================================================================================
-----------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 Date of Report (Date of earliest
event reported): December 22, 1998
-----------------------
MSX INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 333-49821 38-3323099
- ---------------------------- -------------------- ---------------------------
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
275 Rex Boulevard Auburn Hills, Michigan 48326
- ---------------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 299-1000
===============================================================================
<PAGE>
Item 2. Acquisition or Disposition of Assets
Effective December 26, 1998, the Company consummated its acquisition of
MegaTech Engineering, Inc. ("MEI") from JCI, pursuant to a stock purchase
agreement dated as of December 22, 1998. Under the Stock Purchase Agreement, a
wholly owned subsidiary of MSX International, Inc., purchased all of the
outstanding shares of MEI from Becker Group, Inc., a wholly owned subsidiary of
Johnson Controls, Inc. (the "Acquisition"). The Company did not assume any bank
debt. The total purchase price for the stock of MEI was $30 million, with $15
million paid at the closing, provided by borrowings under the New Credit
Facility. The remaining $15 million 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. The
Acquisition which was initially announced in a press release on December 23,
1998, was accounted for under the purchase method of accounting.
MEI offers technical staffing and product development services specializing
in vehicle interiors, HVAC, and electrical design. MEI's data management and
prototype capabilities include laser scanning, fixture and secondary equipment
design and construction, design verification and prototype parts. Founded in
1985, MEI has approximately 500 employees and contractors. Its primary
facilities are located in Warren, Michigan.
Item 7. Financial Statements, Pro Forma Information and Exhibits
(a) Financial Statements:
The following financial statements of the business acquired are attached
hereto:
<TABLE>
<S> <C>
MegaTech Engineering, Inc.
Report of Independent Accountants..............................................................................4
Balance Sheets December 26, 1998 and December 31, 1997.........................................................5
Statement of Operations for the years ended December 26, 1998 and December 31, 1997 and 1996...................6
Statement of Cash Flows for the years ended December 26, 1998 and December 31, 1997 and 1996...................7
Statement of Shareholders' Equity for the years ended December 26, 1998 and December 31, 1997 and 1996.........8
Notes to Combined Financial Statements.........................................................................9
</TABLE>
(b) Pro Forma Consolidated Financial Data
<TABLE>
<S> <C>
Pro Forma Financial Data......................................................................................14
Pro Forma Consolidated Income Statement Fiscal Year Ended January 3, 1999 (unaudited).........................15
Notes to Pro Forma Consolidated Financial Information.........................................................16
</TABLE>
(c) Exhibits
Exhibit 2.1 Stock Purchase Agreement dated as of December 22, 1998 among
MegaTech Engineering, Inc., Becker Group, Inc. and MSX
International Engineering Services, Inc.
Exhibit 99.1 Press Release issued by MSX International, Inc. on December 23,
1998.(1)
- --------
(1) Incorporated by reference to MSX International's Current Report on Form 8-K
filed January 6, 1999.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
MSX INTERNATIONAL, INC.
Dated: June 30, 1999 By: /s/ Frederick K. Minturn
---------------------------------------
Frederick K. Minturn
Executive Vice President, Chief
Financial Officer
3
<PAGE>
Item 7(a) Financial Statements:
MEGATECH ENGINEERING, INC.
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
4
<PAGE>
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
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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 are 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.
9
<PAGE>
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 of total sales of
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.
10
<PAGE>
4. Property, Plant and Equipment:
Property, plant and equipment as of December 26, 1998 and December 31,
1997 consisted of the following:
1998 1997
--------- ---------
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
========= ========
5. Accrued Expenses:
Accrued expenses consist of the following at December 26, 1998 and
December 31, 1997 respectively:
1998 1997
----------- -----------
Accrued health insurance............................ $ 363 $ 595
Accrued taxes....................................... 625 (151)
Other............................................... 92 510
---------- ----------
$ 1,081 $ 1,256
========== ==========
11
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, (CONTINUED)
6. Income Taxes:
The provision for income taxes for the years ended December 26, 1997, 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>
12
<PAGE>
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:
Operating
Leases
---------
Year ended December 31:
1999.............................................................. $ 902
2000.............................................................. 250
---------
$ 1,152
=========
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.
13
<PAGE>
Item 7(b) Pro Forma Consolidated Financial Data
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data has been derived from the
audited consolidated financial statements of MSXI for the fiscal year ended
January 3, 1999 and from the audited financial statements of MegaTech
Engineering, Inc. (MEI) for the year ended December 26, 1998.
The Company acquired MEI on December 22, 1998 (the "Acquisition"). The pro
forma information gives effect to the Acquisition as described in the notes to
the unaudited pro forma consolidated financial data.
The unaudited pro forma consolidated income statement gives effect to the
Acquisition as if the transaction had occurred on December 29, 1997. The
unaudited pro forma consolidated financial data do not purport to represent
what the Company'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 the Company's results of operations or financial
position for or at any future period of date.
The unaudited pro forma consolidated financial data should be read in
conjunction with the related historical financial statements and the notes
thereto.
14
<PAGE>
PRO FORMA CONSOLIDATED INCOME STATEMENT
Fiscal Year Ended January 3, 1999
<TABLE>
MSXI MegaTech Pro Forma Adjustments Pro Forma
-------------- -------------- --------------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Income Statement
Net Sales............................... $ 1,081,042 $ 48,609 $ 7,989 (A)
(11,849) (B) $ 1,125,791
Cost of Sales........................... (997,014) (39,937) (86) (C)
-------------- ------------ (7,509) (A)
8,444 (B) (1,036,102)
---------
Gross Profit............................ 84,028 8,672 89,689
SG&A.................................... (57,257) (6,562) (1,292) (A)
1,748 (D)
(150) (E)
2,177 (B)
431 (F) (60,905)
MSBT.................................... (3,516) (522) (33) (A) 4,071
-------------- ------------ ------------
Operating income........................ 23,255 1,588 24,713
Interest income (expense), net.......... (17,416) (66) 74 (G)
(1,200) (H)
(8) (B) (18,616)
Equity in net loss of EASi
MegaTech Engineering LLC............. (280) (280) (I) ------------
-------------- ------------
Income before income taxes.............. 5,839 1,242 6,097
Income tax provision.................... (3,068) (667) 256 (J)
-------------- ------------ 172 (B) (3,307)
Net Income.............................. $ 2,771 $ 575 $ 2,790
-------------- ------------ ------------
Other Data
EBITDA (K).............................. $ 40,369 $ 3,322 $ 44,024
Capital expenditures.................... $ 11,559 $ 3,019 $ 14,578
Depreciation and amortization........... $ 13,598 $ 1,492 $ 15,240
Ratio of EBITDA to interest income (expense), net................................................. 2.4x
Ratio of earnings to fixed charges (L)............................................................ 1.2x
</TABLE>
15
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(A) Record the results of operations of Tooling Concepts, a division of JCI,
transferred to MegaTech prior to the acquisition of MegaTech by MSXI.
(B) Eliminate the results of operations of MegaTech Engineering GmbH,
transferred from MegaTech prior to to the acquisition of MegaTech by MSXI.
(C) Adjust rental expense to reflect new contractual agreements negotiated in
connection with the MegaTech Acquisition.
(D) 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.
(E) Record amortization of the aggregate goodwill of $5.4 million resulting
from the acquisition over an estimated useful life of 30 years.
(F) Eliminate costs associated with buildings not acquired with the MegaTech
Acquisition.
(G) Eliminate net interest expense related to the historical financing of the
acquired businesses.
(H) 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.
(I) Eliminate the operating loss of EASi MegaTech Engineering LLC, an equity
investee, which was not acquired with the MegaTech Acquisition.
(J) Record the income tax benefit resulting from the pro forma adjustments
related to the acquisition at an assumed effective income tax rate of 34%.
(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.
16
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
Dated as of December 22, 1998
AMONG
MEGATECH ENGINEERING, INC.
AND
BECKER GROUP, INC.
AND
MSX INTERNATIONAL ENGINEERING SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I Purchase and Sale 1
1.1 Purchase and Sale of Shares 1
1.2 Purchase Price 1
1.3 Closing Balance Sheet 2
1.4 Review of Closing Balance Sheet 2
1.5 Settlement of Adjusted Purchase Price 2
1.6 Post-Closing Payments Related to Owned Real Property 3
ARTICLE II Closing Matters 4
2.1 The Closing 4
2.2 Resignations 4
ARTICLE III Representations and Warranties of Seller 5
--------------- --- ---------- -- ------
3.1 Organization and Authority 5
3.2 Authorization of Shares 5
3.3 Subsidiaries 5
3.4 Corporate Action; No Conflict 6
3.5 Financial Statements 6
3.6 Tax Matters 8
3.7 Real Property 8
3.8 Tangible Assets other than Owned Real Property 9
3.9 Contracts 9
3.10 Litigation 10
3.11 Compliance with Law 10
3.12 Environmental Matters 10
3.13 Intellectual Property 11
3.14 Labor and Employment Matters 12
3.15 Employee Benefit Plans 12
3.16 Representation and Warranties as to Subsidiary 13
3.17 Government Approvals of Agreement 13
3.18 Disclosure and Material Facts 13
ARTICLE IV Representations and Warranties of Purchaser 14
--------------- --- ---------- -- ---------
4.1 Organization and Authority 14
4.2 Corporate Action; No Conflict 14
4.3 Funding of Purchase Price 14
4.4 Acquisition of Shares for Investment 14
4.5 Governmental Approvals of Agreement 14
<PAGE>
ARTICLE V Employee Matters 15
5.1 Excluded Employees 15
ARTICLE VI Further Covenants and Agreements 15
6.1 Retention of Records 15
6.2 Transition Services and Other Ongoing Support 15
6.3 Further Assurances 15
6.4 Right of First Refusal on Additional Real Property 15
6.5 Confidentiality 16
6.6 Covenant Not to Compete 17
6.7 Preferred Supply of Engineering Services 19
6.8 Advisory Board 19
6.9 Interest in Easi-Meg 19
6.10 Cash and Cash Equivalents 19
6.11 Certain Intercompany Agreements 19
6.12 Cooperation of Accountants 19
6.13 Bank Accounts 19
6.14 Name Change 19
6.15 Preparation of Tax Returns 20
6.16 Collection of Accounts Receivable 20
ARTICLE VII Survival of Representations and Warranties; Indemnification 20
-----------------------------------------------------------
Survival of Representations and Warranties
7.1 Indemnification by Seller 20
7.2 Indemnification Procedure 21
7.3 23
ARTICLE VIII Miscellaneous 24
8.1 Broker Compensation 24
8.2 Expenses 24
8.3 Binding Agreement 24
8.4 Entire Agreement 24
8.5 Governing Law 24
8.6 No Rights of Third Parties 24
8.7 Counterparts 25
8.8 Headings; Table of Contents 25
8.9 Notices 25
8.10 Dispute Resolution 25
8.11 Representation by Counsel; Interpretation 26
8.12 Knowledge of Seller 26
<PAGE>
INDEX OF SCHEDULES
SCHEDULE 1.5 Reference Balance Sheet Working Capital Calculation
SCHEDULE 3.1(b) Foreign Qualifications
SCHEDULE 3.3 Subsidiaries
SCHEDULE 3.5(a) Reference Balance Sheet
SCHEDULE 3.5(c) Material Adverse Effect
SCHEDULE 3.7(a) Owned Real Property
SCHEDULE 3.7(b) Leased Real Property
SCHEDULE 3.7(c) Prior Properties
SCHEDULE 3.9 Material Contracts
SCHEDULE 3.10 Litigation
SCHEDULE 3.11 Compliance with Law
SCHEDULE 3.12 Environmental Requirements
SCHEDULE 3.13 Intellectual Property
SCHEDULE 3.14(a) Labor Matters
SCHEDULE 3.14(b) Key Employees and Employment Contracts
SCHEDULE 3.15(a) Employee Benefit Plans
SCHEDULE 5.1 Excluded Employees
SCHEDULE 6.11 Intercompany Contracts
SCHEDULE 6.13 Bank Accounts
SCHEDULE 7.2 Specific Items of Indemnification
SCHEDULE 8.12 Knowledge of Seller
<PAGE>
DEFINITIONS
The following terms which appear in this Agreement are defined in the following
Sections:
Term Section or Other Location
AAA Section 8.10 (b)
Additional Property Section 6.4
Advisory Board Section 6.8
Agreement Preamble
Asset Transfer Agreement Section 7.2(e)
Bank Accounts Section 6.13
Benefit Plans Section 3.15(a)
Business First Recital
Cash Section 6.10
Chase Prime Rate Section 1.5
Closing Section 2.1
Closing Balance Sheet Section 1.3
Closing Date Section 2.1
Closing Payment Section 1.2 (a)
Code Section 3.15(b)
Competing Business Section 6.6 (a)(ii)
Encumbrance Section 3.2
Environmental Requirements Section 3.12(a)
ERISA Section 3.15(b)
Exercise Notice Section 6.4
Excluded Employees Section 5.1
Event 1 Section 1.6(a)
Event 2 Section 1.6(a)
Financial Statements Section 3.5(a)
Firm Section 1.4
Indemnification Deductible Section 7.2(c)
Indemnitee Section 7.3(a)
Indemnitor Section 7.3(a)
Intellectual Property Section 3.13(a)
Intercompany Contracts Section 6.11
JCI Section 6.7
Key Employees Section 3.14(b)
Knowledge of Seller Section 8.12
Labor Matters Section 3.14(a)
Leased Real Property Section 3.7(b)
Loss Section 7.2(a)
Losses Section 7.2(a)
Material Adverse Effect Section 3.5(f)
Material Contracts Section 3.9
MegaTech Preamble
MegaTech Information Section 6.5(a)
Notice of Claim Section 7.3(a)
Owned Real Property Section 3.7(a)
Permitted Liens Section 3.7(a)
Permitted Owned Real Property Exceptions Section 3.7(a)
Prior Properties Section 3.7(c)
Purchase Offer Section 6.4
Purchase Price Section 1.2
Purchaser Preamble
Real Property Leases Section 3.7(b)
Reference Balance Sheet Section 3.5(a)
Related Documents Section 3.1 (a)
Remediation Effort Section 7.2(d)
Representatives Section 8.10(a)
Restricted Period Section 6.6(a)
Seller Preamble
Seller Information Section 6.5 (b)
Shares Second Recital
Specific Items of Indemnification Section 7.2(c)
Subject Period Section 1.6(a)
Subsidiaries Section 3.3
Tax Section 3.6 (b)
Taxes Section 3.6 (b)
Working Capital Section 1.5
<PAGE>
27
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 22, 1998
("Agreement"), by and among BECKER GROUP, INC., a Michigan corporation, having a
principal place of business at 49200 Halyard Drive, Plymouth, Michigan 48170
("Seller"), MEGATECH ENGINEERING, INC., a Michigan corporation, having a
principal place of business at 49200 Halyard Drive, Plymouth, Michigan 48170
("MegaTech"), and MSX INTERNATIONAL ENGINEERING SERVICES, INC., a Delaware
corporation, having a principal place of business at 275 Rex Boulevard, Auburn
Hills, Michigan 48326 ("Purchaser").
WHEREAS, Seller, through its wholly owned subsidiary, MegaTech, is
engaged in the business of contract engineering and design for the automotive
industry in North America and the manufacture and sale of automotive interior
prototype parts and production fixtures (the "Business"); and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires
to purchase from Seller, one-hundred percent (100%) of the outstanding shares of
MegaTech (the "Shares") in order for Purchaser to acquire and operate the
Business.
In consideration of the premises and of the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
Purchase and Sale
1.1 Purchase and Sale of Shares: On the terms and subject to the
conditions of this Agreement, at the Closing, Seller hereby sells, transfers and
delivers to Purchaser, and Purchaser hereby purchases from Seller, the Shares.
1.2 Purchase Price: Subject to the possible adjustments set forth in
this Article I, the purchase price payable by Purchaser to Seller for the Shares
shall be Thirty Million Dollars ($30,000,000) (the "Purchase Price"). The
Purchase Price shall be payable as follows:
(a) Fifteen Million Dollars ($15,000,000) shall be paid by
Purchaser at Closing in accordance with Section 2.1(a)(i) hereof (the "Closing
Payment"); and
(b) Fifteen Million Dollars ($15,000,000) shall be paid by
Purchaser on the earlier of (i) the completion of a sale-leaseback or third
party financing of MegaTech's Owned Real Property, on terms and conditions
acceptable to Purchaser, or (ii) June 30, 1999.
1.3 Closing Balance Sheet: Within ninety (90) calendar days after
the Closing Date, Seller and Purchaser shall jointly prepare an unaudited
balance sheet (the "Closing Balance Sheet") of the Business as at the close of
business on December 26, 1998 or as at such other date as the parties shall
mutually agree. Nothwithstanding the foregoing ninety (90) calendar day time
limit, Purchaser and Seller shall use their best efforts to prepare the Closing
Balance Sheet as soon after the Closing Date as possible. The Closing Balance
Sheet shall be prepared on a basis consistent with the Reference Balance Sheet,
using the Seller's Accounting Principles.
1.4 Review of Closing Balance Sheet: In the event that, within
ninety (90) calendar days of the Closing, the parties are unable to agree on the
Closing Balance Sheet, they shall each submit (a) the items with respect to
which they disagree and (b) the amount each proposes with respect to each item,
to Deloitte & Touche L.L.P., certified public accountants, or if such firm is
unable or unwilling to serve, to another "Big Five" accounting firm selected by
the firm declining to serve; provided such selected firm is not the regular
independent auditor of Seller or Purchaser (the "Firm"). The Firm shall be asked
to determine only the amount of the disputed items in accordance with Seller's
Accounting Principles and on a basis consistent with the Reference Balance Sheet
and report to Seller and Purchaser upon such remaining disputed items within
thirty (30) days after such referral. The decision of the Firm shall be final,
conclusive and binding on the parties hereto. The fees and expenses of the Firm
shall be shared by the parties.
1.5 Settlement of Adjusted Purchase Price: Within ten (10) days
after the final determination of the Closing Balance Sheet, Seller shall pay to
Purchaser the amount by which the Working Capital (as defined on Schedule 1.5
hereto) of the Business as set forth on the Closing Balance Sheet is less than
Six Million Dollars ($6,000,000), or Purchaser shall pay to Seller the amount by
which the Working Capital of the Business as set forth on the Closing Balance
Sheet exceeds Six Million Dollars ($6,000,000), as the case may be. The amount
of the payments described in this Section 1.5 shall be paid by Seller to
Purchaser, or by Purchaser to Seller, as the case may be, with interest thereon
from the Closing Date to the date of such payment, calculated at a rate equal to
the "Prime Rate" quoted by the Chase Manhattan Bank, N.A., New York, New York
(the "Chase Prime Rate") on the Closing Date, in immediately available funds
remitted by wire transfer to a bank account designated by the payee thereof. The
parties understand and agree that the adjusted purchase price mechanism
described in these Sections 1.3 through 1.5 is not intended to apply to disputes
or questions regarding the Reference Balance Sheet or the preparation thereof;
which disputes or questions instead shall be evaluated under the terms of
Article III (to the extent such provisions of Article III apply).
<PAGE>
1.6 Post-Closing Payments Related to Owned Real Property:
(a) In addition to the foregoing, the parties agree to the
following one-time post-Closing payment. In the event that during the first
three (3) years following the Closing Date (the "Subject Period"): (i) General
Motors vacates more than ten percent (10%) in the aggregate or more of the Owned
Real Property ("Event 1"); or (ii) notwithstanding Purchaser's commercially
reasonable efforts to the contrary, and without otherwise expressly compensating
Purchaser in exchange for such reduction, General Motors reduces the amount of
aggregate annual rent it currently pays to MegaTech, ("Event 2"), Seller shall
make a payment to Purchaser within ten (10) days of the end of the Subject
Period in immediately available funds in an amount equal to the lesser of: (w)
fifty percent (50%) of the amount by which rent received by MegaTech on account
of the Owned Real Property during the Subject Period is less than the sum of
lease payments made (or principal and interest payments made in the event
Purchaser elects to obtain third party financing of the Owned Real Property)
and, subject to subsection (b) below, operating expenses incurred by MegaTech on
account of such Owned Real Property during such period and (x) a payment cap
calculated as follows: (i) in the case of Event 1, the cap amount shall be Three
Million Dollars ($3,000,000) if Event 1 occurs within the first year of the
Subject Period, Two Million Dollars ($2,000,000) if Event 1 occurs within the
second year of the Subject period, and One Million Dollars ($1,000,000) if Event
1 occurs within the third year of the Subject Period; (ii) in the case of Event
2, the cap amount shall be Two Million Two Hundred Fifty Thousand Dollars
($2,250,000) if Event 2 occurs within the first year of the Subject Period, One
Million Five Hundred Thousand Dollars ($1,500,000) if Event 2 occurs within the
second year of the Subject Period, and Seven Hundred Fifty Thousand Dollars
($750,000) if Event 2 occurs within the third year of the Subject Period.
(b) Purchaser acknowledges and agrees that upon the
occurrence of either Event 1 or Event 2, as the case may be, it will develop and
execute a plan for reducing operating costs associated with the Owned Real
Property so as to minimize the shortfall, if any, between rents received by
MegaTech and lease payments and operating costs incurred. Purchaser shall submit
such cost reduction plan within thirty (30) days of the occurrence of Event 1 or
Event 2, as the case may be. In addition, Purchaser shall have a duty to
mitigate any loss in rental income resulting from a total or partial vacation of
the Owned Real Property by General Motors, by using commercially reasonable
efforts to re-lease any vacant office space. All rental income generated from
such re-leasing (net of all associated expenses) shall be applied to MegaTech's
total rent received on account of the Owned Real Property in determining the
amount of any payment under subsection (a) above. In addition to the foregoing
and subject to Purchaser's reasonable confidentiality requirements, Purchaser
agrees to provide Seller with copies of all correspondence between itself,
MegaTech, and General Motors relating to the occurrence, negotiation and/or
resolution of Event 1 or Event 2, as the case may be.
ARTICLE II
Closing Matters
2.1 The Closing: The purchase and sale (the "Closing") contemplated
under this Agreement shall take place at the offices of Johnson Controls, Inc.,
located at 49200 Halyard Drive, Plymouth, Michigan 48170, or at such other place
as the parties shall mutually agree upon, at 10:00 A.M. local time on December
22, 1998, or such earlier or later date as the parties shall mutually agree
upon. The date the Closing takes place is herein referred to as (the "Closing
Date").
(a) At the Closing, subject to and on the terms and
conditions set forth in this Agreement, Purchaser shall deliver to Seller (i) by
wire transfer to a bank account designated in writing by the Seller immediately
available funds in an amount equal to the Closing Payment, (ii) certified copies
of resolutions duly adopted on or prior to the date hereof by Purchaser's board
of directors authorizing the execution, delivery and performance of this
Agreement and the Related Documents, (iii) certified copies of Purchaser's
certificate of incorporation and by-laws, (iv) a certificate of the Secretary or
an Assistant Secretary of Purchaser as to the incumbency of the officer(s) of
Purchaser (who shall not be such Secretary or Assistant Secretary) executing
this Agreement or any Related Documents, (v) a short-form certificate of good
standing of Purchaser, certified by the Secretary of State of Purchaser's state
of incorporation as of a date not more than thirty (30) business days prior to
the Closing Date, and (vi) such other certificates and instruments that the
Seller and its counsel may reasonably request.
(b) At the Closing, subject to and on the terms and
conditions set forth in this Agreement, Seller shall deliver or cause
to be delivered to Purchaser (i) certificates evidencing the Shares, with
appropriate stock powers and requisite tax stamps attached and properly signed,
in form suitable for the transfer of such Shares to Purchaser, (ii) certified
copies of resolutions duly adopted on or prior to the date hereof by the board
of directors of Seller and MegaTech, authorizing the execution, delivery and
performance of this Agreement and the Related Documents, to the extent each is a
party hereto or thereto, (iii) certified copies of the certificate of
incorporation and by-laws of Seller and MegaTech, (iv) a certificate of the
Secretary or an Assistant Secretary of Seller and MegaTech as to the incumbency
of the officer(s) (who shall not be such Secretary or Assistant Secretary)
executing this Agreement or any Related Documents, (v) a short form certificate
of good standing of Seller and MegaTech, certified by the Secretary of State of
the State of Michigan as of a date not more than thirty (30) business days prior
to the Closing Date, and (vi) such other certificates and instruments that
Purchaser and its counsel may reasonably request.
2.2 Resignations: At the Closing, Seller shall cause all directors
and officers of MegaTech to resign or to be removed as directors and officers
thereof.
ARTICLE III
Representations and Warranties of Seller
Seller represents and warrants to Purchaser as follows:
3.1 Organization and Authority:
(a) Seller is a corporation duly organized, validly
existing and in good standing under the laws of Michigan, and Seller has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, to execute and deliver this
Agreement and all other agreements, instruments and documents to be delivered in
connection with the transaction contemplated hereby (the "Related Documents")
and to perform the obligations to be performed by it hereunder and thereunder,
and to consummate the transactions contemplated hereby and thereby.
(b) MegaTech is a corporation duly organized, validly
existing and in good standing under the laws of Michigan, has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the character of the properties owned or leased by it or the nature of the
Business conducted by it makes such qualification necessary (which are set forth
on Schedule 3.1(b). MegaTech does not own or lease property in any jurisdiction
other than its jurisdiction of incorporation and the jurisdictions set forth on
Schedule 3.1(b).
3.2 Authorization of Shares: On the date hereof, the authorized
capital stock of MegaTech consists of 200,000 authorized shares of common stock,
$.50 par value, of which 124,705 shares (the "Shares") are issued, outstanding
and owned by the Seller. All the Shares have been validly issued and are fully
paid and non-assessable and are owned, beneficially and of record, by Seller
free and clear of pre-emptive rights of any kind. The Shares are free and clear
of all claims, liens, encumbrances, security interests, charges or restrictions
on transfer (each, an "Encumbrance"), and, upon the delivery of and payment for
the Shares at the Closing, Purchaser will acquire good and valid title to the
Shares, free and clear of all Encumbrances. There are no options, calls,
warrants or other securities or rights outstanding which are convertible into,
exercisable for or relate to any shares of capital stock of MegaTech.
3.3 Subsidiaries: Except as indicated in Schedule 3.3, neither
MegaTech nor the Business currently owns any capital stock or other proprietary
interest, directly or indirectly, in any corporation or other entity. The
subsidiaries noted on Schedule 3.3 are referred to in this Agreement as the
"Subsidiaries."
3.4 Corporate Action; No Conflict: The execution and delivery by
Seller and MegaTech of this Agreement and the Related Documents and Seller's and
MegaTech's performance of the transactions contemplated hereby and thereby have
been duly and validly authorized by all requisite corporate action of Seller and
MegaTech (as the case may be). This Agreement has been duly and validly executed
and delivered by Seller and MegaTech and is, and each of the Related Documents
when executed and delivered by Seller in accordance with its terms will be, the
valid and binding obligation of such party, enforceable against such party in
accordance with their respective terms, except as limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors rights generally.
Neither the execution, delivery or performance by Seller or MegaTech of this
Agreement or any of the Related Documents, nor the consummation by Seller or
MegaTech of the transactions contemplated hereby or thereby, nor compliance by
Seller or MegaTech with any provision hereof or thereof will (i) conflict with,
result in a breach of or otherwise violate any provision of the charter or
by-laws of Seller or MegaTech, (ii) require any consent, waiver, approval,
authorization or permit of, or filing with or notification to any federal,
state, county, local or foreign governmental or regulatory authority, agency or
commission, including courts of competent jurisdiction and arbitration
tribunals, or of any third party, (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination or cancellation) under, any of the terms,
conditions or provisions of any indenture, mortgage, note, bond, financing
commitment, Encumbrance, license, government registration, contract, lease,
agreement or other instrument or obligation to which MegaTech or Seller is a
party or by which any of their respective property or assets may be bound, or
(iv) violate any provision of law, statute, rule or regulation, or any order,
writ, injunction, permit, judgment or decree of any court or other governmental
or regulatory authority.
3.5 Financial Statements:
(a) Set forth in Schedule 3.5 hereto is an pro-forma
unaudited balance sheet of the Business as at August 22, 1998 (the "Reference
Balance Sheet") and related unaudited statements of income of the Business for
the eight (8) month period then ended. Such financial statements are
collectively referred to herein as the "Financial Statements". The Financial
Statements have been prepared from the books and records of the Business, and
have been prepared in accordance with Seller's Accounting Principles as set
forth in attached Schedule 3.5.
(b) The Financial Statements are true, complete and
correct in all material respects as of the date and for the period stated above,
and fairly present the properties, assets, financial position and results of
operations of MegaTech as of the date and for the period stated above,
consistent with Seller's Accounting Principles.
(c) Except as set forth on Schedule 3.5(c), since the date
of the Financial Statements (i) there have not been any changes in the business,
properties, financial position, results of operations or net worth of MegaTech
which have had a Material Adverse Effect on the Business (as hereinafter
defined.) Except as set forth on Schedule 3.5(c), since the date of the
Financial Statements, MegaTech has incurred no material liabilities except for
(i) liabilities that are timely reflected in the Financial Statements, (ii)
contractual and other obligations of performance (other than obligations arising
by reason of a default in performance) not required to be reflected in the
Financial Statements under Seller's Accounting Principles, and (iii) liabilities
incurred in the ordinary course of business, consistent with past practice.
Except as reflected on Schedule 3.5(c), to Seller's Knowledge, the Business has
incurred no material contingent liabilities that are not properly reflected on
the Financial Statements in accordance with Seller's Accounting Principles.
(d) Except as set forth on Schedule 3.5(c) hereto, since
the date of the Financial Statements the business affairs of MegaTech have been
conducted substantially in the same manner as theretofore conducted, and in the
ordinary course of business, and specifically, without limiting the generality
of the foregoing, neither MegaTech nor Seller has
(i) amended MegaTech's Certificate of Incorporation or
Bylaws;
(ii) redeemed or otherwise acquired any shares of its
capital stock or issued any capital stock or any option, warrant or right
relating thereto or any securities convertible into or exchangeable for any
shares of capital stock of MegaTech;
(iii) sold, leased, licensed or otherwise disposed of,
or agreed to sell, lease, license or otherwise dispose of, any interest in any
of the assets of the Business that are material, individually or in the
aggregate, to MegaTech, except for sales of inventory in the ordinary course of
business consistent with past practice;
(iv) permitted, allowed or subjected any of the assets
or Owned Real Property to any mortgage, pledge, security interest, Encumbrance
or lien or suffered such to be imposed, except for Permitted Liens;
(v) entered into any new agreement that would be
included within the definition of Material Contracts except as listed on
Schedule 3.9 hereto or amended in a material manner any of the Material
Contracts except as disclosed on Schedule 3.9.
(e) To the extent that any assets have been transferred out of
Megatech or the Business, since the date the Seller was acquired by Johnson
Controls, Inc., any liabilities associated with such assets have also been
transferred and Megatech has retained no such liability.
(f) For purposes of this Agreement, a Material Adverse Effect on the
Business shall mean a negative impact in excess of One Hundred Fifty Thousand
($150,000) Dollars on the EBIT of the Business for calendar year 1998.
3.6 Tax Matters:
(a) Except as may be reflected in, or otherwise
provided or accounted for or identified in the Closing Balance Sheet: (a) all
returns, reports and declarations of every nature required to be filed with
respect to Taxes by or on behalf of MegaTech (either separately or as part of a
consolidated group) prior to the Closing Date have been timely filed. All Taxes
relating to any period ending prior to, on or as of, the Closing with respect to
MegaTech shall have been either paid or fully accrued for as of or prior to, the
Closing Date. These returns, reports and declarations are complete and accurate
and disclose all Taxes required to be paid for the periods covered thereby, and
there is no deficiency with respect to any tax period ending prior to, on or as
of, the Closing. MegaTech has not been advised in writing or to the Knowledge of
Seller, orally by any tax authority of any such issue or question relating to
any return, report or declaration that if determined adversely to MegaTech,
would result in the assertion of any deficiency for any Tax in connection
therewith. The Seller has neither agreed to or is bound by an extension or
waiver of the statute of limitations relating to the assessment and/or
collection of any Tax. The federal tax returns of MegaTech have been audited by
the Internal Revenue Service through 1994. MegaTech has withheld or collected
from each payment made to employees or otherwise in connection with services
rendered the amounts of all taxes required to be withheld or collected
therefrom, and MegaTech has paid all such taxes when due to the proper tax
officials.
(b) "Taxes" (and individually, "Tax") means all taxes
including, without limitation, all income taxes (including any tax on or based
upon net income, or gross income, or income as specially defined, or earnings,
or profits, or selected items of income, earnings or profits) and all gross
receipts, sales, use, Michigan Single Business taxes, ad valorem, transfer,
franchise, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or windfall profits taxes, real property tax,
alternative or add-on minimum taxes, customs duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
governmental authority.
3.7 Real Property:
(a) Schedule 3.7(a) sets forth a list of all real
property owned by MegaTech ("Owned Real Property"). Except for the Owned Real
Property, Seller does not own any real property or interest therein. Except for
Permitted Liens (as defined on Schedule 3.7(a)) and the other matters listed on
Schedule 3.7(a) (collectively, the "Permitted Owned Real Property Exceptions")
none of which materially interferes with the present use of the Owned Real
Property, Seller has good and marketable title to the Owned Real Property, free
and clear of all Encumbrances or other matters affecting title.
(b) Schedule 3.7(b) sets forth a true and complete
list of all real property leased by or from MegaTech (the "Leased Real
Property"), true and complete copies of leases related thereto having been
provided by Seller to Purchaser (the "Real Property Leases"). Except as set
forth on said Schedule 3.7(b): (i) each Real Property Lease is valid, binding
and in full force and effect and all rent and other sums and charges payable
thereunder by MegaTech are current and (ii) no notice of default by MegaTech or
termination under any Real Property Lease is outstanding, and no event has
occurred and no condition exists which, with the giving of notice, the lapse of
time, or both, would constitute such a default or termination event or
condition.
(c) Schedule 3.7(c) lists by street address all real
property previously owned, leased or used by MegaTech or in which MegaTech had
an interest since January 1, 1987 (the "Prior Properties").
(d) All of the land, buildings, structures and other
improvements used by MegaTech in the conduct of its business are included in the
Owned Real Property or the Leased Real Property. To Seller's actual knowledge,
and without due inquiry, the Owned Real Property and the Leased Real Property
are serviced by sufficient electrical and other public utilities for the
Business as presently conducted. No governmental authority having jurisdiction
over the Owned Real Property or the Leased Real Property has given any notice of
a possible future imposition of assessments affecting such property or the
exercise of the power of eminent domain.
3.8 Tangible Assets other than Owned Real Property: Other than Owned
Real Property, which is the subject of Section 3.7(a) hereof, MegaTech has good,
valid and marketable title to all the tangible assets and personal property used
in the conduct of the Business, free and clear of all encumbrances, except for
Permitted Liens (as defined on Section 3.7(a)), none of which materially detract
from or interfere with the use of the assets, and those tangible assets subject
to leases as set forth on Schedule 3.9, with respect to which MegaTech has a
valid leasehold interest or other legal right to use. Except as set forth on
Schedule 3.8, all tangible assets and personal property owned or used by
MegaTech are situated at the business premises of MegaTech.
3.9 Contracts: Except for those contracts listed on Schedule 3.9
(the "Material Contracts"), there are no contracts, agreements (including,
without limitation, agreements relating to employment), guarantees of payment or
performance, licenses, leases of personal property or conditional sales
contracts relating to or affecting the Business which extend beyond the Closing
Date, other than (i) purchase orders and sales orders entered into in the
ordinary course of business whereby MegaTech is obligated to buy or sell less
than $50,000 in invoice value of goods or services, and (ii) contracts for the
sale of goods or services by MegaTech which by their terms terminate or are
unconditionally terminable by MegaTech without penalty within ninety (90) days
after the date hereof and which individually involve a commitment for less than
$75,000, except as set forth on Schedule 3.9. All contracts to which MegaTech is
a party (including, without limitation, the Material Contracts) are valid and
binding obligations of MegaTech, and to the Knowledge of Seller, of the
respective counterparties thereto, in accordance with their respective terms,
and neither MegaTech nor Seller has taken any action or omitted to take any
action which would constitute a breach of or default in any provision of any
such contracts, or which would permit the acceleration or termination of any
obligation. To the actual knowledge of John Barth, Stacy Fox, and David Berg, no
information has been brought to the attention of Seller or Megatech which has
caused any of them to believe that any customer or supplier intends to alter, in
any materially adverse respect, the amount of such customer's or supplier's
dealings with MegaTech. Seller has provided to Purchaser true and complete
copies of all Material Contracts.
3.10 Litigation: Except as set forth on Schedule 3.10, there are no
claims, demands, actions or suits pending or, to the Knowledge of Seller
threatened, and to the Knowledge of Seller, there are no pending or threatened
investigations, against MegaTech or against Seller affecting the Business, or in
connection with the transactions contemplated by this Agreement.
3.11 Compliance with Law: Except as listed on Schedule 3.11 or as
disclosed in Section 3.10 above, MegaTech is not in violation of any foreign,
federal, state or local law, statute, regulation or order applicable to the
operation of the Business. MegaTech is not subject to any judicial governmental
or administrative order, judgment or decree. To the Knowledge of Seller,
MegaTech has obtained all governmental and third party licenses, permits,
approvals, authorizations, exemptions and certifications necessary to the
conduct of its business or ownership of its properties. This Section 3.11 does
not relate to environmental matters, it being the intent of the parties that the
only section relating to environmental matters shall be Section 3.12.
3.12 Environmental Matters:
(a) Except as set forth on Schedule 3.12, the Business
is in compliance with all Environmental Requirements as such Environmental
Requirements are applied to MegaTech's current use of the Owned Real Property
and Leased Real Property. "Environmental Requirements" shall mean all federal,
state and local statutes, regulations, and ordinances concerning pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, as such requirements are enacted and in effect
on or prior to the Closing Date. MegaTech has utilized, handled, stored,
delivered for disposal, disposed of and transported all wastes, whether
hazardous or not, in compliance in all material respects with Environmental
Requirements, and so as not to contaminate the Owned Real Property or Leased
Real Property or any other properties and so as not to give rise to any
reporting, remediation or clean-up obligation under any Environmental
Requirements.
(b) Except as set forth on Schedule 3.12, the Business
has not received any written notice, report or other information regarding any
actual or alleged material violation of Environmental Requirements, or any
material liabilities or potential material liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to the Business or its facilities
arising under Environmental Requirements.
(c) Schedule 3.12 hereof constitutes a list of all
reports, records, data, site assessments and other documents in MegaTech's or
Seller's possession that concern the environmental condition of the Owned Real
Property or Leased Real Property or MegaTech's compliance with, or liability
under, Environmental Requirements. Seller has delivered all such material to
Purchaser.
(d) This Section 3.12 contains the sole and exclusive
representations and warranties of Seller with respect to any environmental
matters, including without limitation any arising under any Environmental
Requirements. Except as expressly set forth in Article VII of this Agreement,
Purchaser hereby waives any right, whether arising at law or in equity, to seek
contribution, cost recovery, damages, or any other recourse or remedy from
Seller, and hereby releases Seller from any claim, demand or liability,
regarding any such environmental matter based on law or equity (including any
arising under any Environmental Requirements and including any arising under the
Comprehensive Environmental Response Compensation and Liability Act, any
analogous state or foreign law, or the common law).
3.13 Intellectual Property: Except as set forth in Schedule 3.13:
(a) MegaTech owns, possesses, is licensed or otherwise
has the right to use, free of any liens or restrictions, the patents, trademarks
and trade names listed on Schedule 3.13 (the "Intellectual Property"). To the
Knowledge of Seller, other than as set forth on Schedule 3.13 there is no
intellectual property owned or controlled by any third party which is necessary
to conduct the business as presently conducted. To the Knowledge of Seller,
there is no default with respect to the terms under which any Intellectual
Property is used by MegaTech, and to the Knowledge of Seller, no event has
occurred and no condition exists which, with the giving of notice or the lapse
of time or both, would constitute such a default.
(b) Seller has received no written notice from a third
party that any product or service manufactured, marketed, distributed or sold or
proposed to be manufactured, marketed, distributed or sold by the Business
violates or will violate any license, use, right or infringes or will infringe
any rights of any other person, and Seller has no knowledge of any basis for any
such claim; and there is no pending or, to the Knowledge of Seller, threatened
claim against Seller or the Business contesting the validity of or right to use
any of the Intellectual Property.
3.14 Labor and Employment Matters:
(a) Except as disclosed on Schedule 3.14(a) ("Labor
Matters"), (i) neither Seller nor MegaTech is a party to or subject to any
collective bargaining agreement with any labor organization with respect to any
operations of the Business; (ii) there are no agreements or representation
questions with labor unions or associations representing employees of the
Business; and (iii) since January 1, 1997, there have been no current strikes,
slowdowns picketing, work stoppages or other occurrences, events or conditions
of a similar character in which any of said employees have participated.
(b) Schedule 3.14(b) sets forth the name, position and
annual salary of all salaried employees of MegaTech receiving compensation
(including bonuses, commissions and other compensation) in excess of Seventy
Thousand Dollars ($70,000) per year. MegaTech has complied with all applicable
laws affecting employment and employment practices (including, without
limitation, laws relating to immigration into the United States) and terms and
conditions of employment and wages and hours. Except as set forth on Schedule
3.14(b), no employees of MegaTech have employment agreements which provide for
employment on other than an at-will basis. Neither Seller nor MegaTech have
received notice from any of the employees listed on Schedule 3.14(b) (the "Key
Employees") that he or she intends to terminate his or her employment.
3.15 Employee Benefit Plans.
(a) Schedule 3.15(a) lists all of the employee benefit
plans (other than multi-employer plans) currently maintained or contributed to
with respect to active or retired employees of the Business (the "Benefit
Plans"). Seller has delivered to Purchaser true and complete copies of each
Benefit Plan. Except as disclosed on Schedule 3.15(a), there are no Benefit
Plans which require the provision of Welfare Benefits to retirees of MegaTech or
their dependants.
(b) All Benefit Plans which are "employee benefit
plans" (as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) are in compliance in all material respects
with the applicable requirements of law, including ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"). No Reportable Event under ERISA
(as defined therein) has occurred with respect to any Benefit Plan, and there
exists no condition or set of circumstances which would result in a Reportable
Event. With respect to each Benefit Plan that is intended to be a funded plan,
the value of all accrued benefits under such Benefit Plan is fully funded by the
assets of such Plan.
(c) Each Benefit Plan which is intended to qualify
under Section 401(a) of the Code has received a favorable determination letter
that it is so qualified and that its trust is exempt from taxation, and Seller
is not aware of any facts which would cause such favorable determination letters
to be revoked. No Benefit Plans that are intended to qualify under Section
401(a) of the Code and that cover employees of the Business have been terminated
since January 1, 1993.
(d) Neither Seller nor MegaTech maintains or
contributes to and neither has maintained or contributed to a Benefit Plan
subject to Title IV of ERISA (including a "multiemployer" plan as such term is
defined in Section 4001(a) of ERISA) with respect to employees of the Business.
MegaTech has no liablity, and none of the assets of MegaTech are actually or
potentially subject to the imposition of a lien, under Sections 4062, 4063,
4064, 4068, 4069 or 4201 of ERISA. To Seller's Knowledge, there has not occurred
any prohibited transaction within the meaning of Section 406 of ERISA and
Section 4975 of the Code that would result in liability to MegaTech or that
relates to MegaTech's assets.
3.16 Representations and Warranties as to Subsidiary: Except as set
forth in Schedule 3.16 or on another Schedule hereto, each of the
representations and warranties contained in Sections 3.1(b), 3.3, 3.6, 3.9,
3.13, 3.14, 3.15, 3.17 and 3.18 of this Agreement are made by Seller with
respect to each of the Subsidiaries, with the exceptions and other applicable
disclosures noted on Schedule 3.16. The representations contained in Section 3.2
of this Agreement are also made with respect to the Subsidiary, but only to the
extent consistent with the fact that such Subsidiary is a non-stock corporation.
3.17 Governmental Approvals of Agreement: No approval of or filing
with any governmental entity which has not already been obtained is necessary to
authorize the execution and delivery of this Agreement and the Related Documents
by Seller or MegaTech or the consummation of the transactions contemplated
herein and therein by Seller and MegaTech.
3.18 Disclosure and Material Facts: Neither this Agreement nor any
Schedule attached hereto contains any untrue statement of a material fact or
intentionally omits to state a material fact necessary in order to make the
factual statements contained herein or therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE IV
Representations and Warranties of Purchaser
Purchaser represents and warrants:
4.1 Organization and Authority: Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, and
Purchaser has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted, to
execute and deliver this Agreement and the Related Documents and to perform the
obligations to be performed by it hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby.
4.2 Corporate Action; No Conflict: The execution, delivery and
performance by Purchaser of this Agreement and the Related Documents to be
delivered by Purchaser and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly and
validly executed and delivered by Purchaser and is, and each of the Related
Documents when executed and delivered by Purchaser in accordance with its terms
will be, the valid and binding obligation of Purchaser, enforceable in
accordance with the terms thereof, except as limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors rights generally. Neither the
execution, delivery or performance by Purchaser of this Agreement or any Related
Document, nor the consummation by Purchaser of the transactions contemplated
hereby or thereby, nor compliance by Purchaser with any provision hereof or
thereof will (i) conflict with or result in a breach of any provision of the
charter or by-laws of Purchaser or (ii) violate any provision of law, statute,
rule or regulation or any order, writ, injunction, permit, judgment or decree of
any court or other governmental or regulatory authority applicable to Purchaser.
4.3 Funding of Purchase Price: Purchaser currently has and will
continue to have funds available sufficient to pay the Purchase Price.
4.4 Acquisition of Shares for Investment: The Shares purchased by
Purchaser pursuant to this Agreement are being acquired for investment only and
not with a view to any public distribution thereof, and Purchaser will not offer
to sell or otherwise dispose of the shares so acquired by it in violation of any
of the registration requirements of the Securities Act of 1933, as amended, or
any comparable state law.
4.5 Governmental Approvals of Agreement: No approval of or filing
with any governmental entity which has not already been obtained is necessary to
authorize the execution and delivery of this Agreement and the Related Documents
by Purchaser or the consummation of the transactions contemplated herein and
therein by Purchaser.
ARTICLE V
Employee Matters
5.1 Excluded Employees: The parties acknowledge that the former
MegaTech employees listed on Schedule 5.1 hereto have been transferred to other
affiliates of Seller prior to the Closing Date (the "Excluded Employees"), and
that it is the intent of the parties that such Excluded Employees shall remain
with the Seller following the Closing Date, rather than being be transferred
with the Business.
ARTICLE VI
Further Covenants and Agreements
6.1 Retention of Records: Purchaser shall maintain in an orderly
manner, and shall not dispose of, the books and records and other financial data
relating to the Business during the six year period beginning with the Closing
without Seller's consent. During such period, Purchaser shall provide Seller
with reasonable access, upon reasonable notice to such books and records and
other financial data of the Business. Following the expiration of such six-year
period, Purchaser may dispose of the books and records at any time without
notice to Seller.
6.2 Transition Services and Other Ongoing Support: For a specified
period of time following the Closing, Seller and Purchaser agree to provide to
one another such support services as are set forth in the Transition Services
Agreement being executed as of the Closing Date.
6.3 Further Assurances: From time to time after the Closing, without
further consideration, the parties shall cooperate with each other and shall
execute and deliver instruments of transfer or assignment, or such other
documents to the other party as such other party reasonably may request to
evidence or perfect Purchaser's right, title and interest to the Shares, and
otherwise carry out the transactions contemplated by this Agreement.
6.4 Right of First Refusal on Additional Real Property: Seller
hereby grants Purchaser a right of first refusal to purchase the land and
buildings comprising 1953 and 1987 Concept Drive, Warren, Michigan (the
"Additional Property"), under the following terms. If Seller at any time
following execution of this Agreement, receives bona fide offer from a third
party to purchase the Addtional Property (a "Purchase Offer"), and if any such
Purchase Offer is acceptable to Seller, then Seller agrees to notify Purchaser
in writing, giving the name and address of the offeror, and the price, and terms
in writing, of such Purchase Offer, and Purchaser shall have thirty (30) days
from and after the receipt of such notice from Seller in which to elect to enter
into a purchase transaction with Seller, on the terms contained in the Purchase
Offer. In the event that Purchaser elects to exercise its right of first refusal
hereunder, it may do so by Purchaser shall be subject to an additional sixty
(60) day due diligence review period for Purchaser to conduct such additional
due diligence on the Additional Property as it deems appropriate. Based upon
such due diligence, Purchaser shall have a one-time right, within the sixty (60)
day period to revoke its election to purchase providing Seller written notice of
its election ("Exercise Notice"). Such election by hereunder. Such revocation
shall nullify this right of first refusal, and Seller shall thereafter be free
to sell the Additional Property at any time in the future on such terms and
conditions as it deems appropriate. The closing of the purchase by Purchaser
shall take place on a mutually agreed upon date, not later than thirty (30) days
following receipt by Seller of the Exercise Notice. Seller shall deliver title
to the Additional Property by warranty deed, subject to all exceptions and
restrictions of record. The purchase price shall be payable in cash upon
conveyance of title in accordance with this Section 6.4.
6.5 Confidentiality:
(a) Seller acknowledges that MegaTech's trade
secrets, private or secret processes, and know-how as they currently exist and
other information concerning products, services, developments, technical
information, sales activities, pricing, marketing, credit and financial data,
and information concerning customers are MegaTech's valuable, special and unique
assets, access to and knowledge of which have been gained by virtue of Seller's
ownership of MegaTech. Subject to the limitations set forth below, Seller agrees
that all such information shall be considered confidential information of
MegaTech ("MegaTech Information"). Seller agrees that from and after the
Closing, Seller and its affiliates will not disclose any MegaTech Information
for any reason or purpose whatsoever or for the benefit of any person or entity
under any circumstances except that any such MegaTech Information required by
law or legal or administrative process to be disclosed may be disclosed without
violating the provisions of this Section 6.5(a). The foregoing restrictions
shall not apply to any such information that is generally available to the
public on the Closing Date, or thereafter becomes generally available to the
public other than as a result of a breach of this Section 6.5(a).
(b) Purchaser agrees that, after the Closing Date,
Purchaser shall, and shall use all reasonable efforts to cause their respective
directors, officers, employees, advisors and affiliates to, keep the Seller
Information (as defined below) confidential following the Closing Date, except
that any such Seller Information required by law or legal or administrative
process to be disclosed may be disclosed without violating the provisions of
this Section 6.5(b). For purposes of this Agreement, the term "Seller
Information" shall mean all trade secrets, private or secret process and
know-how, other than information that relates exclusively to the Business (and
not to Seller or any other business of Seller) and other than any such
information that is available to the public on the Closing Date, or thereafter
becomes available to the public other than as a result of a breach of this
Section 6.5; and (ii) the terms of this Agreement.
6.6 Covenant Not to Compete: (a) In consideration of the benefits to
Seller hereunder and in order to induce Purchaser to enter into this Agreement,
Seller hereby covenants and agrees that for a period of seven (7) years after
the Closing Date (the "Restricted Period"), Seller shall not, and shall cause
its affiliates to not, directly or indirectly, anywhere in North America, engage
in, conduct, manage, operate or control, or participate, in any manner
whatsoever, or whether or not for profit, in the ownership, investment,
management, operation or control of, any business which competes with the
Business as it is conducted as of the Closing Date, except that this non-compete
obligation shall not apply as follows:
(i) Passive ownership of not more than 5% of the issued
and outstanding shares of a class of securities of a corporation the securities
of which are traded on a national securities exchange or in the over-the-counter
market shall not be deemed ownership of the issuer of such shares for the
purposes of this Section;
(ii) The provisions of this Section 6.6 shall not
preclude Seller from acquiring control of an entity which has as a portion of
its business (constituting no more than twenty percent (20%) of the revenues of
such business) which competes with the Business (the "Competing Business"), but
which primarily is engaged in other lines of business; provided further,
however, that in the event Seller directly or indirectly acquires such a
Competing Business during such period, then whatever entity has acquired such
Competing Business either shall (i) limit the Competing Business solely to the
production of competing products which the Competing Business was obligated to
produce pursuant to contracts which were entered into prior to, and not in
anticipation of such acquisition, it being understood and agreed that the
Competing Business will not renew any such contract upon expiration of the term
or any extended term in effect at the time of such acquisition or (ii)
discontinue the Competing Business or dispose of the Competing Business to a
non-affiliated entity within eighteen (18) months of the date of such
acquisition. In connection with any such disposition, Seller agrees to discuss,
in good faith, the possibility of selling such Competing Business to Purchaser,
prior to taking any definite action with another third party regarding such
disposition.
(iii) Engineering and design services provided directly
by Seller or one of its affiliates to its customers in connection with any
automotive system or component program for which Seller, or one of its
affiliates, is attempting to become the designated supplier of systems or
components for such program; and
(iv) the business currently conducted by Easi-Meg.
(b) Seller agrees that during the Restricted Period,
neither Seller nor its affiliates will directly or indirectly induce employees
of MegaTech to engage in any activities hereby prohibited to Seller and its
affiliates or to terminate their employment with MegaTech.
(c) It is expressly understood and agreed that although
Seller and Purchaser consider the restrictions contained in each of clauses (a)
through (b) above to be reasonable for the purpose of preserving the goodwill,
proprietary rights and going concern value of MegaTech, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this Section 6.6 is an unenforceable
restriction on the activities of Seller, the provisions of this Section 6.6
shall not be rendered void but shall be deemed amended to apply as to such
maximum time and territory and to such other extent as such court may judicially
determine or indicate to be reasonable. Alternatively, if the court referred to
above finds that any restriction contained in this Section 6.6 or any remedy
provided in clause (d) of this Section 6.6 is unenforceable, and such
restriction or remedy cannot be amended so as to make it enforceable, such
finding shall not affect the enforceability of any of the other restrictions
contained therein or the availability of any other remedy.
(d) Seller acknowledges and agrees that Purchaser's
remedy at law for a breach or threatened breach of any of the provisions of
Section 6.6 would be inadequate and, in recognition of this fact, in the event
of a breach or threatened breach by Seller of any of the provisions of Section
6.6, Seller agrees that, in addition to its remedy at law, Purchaser, without
posting any bond, shall also be entitled to obtain, and Seller agrees not to
oppose a request for, equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available. Nothing herein contained shall be
construed as prohibiting Purchaser from pursuing, in addition, any other
remedies available to it for such breach or threatened breach.
(e) Seller hereby acknowledges, without extending the
geographic scope of the foregoing non-compete obligations, that it has no
present intent to expand the activities of its MegaTech subsidary in Europe to
include the delivery of contract engineering and design services to third
parties (other than to its affiliates or consistent with Section 6.6(a)(iii)) in
Europe. Further, Seller acknowledges and agrees that, for the Restricted Period,
it will not, without the prior written consent of Purchaser, acquire a
stand-alone contract engineering and design business enterprise in Europe for
the purpose of continuing such business as a contract engineering and design
supplier. Purchaser acknowledges that Seller may acquire a business enterprise
in Europe which includes, among its lines of business, the delivery of contract
engineering and design services to third parties. In the event of any such
acquisition, and without hereby creating any obligation on the part of Seller to
divest any such line of business, Seller agrees that in the event of any such
acquisition, it will notify Purchaser of the acquisition, and will discuss with
Purchaser, in good faith, the prospect of selling such line of business to
Purchaser.
6.7 Preferred Supply of Engineering Services: In further
consideration of the transaction contemplated by this Agreement, Johnson
Controls, Inc. ("JCI") shall designate Purchaser as its preferred exclusive
supplier of JCI's requirements for outsourced engineering and design services on
terms set forth in the Supply Agreement ("Supply Agreement") executed as of the
Closing Date.
6.8 Advisory Board: Seller and Purchaser shall establish and
maintain during the term of the Supply Agreement, an advisory board consisting
of senior representatives of Purchaser and of the JCI purchasing and engineering
functions (the "Advisory Board"). The purpose of the Advisory Board will be to
improve the relationship between JCI and Purchaser, and to encourage additional
business opportunities for Purchaser, MSX International, Inc., and MegaTech
going forward.
6.9 Interest in Easi-Meg: Purchaser and Seller agree that as soon
following the Closing Date as is reasonably practical, Easi-Meg and Purchaser
shall meet to review the opportunity for Purchaser to acquire Seller's interest
in Easi-Meg.
6.10 Cash and Cash Equivalents: The parties acknowledge that all
cash and cash equivalents ("Cash") and all Taxes (except to the extent of any
accruals therefor in the Reference Balance Sheet) related to any period prior to
the date of the Reference Balance Sheet have been excluded from the Reference
Balance Sheet, and further acknowledges that Cash and Taxes related to any
period prior to the Effective Date are to be excluded from the Business as of
the Effective Date, except to the extent of any accruals on the Closing Balance
Sheet.
6.11 Certain Intercompany Agreements: The parties acknowledge and
agree that the Intercompany Agreements listed on Schedule 6.11 ("Intercompany
Contracts") hereto shall be terminated as of the Closing Date, and upon
termination, MegaTech shall have no further obligations or liabilities
thereunder.
6.12 Cooperation of Accountants: Seller shall assist Purchaser, at
Purchaser's expense, in obtaining from Seller's accountants such financial
statements, consents, opinions or other documents as may be reasonably necessary
for Purchaser to fulfill financial disclosure and reporting obligations in the
future.
6.13 Bank Accounts: Seller will cooperate in all reasonable respects
with Purchaser to ensure that the MegaTech bank accounts set forth on Schedule
6.13 ("Bank Accounts") continue to be available for the sole use and benefit of
MegaTech and Purchaser following the Closing.
6.14 Name Change: Following the Closing, and subject to the
following sentence, Seller agrees not to use the name "MegaTech" in connection
with any of its or its affiliates' activities, anywhere in the world. Seller
agrees to discontinue use of the MegaTech name in Europe, and change the name of
its affiliates in Europe to another name dissimilar to the name "MegaTech"
within six (6) months following Closing.
6.15 Preparation of Tax Returns: Seller will be responsible for
preparing MegaTech's 1998 tax returns. Purchaser shall provide such assistance,
and grant Seller such access to MegaTech's books and records as necessary to
satisfy this covenant. Purchaser shall be given a reasonable opportunity to
review and approve the tax returns.
6.16 Collection of Accounts Receivable: To the extent that any
accounts receivable of the Business as of the Closing Date remain outstanding
ninety (90) days after the Closing Date, Seller shall use its reasonable best
efforts to assist Purchaser and MegaTech in collecting such receivables
including, to the extent requested by Purchaser, by contacting MegaTech's
customers regarding such receivables.
ARTICLE VII
Survival of Representations and Warranties;
Indemnification:
7.1 Survival of Representations and Warranties: Except as
specifically set forth in this Section, none of the representations and
warranties in this Agreement shall survive the Closing. In accordance with the
foregoing, (i) the representations and warranties contained in Sections 3.1
through 3.4 shall survive the Closing without termination, (ii) the
representations and warranties contained in Sections 3.5, 3.7, 3.8 (except as
hereafter provided), 3.9, 3.10, 3.11, 3.13, 3.14, 3.16, 3.17 and 3.18 shall
survive for a period Two Hundred Seventy (270) days following the Closing Date;
(iii) the representations and warranties contained in Section 3.6 shall survive
until the expiration of the applicable statute of limitations with respect to
the matters referenced in such section; (iv) the representations and warranties
contained in Section 3.15 hereof shall survive for a period of five (5) years
following the Closing Date; (v) the representations and warranties contained in
Section 3.12 shall survive for a period of One (1) year from the Closing Date;
and (vi) the representations and warranties related to title contained in
Section 3.8 shall survive for a period of one (1) year from the Closing Date.
All of the covenants and agreements contained in this Agreement shall, unless
otherwise expressly so provided, survive the Closing in accordance with their
own terms. Purchaser acknowledges that neither of the Seller nor MegaTech, nor
any other person or entity acting on behalf of Seller or any affiliate of
Seller, (i) has made any representation or warranty express or implied,
including any implied representation or warranty as to the condition,
merchantability, suitability or fitness for a particular purpose of any of the
assets used in the Business or (ii) has made any representation or warranty,
express or implied, as to the accuracy or completeness of any information
regarding the Business, in each case, except as expressly set forth in this
Agreement or as and to the extent required by this Agreement to be set forth in
any schedules hereto. Purchaser further agrees that Seller will not have or be
subject to any liability to Purchaser resulting from the distribution to
Purchaser, or Purchaser's use of, the Information Memorandum prepared by Bowles
Hollowell Conner & Co., dated September 3, 1998 and any information, document,
or material made available to Purchaser in certain "data rooms," management
presentations or any other form in expectation of the transactions contemplated
by this Agreement, except to the extent such information is otherwise set forth
in this Agreement.
7.2 Indemnification by Seller:
(a) From and after the Closing Date and subject to
Purchaser's relevant notice obligation contained herein, Seller shall defend,
indemnify and hold harmless Purchaser from and against any and all loss,
liability, damage or expense (including reasonable legal and accounting fees and
expenses and expenses reasonably incurred in investigating, preparing, defending
against or prosecuting any litigation or claim, action, suit, proceeding or
demand) but excluding consequential damages, lost profits or punitive damages
(individually a "Loss" and collectively "Losses"), which Purchaser actually
incurs as a result of (i) a breach of representation and warranty contained in
Article III, and (ii) the matters set forth on Schedule 7.2 hereof. In addition
to the foregoing, Purchaser and Seller hereby each indemnify the other against
any Loss which the other actually incurs as a result of the failure of the
indemnifying party to perform or observe, or have performed or observed, any
covenant or agreement to be performed or observed by it under this Agreement or
the Related Documents.
(b) The amount of any Losses incurred by Purchaser or
Seller hereunder shall be reduced as follows:
(i) by the net amount Purchaser or Seller recovers
(after deducting all attorneys' fees, expenses and other costs of recovery) from
any third party, from any insurer or other third party liable for such Losses,
and
(ii) where and to the extent the matter at issue
giving rise to any such Losses was provided or reserved for in the Closing
Balance Sheet or gave rise to the payment of a post-Closing adjustment as
described in Section 1.6, or was otherwise resolved in the preparation of the
Closing Balance Sheet;
(c) Except as otherwise provided in subsection (d) below,
Purchaser or Seller (as the case may be) shall be entitled to indemnification
under this Section 7.2 only (x) to the extent that the aggregate amount of such
Losses (adjusted as provided in Paragraph (b) of this Section 7.2) exceeds a
deductible amount of U.S. $500,000 (the "Indemnification Deductible"), in which
event the Losses shall be the amount, if any, which exceeds the Indemnification
Deductible; and (y) to the extent that each and any specific, individual Loss
(including a series of Losses which arises from the same event, transaction or
occurrence) which counts toward the Indemnification Deductible exceeds U.S.
$25,000, provided the aggregate amount payable in respect of indemnification
under this Section 7.2 shall not exceed a cap of U.S. $15,000,000.
Notwithstanding anything to the contrary contained in this subsection (c), the
Indemnification Deductible shall not apply to any claim for indemnification
under this Section 7.2 which arises out of (i) the matters set forth on Schedule
7.2 ("Specific Items of Indemnification"), (ii) any breach of representations or
warranties contained in Sections 3.1 - 3.4 hereof, and (iii) the failure of
either party to perform or observe or have performed or observed any covenant or
agreement to be performed or observed under this Agreement or the Related
Documents.
(d) Notwithstanding any provisions to the contrary
contained herein, the parties covenant and agree as follows with respect to any
Notice of Claim by Purchaser hereunder relating to the representations or
warranties contained in Section 3.12(a) hereof. To the extent that Purchaser
elects to undertake further post-closing investigation of the Owned Real
Property or Leased Real Property within the applicable survival period for
Section 3.12 set forth above, Purchaser shall select an environmental consultant
from a list of consultants mutually acceptable to the parties to undertake such
investigation. Purchaser shall keep Seller apprised as to the progress and
results of the investigation as it proceeds and shall furnish Seller with copies
of all material correspondence and work product. The full cost of such
investigation shall be borne by Purchaser and such cost shall not be applied
against the Indemnification Deductible. In the event that the investigation
results in a delivery by Purchaser of a Notice of Claim in accordance with
Section 7.3 below, for which Seller is obligated to indemnify Purchaser
hereunder, Seller shall satisfy such indemnification obligation by promptly
developing a remediation work plan, acceptable to Purchaser, and undertake such
remediation or other corrective actions necessary in order to bring the Owned
Real Property and/or Leased Real Property into full compliance with the
representations and warranties contained in Section 3.12 (the "Remediation
Effort"). Purchaser may appoint such outside consultants and advisors as it
deems appropriate to review Seller's work plan, and to oversee Seller's
Remediation Effort. Purchaser shall be responsible for the first Fifty Thousand
Dollars ($50,000) of costs related to the Remediation Effort. All the cost of
the Remediation Effort in excess of Fifty Thousand Dollars ($50,000) shall be
fully borne by Seller without application to the Indemnification Deductible. The
costs of Purchaser's outside consultants or advisors used in connection with
review and oversight of Seller's work plan, and Remediation Effort shall be
applied against the Indemnification Deductible. Completion of any Remediation
Effort hereunder, shall release Seller from any further obligation under this
Article VII with respect to the specific items identified in Purchaser's Notice
of Claim.
(e) The indemnity provided in this Section 7.2 shall be the sole and
exclusive remedy of Purchaser with respect to any and all claims relating to the
subject matter of this Agreement, except as specifically set forth in the Asset
Transfer Agreement among Becker Properties, Seller and MegaTech of even date
herewith (the "Asset Transfer Agreement").
7.3 Indemnification Procedure:
(a) Any party seeking indemnification hereunder (the
"Indemnitee") shall notify the parties liable for such indemnification (each an
"Indemnitor") in writing of any event, omission or occurrence which the
Indemnitee has determined has given or could give rise to Losses which are
indemnifiable hereunder (such written notice being hereinafter referred to as a
"Notice of Claim"). In all cases, such notice shall be given promptly upon
discovery of the Loss by Purchaser in accordance with the relevant provisions of
the Agreement regarding notice; provided, that the failure of any Indemnitee to
give notice as provided in this Section 7.3 shall not relieve the Indemnitor of
its obligations under this Article VII except to the extent such failure shall
materially adversely affects the Indemnitor. A Notice of Claim shall specify in
reasonable detail the nature and any particulars of the event, omission or
occurrence giving rise to a right of indemnification and the amount of the Loss
claimed. The Indemnitor shall satisfy its obligations hereunder, as the case may
be, within thirty (30) days of its receipt of a Notice of Claim; provided,
however, that so long as the Indemnitor is in good faith defending a claim
pursuant to Section 7.3(b) below, its obligation to indemnify the Indemnitee
with respect thereto shall be suspended and provided further that satisfaction
of any obligation with respect to Section 3.15 shall be in accordance with
Section 7.2(d). Interest shall accure on overdue payments under this Section 7.3
at the Chase Prime Rate, from the due date until the date of payment with
respect to claims that are not being defended by Indemnitor or otherwise being
addressed pursuant to Section 7.2(d) hereof. For claims being defended, interest
shall accrue from the date of ultimate resolution of the Claim. To the extent
the parties disagree as to whether any Loss or Losses are indemnifiable
hereunder, such matters shall be resolved pursuant to Section 8.10 hereunder.
(b) With respect to any third party claim, demand, suit,
action or proceeding which is the subject of a Notice of Claim, the Indemnitor
shall, in good faith and at it own expense, defend, contest or otherwise protect
against any such claim, demand, suit, action or proceeding with legal counsel of
its own selection. The Indemnitee shall have the right, but not the obligation,
to participate, at its own expense, in the defense thereof through counsel of
its own choice and shall have the right, but not the obligation, to assert any
and all cross claims or counterclaims it may have. So long as the Indemnitor is
defending in good faith any such third party claim, demand, suit, action or
proceeding, the Indemnitee shall at all times cooperate, at its own expense, in
all reasonable ways with, make its relevant files and records available for
inspection and copying by, and make its employees available or otherwise render
reasonable assistance to, the Indemnitor. In the event that the Indemnitor fails
to timely defend, contest or otherwise protect against any such third party
claim, demand, suit, action or proceeding, the Indemnitee shall have the right,
but not the obligation, at the expense and for the account of the Indemnitor, to
defend, contest, assert cross claims or counterclaims, or otherwise protect
against, the same and may make any compromise or settlement thereof and be
entitled to all amounts paid as a result of such third party claim, demand, suit
or action or any compromise or settlement thereof. Any compromise of asserted
liability by the Indemnifying Party other than solely by payment of cash shall
require the prior written consent of the party seeking indemnification.
ARTICLE VIII
Miscellaneous
8.1 Broker Compensation: Each of the parties hereto agrees to
indemnify the other against and hold the other harmless from any and all
liabilities (including, without limitation, cost of counsel fees in defending
against such liabilities) for brokerage commissions or finder's fees in
connection with the transactions contemplated by this Agreement, insofar as such
claims shall be based on arrangements or agreements made or claimed to have been
made by or on behalf of Seller or Purchaser, respectively.
8.2 Expenses: Each of the parties hereto shall pay its own expenses
in connection with the negotiation and preparation of this Agreement and the
Related Documents.
8.3 Binding Agreement: This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provided that neither party shall assign this Agreement without the
prior written consent of the other party hereto, and in no event will any
assignment relieve the assigning party of its obligations hereunder.
8.4 Entire Agreement: This Agreement (including any exhibits and
schedules hereto) (a) constitutes the entire agreement between the parties
hereto with respect to the purchase and sale of the Shares and the other
transactions contemplated hereby, (b) supersedes all prior negotiations and oral
or written understandings, if any, and (c) may not be amended or supplemented
except by an instrument in writing signed by both parties hereto. Neither party
makes any representation or warranty except as provided herein.
8.5 Governing Law: This Agreement shall be governed by and construed
in accordance with the substantive laws of the State of Michigan.
8.6 No Rights of Third Parties: Nothing in this Agreement is
intended to confer any right on any person other than the parties to it and
their respective successors and assigns; nor is anything in this Agreement
intended to modify or discharge the obligation or liability of any third person
to any party to this Agreement, nor shall any provision give any third person
any right of subrogation or action over against any party to this Agreement.
8.7 Counterparts: This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.8 Headings; Table of Contents: The headings of the sections of
this Agreement and the table of contents at the forepart of this Agreement are
inserted for convenience only and shall not constitute a part hereof nor affect
the rights of the parties hereto.
8.9 Notices: All notices, consents, approvals or other notifications
required of the parties under this Agreement shall be in writing and shall be
deemed properly served if delivered personally or sent by registered or
certified mail (return receipt requested), facsimile or nationally-recognized
courier or overnight delivery service addressed to such other party at the
address set forth below, or at such other address as may hereafter be designated
by either party in writing, and shall be deemed delivered (i) five business days
after being sent by mail or (ii) when actually delivered if sent by mail,
facsimile, courier or overnight delivery service (or the next business day if
delivered after regular business hours or on a Saturday, Sunday or holiday).
(a) If to Seller:
Becker Group, Inc.
c/o Johnson Controls, Inc.
49200 Halyard Drive.
Plymouth, MI 48170
Attention: Group Vice President and General Counsel
Facsimile: (734) 254-6914
(b) If to Purchaser:
275 Rex Boulevard
Auburn Hills, MI 48326
Attention:
Facsimile:
8.10 Dispute Resolution.
(a) Negotiation. In the event of any dispute or disagreement
between Seller and Purchaser as to the interpretation of any provision of this
Agreement, the performance of obligations hereunder, or any other disputed
matter, such matter, upon written request of either party, shall be referred to
representatives of the parties for decision, each party being represented by a
senior executive officer who has no direct operational responsibility for the
matters contemplated by this Agreement (the "Representatives"). The
Representatives shall promptly meet in a good faith effort to resolve the
dispute. If the Representatives do not agree upon a decision within thirty (30)
calendar days after reference of the matter to them, either Purchaser or Seller
shall be free to exercise the remedies available to them under Section 7.10(b)
below.
(b) Arbitration. Each of the parties agrees that any dispute,
controversy or claim arising out of or in connection with this Agreement or any
alleged breach hereof shall be settled by arbitration in Detroit, Michigan,
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). If Purchaser and Seller cannot jointly select a single
arbitrator to determine the matter, one arbitrator shall be chosen by each of
Purchaser and Seller (or, if a party fails to make a choice on behalf of the AAA
on behalf of such party) and the two arbitrators so chosen will select a third
(or, if they fail to make a choice, by the AAA). The decision of the single
arbitrator jointly selected by Purchaser and Seller, or, if three arbitrators
are selected, the decision of any two of them will be final and binding upon the
parties and the judgment of a court of competent jurisdiction may be entered
thereon. The arbitrator or arbitrators shall award the costs and expenses of the
arbitration, including reasonable attorneys' fees, disbursements, arbitration
expenses, arbitrators' fees and the administrative fee of the AAA, to the
prevailing party as shall be determined by the arbitrator or arbitrators.
8.11 Representation by Counsel; Interpretation. The Seller and
Purchaser acknowledge that each of them has been represented by counsel in
connection with this Agreement and the transactions contemplated hereby.
Accordingly, any rule of law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived.
8.12 Knowledge of Seller. For the purposes of Section 3.5 hereof,
the term "Knowledge of Seller" shall mean the actual knowledge of Dave Berg and
John Newton after due inquiry and investigation of those individuals listed on
Schedule 8.12 hereof as to the items set forth in such Section. The term
"Knowledge of Seller" as used elsewhere in this Agreement means the Knowledge of
Seller's and MegaTech's directors and officers and those management on Schedule
8.12 based upon diligent exercise of their respective duties and due and
reasonable investigation of the item in question.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
ATTEST: MEGATECH ENGINEERING, INC.
_______________________
BY________________________________
ATTEST: BECKER GROUP, INC.
_______________________ BY _______________________________
ATTEST: MSX INTERNATIONAL
ENGINEERING SERVICES, INC.
_______________________ BY_______________________________
The undersigned consents to all of the terms and conditions of this Agreement
and the transactions contemplated hereby, and hereby unconditionally and
irrevocably guarantees the full and timely performance by Seller of its
obligations under this Agreement and the Related Documents and any payments to
be made pursuant hereto and thereto and the undersigned hereby waives (a) all
rights of subrogation, (b) notice of acceptance or default and all other notices
to which the undersigned might otherwise be entitled, and (c) all other rights
which might, under principles of suretyship or guaranty law or otherwise,
constitute a defense to the obligations of the undersigned.
JOHNSON CONTROLS, INC.
BY_______________________________
megatec12.doc
December 22, 1998
