-annually on January 15 and July 15 of each year, commencing [ ]. Interest
on the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from May 18, 1999. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The Company
shall pay interest on overdue principal at 1% per annum in excess of the rate
borne by the Securities, and it shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the record date immediately preceding the interest
payment date even if Securities are canceled on registration of transfer or
registration of exchange (including pursuant to an Exchange Offer (as defined in
the applicable Registration Agreement)) after the record date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts
("U.S. Legal Tender"). However, the Company may pay principal and interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder's registered address.
3. Paying Agent and Registrar
Initially, IBJ Schroder Bank & Trust Company, a national
banking corporation ("Trustee"), will act as Paying
<PAGE> 5
-5-
Agent and Registrar. The Company may appoint and change any Paying Agent,
Registrar or co-registrar without notice. The Company may act as Paying Agent,
Registrar, co-Registrar or transfer agent.
4. Indenture
The Company issued the Securities under an Indenture dated as
of January 15, 1998 (the "Indenture"), among the Company, the Subsidiary
Guarantors and the Trustee. This Security is one of a duly authorized issue of
Unrestricted Securities of the Company designated as its 11 3/8% Senior
Subordinated Notes due 2008 (the "Unrestricted Securities"). The Securities
include the 11 3/8% Senior Subordinated Notes due 2008 (the "Initial
Securities") and the Exchange Securities (as defined in the Indenture) issued in
exchange for the Initial Securities pursuant to the Registration Agreement. The
Initial Securities and the Exchange Securities are treated as a single class of
securities under the Indenture. The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. ss. 77aaa-77bbbb) as in effect on the date of
the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are subject
to all such terms, and Securityholders are referred to the Indenture and the TIA
for a statement of those terms. Any conflict between this Security and the
Indenture will be governed by the Indenture.
The Securities are unsecured senior subordinated obligations
of the Company limited to $130,000,000 aggregate principal amount. The Indenture
imposes certain limitations on the Incurrence of Indebtedness by the Company and
its Restricted Subsidiaries, the existence of liens, the payment of dividends
on, and redemption of, the Capital Stock of the Company and its Subsidiaries,
restricted payments, the sale or transfer of assets and Subsidiary stock, the
issuance or sale of Capital Stock of Restricted Subsidiaries, the investments of
the Company and its Restricted Subsidiaries, consolidations, mergers and
transfers of all or substantially all the assets of the Company, and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and certain of its Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal,
premium and interest, if any, on the Securities and
<PAGE> 6
-6-
all other amounts payable by the Company under the Indenture and the Securities
when and as the same shall be due and payable, whether at maturity, by
acceleration or otherwise, according to the terms of the Securities and the
Indenture, the Subsidiary Guarantors have unconditionally guaranteed the
Obligations on a senior subordinated basis pursuant to the terms of the
Indenture.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may
not be redeemed prior to January 15, 2003. Thereafter, the Securities will be
redeemable, at the Company's option, in whole or in part, at any time or from
time to time, at the following redemption prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) if redeemed during
the 12-month period commencing on January 15 of the years set forth below:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2003.......................... 105.6875%
2004.......................... 103.7917%
2005.......................... 101.8958%
2006 and thereafter........... 100.0000%
</TABLE>
In addition, at any time and from time to time prior to,
2001, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the proceeds of one or more Public
Equity Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 111.375% plus accrued and
unpaid interest, if any, to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% of the original
aggregate principal amount of the Securities must remain outstanding after each
such redemption.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at
<PAGE> 7
-7-
his registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money sufficient to
pay the redemption price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption. If a notice or communication
is sent in the manner provided in the Indenture, it is duly given, whether or
not the addressee receives it. Failure to send a notice or communication to a
Securityholder or any defect in it shall not affect its sufficiency with respect
to other Securityholders.
In addition, in the event of certain Asset Dispositions, the
Company will be required to make an offer to purchase Securities at a purchase
price of 100% of their principal amount plus accrued interest to the date of
purchase (subject to the rights of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date) as provided in,
and subject to the terms of, the Indenture.
7. Change of Control
Upon a Change of Control, each Holder of Securities will have
the right to require the Company to repurchase all or any part of the Securities
of such Holder at a repurchase price in cash equal to 101% of the principal
amount of the Securities to be repurchased plus accrued and unpaid interest to
the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness of the
Company, as defined in the Indenture. To the extent provided in the Indenture,
Senior Indebtedness of the Company must be paid before the Securities may be
paid. In addition, each Subsidiary Guarantee is subordinated to Senior
Indebtedness of the relevant Subsidiary Guarantor, as defined in the Indenture.
The Company and each Subsidiary Guarantor agrees, and each Holder by accepting a
Security agrees, to the subordination provisions contained in the Indenture and
author-
<PAGE> 8
-8-
izes the Trustee to give it effect and appoints the Trustee as attorney-in-fact
for such purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture, including any transfer tax or other similar governmental charge
payable in connection therewith. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and the Indenture
if the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
<PAGE> 9
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the consent of the Holders
of at least a majority in principal amount outstanding of the Securities and
(ii) any past default or compliance with any provision may be waived with the
consent of the Holders of a majority in principal amount outstanding of the
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Securityholder, the Company, the Subsidiary Guarantors and
the Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, to comply with Article 5 of the Indenture, to
provide for uncertificated Securities in addition to or in place of certificated
Securities, to add guarantees with respect to the Securities, to secure the
Securities, to add additional covenants or surrender rights and powers conferred
on the Company, to make any change that does not adversely affect the rights of
any Securityholder or to comply with any request of the SEC in connection with
qualifying the Indenture under the TIA.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities; (ii) default in payment of
principal on any Security when due at its Stated Maturity, upon redemption
pursuant to paragraphs 5 or 6 above, upon required repurchase, upon acceleration
or otherwise; (iii) failure by the Company to comply for 60 days after notice
with any of its obligations under Sections 4.3, 4.5, 4.7 or 5.1 of the
Indenture; (iv) failure by the Company to comply for 60 days after notice with
other agreements in the Indenture or the Securities, in certain cases subject to
notice or lack of time; (v) failure by the Company or any Significant Subsidiary
to pay any Indebtedness within any applicable grace period after final maturity
or acceleration by the Holders thereof because of a default and the total amount
of such Indebtedness unpaid or accelerated exceeds $5.0 million; (vi) certain
events of bankruptcy, insolvency or reorganization of the Company or any
Significant Subsidiary; and (vii) the rendering of any judgments or decrees for
the payment of money in excess of $5.0 million is rendered against the Company
or a Restricted Subsidiary.
<PAGE> 10
-10-
If an Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the Securities then
outstanding may declare all the Securities to be due and payable. Certain events
of bankruptcy or insolvency are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default (except a Default in payment of principal or interest) if it determines
that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or any of its Affiliates and may otherwise
deal with the Company or any of its Affiliates with the same rights it would
have if it were not Trustee.
16. No Recourse Against Others
No recourse for the payment of the principal of, premium, if
any, or interest on any of the Securities or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Indenture, or in any of the
Securities or because of the creation of any Indebtedness represented hereby and
thereby, shall be had against any incorporator, stockholder, officer, director,
employee or controlling person of the Company, a Subsidiary Guarantor or any
Successor Person thereof. Each Holder, by accepting a Security, waives and
releases all such liability.
<PAGE> 11
-11-
17. Guarantees
This Security will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
18. Governing Law
The Indenture and the Securities shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflict of laws to the extent that the
application of the laws of another jurisdiction would be required thereby.
19. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
20. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with rights of survivorship
and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift
to Minors Act).
21. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and have directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of re-
<PAGE> 12
-12-
demption and reliance may be placed only on the other identification numbers
placed thereon.
The Company will furnish to any Securityholder upon written
request and without charge to the Securityholder a copy of the Indenture.
Requests may be made as follows:
If to the Company:
MSX International, Inc.
275 Rex Boulevard
Auburn Hills, MI 48326
If to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attention: Corporate Trust Department
Facsimile: (212) 858-2952
Telephone: (212) 858-2000
<PAGE> 13
-13-
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Date: Your Signature:
----------------- ----------------
Sign exactly as your name
appears on the other side
of this Security.
Signature Guarantee:
----------------
(Signature must be guaranteed)
<PAGE> 14
-14-
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.7 or 4.12 of the Indenture, check the box:
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.7 or 4.12 of the Indenture, state
the amount: $
Date: Your Signature:
----------------- ----------------
(Sign exactly as your name
appears on the other side of
the Security)
Signature Guarantee:
---------------------------------------------------------
(Signature must be guaranteed)
<PAGE> 1
EXHIBIT 4.4
MSX INTERNATIONAL, INC.
$30,000,000
11 3/8% Senior Subordinated Notes Due 2008
REGISTRATION AGREEMENT
May 18, 1999
SALOMON SMITH BARNEY INC.
BANC ONE CAPITAL MARKETS, INC.
c/o Salomon Smith Barney
388 Greenwich Street
New York, NY 10013
Ladies and Gentlemen:
MSX International, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to certain purchasers (the "Purchasers"),
upon the terms set forth in a purchase agreement dated May 13, 1999 among the
parties hereto (the "Purchase Agreement"), its $30,000,000 aggregate principal
amount 11 3/8% Senior Subordinated Notes due 2008 (the "Securities"), which
securities will be guaranteed by MSX International Technology Services, Inc.,
MSX International Engineering Services, Inc., a Delaware corporation, MSX
International Business Services, Inc., a Delaware corporation, MSX International
(Holdings), Inc. and MSX International (USA), Inc., a Delaware corporation,
(each a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors")
(the "Initial Placement"). The Company and the Subsidiary Guarantors are
referred to herein as the "Issuers." As an inducement to the Purchasers to enter
into the Purchase Agreement and in satisfaction of a condition to your
obligations thereunder, the Issuers agree with you, (i) for your benefit and the
benefit of the other Purchasers and (ii) for the benefit of the holders from
time to time of the Securities (including you and the other Purchasers) (each of
the foregoing, a "Holder" and, together, the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
<PAGE> 2
-2-
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person
who, directly or indirectly, is in control of, is controlled by, or is under
common control with, such specified person. For purposes of this definition,
control of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the 180 day period
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration
statement of the Company on an appropriate form under the Act with respect to
the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the
Purchasers) which is a broker-dealer, electing to exchange Securities acquired
for its own account as a result of market-making activities or other trading
activities, for New Securities.
"Final Memorandum" means the Offering Memorandum dated May 13,
1999.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture relating to the Securities
dated as of January 15, 1998, by and among the Company,
<PAGE> 3
-3-
the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as trustee, as
the same may be amended from time to time in accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Issue Date" has the meaning set forth in the Purchase
Agreement.
"Majority Holders" means the Holders of a majority of the
aggregate principal amount of securities registered under a Registration
Statement.
"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer an underwritten
offering.
"New Securities" means debt securities of the Company
identical to the Company's currently outstanding Series A Notes (as defined in
the Final Memorandum).
"New Securities Indenture" means an indenture by and among the
Company, the Subsidiary Guarantors and the New Securities Trustee, identical in
all material respects with the Indenture (except that the interest rate step-up
provisions will be modified or eliminated, as appropriate).
"New Securities Trustee" means a bank or trust company
reasonably satisfactory to the Purchaser, as trustee with respect to the New
Securities under the New Securities Indenture.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or the New Securities, covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"Registered Exchange Offer" means the proposed offer to the
Holders to issue and deliver to such Holders, in exchange for the securities, a
like principal amount of the New Securities.
<PAGE> 4
-4-
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Securities or
the New Securities pursuant to the provisions of this Agreement, amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in
Section 3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 3 hereof which
covers some or all of the Securities or New Securities, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Trustee" means the trustee with respect to the Securities
under the Indenture.
"underwriter" means any underwriter of Securities in
connection with an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by
Exchanging Dealers; Private Exchange. (a) The Issuers shall prepare and, not
later than 90 days following the Issue Date, shall file with the Commission the
Exchange Offer Registration Statement with respect to the Registered Exchange
Offer. The Issuers shall use their best efforts to cause the Exchange Offer
Registration Statement to become effective under the Act within 180 days of the
Issue Date.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Issuers shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to ex-
<PAGE> 5
-5-
change Securities for New Securities (assuming that such Holder is not an
affiliate of any of the Issuers within the meaning of the Act, acquires the New
Securities in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the New
Securities) to trade such New Securities from and after their receipt without
any limitations or restrictions under the Act and without material restrictions
under the securities laws of a substantial proportion of the several states of
the United States.
(c) In connection with the Registered Exchange Offer, the
Issuers shall:
(i) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than
30 days (or longer if required by applicable law) after the date notice
thereof is mailed to the Holders;
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, the City of
New York; and
(iv) comply in all respects with all laws applicable to the
Registered Exchange Offer.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Issuers shall:
(i) accept for exchange all Securities validly tendered and
not validly withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all securities so
accepted for exchange; and
(iii) cause the Trustee or the New Securities Trustee, as the
case may be, promptly to authenticate and deliver to each Holder of
Securities, New Securities equal in principal amount to the Securities
of such Holder so accepted for exchange.
(e) The Purchasers and the Issuers acknowledge that, pursuant
to interpretations by the Commission's staff of Sec-
<PAGE> 6
-6-
tion 5 of the Act, and in the absence of an applicable exemption therefrom, each
Exchanging Dealer is required to deliver a Prospectus in connection with a sale
of any New Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer in exchange for Securities acquired for its own
account as a result of market-making activities or other trading activities.
Accordingly, the Issuers shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B hereto
in the forepart of the Exchange Offer Registration Statement in a
section setting forth details of the Exchange Offer, and in Annex C
hereto in the underwriting or plan of distribution section of the
Prospectus forming a part of the Exchange Offer Registration Statement,
and include the information set forth in Annex D hereto in the Letter
of Transmittal delivered pursuant to the Registered Exchange Offer; and
(ii) use their best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act during the
Exchange Offer Registration Period for delivery by Exchanging Dealers
in connection with sales of New Securities received pursuant to the
Registered Exchange Offer, as contemplated by Section 4(h) below.
3. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Issuers
determine upon advice of their outside counsel that they are not permitted to
effect the Registered Exchange Offer as contemplated by Section 2 hereof, or
(ii) for any other reason the Registered Exchange Offer is not consummated
within 180 days of the date hereof, or (iii) any Purchaser so requests with
respect to Securities not eligible to be exchanged for New Securities in a
Registered Exchange Offer and held by it following consummation of the
Registered Exchange Offer, or (iv) any Holder (other than a Purchaser) shall
notify the Company in writing that it is not eligible under applicable law to
participate in the Registered Exchange Offer (other than because it has an
understanding or arrangement with any person to participate in a distribution of
the New Securities) or (v) in the case of any Purchaser that participates in the
Registered Exchange Offer, such Purchaser does not receive freely tradeable New
Securities in exchange for Securities constituting any portion of an unsold
allotment (it being understood that, for purposes of this Section 3, (x) the
requirement that a Purchaser deliver a Prospectus containing the information
required by Items 507 and/or 508 of Regulation S-K under
<PAGE> 7
-7-
the Act in connection with sales of New Securities acquired in exchange for such
Securities shall result in such New Securities being not "freely tradeable" but
(y) the requirement that an Exchanging Dealer deliver a Prospectus in connection
with sales of New Securities acquired in the Registered Exchange Offer in
exchange for Securities acquired as a result of market-making activities or
other trading activities shall not result in such New Securities being not
"freely tradeable") or (vi) if the Company so elects; provided that any such
election shall not relieve the Company of its obligations pursuant to Section 2
hereof, the following provisions shall apply:
(a) The Issuers shall as promptly as practicable file with the
Commission and thereafter shall use their best efforts to cause to be
declared effective under the Act a Shelf Registration Statement
relating to the offer and sale of the Securities or the New Securities,
as applicable, by the Holders from time to time in accordance with the
methods of distribution elected by such Holders and set forth in such
Shelf Registration Statement; provided that, with respect to New
Securities received by a Purchaser in exchange for securities
constituting any portion of an unsold allotment, the Issuers may, if
permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or
508, as applicable, in satisfaction of their obligations under this
paragraph (a) with respect thereto, and any such Exchange Offer
Registration Statement, as so amended, shall be referred to herein as,
and governed by the provisions herein applicable to, a Shelf
Registration Statement.
(b) The Issuers shall use their best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of
two years (or until one year after its effective date if such Shelf
Registration Statement is filed at the request of any of the
Purchasers) from the date the Shelf Registration Statement is declared
effective (the "Expiration Date") by the Commission or such shorter
period that will terminate when all the Securities or New Securities,
as applicable, covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement (in any such case,
such period being called the "Shelf Registration Period"); provided
however that during any consecutive 365-day period, the Company shall
have the option to suspend avail-
<PAGE> 8
-8-
ability of the Shelf Registration Statement for up to two
30-consecutive-day periods, except for the consecutive 30-day period
immediately prior to the Expiration Date, if the Company's Board of
Directors determines in the exercise of its reasonable judgment that
there is a valid business purpose for such suspension; provided further
that if the Shelf Registration Period terminates and all the Securities
or New Securities, as applicable, covered by the Shelf Registration
Statement have not been sold, the Company will cause the effectiveness
to be extended by the number of days during which the Registration
Statement was not usable pursuant to the preceding proviso. The Issuers
shall be deemed not to have used their best efforts to keep the Shelf
Registration Statement effective during the requisite period if any
Issuer voluntarily takes any action that would result in Holders of
securities covered thereby not being able to offer and sell such
securities during that period, unless (i) such action is required by
applicable law, or (ii) such action is taken by such Issuer in good
faith and for valid business reasons (not including avoidance of such
Issuer's obligations hereunder), including the acquisition or
divestiture of assets, so long as such Issuer promptly thereafter
complies with the requirements of Section 4(k) hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Issuers shall furnish to you, prior to the filing
thereof with the Commission, a copy of any Shelf Registration Statement
and any Exchange Offer Registration Statement, and each amendment
thereof and each amendment or supplement, if any, to the Prospectus
included therein and shall use their best efforts to reflect in each
such document, when so filed with the Commission, such comments as you
reasonably may propose.
(b) The Issuers shall ensure that (i) any Registration
Statement and any amendment thereto and any Prospectus forming part
thereof and any amendment or supplement thereto complies in all
material respects with the Act and the rules and regulations
thereunder, (ii) any Registration Statement and any amendment thereto
does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein
<PAGE> 9
-9-
not misleading and (iii) any Prospectus forming part of any
Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were
made, not misleading.
(c) (1) The Issuers shall advise you or your representative
and, in the case of a Shelf Registration Statement, the Holders of
securities covered thereby, and, if requested by you or your
representative or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment thereto
has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus
included therein or for additional information.
(2) The Issuers shall advise you or your representative and,
in the case of a Shelf Registration Statement, the Holders of
securities covered thereby, and, in the case of an Exchange Offer
Registration Statement, any Exchanging Dealer which has provided in
writing to the Company a telephone or facsimile number and address for
notices, and, if requested by you or your representative or any such
Holder or Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose;
(ii) of the receipt by the Issuers of any notification
with respect to the suspension of the qualification of the
securities included therein for sale in any jurisdiction or
the initiation or threatening of any proceeding for such
purpose; and
(iii) of the happening of any event that requires the
making of any changes in the Registration Statement or the
Prospectus so that, as of such date, the
<PAGE> 10
-10-
statements therein are not misleading and do not omit to state
a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not
misleading.
(d) The Issuers shall use their best efforts to obtain the
withdrawal of any order suspending the effectiveness of any
Registration Statement at the earliest possible time.
(e) The Issuers shall furnish to each Holder of securities
included within the coverage of any Shelf Registration Statement,
without charge, at least one copy of such Shelf Registration Statement
and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those incorporated by reference).
(f) The Issuers shall, during the Shelf Registration Period,
deliver to each Holder of securities included within the coverage of
any Shelf Registration Statement, without charge, as many copies of the
Prospectus (including each preliminary Prospectus) included in such
Shelf Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Issuers consent to the use
of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of securities in connection with the offering and sale
of the securities covered by the Prospectus or any amendment or
supplement thereto.
(g) The Issuers shall furnish to each Exchanging Dealer which
so requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Exchanging
Dealer so requests in writing, all exhibits (including those
incorporated by reference).
(h) The Issuers shall, during the Exchange Offer Registration
Period, promptly deliver to each Exchanging Dealer, without charge, as
many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably request for delivery by such
Exchanging Dealer in connection with a sale of New Securi-
<PAGE> 11
-11-
ties received by it pursuant to the Registered Exchange Offer; and the
Issuers consent to the use of the Prospectus or any amendment or
supplement thereto by any such Exchanging Dealer, as aforesaid.
(i) Prior to the Registered Exchange Offer or any other
offering of securities pursuant to any Registration Statement, the
Issuers shall use their respective best efforts to register or qualify
or cooperate with the Holders of securities included therein and their
respective counsel in connection with the registration or qualification
of such securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holders reasonably request in
writing and do any and all other acts or things necessary or advisable
to enable the offer and sale in such jurisdictions of the securities
covered by such Registration Statement; provided, however, that the
Issuers will not be required to qualify generally to do business in any
jurisdiction where they are not then so qualified or to take any action
which would subject them to general service of process or to taxation
in any such jurisdiction where they are not then so subject.
(j) The Issuers shall cooperate with the Holders of Securities
to facilitate the timely preparation and delivery of certificates
representing Securities to be sold pursuant to any Registration
Statement free of any restrictive legends and in such denominations and
registered in such names as Holders may request prior to sales of
securities pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above during the period for which the Issuers are required
to maintain an effective registration statement, the Issuers shall
promptly prepare a post-effective amendment to any Registration
Statement or an amendment or supplement to the related Prospectus or
file any other required document so that, as thereafter delivered to
purchasers of the Securities included therein, the Prospectus will not
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Issuers shall provide a CUSIP number for the
Securities or New Securities,
<PAGE> 12
-12-
as the case may be, registered under such Registration Statement, and
provide the applicable trustee with printed certificates for such
Securities or New Securities, in a form eligible for deposit with The
Depository Trust Company.
(m) The Issuers shall use their best efforts to comply with
all applicable rules and regulations of the Commission and shall make
generally available to their security holders as soon as practicable
after the effective date of the applicable Registration Statement an
earnings statement satisfying the provisions of Section 11(a) of the
Act.
(n) The Issuers shall cause the Indenture or the New
Securities Indenture, as the case may be, to be qualified under the
Trust Indenture Act in a timely manner.
(o) The Issuers may require each Holder of Securities to be
sold pursuant to any Shelf Registration Statement to furnish to the
Issuers such information regarding the Holder and the distribution of
such Securities as the Issuers may from time to time reasonably require
for inclusion in such Registration Statement. No Holder may include any
of its Securities in any Shelf Registration Statement pursuant to this
Agreement unless and until such Holder furnishes to the Issuers in
writing, within 10 days after receipt of a written request therefor,
such information as the Issuers may reasonably request, including, but
not limited to, information specified by Regulation S-K or otherwise
required by the Commission for use in connection with any Shelf
Registration Statement or Prospectus or preliminary Prospectus included
therein. Each Holder as to which any Shelf Registration Statement is
being effected agrees to furnish promptly to the Issuers all
information required to be disclosed in order to make the information
previously furnished to the Issuers by such Holder not materially
misleading.
(p) The Issuers shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably agree should be included therein and
shall make all required filings of such Prospectus supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
<PAGE> 13
-13-
(q) In the case of any Shelf Registration Statement, the
Issuers shall enter into such agreements (including underwriting
agreements) and take all other appropriate actions in order to expedite
or facilitate the registration or the disposition of the Securities,
and in connection therewith, if an underwriting agreement is entered
into, cause the same to contain indemnification provisions and
procedures no less favorable than those set forth in Section 6 (or such
other provisions and procedures acceptable to the Majority Holders and
the Managing Underwriters, if any,) with respect to all parties to be
indemnified pursuant to Section 6 from Holders of Securities to the
Company.
(r) In the case of any Shelf Registration Statement, the
Issuers shall (i) make reasonably available for inspection by a
representative acting for a majority in aggregate principal amount of
the Holders of Securities to be registered thereunder, and any
underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent
retained by the Holders or any such underwriter all relevant financial
and other records, pertinent corporate documents and properties of the
Issuers and their subsidiaries; (ii) cause the Issuers' officers,
directors and employees to supply all relevant information reasonably
requested by the Holders or any such underwriter, attorney, accountant
or agent in connection with any such Registration Statement as is
customary for similar due diligence examinations; provided, however,
that any information that is designated in writing by the Issuers, in
good faith, as confidential at the time of delivery of such information
shall be kept confidential by the Holders or any such underwriter,
attorney, accountant or agent, unless such disclosure is made in
connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a
third party without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to the Holders of
Securities registered thereunder and the underwriters, if any, in form,
substance and scope as are customarily made by Issuers to underwriters
in primary underwritten offerings and covering matters including, but
not limited to, those set forth in the Purchase Agreement; (iv) obtain
opinions of counsel to the Issuers and updates thereof (which counsel
and opinions (in form, scope and substance) shall be reasonably
satisfactory to the Managing Underwriters, if any) addressed to each
selling Holder of Secu-
<PAGE> 14
-14-
rities registered thereunder and the underwriters, if any, in customary
form and covering such matters as are customarily covered in opinions
requested in underwritten offerings; (v) use their reasonable best
efforts to obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Issuers (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Issuers or of any business acquired by the Issuers
for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each
selling Holder of securities registered thereunder and the
underwriters, if any, in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
primary underwritten offerings; and (vi) deliver such documents and
certificates as may be reasonably requested by the Majority Holders and
the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k) and with conditions customarily contained
in underwriting agreements. The foregoing actions set forth in clauses
(iii), (iv), (v) and (vi) of this Section 4(r) shall be performed at
(A) the effectiveness of such Registration Statement and (B) each
closing under any underwriting or similar agreement as and to the
extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement,
the Issuers shall, to the extent requested by a representative acting
for a majority in aggregate principal amount of the Purchasers, (i)
make reasonably available for inspection by such Purchasers, and any
attorney, accountant or other agent retained by such Purchasers, all
relevant financial and other records, pertinent corporate documents and
properties of the Issuers and any of their subsidiaries; (ii) cause the
Issuers officers, directors and employees to supply all relevant
infromation reasonably requested by such Purchasers or any such
attorney, accountant or agent in connection with any such Registration
Statement as is customary for similar due diligence examinations;
provided, however, that any information that is designated in writing
by the Issuers, in good faith, as confidential at the time of delivery
of such information shall be kept confidential by such Purchasers or
any such attorney, accountant or agent, unless such disclosure is made
in connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a
third party without an accompanying
<PAGE> 15
-15-
obligation of confidentiality; (iii) make such representations and
warranties to such Purchasers, in form, substance and scope as are
customarily made by Issuers to underwriters in primary underwritten
offerings and covering matters including, but not limited to, those set
forth in the Purchase Agreement; (iv) obtain opinions of counsel to the
Issuers and updates thereof which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to such Purchasers and
its counsel, addressed to such Purchasers, covering such matters as are
customarily covered in opinions requested in underwritten offerings;
(v) use their reasonable best efforts to obtain "cold comfort" letters
and updates thereof from the independent certified public accountants
of the Issuers (and, if necessary, any other independent certified
public accountants of any subsidiary of the Issuers or of any business
acquired by the Issuers for which financial statements and financial
data are, or are required to be, included in the Registration
Statement), addressed to such Purchaser, in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings, or if requested by such
Purchaser or its counsel in lieu of a "cold comfort" letter, an
agreed-upon procedures letter under Statement on Auditing Standards No.
35, covering matters requested by such Purchaser or its counsel,
including those to evidence compliance with Section 4(k) and with
conditions customarily contained in underwriting agreements. The
foregoing actions set forth in clauses (iii), (iv), (v), and (vi) of
this Section 4(s) shall be performed at the close of the Registered
Exchange Offer and the effective date of any post-effective amendment
to the Exchange Offer Registration Statement.
5. Registration Expenses. The Issuers shall bear all expenses
incurred in connection with the performance of their obligations under Sections
2, 3 and 4 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Purchasers for the reasonable fees and
disbursements of one firm or counsel acting in connection therewith.
<PAGE> 16
-16-
6. Indemnification and Contribution. (a) In connection with
any Registration Statement, the Issuers, jointly and severally, agree to
indemnify and hold harmless each Holder of Securities covered thereby (including
each Purchaser and, with respect to any Prospectus delivery as contemplated in
Section 4(h) hereof, each Exchanging Dealer), the directors, officers, employees
and agents of each such Holder and each person who controls any such Holder
within the meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement as originally filed or in any amendment
thereof, or in any preliminary Prospectus or Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Issuers will not be liable in any case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Issuers by or on behalf of any such Holder specifically for inclusion
therein and provided, further, with respect to any untrue statement or omission
of a material fact made in any Preliminary Prospectus, the indemnity agreement
contained in this Section 6(a) shall not inure to the benefit of any Holder (or
any of the directors, officers and employees of such Holder or any controlling
person of such Holder) from whom the person asserting any such loss, claim,
damage or liability purchased the Securities concerned, to the extent that any
such loss, claim, damage or liability of such Holder occurs under circumstances
where (x) the Issuers had previously furnished copies of the Prospectus to the
Holder, (y) the untrue statement or omission of a material fact contained in the
Preliminary Prospectus was corrected in the Prospectus and (z) there was not
sent or given to such person, at or prior to the written confirmation of the
sale of such Securities to such person, a copy of the Prospectus. This indemnity
agreement
<PAGE> 17
-17-
will be in addition to any liability which the Company may otherwise have.
The Issuers also agree to indemnify or contribute to Losses
of, as provided in Section 6(d), any underwriters of Securities registered under
a Shelf Registration Statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Purchaser and the selling Holders provided in this
Section 6(a) and shall, if requested by any Holder, enter into an underwriting
agreement reflecting such agreement, as provided in Section 4(q) hereof.
(b) Each Holder of Securities covered by a Registration
Statement (including each Purchaser and, with respect to any Prospectus delivery
as contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees
to indemnify and hold harmless (i) the Issuers, (ii) each of their directors,
(iii) each of their respective officers who signs such Registration Statement
and (iv) each person who controls the Issuers within the meaning of either the
Act or the Exchange Act to the same extent as the foregoing indemnity from the
Issuers to each such Holder, but only with reference to written information
relating to such Holder furnished to the Issuers by or on behalf of such Holder
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the
<PAGE> 18
-18-
indemnified party or parties except as set forth below); provided, however, that
such counsel shall be reasonably satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel (and local counsel) if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and counsel to the indemnified party shall have reasonably
concluded that there may be legal defenses available to such indemnified party
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding whether or not such
indemnified party is named as a party to such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively, "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which
<PAGE> 19
-19-
resulted in such Losses; provided, however, that in no case shall any Purchaser
or any subsequent Holder of any Security or New Security be responsible, in the
aggregate, for any amount in excess of the purchase discount or commission
applicable to such Security, or in the case of a New Security, applicable to the
Security which was exchangeable into such New Security, as set forth on the
cover page of the Final Memorandum, nor shall any underwriter be responsible for
any amount in excess of the underwriting discount or commission applicable to
the Securities purchased by such underwriter under the Registration Statement
which resulted in such Losses. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the indemnifying party and the
indemnified party shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the other
hand, in connection with the statements or omissions which resulted in such
Losses as well as any other relevant equitable considerations. Benefits received
by the Issuers shall be deemed to be equal to the proceeds from the Initial
Placement net of purchase discounts and commissions (before deducting expenses)
as set forth on the cover page of the Final Memorandum. Benefits received by the
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum, and benefits
received by any other Holders shall be deemed to be equal to the value of
receiving Securities or New Securities, as applicable, registered under the Act.
Benefits received by any underwriter shall be deemed to be equal to the total
underwriting discounts and commissions, as set forth on the cover page of the
Prospectus forming a part of the Registration Statement which resulted in such
Losses. Relative fault shall be determined by reference to whether any alleged
untrue statement or omission relates to information provided by the indemnifying
party, on the one hand, or by the indemnified party, on the other hand. The
parties agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 6, each person who
controls a Holder within the meaning of either the Act or the Exchange Act and
each director, officer, employee and agent of such Holder shall have the same
rights to contribution as such Holder, and each person who controls the
<PAGE> 20
-20-
Issuers within the meaning of either the Act or the Exchange Act, each officer
of the Issuers who shall have signed the Registration Statement and each
director of the Issuers shall have the same rights to contribution as the
Company or the Subsidiary Guarantors respectively, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder
or the Issuers or any of the officers, directors or controlling persons referred
to in Section 6 hereof, and will survive the sale by a Holder of securities
covered by a Registration Statement.
7. Miscellaneous.
(a) No Inconsistent Agreements. The Issuers have not, as of
the date hereof, entered into, nor shall they on or after the date hereof, enter
into, any agreement with respect to their securities that is inconsistent with
the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Issuers have obtained the written
consent of the Holders of at least a majority of the then outstanding aggregate
principal amount of Securities (or, after the consummation of any Exchange Offer
in accordance with Section 2 hereof, of New Securities); provided that, with
respect to any matter that directly or indirectly affects the rights of any
Purchaser hereunder, the Issuers shall obtain the written consent of each such
Purchaser against which such amendment, qualification, supplement, waiver or
consent is to be effective. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to departure from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other Holders may be given by the
Majority Holders, determined on the basis of securities being sold rather than
registered under such Registration Statement.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by
<PAGE> 21
-21-
hand-delivery, first-class mail, telex, telecopier, or air courier guaranteeing
overnight delivery:
(1) if to a Holder, at the most current address given by such
holder to the Issuers in accordance with the provisions of this Section
7(c), which address initially is, with respect to each Holder, the
address of such Holder maintained by the Registrar under the Indenture,
with a copy in like manner to Salomon Brothers Inc;
(2) if to you, initially at the respective addresses set forth
in the Purchase Agreement; and
(3) if to the Issuers, initially at the address of the Company
set forth in the Purchase Agreement with copies as indicated therein.
All such notices and communications shall be deemed to have
been duly given when received.
The Purchasers or the Issuers by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Issuers thereto, subsequent Holders of Securities and/or New Securities. The
Issuers hereby agrees to extend the benefits of this Agreement to any Holder of
Securities and/or New Securities and any such Holder may specifically enforce
the provisions of this Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. This agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed in said State.
<PAGE> 22
-22-
(h) Severability. In the event that any one of more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(i) Securities Held by the Issuers, etc. Whenever the consent
or approval of Holders of a specified percentage of principal amount of
Securities or New Securities is required hereunder, Securities or New
Securities, as applicable, held by the Issuers or their Affiliates (other than
subsequent Holders of Securities or New Securities if such subsequent Holders
are deemed to be Affiliates solely by reason of their holdings of such
Securities or New Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
<PAGE> 23
-23-
Please confirm that the foregoing correctly sets forth the
agreement among the Issuers and you.
Very truly yours,
MSX INTERNATIONAL, INC.
By:
-------------------------------------
Name:
Title:
MSX INTERNATIONAL TECHNOLOGY
SERVICES, INC.
By:
-------------------------------------
Name:
Title:
MSX INTERNATIONAL ENGINEERING
SERVICES, INC.
By:
-------------------------------------
Name:
Title:
MSX INTERNATIONAL BUSINESS
SERVICES, INC.
By:
-------------------------------------
Name:
Title:
<PAGE> 24
-24-
MSX INTERNATIONAL (USA), INC.
By:
-------------------------------------
Name:
Title:
MSX INTERNATIONAL (HOLDINGS),
INC.
By:
-------------------------------------
Name:
Title:
<PAGE> 25
-25-
Accepted May 18, 1999
SALOMON SMITH BARNEY INC.
BANC ONE CAPITAL MARKETS, INC.
By: SALOMON SMITH BARNEY INC.
By:
-------------------------------------
Name:
Title:
<PAGE> 26
ANNEX A
Annex A
Each broker-dealer that receives New Securities for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Securities received in exchange for Securities where such New Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Issuers have agreed that, starting on the Expiration
Date (as defined herein) and ending on the close of business on the first
anniversary of the Expiration Date, they will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE> 27
ANNEX B
Annex B
Each broker-dealer that receives New Securities for its own account in exchange
for Securities, where such Securities were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Securities. See "Plan of Distribution."
<PAGE> 28
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Issuers have agreed
that, starting on the Expiration Date and ending on the close of business on the
first anniversary of the Expiration Date, they will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until __________, 199_, all dealers effecting
transactions in the New Securities may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Securities. Any broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Securities may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Securities and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, the
Issuers will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Issuers have agreed to pay all
expenses inci-
<PAGE> 29
dent to the Exchange Offer (including the expenses of one counsel for the
holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
If applicable, add information required by Regulation S-K
Items 507 and/or 508.
C-2
<PAGE> 30
ANNEX D
Rider A
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
------------------------------------
Address:
---------------------------------
---------------------------------
Rider B
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New
Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for securities, it represents that
the Securities to be exchanged for New Securities were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus in connection with any resale of such New
Securities; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
<PAGE> 1
EXHIBIT 5.1
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
212-450-4000
June 30, 1999
MSX International, Inc.
275 Rex Boulevard
Auburn Hills, Michigan 48326
Ladies and Gentlemen:
We have acted as special counsel to MSX International, Inc. ("MSXI") in
connection with MSXI's offer (the "Exchange Offer") to exchange its 11 3/8%
Senior Subordinated Notes due 2008 (the "New Notes") for any and all of its
outstanding unregistered 11 3/8% Senior Subordinated Notes due 2008 (the "Old
Notes").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary or advisable for the
purpose of rendering this opinion.
Upon the basis of the foregoing and, assuming the due execution and
delivery of the Exchange Notes, we are of the opinion that the Exchange Notes,
when executed, authenticated and delivered in exchange for the Old Notes in
accordance with the Exchange Offer, will be valid and binding obligations of
MSXI, and that the related Subsidiary Guarantees (as defined in the registration
statement relating to the Exchange Offer (the "Registration Statement")) will be
valid and binding obligations of the respective Subsidiary Guarantors (as
defined in the Registration Statement) on the date hereof enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and similar laws affecting
creditors' rights generally and equitable principles.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the federal laws of
the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the reference to us under the caption
"Legal Matters" in the Prospectus contained in the Registration Statement.
This opinion is rendered solely to you in connection with the above matter.
This opinion may not be relied upon by you for any other purpose or relied upon
by or furnished to any other person without our prior written consent.
Very truly yours,
/s/ Davis Polk & Wardwell
<PAGE> 1
EXHIBIT 12.1
MSX INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
PREDECESSOR FISCAL FISCAL FISCAL
------------------------------------ YEAR YEAR QUARTER
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------------------ DECEMBER 28, JANUARY 3, APRIL 4,
1994 1995 1996 1997 1999 1999
--------- --------- ---------- ------------ ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes and
fixed charges:
Income from continuing operations
before income taxes $ 8,540 $ 10,240 $ 6,620 $ (2,748) $ 5,839 $ 4,179
Add interest on indebtedness, net 920 1,470 1,310 12,400 16,906 4,512
Add amortization of debt issuance costs - - - - 510 147
Add estimated interest factor
for rentals 1,800 2,733 1,800 5,867 7,442 1,466
--------- --------- ---------- ----------- ---------- ----------
Earnings before income taxes and
fixed charges $ 11,260 $ 14,443 $ 9,730 $ 15,519 $ 30,697 $ 10,304
========= ========= ========== =========== ========== ==========
Fixed charges:
Interest on indebtedness $ 920 $ 1,470 $ 1,310 $ 12,400 $ 16,906 $ 4,512
Amortization of debt issuance costs - - - - 510 147
Estimated interest factor for rentals 1,800 2,733 1,800 5,867 7,442 1,466
--------- --------- ---------- ----------- ---------- ----------
$ 2,720 $ 4,203 $ 3,110 $ 18,267 $ 24,858 $ 6,125
========= ========= ========== =========== ========== ==========
Ratio of earnings to fixed charges 4.1 3.4 3.1 (a) 1.2 1.7
</TABLE>
(a) Earnings were insufficient to cover fixed charges by $2.7 million for the
fiscal year ended December 28, 1997.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of MSX
International, Inc. of our report dated March 4, 1999 relating to the financial
statements and financial statement schedule of MSX International, Inc., which
appear in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
June 29, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of MSX
International, Inc. of our report dated June 18, 1999 relating to the financial
statements of MegaTech Engineering, Inc., which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
June 29, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of MSX
International, Inc. of our report dated January 7, 1999 relating to the
financial statements of Lexus Temporaries, Inc., which appear in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
June 29, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of MSX
International, Inc. of our report dated January 7, 1999 relating to the
financial statements of Lexstra International, Inc., which appear in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
June 29, 1999
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the registration statement of MSX International,
Inc. on Form S-4 for the registration of $30,000,000 of MSX International, Inc.
11 3/8% Senior Subordinated Notes due 2008 of our report dated March 27, 1998 on
our audits of the financial statements of Lexstra International, Inc. for the
years ended December 31, 1997 and 1996. We also consent to the reference to our
firm under the caption "Experts".
/s/ Urbach Kahn & Werlin PC
New York, NY
June 29, 1999
<PAGE> 1
Exhibit 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the registration statement of MSX International,
Inc. on Form S-4 for the registration of $30,000,000 of MSX International, Inc.
11 3/8% Senior Subordinated Notes due 2008 of our report dated March 27, 1998 on
our audits of the financial statements of Lexus Temporaries, Inc. for the years
ended December 31, 1997 and 1996. We also consent to the reference to our firm
under the caption "Experts".
/s/ Urbach Kahn & Werlin PC
New York, NY
June 29, 1999
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
11 3/8% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/8% SENIOR NOTES DUE 2008
OF
MSX INTERNATIONAL, INC.
PURSUANT TO THE PROSPECTUS
DATED , 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS THE OFFER IS EXTENDED.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
IBJ WHITEHALL BANK AND TRUST COMPANY
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Delivery or Hand:
IBJ Whitehall Bank & Trust Company IBJ Whitehall Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, NY 10004
New York, NY 10274-0084 Attention: Securities Processing Window
Attention: Reorganization Operations Subcellar One (SC-1)
Department
To Confirm by Telephone
or for Information: Facsimile Transmissions:
(212) 858-2103 (212) 858-2103
</TABLE>
------------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS CONTAINED HEREIN MUST BE FOLLOWED. QUESTIONS AND REQUESTS
FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF
TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
The undersigned acknowledges receipt of the prospectus dated , 1999
(the "Prospectus") of MSX International, Inc. ("MSXI") which, together with this
letter of transmittal (the "Letter of Transmittal") describes MSXI's offer (the
"Exchange Offer") to exchange $1,000 in principal amount of its 11 3/8% Senior
Subordinated Notes due 2008 (the "Exchange Notes") for each $1,000 in principal
amount of outstanding 11 3/8% Senior Notes due 2008 (the "Old Notes"). The terms
of the Exchange Notes are identical in all material respects to the terms of the
Old Notes, except that the offer and sale of the Exchange Notes have been
registered under the Securities Act and therefore the Exchange Notes are not
subject to certain restrictions on transfer applicable to the Old Notes, will
not contain legends relating thereto and will not be entitled to registration
rights or other rights under the Registration Agreement (as defined). The
Exchange
<PAGE> 2
Notes will be issued under the same Indenture (as defined herein) as the Old
Notes and the Exchange Notes and the Old Notes will constitute a single series
of debt securities under the Indenture. See "The Exchange Offer."
The undersigned hereby tenders the Old Notes described in the box entitled
"Description of Old Notes" below pursuant to the terms and conditions described
in the Prospectus and this Letter of Transmittal. The undersigned is the
registered owner of all the Old Notes and the undersigned represents that it has
received from each beneficial owner of Old Notes ("Beneficial Owner") a duly
completed and executed form of "Instruction to Registered Holder from Beneficial
Owner" accompanying this Letter of Transmittal, instructing the undersigned to
take the action described in this Letter of Transmittal.
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either, if Old Notes are to be forwarded herewith or if tenders
of Old Notes are to be made by book-entry transfer to an account maintained by
IBJ Whitehall Bank & Trust Company (the "Exchange Agent") at The Depository
Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" in the Prospectus.
The undersigned hereby represents and warrants that the information
received from the beneficial owner is accurately reflected in the boxes entitled
"Beneficial Owner(s) -- Purchaser Status" and "Beneficial
Owner(s) -- Residence."
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Old Notes promptly and
instruct such registered holder of Old Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on such owner's
behalf, such beneficial owner must, prior to completing and executing this
Letter of Transmittal and delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed power of attorney from the registered holder
of Old Notes. The transfer of record ownership may take considerable time.
In order to properly complete this Letter of Transmittal, a holder of Old
Notes must (i) complete the box entitled "Description of Old Notes," (ii)
complete the boxes entitled "Beneficial Owner(s) -- Purchase Status" and
"Beneficial Owner(s) -- Residence," (iii) if appropriate, check and complete the
boxes relating to book entry transfer, guaranteed delivery, Special Issuance
Instructions and Special Delivery Instructions, (iv) sign the Letter of
Transmittal by completing the box entitled "Sign Here" and (v) complete the
Substitute Form W-9. Each holder of Old Notes should carefully read the detailed
instructions below prior to completing the Letter of Transmittal.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Time (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures" in the Prospectus. SEE INSTRUCTION 1.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
2
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- -----------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) OLD NOTES TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OF
CERTIFICATE PRINCIPAL AMOUNT OLD NOTES TENDERED
NUMBER(S)* OF OLD NOTES* (IF LESS THAN ALL)**
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
TOTAL AMOUNT
TENDERED
- -----------------------------------------------------
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000 and integral multiples thereof. All Old
Notes held shall be deemed tendered unless a lesser number is specified in this column.
- -----------------------------------------------------
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution
------------------------------------------------------------------------------
DTC Account Number
------------------------------------------------------------------------------
Transaction Code Number
------------------------------------------------------------------------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
-----------------------------------------------------------------------------
Window Ticket Number (if any)
-----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------------------------------------------------------
Name of Institution which Guaranteed
-----------------------------------------------------------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
-----------------------------------------------------------------------------
DTC Account Number
-----------------------------------------------------------------------------
Transaction Code Number
-----------------------------------------------------------------------------
3
<PAGE> 4
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
-----------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------------
BENEFICIAL OWNER(S) -- RESIDENCE
<TABLE>
<S> <C>
STATE OF DOMICILE/PRINCIPAL PLACE PRINCIPAL AMOUNT OF OLD
OF BUSINESS OF EACH BENEFICIAL NOTES HELD FOR ACCOUNT OF
OWNER OF OLD NOTES BENEFICIAL OWNER
</TABLE>
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BENEFICIAL OWNER(S) -- PURCHASE STATUS
The beneficial owner of each of the Old Notes described herein is (check the
box that applies):
[ ] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[ ] An "Institutional Accredited Investor (as defined in Rule 501(a)(1), (2),
(3) o 7 under the Securities Act)
[ ] A non "U.S. person" (as defined in Regulation S of the Securities Act) that
purchased the Old Notes outside the U.S. in accordance with Rule 904 of the
Securities Act)
[ ] Other (describe):
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
4
<PAGE> 5
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to MSXI the above described principal amount of Old
Notes. Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered herewith, the undersigned hereby exchanges, assigns and transfers
to, or upon the order of, MSXI all right, title and interest in and to such Old
Notes. The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent is also acting as agent of MSXI in
connection with the Exchange Offer) to cause the Old Notes to be assigned,
transferred and exchanged. The undersigned represents and warrants that it has
full authority to tender, exchange, assign and transfer the Old Notes and
acquire Exchange Notes issuable upon the exchange of such tendered Old Notes,
and that, when the same are accepted for exchange the undersigned will acquire
good and unencumbered title to the tendered Old Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or MSXI to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Notes or transfer ownership of such Old Notes on the account books
maintained by The Depository Trust Company.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer." The undersigned recognizes
that as a result of these conditions (which may be waived, in whole or in part,
by MSXI), as more particularly set forth in the Prospectus, MSXI may not be
required to exchange any of the Old Notes tendered hereby and, in such event,
the Old Notes not exchanged will be returned to the undersigned at the address
shown below the signature of the undersigned.
BY TENDERING OLD NOTES AND EXECUTING, OR OTHERWISE BECOMING BOUND BY, THIS
LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE
EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE
ORDINARY COURSE OF BUSINESS OF THE PERSON RECEIVING SUCH EXCHANGE NOTES, WHETHER
OR NOT SUCH PERSON IS THE HOLDER, (II) NEITHER THE HOLDER NOR ANY SUCH OTHER
PERSON HAS AN ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH EXCHANGE NOTES, (III) IF THE HOLDER IS NOT A BROKER-
DEALER, OR IS A BROKER-DEALER BUT WILL NOT RECEIVE EXCHANGE NOTES FOR ITS OWN
ACCOUNT IN EXCHANGE FOR OLD NOTES, NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON
IS ENGAGED IN OR INTENDS TO PARTICIPATE IN THE DISTRIBUTION OF SUCH EXCHANGE
NOTES AND (IV) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE" OF
THE UNDERSIGNED WITHIN THE MEANING OF RULE 405 OF THE SECURITIES ACT. BY
TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING, OR OTHERWISE
BECOMING BOUND BY, THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A
BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE
LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE
SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH OLD NOTES
HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD NOTES WERE
ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS
AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE
SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES (PROVIDED
THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER
WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF
THE SECURITIES ACT).
5
<PAGE> 6
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death, bankruptcy or incapacity of the undersigned
and any obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives successors and assigns of the undersigned. Tendered Old
Notes may be withdrawn at any time prior to the Expiration Time.
Certificates for all Exchange Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, in each case
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
6
<PAGE> 7
- --------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 3)
Must be signed by registered holder(s) exactly as name(s) appear(s)
on Certificate(s) for Old Notes hereby tendered or by any person(s)
authorized to become the registered holder(s) by endorsements and
documents transmitted herewith or, if the Old Notes are held of record by
DTC, the person in whose name such Old Notes are registered on the books
of DTC. If signature is by an attorney-in-fact, executor, administrator,
trustee, guardian, officer of a corporation or another acting in a
fiduciary or representative capacity, please set forth the signer's full
title. See Instruction 3.
--------------------------------------------------------------------------
(Signature(s) of Holder(s))
Date
-------------------------------------------------------------------------- ,
1999
Name(s)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Please Print)
Capacity:
--------------------------------------------------------------------------
(Include Full Title)
Address
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Include zip code)
Area Code and Telephone Number
---------------------------------------------------------------------------
--------------------------------------------------------------------------
(Tax Identification or Social Security Number(s))
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 3)
Authorized Signature
--------------------------------------------------------------------------
Name
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Please Print)
Date
-------------------------------------------------------------------------- ,
1999
Capacity or Title
--------------------------------------------------------------------------
Name of Firm
--------------------------------------------------------------------------
Address
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE> 8
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the Exchange Notes are to be issued in the name of
someone other than the registered holder of the Old Notes whose name(s)
appear(s) above.
Issue Exchange Notes to:
Name:
- -----------------------------------------------
(Please Print)
- -------------------------------------------------------
Address:
- ---------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
(Include Zip Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes are to be sent to someone other than the
registered holder of the Old Notes whose name(s) appear(s) above, or to such
registered holder(s) at an address other than that shown above.
Mail Exchange Notes to:
Name:
- -----------------------------------------------
(Please Print)
- -------------------------------------------------------
Address:
- ---------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
(Include Zip Code)
- -------------------------------------------------------
(Taxpayer Identification or Social Security Number)
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of Letter of Transmittal and Certificates. Certificates for all
physically delivered Old Notes or confirmation of any book-entry transfer to the
Exchange Agent's account at DTC of Old Notes tendered by book-entry transfer, as
well as this Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees or an Agent's Message
in lieu thereof and any other documents required by this Letter of Transmittal,
must be received by the Exchange Agent at one of its addresses set forth herein
on or prior to the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ANY
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER
AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, BE USED.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other required documents to the Exchange Agent on or
prior to the Expiration Time or comply with the procedures for delivery by
book-entry transfer on a timely basis may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution (as defined in the
Prospectus); (ii) prior to the Expiration Time the Exchange Agent must have
received from such Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and Notice of Guarantee Delivery,
substantially in the form provided by the Company (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
Holder of the Old Notes and the amount of Old Notes Tendered, stating that the
tender is being made thereby, and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guarantee Delivery, the certificates of all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent, and, the names in which such
Old Notes are registered, and, if possible, the certificate numbers of the Old
Notes to be tendered; and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of a Letter of Transmittal (or
facsimile thereof), or any Agent's Message in lieu thereof, shall waive any
right to receive any notice of the acceptance of the Old Notes or exchange.
2. Partial Tenders and Withdrawals. Tenders of Old Notes will be accepted
in all denominations of $1,000 and integral multiples thereof. If less than all
the Old Notes evidenced by any Certificate submitted are to be tendered, fill in
the principal amount of Old Notes which are to be tendered in the box entitled
"Principal Amount of Old Notes Tendered (if less than all)." In such case, new
Certificate(s) for the remainder of the Old Notes that were evidenced by your
old Certificate(s) will be sent to the holder of the Old Note, promptly after
the Expiration Time. All Old Notes represented by Certificates delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except
that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Time. In order for a withdrawal to be effective on
or prior to that time, a written notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth above or in the Prospectus
prior to the Expiration Time. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, identify the Old
Notes to be withdrawn (including the principal amount of such Old Notes) and
(where Certificates for Old Notes have been transmitted) specify the name in
which such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered
9
<PAGE> 10
or otherwise identified to the Exchange Agent, then, prior to the release of
such certificates, the withdrawing holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedures
for book-entry transfer set forth in the Prospectus, any notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Old Notes or otherwise comply with DTC's procedures. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for the purposes of the Exchange Offer.
Any Old Notes which have been tendered for exchange but which are not exchanged
for any reason will be returned to the Holder thereof without cost to such
Holder (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at DTC pursuant to the book entry transfer procedure
described above, such Old Notes will be credited to an account maintained with
DTC for the Old Notes (as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be
tendered by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time on or prior to the Expiration Time.
3. Signatures on Letter of Transmittal, Assignments and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as may separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered holder(s) of
the Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or written instrument or instruments of transfer or exchange are required unless
Exchange Notes are to be issued in the name of a person other than the
registered holder(s). Signature(s) on such Certificate(s) or written instrument
or instruments of transfer or exchange must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by a written instrument or instruments of transfer or exchange,
in a form satisfactory to the Company and duly executed by the registered
holder, in either case signed exactly as the name or names of the registered
holder(s) appear(s) on the Certificates.
If this Letter of Transmittal, any Certificates or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to MSXI of such persons' authority to so
act must be submitted.
Endorsements on Certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than
the person signing the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by MSXI
in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
10
<PAGE> 11
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
MSXI in its sole discretion, which determination shall be final and binding.
MSXI reserves the absolute right to reject any and all tenders of any particular
Old Notes not properly tendered or not to accept any particular Old Notes the
acceptance of which might, in the judgment of MSXI or its counsel, be unlawful.
MSXI also reserves the absolute right to waive and defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either before or
after the Expiration Date (including the right to waive the ineligibility of any
Holder who seeks to tender Old Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular Old Notes
either before or after the Expiration Time (including this Letter of Transmittal
and the instructions thereto) by MSXI shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with the tender of
Old Notes for exchange must be cured within such reasonable period of time as
MSXI shall determine. Neither MSXI, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
4. Transfer Taxes. Holders who tender their Old Notes for exchange will not
be obligated to pay any transfer taxes in connection therewith, except that
Holders who instruct MSXI to register Exchange Notes in the name of, or request
that Old Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering Holder will be responsible for
the payment of any applicable transfer tax thereon.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. Waiver of Conditions. MSXI reserves the absolute right to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
6. Mutilated, Lost, Destroyed or Stolen Certificates. Any holder whose Old
Notes have been mutilated, lost, destroyed or stolen should contact the Exchange
Agent at the address indicated below for further instructions.
7. Requests for Assistance and Additional Copies. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal may be directed to the Exchange Agent
at the address and telephone number set forth below. In addition, all questions
relating to the Exchange Offer, as well as requests for assistance and
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to MSXI at 275 Rex Boulevard, Auburn Hills, Michigan 48236. Attention:
Carol Creel, Esq. (248) 299-1000.
8. Irregularities. All questions as to the form, validity, eligibility
(including time of receipt) and acceptance of Letters of Transmittal or Old
Notes will be resolved by MSXI, whose determination shall be final and binding.
MSXI reserves the absolute right to reject any and all Letters of Transmittal or
tenders that are not in proper form or the acceptance of which would, in the
judgment of the Company or its counsel, be unlawful. MSXI also reserves the
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Old Notes covered by any Letter of Transmittal or tendered
pursuant to such letter. None of MSXI, the Exchange Agent or any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification. The Company's interpretation of
the terms and conditions of the Exchange Offer shall be final and binding.
9. Definitions. Capitalized terms used in this Letter of Transmittal and
not otherwise defined have the meanings given in the Prospectus.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF),
OR AN AGENT'S MESSAGE IN LIEU THEREOF, AND ALL OTHER REQUIRED
DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT
ON OR PRIOR TO THE EXPIRATION TIME.
11
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
OFFER TO EXCHANGE
11 3/8% SENIOR NOTES DUE 2008
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/8% SENIOR NOTES DUE 2008
OF
MSX INTERNATIONAL, INC.
This Notice of Guaranteed Delivery or one substantially equivalent hereto
may be used to accept the Exchange Offer (as defined below) if (i) certificates
for the 11 3/8% Senior Notes due 2008 (the "Old Notes") of MSX International,
Inc., a Delaware corporation ("MSXI"), are not immediately available, (ii) time
will not permit the holder's Old Notes or other required documents to reach IBJ
Whitehall Bank & Trust Company (the "Exchange Agent") before the Expiration Time
(as defined in the Prospectus referred to below) or (iii) the procedures for
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand or sent by facsimile transmission,
overnight courier, telex, telegram or mail to the Exchange Agent. See "The
Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus dated
, 1999, (which, together with the related Letter of Transmittal,
constitutes the "Exchange Offer") of MSXI.
The Exchange Agent for the Exchange Offer is:
IBJ WHITEHALL BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Hand or Overnight Facsimile Transmissions: By Registered Or Certified
Delivery: (Eligible Institutions Only) Mail:
(212) 858-2611
IBJ Whitehall Bank & Trust IBJ Whitehall Bank & Trust
Co. To Confirm by Telephone Co.
One State Street or for Information Call: P.O. Box 84
New York, New York 10004 (212) 858-2103 Bowling Green Station
Attn: Securities Processing New York, New York 10274-0084
Window -- Subcellar One Attn: Reorganization
(SC-1) Operations
Department
</TABLE>
------------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA A
FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL.
<PAGE> 2
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, hereby guarantees to deliver to the Exchange
Agent, at one of its addresses set forth above, either the certificates for all
physically tendered Old Notes, in proper form for transfer, or confirmation of
the book-entry transfer of such Old Notes to the Exchange Agent's account at The
Depository Trust Company ("DTC"), pursuant to the procedures for book-entry
transfer set forth in the Prospectus, in either case together with one or more
properly completed and duly executed Letter(s) of Transmittal (or facsimile
thereof) or an Agent's Message in lieu thereof and any other documents required
by such Letter of Transmittal, within 5 New York Stock Exchange trading days
after the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal or an Agent's Message in lieu thereof and the Old Notes tendered
hereby to the Exchange Agent within the time period set forth above and that
failure to do so could result in a financial loss to the undersigned.
- ------------------------------------------------------
Name of Firm
- ------------------------------------------------------
Address:
- ------------------------------------------------------
(Zip Code)
- ------------------------------------------------------
Area Code and Telephone Number
- ------------------------------------------------------
Authorized Signature
- ------------------------------------------------------
Title
- ------------------------------------------------------
Name (Please Type or Print)
Dated:
- --------------------------------------- , 1999
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND FULLY EXECUTED LETTER OF TRANSMITTAL OR AN AGENT'S
MESSAGE IN LIEU THEREOF AND ANY OTHER REQUIRED DOCUMENTS.
2
<PAGE> 1
EXHIBIT 99.3
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
MSX INTERNATIONAL, INC.
11 3/8% Senior Notes due 2008
TO REGISTERED HOLDER AND/OR PARTICIPANT OF THE BOOK-ENTRY TRANSFER FACILITY:
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1999 (the "Prospectus") of MSX International, Inc., a Delaware
corporation ("MSXI"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute MSXI's offer (the "Exchange Offer").
Capitalized terms used but not defined herein have the meaning as ascribed to
them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$ of the 11 3/8% Senior Notes due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, if
any):
$ of the 11 3/8% Senior Notes due 2008.
[ ] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) it
is not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (ii) any Exchange Notes to be received by it are being acquired
in the ordinary course of business, and (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Note, where such
Old Notes were acquired as the result of market-making activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and delivering a prospectus, the broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
<PAGE> 2
- --------------------------------------------------------------------------------
The purchaser status of the undersigned is (check the box that applies):
[ ] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[ ] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[ ] a non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Old Notes outside the United States in accordance
with Rule 904 of the Securities Act
[ ] Other (describe)
--------------------------------------------------------------------------
SIGN HERE
Name of Beneficial Owner(s):
- --------------------------------------------------------------------------------
--------------------------------------------------------------------------
Signature(s):
--------------------------------------------------------------------------
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Name(s) (please print):
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Address:
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Principal place of business (if different from address listed above):
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Telephone Number(s):
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Taxpayer Identification or Social Security Number(s):
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Date:
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2
<PAGE> 3
TO BE COMPLETED BY ALL TENDERING HOLDERS
<TABLE>
<S> <C> <C>
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PAYER'S NAME: MSX INTERNATIONAL, INC.
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SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW. TIN: ----------------------
Social Security Number
DEPARTMENT OF THE TREASURY OR
INTERNAL REVENUE SERVICE
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Employer Identification
Number
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PAYER'S REQUEST FOR CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY PART 2--
TAXPAYER IDENTIFICATION THAT
NUMBER ("TIN") AND TIN applied for [ ]
CERTIFICATION (1) the number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to
be issued to me).
(2) I am not subject to backup withholding either because
(a) I am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a
result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding, and
(3) any other information provided on this form is true
and correct.
SIGNATURE _____________________________ DATE _________________
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</TABLE>
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
under reporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withholding.
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YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administrative Office or (b) intend to mail or
deliver an application in the near future. I understand that if I do not provide
a Taxpayer Identification Number by the time of the exchange, 31 percent of all
reportable payments made to me thereafter will be withheld until I provide a
number.
SIGNATURE _______________________________________________________ DATE _______
<PAGE> 1
EXHIBIT 99.4
OFFER TO EXCHANGE
11 3/8% SENIOR NOTES DUE 2008
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/8% SENIOR NOTES DUE 2008
OF
MSX INTERNATIONAL, INC.
To Our Clients:
We are enclosing herewith a Prospectus dated , 1999 of MSX
International, Inc., a Delaware corporation (the "Company"), and a related
Letter of Transmittal (which together constitute the "Exchange Offer") relating
to the offer by the Company to exchange its 11 3/8% Senior Notes due 2008 (the
"Exchange Notes"), pursuant to an offering registered under the Securities Act
of 1933, as amended (the "Securities Act"), for a like principal amount of its
issued and outstanding 11 3/8% Senior Notes due 2008 (the "Old Notes") upon the
terms and subject to the conditions set forth in the Exchange Offer.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1999 UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the holder of record and/or participant in the book-entry transfer
facility of Old Notes held by us for your account. A tender of such Old Notes
can be made only by us as the record holder and/or participant in the book-entry
transfer facility and pursuant to your instructions. The Letter of Transmittal
is furnished to you for your information only and cannot be used by you to
tender Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your behalf
make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) it is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act, (ii) any Exchange Notes to be
received by it are being acquired in the ordinary course of business, and (iii)
it has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of these Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Old Note, where such Old Notes were acquired as the result of market-making
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the Exchange Notes. The Letter of Transmittal states that by
so acknowledging and delivering a prospectus, the broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
Very truly yours,
MSX International, Inc.
<PAGE> 1
EXHIBIT 99.5
OFFER TO EXCHANGE
FOR ANY AND ALL OUTSTANDING
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
11 3/8% SENIOR NOTES DUE 2008
OF
MSX INTERNATIONAL, INC.
To Registered Holders and The Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by MSX International, Inc., a Delaware corporation ("MSXI"), to exchange its
11 3/8% Senior Notes due 2008 (the "Exchange Notes"), pursuant to an offering
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its issued and outstanding 11 3/8% Senior Notes
due 2008 (the "Old Notes") upon the terms and subject to the conditions set
forth in the Company's Prospectus, dated , 1999, and the related Letter
of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated June 30, 1999;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or Book-Entry Transfer Participant
from Owner; and
5. Letter which may be sent to your clients for whose account you hold Old
Notes in your name or in the name of your nominee, to accompany the
instruction form referred to above, for obtaining such client's
instruction with regard to the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE
OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999 UNLESS
EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to MSXI that (i) it is not an "affiliate" of MSXI within the meaning
of Rule 405 under the Securities Act, (ii) any Exchange Notes to be received by
it are being acquired in the ordinary course of business, and (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of these Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Old Note, where such Old Notes were acquired as the result of market-making
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the Exchange Notes. The Letter of Transmittal states that by
so acknowledging and delivering a prospectus, the broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
The enclosed Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner contains an authorization by the beneficial owners of the
Old Notes for you to make the foregoing representations.
MSXI will not pay any fee or commission to any broker or dealer or to any
other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. MSXI will
pay or cause to be paid any transfer taxes payable on the transfer of Old Notes
to it, except as otherwise provided in Instruction 4 of the enclosed Letter of
Transmittal.
<PAGE> 2
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
MSX International, Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF MSX INTERNATIONAL, INC. CORPORATION OR IBJ WHITEHALL BANK & TRUST
COMPANY OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR
BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED
HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
