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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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E-SYSTEMS, INC.
(NAME OF SUBJECT COMPANY)
E-SYSTEMS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
269157 30 1
(CUSIP NUMBER OF CLASS OF SECURITIES)
MICHAEL C. EBERHARDT, ESQ.
VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
6250 LBJ FREEWAY
P.O. BOX 660248
DALLAS, TEXAS 75266-0248
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT).
WITH A COPY TO:
PETER ALLAN ATKINS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is E-Systems, Inc., a Delaware corporation
(the "Company"), and the address of the principal executive offices of the
Company is 6250 LBJ Freeway, P.O. Box 660248, Dallas, Texas, 75226-0248. The
title of the class of equity securities to which this statement relates is the
common stock, par value $1.00 per share, of the Company (the "Common Stock"),
together with the associated preferred stock purchase rights (the "Rights" and,
together with the Common Stock, the "Shares") issued pursuant to the Rights
Agreement, dated as of October 7, 1994 (the "Rights Agreement"), between the
Company and Society National Bank, as Rights Agent.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a tender offer by RTN Acquisition Corporation, a
Delaware corporation (the "Purchaser"), and a wholly owned subsidiary of
Raytheon Company, a Delaware corporation ("Parent"), disclosed in a Tender
Offer Statement on Schedule 14D-1, dated April 3, 1995 (the "Schedule 14D-1"),
to purchase all outstanding Shares, at a price of $64 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated April 3, 1995 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as
of April 2, 1995 (the "Merger Agreement"), among Parent, the Purchaser and the
Company. The Merger Agreement provides, among other things, that as soon as
practicable after the satisfaction or waiver of the conditions set forth in the
Merger Agreement, the Purchaser will be merged with and into the Company (the
"Merger"), and the Company will continue as the surviving corporation (the
"Surviving Corporation"). A copy of the Merger Agreement is attached hereto as
Exhibit 1 and incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of the
Purchaser and Parent are located at 141 Spring Street, Lexington, Massachusetts
02173.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Each material contract, agreement, arrangement and understanding and
actual or potential conflict of interest between the Company or its affiliates
and: (i) its executive officers, directors or affiliates or (ii) the Purchaser,
its executive officers, directors or affiliates, is described in the attached
Schedule I (which information is incorporated herein by reference) or set forth
below.
THE MERGER AGREEMENT
The summary of the Merger Agreement contained in the Offer to Purchase, which
has been filed with the Securities and Exchange Commission (the "Commission")
as an exhibit to the Schedule 14D-1, a copy of which is enclosed with this
Schedule 14D-9, is incorporated herein by reference. Such summary should be
read in its entirety for a more complete description of the terms and
provisions of the Merger Agreement. A copy of the Merger Agreement has been
filed as Exhibit 1 hereto and is incorporated herein by reference. The
following is a summary of certain portions of the Merger Agreement which relate
to arrangements among the Company, Purchaser, Parent and the Company's
executive officers and directors.
Board Representation. The Merger Agreement provides that, subject to
compliance with the DGCL, the Company's Certificate of Incorporation and other
applicable law, promptly upon the payment by the Purchaser for Shares purchased
pursuant to the Offer, and from time to time thereafter, the Company shall,
upon the request of Parent, promptly use its best efforts to take all actions
necessary to cause a majority of the directors of the Company to consist of
Parent's designees, including by accepting the resignations of those
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incumbent directors designated by the Company or increasing the size of the
Company's Board of Directors (the "Board") and causing Parent's designees to be
elected. The date on which Purchaser's designees constitute at least a majority
of the Board is referred to as the "Control Date." The Company's obligation to
appoint Parent's designees to the Company's Board is subject to Section 14(f)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
requires the Company to mail to its stockholders the Information Statement
containing the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder. A copy of the Information Statement is
attached as Schedule I hereto and is incorporated herein by reference.
The Merger Agreement provides that until the effective time of the Merger
(the "Effective Time"), the Board shall include three of the current non-
management directors of the Company (subject to their willingness to serve) who
are not affiliated with Parent (the "Continuing Directors"). For a period of
five years immediately following the Control Date (x) the Company shall
maintain an advisory board (the "Advisory Board") for the purpose of consulting
on matters related to the business of the Company, the members of which are to
be mutually agreed upon by the Chief Executive Officers of Parent and the
Company from among the individuals who currently constitute the Board and
representatives of the Parent, and (y) Parent shall provide, or cause the
Company to provide, compensation and benefits to members of the Advisory Board
of the Company that, in the aggregate, are no less favorable than those
provided to the Company's directors as of the date of the Merger Agreement. In
the Merger Agreement, Purchaser agrees that it will pay, or will cause the
Surviving Corporation to pay, in accordance with the terms of the director
retirement policy and executive perquisites for outside Board directors of the
Company in effect as of the date of the Merger Agreement, the retirement
benefits and perquisites provided for therein to those directors who are
directors of the Company on the date of the Merger Agreement and who, after
either the Control Date or the Effective Time, do not continue on the Board or
become members of the Advisory Board.
The Merger Agreement provides that at the Effective Time, or as soon as
practicable thereafter, Parent shall use its best efforts and take all
reasonable steps to cause the Chairman and Chief Executive Officer of the
Company, A. Lowell Lawson, to be appointed as a director of Parent for a term
ending at the 1998 annual meeting of the stockholders of Parent. In addition,
the Merger Agreement provides that prior to consummation of the Offer, the
Board (and following consummation of the Offer and before the Effective Time, a
majority of the Continuing Directors) may authorize amendments to the Company's
employment contract with Mr. Lawson to provide that he shall serve as Chief
Executive Officer of the Surviving Corporation following the Effective Time and
(unless he earlier resigns) for a period of three years thereafter. In
addition, it is expected that Mr. Lawson will be appointed as an executive vice
president of Parent.
Officer and Employee Matters. The Merger Agreement provides that following
the consummation of the Offer, (i) Purchaser shall cause the Company to honor
in accordance with their terms the employment contracts and other arrangements
set forth on Schedule 7.11 of the Merger Agreement, the Company's Executive
Supplemental Retirement Plan (the "Retirement Plan"), the Trust Agreement
between the Company and Society National Bank and the Trust Agreement between
the Company and AmeriTrust Company National Association, as amended, in each
case as in effect on the date of the Merger Agreement and as amended as
contemplated by the Merger Agreement and (ii) Parent shall unconditionally
guarantee the prompt payment when due of all amounts payable pursuant to the
terms of the aforementioned employment contracts and the Retirement Plan,
including any costs incurred by employees or former employees (or their
respective beneficiaries) in enforcing their rights under such contracts or
under the Retirement Plan. Until the third anniversary of the Effective Time,
Purchaser shall provide or cause the Company to provide to individuals who are
employed by the Company or any of its subsidiaries employee benefits that are
in the aggregate no less favorable than those provided to them as of the date
of the Merger Agreement. Parent also agrees that following the Effective Time,
employees of the Surviving Corporation shall be eligible to participate in
Parent's various compensation plans on a basis comparable to that of other
similarly situated employees of Parent and its subsidiaries.
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The Merger Agreement provides that prior to the consummation of the Offer,
the Board (and following consummation of the Offer and prior to the Effective
Time, a majority of the Continuing Directors) may (i) amend the Company's
employee stock ownership plan ("ESOP") to provide for full vesting of all
account balances and allocations of all unallocated shares, or the proceeds
thereof, as of the Effective Time, and to make other technical or
administrative amendments related thereto, (ii) terminate the ESOP as of the
Effective Time and provide for the orderly liquidation of the assets thereof
or, with the consent of Purchaser (which consent shall not be unreasonably
withheld), merge the ESOP with and into another tax-qualified plan and (iii)
amend the Company's Employee Savings Plan to increase, as of the Effective
Time, the Company's contributions thereunder to reflect any cessation of ESOP
contributions (net of contributions for the benefit of employees of the
Surviving Corporation under the Parent's employee stock ownership plan (the
"Parent ESOP"), as described in the succeeding sentence). Parent and Purchaser
agree that if contributions to the ESOP cease on or after the Effective Time,
then as of the date of such cessation, the employees of the Surviving
Corporation and its subsidiaries who would otherwise have been eligible to
receive allocations under the ESOP shall be eligible to participate in Parent's
ESOP as of the date of such cessation. For these purposes, all service with the
Company and its subsidiaries shall be recognized for eligibility and vesting
purposes.
In the Merger Agreement, Parent recognizes that the Company's business
presents special situations with respect to the retention and recruitment of
employees and executives, and Parent agrees that the Chief Executive Officer of
the Company may from time to time propose special arrangements for such
employees and executives for consideration by the Parent.
Director and Officer Indemnification and Insurance. The Merger Agreement
provides that from and after the Effective Time, Parent shall, and shall cause
the Surviving Corporation to, indemnify, defend and hold harmless the present
and former officers, directors, employees and agents of the Company and its
subsidiaries (the "Indemnified Parties") against all losses, claims, damages,
expenses or liabilities arising out of actions or omissions or alleged actions
or omissions occurring at or prior to the Effective Time (i) to the full extent
permitted by Delaware law or, if the protections afforded thereby to an
Indemnified Party are greater, (ii) to the same extent and on the same terms
and conditions provided for in the Company's Certificate of Incorporation and
By-Laws and agreements in effect on the date of the Merger Agreement (to the
extent consistent with applicable law), which provisions will survive the
Merger and continue in full force and effect after the Effective Time. Without
limiting the foregoing, the Merger Agreement provides further that (i) Parent
shall, and shall cause the Surviving Corporation to, periodically advance
expenses (including attorney's fees) as incurred by an Indemnified Party with
respect to the foregoing to the full extent permitted under applicable law, and
(ii) any determination required to be made with respect to whether an
Indemnified Party shall be entitled to indemnification shall, if requested by
such Indemnified Party, be made by independent legal counsel selected by the
Surviving Corporation and reasonably satisfactory to such Indemnified Party.
Pursuant to the terms of the Merger Agreement, for a period of six years
after the Effective Time, Parent shall cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
the Company (provided that Parent may substitute therefor policies with
reputable and financially sound carriers of at least the same coverage and
amounts and containing terms and conditions which are no less advantageous to
the directors and officers) with respect to claims arising from or related to
facts or events which occurred at or before the Effective Time; provided,
however, that Parent shall not be obligated to make annual premium payments for
such insurance to the extent such premiums exceed 250% of the annual premiums
paid as of the date of the Merger Agreement by the Company for such insurance
(the "Maximum Amount"). If the amount of the annual premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount, the
Parent and the Surviving Corporation shall maintain the most advantageous
policies of directors' and officers' insurance obtainable for an annual expense
equal to the Maximum Amount.
Corporate Headquarters and Identity and Management Structure. In the Merger
Agreement, Parent and Purchaser have stated their current intent to operate the
Company as a subsidiary of Parent under the
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Company's current name, with the same management and organizational structure
and in its current headquarters in Dallas, Texas.
CERTAIN CONFLICTS
Stock Options. As of March 31, 1995, the current directors and executive
officers of the Company as a group held stock options granted under the
Company's 1980 Stock Option Plan, 1982 Incentive Stock Option Plan, 1988
Employee Stock Option Plan or 1994 Employee Stock Option Plan, each as amended
(collectively, the "Option Plans") to purchase an aggregate of 426,297 Shares
at exercise prices ranging from $28.38 to $43.38 per Share. In all, options to
purchase an aggregate of 2,391,703 Shares were outstanding at such date under
the Option Plans. In accordance with the terms of the Merger Agreement, the
Company is to take all actions necessary to provide that, immediately prior to
the consummation of the Offer, (i) each outstanding option granted under the
Option Plans, whether or not then exercisable or vested, becomes fully
exercisable and vested, (ii) each option which is then outstanding shall be
cancelled and (iii) in consideration of such cancellation, and except to the
extent that Parent or the Purchaser and the holder of any such option otherwise
agree, the Company (or, at the Parent's option, Parent or the Purchaser) shall
pay to such holders of options an amount in respect thereof equal to the
product of (x) the number of Shares subject to such options and (y) the excess,
if any, of the price per Share paid in the Offer over the per share exercise
price of the option. Notwithstanding the foregoing, if it is determined that
compliance with any of the foregoing would cause any individual subject to
Section 16 of the Exchange Act to become subject to the profit recovery
provisions thereof, any options held by such individual will be cancelled or
purchased, as the case may be, as promptly thereafter as possible so as not to
subject such individual to any liability pursuant to Section 16.
EMASS Stock Options. The Company's subsidiary, EMASS, Inc. ("EMASS"),
currently maintains the EMASS 1994 Employee Stock Option Plan (the "EMASS
Option Plan"), pursuant to which options to purchase approximately 920,000
shares of the common stock of EMASS are currently outstanding. These options
will vest and become immediately exercisable upon a change in control of the
Company, such as the acquisition of Shares by Parent in the Offer. There is
currently no market for such shares, but in the Merger Agreement, Parent and
the Purchaser acknowledge that they have been informed of the Company's
business plan for EMASS that contemplates a possible initial public offering
and that they are aware of the Company's commitment to implement that plan so
long as it represents sound business judgment. The Merger Agreement goes on to
provide that although Parent does not currently have sufficient information to
commit to a specific course of action, Parent and the Purchaser currently plan
to pursue and implement, within the same time frames and upon the same terms
and conditions, that portion of such business plan that contemplates a public
offering, spin-off or similar transaction with respect to the capital stock of
EMASS so long as the management of the Purchaser and Parent concur with the
management of the Company that plan implementation represents the exercise of
sound business judgment.
Restricted Shares. As of March 30, 1995, the directors and executive officers
of the Company as a group held 57,900 shares of restricted stock granted under
the Option Plans. The Merger Agreement provides that the Company shall take all
actions to provide that each such share of restricted stock becomes fully
vested and free of restrictions immediately prior to consummation of the Offer.
The holder of a restricted stock grant may elect to authorize the Company to
retain a number of shares from such grant having an aggregate value (based on
$64.00 per share) equal to the sum of (i) the aggregate purchase price for such
shares under the Option Plans (which is $1.00 per share) and (ii) any
withholding taxes applicable to the vesting of such grant, in lieu of the
payment of such amount in cash.
Parent Options. The Merger Agreement contains an acknowledgment and
recognition by Parent that approximately twenty key executives exist at the
Company who, in accordance with the usual procedures of the Compensation
Committee of Parent, will receive appropriate consideration in connection with
the grant of stock options by Parent at the customary time in July 1995.
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Pension Plans. The Company maintains two pension plans, the Salaried
Employees Retirement Plan and HRB Systems, Inc. Salaried Employees Retirement
Plan (the "Pension Plans"), in which executives of the Company may participate.
These Pension Plans provide, among other things, for the payment of certain
benefits after a Change in Control (as defined in the Pension Plans) of the
Company. Pursuant to the Merger Agreement, the Company has agreed to take all
steps necessary to ensure that none of the transactions contemplated by the
Merger Agreement will constitute or result in a Change in Control under either
of the Pension Plans.
Executive Supplemental Retirement Plan. Effective June 1, 1982 the Board
adopted the E-Systems, Inc. Supplemental Executive Retirement Plan (the
"Retirement Plan") for the purpose of providing to selected executive employees
of the Company (including each of the persons named in the Summary Compensation
Table which appears in Schedule I hereto) retirement income as a supplement to
compensation and employee benefits otherwise payable. The summary of the
Retirement Plan contained in Schedule I attached hereto should be read in its
entirety for a more complete description of the terms and provisions of the
Retirement Plan. The Retirement Plan provides that in the event of the
consolidation or merger of the Company with or control of the Company by
another organization (a "Change in Control"), the rights of each affected
Participant (as defined in the Retirement Plan) shall be nonforfeitable. The
acquisition of Shares pursuant to the Offer will constitute a Change in Control
of the Company for purposes of the Retirement Plan.
Indemnification Agreements. The Company maintains indemnification agreements
with all its directors and executive officers. These agreements provide that in
the event the director was, is, becomes or is threatened to be a participant in
any Claim (as defined in the Indemnification Agreements) by reason of an
Indemnifiable Event (as defined in the Indemnification Agreements), the Company
shall indemnify the director to the fullest extent permitted by law. The
Company's obligations under such agreements are conditioned on the fact that
the Reviewing Party (as defined in the Indemnification Agreements) shall not
have determined that the director would not be permitted to be indemnified
under applicable law. If there has not been a Change in Control (as defined in
the Indemnification Agreements), the Reviewing Party is selected by the Board.
Upon a Change in Control, the director may request Special Counsel (as defined
in the Indemnification Agreements) to advise the Reviewing Party or be the
Reviewing Party, and the Company may not deny indemnification payments unless
such Special Counsel has rendered an opinion that the Company would not be
permitted under applicable law to make the indemnification payment. In
addition, in the event of a Potential Change in Control (as defined in the
Indemnification Agreements), the director may require the Company to create a
trust for the director's benefit and fund such trust in an amount sufficient to
satisfy any indemnification amounts. The Purchaser's acquisition of Shares
pursuant to the Offer will constitute a Change in Control of the Company under
the Indemnification Agreements, and execution of the Merger Agreement
constituted a Potential Change in Control under the Indemnification Agreements.
CONFIDENTIALITY AGREEMENT
The following is a summary of certain provisions of the Confidentiality
Agreement, dated January 23, 1995, between the Company and Parent (the
"Confidentiality Agreement"), filed as Exhibit 2 hereto and incorporated herein
by reference. The summary is qualified in its entirety by reference to the
Confidentiality Agreement. Pursuant to the Confidentiality Agreement Parent has
agreed, among other things, to keep confidential certain nonpublic confidential
or proprietary information of the Company furnished to Parent by or on behalf
of the Company ("Evaluation Material"), and to use the Evaluation Material
solely for the purpose of evaluating a possible transaction with the Company.
Parent has further agreed to maintain the confidentiality of any discussions or
negotiations with the Company and, upon request, to redeliver or destroy all
the Evaluation Material. Parent also agreed that for a period of two years from
the date of the Confidentiality Agreement, neither the Parent nor any of its
representatives, agents or affiliates shall, directly or indirectly, and Parent
shall cause any person or entity controlled by the Parent not to, without the
prior written consent of the Board of Directors of the Company, (i) in any
manner acquire, agree to acquire or make any proposal to acquire, directly or
indirectly, any securities or property of the Company or any of its
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affiliates, (ii) propose to enter into, directly or indirectly, any merger,
consolidation, recapitalization, business combination or other similar
transaction involving the Company or any of its affiliates, (iii) make, or in
any way participate in any "solicitation" of "proxies" (as such terms are used
in the proxy rules of the Commission) to vote, advise or influence any person
with respect to the voting of any voting securities of the Company or any of
its affiliates, (iv) form, join or in any way participate in a "group" (with
the meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting
securities of the Company or any of its affiliates, (v) otherwise act, alone or
in concert with others, to seek to control or influence the management, Board
of Directors or policies of the Company, (vi) disclose any intention, plan or
arrangement inconsistent with the foregoing, or (vii) advise, assist or
encourage any other person in connection with any of the foregoing. Parent also
agreed for such two-year period not to (a) request the Company (or its
representatives), directly or indirectly, to amend or waive any of the
provisions listed in the preceding sentence, (b) take any action which might
require the Company or any of its affiliates to make a public announcement with
respect to any matters covered by the Confidentiality Agreement or (c)
communicate with the Company's stockholders. Notwithstanding the foregoing
provisions, such provisions do not prevent Parent from acquiring or proposing
to acquire securities of the Company pursuant to an offer to acquire the entire
Company, if the Company has recommended to its stockholders a proposal by a
third party for the acquisition of the Company, or has executed an acquisition
agreement with a third party relating to such a proposal or the Board has
determined to offer the Company for sale. The Confidentiality Agreement
provided further that without the Company's prior written consent, Parent will
not, for a period of two years from the date of the Confidentiality Agreement,
directly or indirectly solicit (other than by general advertisement) for
employment any person who is now employed by the Company (or whose activities
are dedicated to the Company) in an executive or management level technical
position or otherwise considered a key employee.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has unanimously determined that the consideration to
be paid for each Share in the Offer and the Merger is fair to the stockholders
of the Company and that the Offer and the Merger are otherwise in the best
interests of the Company and its stockholders, has approved and adopted the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, and recommends that all holders of Shares accept the Offer and
tender their Shares pursuant to the Offer.
(B) BACKGROUND; REASONS FOR THE RECOMMENDATION.
Beginning in late 1993 and throughout 1994, the Company initiated a process
of examining its competitive position and outlook and considered various
strategic alternatives with a view toward expanding its technology into
commercial applications and thereby increasing stockholder values. In light of
significant changes affecting the defense industry in recent years and the
consolidation within the industry as a result of several large acquisitions
during this period, the Company's examination became an increasingly high
priority.
Beginning in 1994, the Company consulted extensively with an outside
financial advisor, Bear, Stearns & Co. Inc. ("Bear Stearns"), to assist in its
considerations. Bear Stearns performed an extensive valuation of the Company
and considered numerous potential acquisitions. Bear Stearns also assisted the
Company in adopting the Rights Agreement. With Bear Stearns' assistance, the
Company approached and was contacted by a limited number of companies within
the defense industry on a confidential basis to discuss their interest in
exploring a strategic transaction with the Company. While these companies
expressed a strong appreciation for, and interest in, the Company, for the most
part these companies generally indicated that their primary interest was a
transaction utilizing the stock of the other company. Given comparable price-
earnings multiples and other factors, it was clear to the Company and Bear
Stearns that the use of stock would not yield a meaningful premium to the
Company's stockholders and, accordingly, that a substantial possibility existed
that any such stock-for-stock business combination would not be completed. In
discussing a possible cash transaction, several companies concurred with the
Company that $60 to $65 per Share was an appropriate
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valuation range for the Company, but none of these companies were willing to
proceed utilizing cash, given adverse accounting issues and, in certain cases,
a priority to spend cash in their other lines of business. Each of these
contacts and discussions were preliminary in nature and did not evolve to the
due diligence stage.
In or about the Fall of 1994, the Company understands that Bear Stearns was
engaged by Parent to assist with an assessment of strategic alternatives for
Parent, largely focused on possible acquisitions by Parent. A number of
companies were analyzed and Parent expressed an interest in the Company. Bear
Stearns discussed Parent's interest in the Company with the Company, and Parent
and the Company mutually decided to pursue a dialogue. In late 1994, Bear
Stearns provided briefing book information to the Company and Parent in order
to familiarize each about the other. All of such information was based upon
publicly available information.
On January 10, 1995, A. Lowell Lawson, Chairman and Chief Executive Officer
of the Company, and Dennis J. Picard, Chairman and Chief Executive Officer of
Parent, had an initial exploratory meeting in Boston with Bear Stearns. Messrs.
Lawson and Picard discussed the idea of a merger and the objectives of the
Company and Parent in such a transaction. Both agreed that Parent represented a
good strategic fit with the Company due to Parent's success in expanding
defense technology and skills into commercial markets, the complementary nature
of the companies' defense operations, and the two companies' compatible
cultures. Mr. Lawson indicated that if a transaction were to occur, he believed
an all-cash offer above $60 per Share would be a requirement for any
transaction. These discussions were preliminary and no decisions or commitments
were made, but it was agreed that discussions would continue.
On January 23, 1995, several of the Company's key financial and operations
executives met with their counterparts at Parent in Nashville to discuss areas
of potential synergy between the Company and Parent. The Company and Parent
exchanged certain limited financial projections at this meeting. Also, on
January 23, 1995, Parent signed the Confidentiality Agreement providing for the
disclosure by the Company of certain non-public information to Parent.
On February 6, 1995, a group of key officers met again in Washington, D.C. to
hold more in-depth discussions regarding economic projections and synergies of
a combined entity. On March 8, 1995, representatives of the Company again met
with representatives of Parent primarily to discuss Parent's defense business.
Although Bear Stearns was never formally engaged by the Company, on February
24, 1995, the Company paid to Bear Stearns $75,000 (including for expense
reimbursement) to cover Bear Stearns' extensive work and assistance to date.
At a meeting held in Nashville between Mr. Lawson and Mr. Picard on March 23,
1995, Mr. Lawson indicated that he would be willing to support and recommend a
transaction to the Company's Board of Directors if Parent were willing to offer
$64 per Share. In addition, they discussed the concept of a termination fee in
the event of a third party acquiror and the fact that their continued
discussions were subject to completion of negotiations on other matters,
further due diligence, a mutually acceptable definitive agreement and approval
of the Company's Board of Directors. Mr. Lawson and Mr. Picard also discussed
the composition of and representation on the Boards of Directors of the Company
and Parent after the Merger, including the possibility of making Mr. Lawson a
member of Parent's Board of Directors and an executive vice president of
Parent. On March 25, 1995, Parent commenced an extensive due diligence of the
Company in Dallas. Negotiations between representatives of the Company and
Parent continued through April 2, 1995, culminating in the execution of the
Merger Agreement.
Bear Stearns attended each of the meetings referred to above. Through March
23, 1995, Bear Stearns assisted both parties in their effort to determine if a
transaction between the Company and Parent could be negotiated. After that time
the Company determined that it should obtain independent financial advice
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regarding the fairness of the Offer and Merger solely from the Company's
standpoint, while Bear Stearns continued to render financial advisory services
to Parent. On March 29, 1995, the Company engaged CS First Boston Corporation
("CS First Boston"), and on March 30, 1995, the Company engaged Morgan Stanley
& Co. Incorporated ("Morgan Stanley") for this purpose.
On April 1, 1995, the Company's Board of Directors convened in Dallas in
connection with considering the proposed Merger. Representatives of the
Company's outside legal counsel, Skadden, Arps, Slate, Meagher & Flom, were
present. Information was presented regarding, among other things, the Company's
operations, developments in the defense industry, business combination contacts
with other parties and other background information, legal considerations, and
terms of the proposed Merger. The directors discussed on a preliminary basis
their views of the Merger and alternatives for the Company. On April 2, 1995,
the Company's Board of Directors convened again to consider the proposed
Merger. Further information was presented to the directors, including
presentations by representatives of each of CS First Boston and Morgan Stanley
relating to financial considerations with respect to the Merger.
Representatives of each of CS First Boston and Morgan Stanley then delivered
their opinions as to the fairness, from a financial point of view, of the $64
per Share cash consideration in the Offer and Merger.
After discussion and further analysis, the Company's Board of Directors
unanimously approved the Offer and the Merger for the reasons described
hereafter, and it unanimously recommended that stockholders accept the Offer
and tender their shares pursuant thereto. With respect to the Merger, the Board
of Directors unanimously recommended that, if a stockholder vote is required by
applicable law, the stockholders of the Company vote in favor of approval and
adoption of the Merger Agreement and the Merger.
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that all holders of Shares tender such Shares pursuant to the
Offer, the Board of Directors considered a number of factors including:
(i) the familiarity of the Board of Directors with the business, results
of operations, properties, financial condition of the Company and the
nature of the defense industry, based, in part, upon presentations by the
management of the Company, both at the meetings on April 1 and April 2,
1995, and at prior board meetings, including the prospects if the Company
were to remain independent, and the presentations of CS First Boston and
Morgan Stanley on April 2, 1995;
(ii) the effect of recent mergers and consolidations in the defense
industry on the competitive balance in the industry;
(iii) the terms of the Merger Agreement, including (x) the proposed
structure of the Offer and the Merger involving an immediate cash tender
offer for all outstanding Shares to be followed by a merger for the same
consideration and (y) the fact that financing is not a condition to the
Offer and Merger, thereby enabling stockholders to obtain cash for their
Shares at the earliest possible time;
(iv) that discussions with a limited number of unrelated parties prior to
those with Parent did not result in further negotiations and were not
likely to result in a definitive agreement because, for the most part,
these companies generally indicated that their primary interest was to
engage in a stock-for-stock exchange, which the Board of Directors
believed, based on presentations of its financial advisors, was unlikely to
result in as large a premium to the stockholders as an all-cash offer and
was subject to a significant risk of non-consummation;
(v) that discussions with these parties, although very preliminary in
nature, indicated that a per Share cash price in the mid $60's was at the
upper end of the range at which a transaction was likely to be consummated;
(vi) that the $64 per Share Offer price represents (x) a premium of
approximately 41% over the closing price for the Shares on March 31, 1995,
the last trading day prior to the public announcement of the execution of
the Merger Agreement and (y) a price higher than the Shares have ever
traded;
(vii) the presentations of CS First Boston and Morgan Stanley at the
April 2, 1995, Board of Directors' meeting and the opinions of CS First
Boston and Morgan Stanley, each to the effect that, as
8
<PAGE>
of such date and based upon and subject to the matters reviewed with the
Board of Directors, the $64 per Share cash consideration to be received by
the holders of the Shares pursuant to the Offer and the Merger is fair from
a financial point of view to such holders. Copies of the opinions of CS
First Boston and Morgan Stanley, which set forth the factors considered and
the assumptions made by CS First Boston and Morgan Stanley, are attached
hereto as Exhibits 5 and 6, respectively, and incorporated herein by
reference. STOCKHOLDERS ARE URGED TO READ THE OPINIONS OF CS FIRST BOSTON
AND MORGAN STANLEY CAREFULLY IN THEIR ENTIRETY;
(viii) Parent's condition to its holding the discussions and negotiations
with the Company that led to the Merger Agreement that the Company and its
representatives not solicit possible acquisition interest from third
parties and that no such solicitation had been undertaken subsequent to
commencing such discussions. In determining that this was an appropriate
course of action, the Board considered (w) the uncertainties and potential
adverse impact that a "public" auction of the Company could have on the
business, employees and prospects of the Company, including its
relationships with customers and other third parties, (x) the fact that
Parent had advised the Company that it was unwilling to engage in a bidding
contest for the Company, (y) its belief, after considering the
presentations of its financial advisors, that the price per Share in the
Offer and Merger was sufficiently attractive so that it did not feel
compelled to seek other offers prior to executing the Merger Agreement, and
(z) the terms of the Merger Agreement described below which permit the
Company, under certain circumstances, to participate in discussions and
negotiations with third parties and to enter into an Acquisition
Transaction (as defined in the Merger Agreement). The Board of Directors,
after considering the presentations of its financial advisors, did not
believe that the termination provisions referred to below would deter a
higher offer;
(ix) that the Offer and Merger would be publicly disclosed on April 3,
1995, that the earliest the Offer could be consummated is April 28, 1995
and that the Company's financial advisors had informed the Board of
Directors that, in the view of such financial advisors, it was highly
likely that third parties which might be interested in making a competitive
offer for the Company would learn of the Offer and Merger very promptly and
would have sufficient time to make such an offer should they wish to do so;
(x) that the Merger Agreement permits the Company to furnish nonpublic
information to, and participate in discussions and negotiations with, any
third party that has submitted an unsolicited written takeover proposal to
the Company, if the Board determines in good faith, after consultation with
its financial advisors and outside legal counsel, that failing to take such
actions would create a reasonable possibility of a breach of the fiduciary
duties of the Board in connection with seeking an Acquisition Transaction
that is more favorable to the stockholders of the Company than the Offer
and the Merger;
(xi) the termination provisions of the Merger Agreement, which were a
condition to Parent's proposal, providing that Parent could be entitled to
a fee of $75 million and reimbursement of Parent's actual and reasonably
documented out-of-pocket expenses of up to $20 million if (x) Parent shall
have terminated the Merger Agreement because the Board of Directors of the
Company (1) has withdrawn, modified or changed its recommendation to the
Company's stockholders or approval in respect of the Merger Agreement or
the Offer in a manner materially adverse to Parent, (2) shall have
recommended any proposal (other than by Parent or Purchaser) in respect of
an Acquisition Transaction or (3) any corporation, partnership, person,
other entity or group (as defined in Section 13(d)(3) of the Exchange Act),
other than the Parent or the Purchaser or any of their respective
subsidiaries or affiliates, shall have become the beneficial owner of more
than 20% of the outstanding Shares (either on a primary or fully diluted
basis), or (y) the Company shall have terminated the Merger Agreement to
allow the Company to enter into an agreement in respect of an Acquisition
Transaction which the Board has determined is more favorable to the Company
and its stockholders than the transactions contemplated by the Merger
Agreement;
(xii) the strategic fit between the operations of the Company and those
of Parent, including the Board of Directors' belief that the Merger
represents the best opportunity for the Company to exploit the commercial
potential of the Company's products and thereby reduce the Company's
historic dependence on government contracts; and
9
<PAGE>
(xiii) the anticipated benefits of the Merger to the employees,
management and the communities in which the Company operates.
The Board of Directors did not assign relative weights to the foregoing
factors or determine that any factor was of particular importance. Rather, the
Board of Directors viewed its position and recommendations as being based on
the totality of the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
CS First Boston was retained, pursuant to the terms of a letter agreement,
dated March 29, 1995, to render a financial opinion letter as to the
consideration to be received by the Company's stockholders pursuant to the
terms of the Merger Agreement from a financial point of view. The Company
agreed to pay CS First Boston a fee of $250,000 on the date the letter
agreement was signed and $1,750,000 upon delivery of CS First Boston's opinion.
The Company has also agreed to reimburse CS First Boston for its out-of-pocket
expenses, including fees of its legal counsel and other advisors who may be
retained with the Company's consent, and to indemnify CS First Boston for
certain liabilities arising out of or in connection with CS First Boston's
engagement.
Morgan Stanley was retained, pursuant to the terms of a letter agreement,
dated March 30, 1995, to render a financial opinion letter as to the
consideration to be received by the Company's stockholders pursuant to the
terms of the Merger Agreement from a financial point of view. The Company
agreed to pay Morgan Stanley a fee of $2 million, payable upon delivery of
Morgan Stanley's written opinion. The Company has also agreed to reimburse
Morgan Stanley for its out-of-pocket expenses, including fees of its legal
counsel and other advisors who may be retained with the Company's consent, and
to indemnify Morgan Stanley for certain liabilities arising out of or in
connection with Morgan Stanley's engagement.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth in Schedule II hereto, no transactions in the Shares
have been effected during the past 60 days by the Company or, to the best of
the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best knowledge of the Company, all of its executive officers,
directors, affiliates and subsidiaries currently intend to tender pursuant to
the Offer all Shares held of record or beneficially owned by them (other than
Shares issuable upon exercise of stock options and Shares, if any, which if
tendered could cause such persons to incur liability under the provisions of
Section 16(b) of the Exchange Act) or to vote such Shares in favor of approval
and adoption of the Merger Agreement.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged in
any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or
10
<PAGE>
other acquisition of securities by or of the Company; or (iv) any material
change in the present capitalization or dividend policy of the Company.
(b) None
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) Certificate of Incorporation
The Certificate of Incorporation of the Company provides that the affirmative
vote of the holders of at least 80% of the outstanding capital stock of the
Company entitled to vote shall be required to authorize, adopt or approve,
among other things, the merger of the Company with or into a related
corporation or an affiliate of a related corporation. A "related corporation"
for purposes of this provision means any corporation which, together with
affiliated and associated persons (as these terms are defined in the
Certificate of Incorporation), owns of record or beneficially, directly or
indirectly, Shares of the Company representing more than five percent of the
total voting power of outstanding capital stock entitled to vote upon such
transaction. The Offer is conditioned upon at least a majority of the total
number of outstanding Shares being validly tendered and not withdrawn prior to
the expiration date of the Offer. Accordingly, after consummation of the Offer,
the Purchaser will be a "related corporation" within the meaning of the
Certificate of Incorporation, and the 80% vote requirement will apply to the
Merger. If 80% of the outstanding Shares are not tendered to, and purchased by
the Purchaser pursuant to, the Offer, there can be no assurance that the
necessary stockholder vote to approve the Merger will be obtained.
(b) DGCL 203
Section 203 of the DGCL purports to regulate certain business combinations of
a corporation organized under Delaware law, such as the Company, with a
stockholder beneficially owning 15% or more of the outstanding voting stock of
such corporation (an "Interested Stockholder"). Section 203 provides, in
relevant part, that the corporation shall not engage in any business
combination for a period of three years following the date such stockholder
first becomes an Interested Stockholder unless (i) prior to the date the
stockholder first becomes an Interested Stockholder, the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an Interested Stockholder, (ii) upon
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, or (iii) on or subsequent to the date the stockholder
becomes an Interested Stockholder, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the Interested Stockholder. The Company's
Board of Directors has approved the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and, therefore,
Section 203 of the DGCL is inapplicable to the Offer and the Merger.
(c) Rights Agreement
The Company has represented in the Merger Agreement that the Board has taken
all necessary action (i) to provide that neither Parent nor the Purchaser will
become an "Acquiring Person," that no "Triggering Event," "Stock Acquisition
Date" or "Distribution Date" (as such terms are defined in the Rights
Agreement) will occur and that Section 13 of the Rights Agreement will not be
triggered, in each case as a result of the announcement, commencement or
consummation of the Offer, the execution or delivery of the Merger Agreement or
any amendment thereto or the consummation of the transactions contemplated
thereby and (ii) to redeem the Rights effective immediately prior to the
Purchaser's acceptance of Shares for purchase pursuant to the Offer. The
Company has otherwise agreed in the Merger Agreement that it will not redeem
the Rights or amend or terminate the Rights Agreement prior to the consummation
of the Offer unless (i) required to do so by order of a court of competent
jurisdiction, (ii) the Board determines in good faith that the failure to make
such redemption, amendment or termination would create a reasonable possibility
of a breach of the Board's fiduciary duties under applicable law or (iii) the
Merger Agreement has theretofore been terminated.
11
<PAGE>
(d) Information Statement
The Information Statement attached as Schedule I hereto is being furnished in
connection with the possible designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board of Directors of the
Company other than at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
Exhibit 1 Agreement and Plan of Merger, dated as of April 2, 1995, by and
among E-Systems, Inc., RTN Acquisition Corporation and Raytheon
Company.
Exhibit 2 Confidentiality Agreement, dated January 23, 1995, between E-
Systems, Inc. and Raytheon Company.
Exhibit 3 Press Release issued jointly by Raytheon Company and E-Systems,
Inc., dated April 3, 1995.
Exhibit 4 Letter to Stockholders of A. Lowell Lawson, dated April 3, 1995.*
Exhibit 5 Opinion of CS First Boston Corporation, dated April 2, 1995.*
Exhibit 6 Opinion of Morgan Stanley & Co. Incorporated, dated April 2, 1995.*
</TABLE>
- --------
* Included in copies of the Schedule 14D-9 mailed to stockholders.
12
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: April 3, 1995
/s/ Michael C. Eberhardt
By __________________________________
Michael C. Eberhardt
Vice President, Secretary and
General Counsel
13
<PAGE>
SCHEDULE I
E-SYSTEMS, INC.
6250 LBJ FREEWAY, P.O. BOX 660248
DALLAS, TEXAS 75266-0248
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about April 3, 1995 as a
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of E-Systems, Inc. (the "Company") to the holders of record
of shares of Common Stock, par value $1.00 per share, of the Company (the
"Common Stock") at the close of business on or about March 30, 1995. You are
receiving this Information Statement in connection with the possible election
of persons designated by the Parent (as defined below) to a majority of the
seats on the Board of Directors of the Company.
On April 2, 1995, the Company, RTN Acquisition Corporation, a Delaware
corporation (the "Purchaser"), and Raytheon Company, a Delaware corporation
("Parent"), entered into an Agreement and Plan of Merger (the "Merger
Agreement") in accordance with the terms and subject to the conditions of which
(i) Parent will cause the Purchaser to commence a tender offer (the "Offer")
for all outstanding Common Stock, together with the associated preferred stock
purchase rights (the "Rights" and, together with the Common Stock, the
"Shares"), at a price of $64.00 per Share net to the seller in cash, and (ii)
following consummation of the Offer and subject to certain conditions, the
Purchaser will be merged with and into the Company (the "Merger"). As a result
of the Offer and the Merger, the Company will become a wholly owned subsidiary
of Parent.
The Merger Agreement requires the Company to use its best efforts, at
Parent's request, to take all actions necessary to cause the Parent's designees
to be elected to the Board of Directors of the Company (the "Board") under the
circumstances described therein. See "Board of Directors and Executive
Officers--Right to Designate Directors; The Parent Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-
9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on April
3, 1995. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on April 28, 1995, unless the Offer is extended.
The information contained in this Information Statement concerning Parent,
Purchaser and the Parent Designees (hereinafter defined) has been furnished to
the Company by Parent, and the Company assumes no responsibility for the
accuracy or completeness of such information.
I-1
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of March 30, 1995, there were
34,173,453 Shares outstanding. The Board is divided into three classes and
currently consists of ten members, of whom three have terms of office expiring
in 1995, three have terms of office expiring in 1996 and four have terms of
office expiring in 1997. At each annual meeting of stockholders, directors
constituting one class are elected for three year terms. Under the Company's
current Bylaws, the number of directors is fixed from time to time by
resolution of the Board, provided that the number is not to be less than three
nor more than fifteen.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law, promptly upon the payment by the Purchaser for Shares purchased pursuant
to the Offer, and from time to time thereafter, the Company shall, upon the
request of Parent, promptly use its best efforts to take all actions necessary
to cause a majority of the directors of the Company to consist of Parent's
designees (the "Parent Designees"), including by accepting its resignation of
those incumbent directors designated by the Company or increasing the size of
the Board and causing the Parent Designees to be elected.
It is expected that the Parent Designees may assume office at any time
following the purchase by the Purchaser of Shares pursuant to the Offer, which
purchase cannot be earlier than April 28, 1995, and that, upon assuming office,
the Parent Designees will thereafter constitute at least a majority of the
Board of Directors.
PARENT DESIGNEES
None of the Parent Designees currently is a director of, or holds any
position with, the Company. To the best of Parent's knowledge, except as set
forth in the Offer to Purchase, none of the Parent Designees or any of their
associates beneficially owns any equity securities or rights to acquire equity
securities of the Company, nor has any such person been involved in any
transaction with the Company or any of its directors, executive officers or
affiliates that are required to be disclosed pursuant to the rules and
regulations of the Commission. The business address of each of the Parent
Designees is c/o Raytheon Company, 141 Spring Street, Lexington, Massachusetts
02173 and, unless otherwise provided, each occupation set forth opposite each
person's name refers to employment with Parent. The following is certain
information pertaining to each of the Parent Designees:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
AGE DIRECTORSHIPS
--- --------------------
<S> <C> <C>
Christoph L. Hoffmann.......... 50 Executive Vice President--Law and
Corporate Administration, and Secretary
since March 1995. Prior to assuming his
present position, Mr. Hoffmann served as
Senior Vice President-Law, Human
Resources and Corporate Administration
and Secretary since February 1994, as
Vice President, Secretary and General
Counsel from July 1991 and as Senior
Vice President, General Counsel and
Secretary of Pneumo Abex Corporation
from 1986.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
AGE DIRECTORSHIPS
--- --------------------
<S> <C> <C>
David S. Dwelley............... 55 Vice President--Strategic Business
Development since April 1991. Prior to
assuming his present position, Mr.
Dwelley served as Vice President--
President, Raytheon Europe Limited from
1989.
Peter R. D'Angelo.............. 56 Executive Vice President, Chief
Financial Officer and Controller since
March 1995. Prior to assuming his
present position, Mr. D'Angelo served as
Vice President, Chief Financial Officer
and Controller from January 1995, as
Vice President and Corporate Controller
from 1992 and as Controller--Missile
Systems Division from 1984.
C. Dale Reis................... 49 Vice President and Deputy General
Manager-Electronic Systems Division
since January 1995. Prior to assuming
his present position, Mr. Reis served as
Vice President and General Manager-
Equipment Division from September 1993,
Vice President and General Manager-
Submarine Signal Division from October
1990 and Manager-Equipment Development
Laboratories, Equipment Division from
1988.
Sally F. Cloyd................. 47 Assistant General Counsel since January
1993. Prior thereto, Ms. Cloyd served as
Vice President, Corporate Counsel and
Secretary of Arvin Industries, Inc. from
1991 and attorney and partner at the law
firm of Schiff Hardin & Waite from 1983.
John W. Kapples................ 35 Associate Corporate Counsel since
February 1994. Prior to assuming his
present position, Mr. Kapples was an
attorney at the law firm of Sullivan &
Worcester from 1985.
</TABLE>
I-3
<PAGE>
DIRECTORS OF THE COMPANY
The following table sets forth the name, age, present principal occupation or
employment and five-year employment history of each of the current directors of
the Company. The business address of each such person is c/o E-Systems, Inc.,
6250 LBJ Freeway, Dallas, Texas 75240. Each individual listed below is a
citizen of the United States.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
DIRECTOR OR EMPLOYMENT AND
AGE SINCE DIRECTORSHIPS
--- -------- --------------------
<S> <C> <C> <C>
James A. Bitonti.......... 64 1988 Mr. Bitonti is Chairman and Chief
Executive Officer of BITCO
International, Inc., a start-up company
with offices in Poughkeepsie, New York
and Fairfax, Virginia. He is also Chief
Executive Officer and President of TCOM,
L.P., a company specializing in
electronic security technology. Until
his retirement in July 1987, Mr. Bitonti
had been employed in various executive
capacities with International Business
Machines Corporation. Mr. Bitonti is a
director of Crompton & Knowles
Corporation, a specialty chemical
company. Mr. Bitonti was elected to the
Board of Directors of the Company in
December 1988 to fill an existing
vacancy on the Board. He is a member of
the Audit Committee and a member of the
Compensation and Benefits Committee of
the Board of Directors.
S. Lee Kling.............. 66 1978 Mr. Kling is Chairman of the Board of
Kling Rechter & Co., a merchant banking
company. He served as Chairman of the
Board of Landmark Bancshares Corp., a
bank holding company located in St.
Louis, Missouri from 1974 through
December 1991, when the company merged
with Magna Group, Inc. He served
additionally as the company's Chief
Executive Officer from 1974 through
October 1990. He is a director of
Bernard Chaus, Inc., a women's apparel
manufacturer; Top Air Manufacturing
Company, a manufacturer of spraying
equipment for the agricultural industry;
Falcon Products, Inc., a furniture
manufacturer; Hanover Direct, Inc., a
direct mail merchandiser; Lewis Galoob
Toys, Inc., a toy manufacturer;
National Beverage Company, a
manufacturer and distributor of cola
and multi-branded soft drinks, and
Magna Group, Inc., a bank holding
company. He is a member of the Audit
Committee and Chairman of the
Compensation and Benefits Committee of
the Board of Directors.
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
DIRECTOR OR EMPLOYMENT AND
AGE SINCE DIRECTORSHIPS
--- -------- --------------------
<S> <C> <C> <C>
David R. Tacke...... 72 1969 Mr. Tacke is a rancher and investor. He
served the Company as Chairman of the
Board of Directors from April 22, 1987
until his retirement in April 1989. He
also held the position of Chief
Executive Officer of the Company from
April 1987 until April 1989. Mr. Tacke
served as President and Chief Operating
Officer of the Company from November
1983 to April 1987; Executive Vice
President from July 27, 1983 until
November 1983; Senior Vice President-
Electronics Systems Group from April
1977 until July 1983; and Vice President
and General Manager of the Garland
Division from April 14, 1969 to May
1977. He was first elected to the Board
of Directors on April 25, 1969 to fill a
vacancy created by the resignation of a
predecessor. Mr. Tacke is a member of
the Executive Committee of the Board of
Directors.
E. F. Buehring...... 79 1965 Mr. Buehring was Vice Chairman of the
Board of Directors from 1969 until his
retirement in 1973, and was President
and Chief Executive Officer of the
Company from its beginning in 1965 until
1969. He began his aerospace career with
the North American Aviation Company in
1942, and later joined Texas Engineering
and Manufacturing Company (TEMCO), an E-
Systems predecessor company, where he served
in various positions of increasing
responsibility. Mr. Buehring is a former
director and past president of the National
Aerospace Services Association. Over the
years, he has been actively involved in
various community service organizations in
Greenville, Texas, where he and his wife
reside.
Charles A. Gabriel.. 67 1990 General Gabriel joined the Board on
March 28, 1990 to fill a vacancy created
by the death of John W. Dixon. Following
General Gabriel's retirement as Chief of
Staff of the United States Air Force in June
1986, until March 1990 he served as Executive
Vice President, and subsequently, Vice
Chairman, of Hichs & Associates, a management
consulting firm located in McLean, Virginia.
Before becoming U.S. Air Force Chief of Staff,
he served as
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
DIRECTOR OR EMPLOYMENT AND
AGE SINCE DIRECTORSHIPS
--- -------- --------------------
<S> <C> <C> <C>
Commander in Chief of U.S. Air Forces in
Europe and Commander of Allied Air
Forces, Central Europe. General Gabriel
served as Chairman of the Board of
Flight International Group, Inc., an
aviation services fixed base operator
from September 1, 1991 to September 4,
1992. He is a director of CORE Software
Technology, GEC-Marconi Electronic
Systems, Inc. and Greenwich Air
Services, Inc., a company that repairs,
refurbishes, and overhauls gas turbine
engines. General Gabriel is a member of
the Audit Committee of the Board of
Directors.
A. Lowell Lawson.... 57 1983 Mr. Lawson is Chairman of the Board and
Chief Executive Officer of the Company.
He has held the position of Chief
Executive Officer since January 27, 1994
and was elected Chairman of the Board of
Directors on August 24, 1994. Mr. Lawson
is also President of the Company and has
held that position since April 25, 1989.
Prior to that, Mr. Lawson was Executive
Vice President since April 1987 and
served in various senior executive
positions for more than five years. Mr.
Lawson was first elected to the Board of
Directors on November 1, 1983 to fill a
vacancy created by a retirement of a
predecessor. He is Chairman of the
Executive Committee of the Board of
Directors.
C. Roland Haden..... 55 1994 Dr. Haden is Vice Chancellor and Dean of
Engineering, Texas A&M University,
College Station, Texas. He has held that
position since 1993. From 1991 to 1993,
he was Vice Chancellor for Academic
Affairs and Provost, Louisiana State
University, Baton Rouge, Louisiana.
Prior to that time he was Professor and
Dean of Engineering and Applied Sciences
from 1989 to 1991; Provost, ASU West
Campus, from 1988 to 1989; Vice
President for Academic Affairs from 1987
to 1988 and from 1978 to 1987, Professor
and Dean of Engineering and Applied
Sciences, Arizona State University,
Tempe, Arizona. He is a fellow of the
Institute of Electrical and Electronics
Engineers and the American Society for
Engineering Education. He is a
</TABLE>
I-6
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
DIRECTOR OR EMPLOYMENT AND
AGE SINCE DIRECTORSHIPS
--- -------- --------------------
<S> <C> <C> <C>
director of Inter-Tel, Inc., which
manufactures, sells and installs digital
phone systems and Wave Phone, Inc.,
which manufactures and sells digital
telecommunications equipment. Dr. Haden
was elected a member of the Board on
April 27, 1994 to fill the vacancy
created by the death of Dr. LeVan
Griffis.
Martin R. Hoffmann.. 63 1987 Mr. Hoffmann, Attorney-at-Law, is a
Senior Visiting Fellow, Center for
Technology, Policy and Industrial
Development, Massachusetts Institute of
Technology, Cambridge, Massachusetts.
From May 1989 until April 1993, Mr.
Hoffmann served as Vice President,
General Counsel and Secretary of Digital
Equipment Corporation, Maynard,
Massachusetts, a manufacturer and
marketer of computer systems. Prior to
that time he was a partner in the law
firm of Gardner, Carton and Douglas of
Washington, D.C. for more than ten
years. Mr. Hoffmann has held various
executive positions with the Federal
Government, including that of Secretary
of the Army from August 1975 to February
1977 and General Counsel to the
Department of Defense from March 1974 to
August 1975. He is a member of the Board
of Advisors of Lincoln Laboratories,
Boston, Massachusetts and a director of
Sea-Change Technology, Inc. and
VISystems, Inc., both of which are
computer software companies. Mr.
Hoffmann was first elected to the Board
of Directors in April 1987 to fill a
newly created directorship.
E. Gene Keiffer..... 65 1983 Mr. Keiffer served the Company as
Chairman of the Board of Directors from
April 25, 1989 until his retirement in
August 1994. He also held the position
of Chief Executive Officer of the
Company from April 25, 1989 until
January 26, 1994. Mr. Keiffer served as
President of the Company from April 22,
1987 to April 1989; as Senior Vice
President-Electronic Systems Group from
November 1983 to April 1987; and Vice
President and General Manager of the
Garland Division from September 1975 to
November 1983. He was first elected to
the Board of Directors on November 1,
1983 to fill a vacancy created by the
retirement of a predecessor. Mr. Keiffer
is a member of the Executive Committee
of the Board of Directors.
</TABLE>
I-7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
DIRECTOR OR EMPLOYMENT AND
AGE SINCE DIRECTORSHIPS
--- -------- --------------------
<S> <C> <C> <C>
Francine I. Neff.... 69 1978 Mrs. Neff is Vice President of NETS,
Inc., Albuquerque, New Mexico, a
privately held investment company, a
position she has held for at least the
past five years. She was a Vice
President of Rio Grande Valley Bank of
Albuquerque, New Mexico from September
1977 until December 1981. Mrs. Neff is a
former Treasurer of the United States
and was the National Director, United
States Savings Bond Division, United
States Treasury. Mrs. Neff is also a
director of Hershey Foods Corporation,
D. R. Horton, Inc., home-builders, and
Louisiana-Pacific Corporation, which
produces timber and timber-related
products. She is Chairman of the Audit
Committee and a member of the
Compensation and Benefits Committee of
the Board of Directors.
</TABLE>
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board met eleven times during 1994. The Board has a standing Audit
Committee and a Compensation and Benefits Committee, but does not have a
Nominating Committee. Among its functions, the Audit Committee recommends to the
Board the appointments of the firm elected to be independent certified public
accountants for the Company; reviews with the independent certified public
accountants the Company's annual audit, annual financial statements and the
independent certified public accountants' letter to management on internal
controls and other matters; reviews the adequacy of the Company's internal
controls, accounting systems and the impact of proposed accounting policies; and
reviews the Company's credit and financial arrangements. Messrs. Gabriel,
Bitonti, Kling and Mrs. Neff are members of the Audit Committee. The Audit
Committee met three times during 1994.
The Compensation and Benefits Committee recommends to the Board the salaries
for all Company officers, and approves and sets the salaries for all employees
whose annual salary exceeds $125,000. The Committee determines and authorizes
the annual incentive compensation for officers and other employees. The
Committee also grants stock options and restricted stock awards to certain key
employees under the Option Plans. Mrs. Neff and Messrs. Kling and Bitonti are
members of the Compensation and Benefits Committee. The Committee met four
times and acted by unanimous written consent twelve times during 1994.
I-8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table set forth persons known to the Company to own
beneficially 5% or more of the total outstanding Shares as of March 3, 1995.
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE OF AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER CLASS BENEFICIAL OWNERSHIP OF CLASS
------------------- ------------ -------------------- --------
<S> <C> <C> <C>
E-Systems, Inc. Employee Stock
Ownership Trust and Employees'
Retirement Trusts(1).............. Common Stock 5,829,181 Shares 17.07%
P.O. Box 660248
Dallas, Texas 75266-0248
</TABLE>
- --------
(1) Under the terms of the Company's Employee Stock Ownership Plan (the "ESOP")
Shares owned by the Company's Employee Stock Ownership Trust (the "ESOT")
are, until allocated to accounts of participating employees, voted by the
trustees of the ESOT. The Shares held by the ESOT and allocated to accounts
of participating employees are required to be voted by the trustees in
accordance with the instructions of such employees. If no such instructions
are received, the allocated Shares are to be voted by the trustees in their
discretion. There were 4,354,589 Shares held by the ESOT as of March 3,
1995. The trustees of the ESOP are Michael C. Eberhardt, Art E. Hobbs and
James W. Pope all of whom are Vice Presidents of the Company.
Shares held by the Employees' Retirement Trusts (the "Retirement Trusts")
are voted as the trustees of such trusts in their discretion shall
determine. The trustees are appointed by the Board of Directors of the
Company and may be removed by the Board of Directors at any time without
cause. The trustees of the Retirement Trusts are Michael C. Eberhardt, Art
E. Hobbs and James W. Pope all of whom are Vice Presidents of the Company.
There were 1,474,592 Shares held by the Retirement Trusts as of
March 3, 1995.
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates the Shares beneficially owned as of March 31,
1995 by each director, each Named Executive Officer (as hereinafter defined)
and by all executive officers and directors as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
------------------------ -------------------- -----------
<S> <C> <C>
James A. Bitonti........................... 1,000 *
E.F. Buehring.............................. 10,000 *
Brian D. Cullen............................ 23,044(2) *
James W. Crowley........................... 65,593(3) *
Charles A. Gabriel......................... 500 *
C. Roland Haden............................ -0-
Terry W. Heil.............................. 61,895(4) *
Martin R. Hoffmann......................... 1,500 *
E. Gene Keiffer............................ 70,256(5) *
S. Lee Kling............................... 17,000 *
A. Lowell Lawson........................... 111,430(6) *
Peter A. Marino............................ 19,185(7) *
Francine I. Neff........................... 800 *
David R. Tacke............................. 24,366 *
All executive officers and directors as a
group (22 persons)........................ 585,413(8) 1.70%
</TABLE>
- --------
* Ownership of less than 1% of the outstanding Shares.
I-9
<PAGE>
(1) Percent was determined using an aggregate of 34,503,591 Shares outstanding,
which includes shares subject to options which are exercisable within 60
days.
(2) Includes 10,834 Shares covered by options exercisable within 60 days and
941 Shares allocated to Mr. Cullen's ESOP account.
(3) Includes 49,834 Shares covered by options exercisable within 60 days and
7,326 Shares allocated to Mr. Crowley's ESOP account.
(4) Includes 55,334 Shares covered by options exercisable within 60 days and
761 Shares allocated to Dr. Heil's ESOP account.
(5) Includes 30,000 Shares covered by options exercisable within 60 days and 79
Shares allocated to Mr. Keiffer's ESOP account.
(6) Includes 63,334 Shares covered by options exercisable within 60 days and
6,046 Shares allocated to Mr. Lawson's ESOP account.
(7) Includes 13,333 Shares covered by options exercisable within 60 days and
351 Shares allocated in Mr. Marino's ESOP account.
(8) Of the Shares indicated as beneficially owned by the executive officers and
directors as a group, 330,138 Shares represent the aggregate number of
Shares the group has the right to acquire beneficial ownership within sixty
days; and 31,242 Shares represent the Shares allocated to their individual
ESOP accounts.
EXECUTIVE COMPENSATION
The following table shows cash compensation of the Chief Executive Officer,
the retired Chief Executive Officer and the four other most highly compensated
executive officers of the Company (the "Named Executive Officers"), whose cash
compensation exceeds $100,000, for the fiscal years 1994, 1993 and 1992.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------- -------------------------
SECURITIES
OTHER UNDER-
ANNUAL RESTRICTED LYING ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSA- STOCK OPTIONS/ COMPEN-
POSITION YEAR SALARY($) BONUS($)(1) TION(2) AWARDS($)(3) SAR'S(=)(4) SATION(4)(5)
------------------ ------ --------- ----------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
A. Lowell Lawson........ 1994 477,738 425,000 0 386,250(8) 40,000/0(8) 4,625
Chairman of the Board, 1993 409,461 345,000 0 84,500 25,000/0 5,938
Chief Executive Officer 1992 381,539 345,000 0 0 0 5,598
and President
E. Gene Keiffer......... 1994 383,385 0 39,990 0 0 46,596
Retired Chairman of the 1993 559,230 440,000 0 126,750 40,000/0 8,108
Board and Chief 1992 519,134 440,000 0 0 0 7,366
Executive Officer
Brian D. Cullen(6)...... 1994 242,629 175,000 0 0 0 3,641
Senior Vice President 1993 205,000 140,000 0 63,375 10,000/0 4,619
1992 202,919 165,000 0 0 0 4,531
Terry W. Heil(6)........ 1994 304,980 240,000 0 0 0 3,946
Senior Vice President 1993 291,653 225,000 0 63,375 10,000/0 5,588
1992 287,135 225,000 0 0 0 5,345
Peter A. Marino(6)...... 1994 294,980 225,000 0 84,375 0 3,674
Senior Vice President 1993 281,653 175,000 0 63,375 10,000/0 5,347
1992 280,288 165,000 60,031 0 0 5,135
James W. Crowley(7)..... 1994 286,653 190,000 0 0 0 4,705
Retired Vice President, 1993 276,654 180,000 0 42,250 10,000/0 5,907
General Counsel and 1992 270,842 175,000 0 0 0 6,243
Secretary
</TABLE>
I-10
<PAGE>
- --------
(1) The Company, in keeping with its compensation practices, uses the term
"incentive compensation" rather than "bonus".
(2) Other Annual Compensation for Mr. Marino includes relocation and moving
expenses for the year ended December 31, 1992 and for Mr. Keiffer for the
year ended December 30, 1994, $25,272 for income tax preparation expense.
Perquisites and other personal benefits, securities or property, totaling
less than $50,000 or 10% of total annual salary and bonus reported are not
included.
(3) Dividends are paid on restricted stock awards at the same time and at the
same rate as paid to all stockholders. On December 30, 1994, Mr. Keiffer
held no restricted shares; Mr. Lawson held 17,400 restricted shares having
a then current value of $706,875; Dr. Heil held 5,800 restricted shares
having a then current value of $235,625; Mr. Marino held 5,500 restricted
shares having a then current value of $223,437.50; Mr. Cullen held 5,850
restricted shares having a then current value of $237,656.25, and Mr.
Crowley held 5,000 restricted shares having a then current value of
$203,125.
(4) None of the named individuals holds SAR's and the Company does not intend
to grant SAR's.
(5) Included for each individual is $2,936 allocated in the ESOP, a qualified
ERISA plan, and split dollar premiums paid as follows: Mr. Keiffer, $3,774;
Mr. Lawson, $1,689; Dr. Heil, $1,010; Mr. Marino, $738; Mr. Cullen, $705
and Mr. Crowley, $1,769. The split dollar life insurance maintained by the
Company pays two times the annual salary life insurance benefit to active
executives and a two times final salary to retired executives. The amount
included is calculated in accordance with tax regulations from actuarial
tables, which factors are multiplied by the current amount of the benefit
due the executive based on current compensation or in the case of retired
executives, final compensation. Includes for Mr. Keiffer $39,886 accrued
vacation pursuant to termination of employment.
(6) Messrs. Cullen, Heil and Marino collectively assumed many of the
responsibilities for operations that were previously the responsibility of
the President and Chief Operating Officer in January 1994 upon the
promotion of Mr. Lawson to Chief Executive Officer.
(7) Mr. Crowley retired as Vice President, General Counsel and Secretary,
effective March 1, 1995.
(8) Upon Mr. Lawson's promotion to Chairman of the Board in August 1994, he was
provided a special long-term award in recognition of his promotion and
added responsibilities.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information on option grants in fiscal
1994 to the Named Executive Officers. The Company does not have any outstanding
SAR's.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/ EXERCISE
UNDERLYING SAR'S GRANTED OR BASE GRANT DATE
OPTIONS/SAR'S TO EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SH) DATE VALUE($)(2)
- ---- ------------- -------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
A. Lowell Lawson.. 40,000(3) 54.7% 39.63 08/23/04 $562,400
E. Gene Keiffer... 0 0% 0 0
Brian D. Cullen... 0 0% 0 0
Terry W. Heil..... 0 0% 0 0
Peter A. Marino... 0 0% 0 0
James W. Crowley.. 0 0% 0 0
</TABLE>
- --------
(1) The option listed was granted pursuant to the Company's 1988 Stock Option
Plan. Option exercise prices are at the market price when granted; the
options have a term of ten years and vest in one-third increments over a
three year period beginning with the first anniversary of the grant. The
exercise price and federal tax withholding may be paid in cash or with
Shares.
(2) Based on the Black-Scholes option pricing model expressed as a ratio (.3549
for options granted on August 24, 1994) times the exercise price of $39.63
which yields a per share value of $14.06 multiplied
I-11
<PAGE>
by the number of shares. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised, so that there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model. With respect to the 1994 option grant, the following
assumptions were used in the Black-Scholes model: market price of stock,
$39.63; exercise price of option, $39.63; stock volatility, 24.98%; risk-
free rate of return, 7.5% and future dividend yield, 2.81%.
(3) Upon Mr. Lawson's promotion to Chairman of the Board in August 1994, he was
provided a special long-term award in recognition of his promotion and
added responsibilities.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND OPTION VALUES AT DECEMBER 31, 1994
Shown below is information with respect to the exercise of stock options
during fiscal year 1994 and certain information with respect to unexercised
options to purchase Shares granted under the Company's 1982 Employee Stock
Option Plan and the Company's 1988 Employee Stock Option Plan to the Named
Executive Officers and held by them at December 31, 1994.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DEC. 31, 1994 DEC. 31, 1994(1)
------------- ----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
A. Lowell Lawson.... 0 0 63,334/56,666 519,775/79,800
E. Gene Keiffer..... 16,667 187,379 30,000/26,666 134,245/0
Brian D. Cullen..... 0 0 10,834/6,666 58,907/0
Terry W. Heil....... 0 0 55,334/6,666 499,250/0
Peter A. Marino..... 0 0 13,334/6,666 68,750/0
James W. Crowley.... 0 0 49,834/6,666 476,332/0
</TABLE>
- --------
(1) The value of the unexercised in-the-money options represents the difference
between the exercise price and the market price on December 31, 1994.
COMPENSATION AND BENEFITS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of Directors (the
"Committee"), which is composed entirely of independent outside directors, has
established a compensation philosophy that seeks to enhance the performance of
the Company and thus shareholder value, by linking executive compensation with
Company performance. The Committee has the responsibility of establishing
appropriate compensation levels for Company officers which are consistent with
our compensation philosophy resulting in total compensation that is both
competitive and reflective of individual and overall Company performance.
During the course of performing its duties, the Committee reviews
compensation data and analysis provided by both internal compensation
specialists and independent professional compensation consulting firms. In
addition, as needed the Committee is advised and furnished information by
independent outside compensation consultants concerning the Company's overall
approach to executive compensation.
In designing the compensation program, the Committee has established the
following:
. Compensation levels should be such that the Company can effectively
attract, reward and retain talented and well-qualified executives.
I-12
<PAGE>
. Executive compensation should relate meaningfully to value created for
shareholders and achievement of the Company's short-term and long-term
objectives.
. A significant portion of executive compensation should be based on
factors which emphasize a pay for performance approach.
. Stock ownership should be encouraged to align the financial interests of
the Company's executives with those of its shareholders.
The Company's executive compensation is based on the following major
components, which are intended to serve the overall compensation philosophy.
BASE SALARY
The Committee annually reviews each officer's salary. In determining the
appropriate salary amount, the Committee considers level of responsibility,
experience, time in position, individual performance, internal equity and
external competitive pay practices, to ensure that base salaries are
competitive with market practices and are appropriate considering the Company's
relative size and performance, comparisons are made with salaries paid to
executives with similar responsibilities at peer companies in our industry. A
regression analysis is used to adjust for the relative size differences among
the peer companies and to establish an appropriate salary range for each
Company executive position. The mid-point of the salary range is based on the
adjusted survey data and the results of the regression analysis which predicts
a base salary level at the 50th percentile.
The peer companies represented in the market salary survey analysis are
electronics and defense industry companies that are included in various
compensation surveys which are conducted and provided by independent outside
executive compensation consultants. These primary survey sources include the
MCS Project 777 Survey and the Summit Survey. The peer companies used in the
market salary survey analysis were: Hughes Aircraft Co., Rockwell International
Corp., Lockheed Corp., Raytheon Co., TRW Inc., Texas Instruments Incorporated,
Honeywell Inc., Martin Marietta Corp., Textron Inc., Litton Industries, Inc.,
Northrop Grumman Corp., Loral Corp., Harris Corp. and The Perkin-Elmer
Corporation. Companies comprising Standard & Poor's Aerospace/Defense group
used in the performance graph are: The Boeing Co., General Dynamics Corp.,
Lockheed Corp., Martin Marietta Corp., McDonnell Douglas Corp., Northrop
Grumman Corp., Raytheon Co., Rockwell International Corp. and United
Technologies Corp. The difference in peer group companies is due to the
availability of required data used in the market salary survey analysis.
INCENTIVE COMPENSATION
The annual incentive award is that portion of compensation which may be
adjusted upward or downward based on performance. The Committee places a
significant portion of the executive's total cash compensation in this category
in order to focus management attention on annual performance results that in
turn enhance shareholder value.
At the beginning of each year, the Chief Executive Officer presents to the
Board a proposed business plan which contains specific performance goals. The
principal financial performance measures include sales, profits, bookings and
backlog. Generally, profits have a greater relative importance but in any given
year the relative importance of performance measures may vary due to business
factors. After review and consideration, the approved plan is accepted by the
Board as an appropriate standard for measuring performance during the
forthcoming year. In addition to the comparison of actual performance against
the business plan, the Committee also considers other performance measures such
as return on assets, return on equity, return on capital and profitability. The
Company's performance is evaluated in each of these categories and compared
with the performance of peer companies in our industry to establish a relative
performance position. Other general management performance dimensions such as
leadership, teamwork and other
I-13
<PAGE>
discretionary considerations are also considered. The Committee does not use a
specific formula with weightings of the various performance criteria, but
instead considers all of the criteria collectively in reaching a decision as to
how the Company performed.
In determining the amount of incentive compensation to be paid executive
officers, the Committee considers the performance measures previously described
and other compensation survey data to ensure that incentive compensation awards
are in keeping with the stated compensation philosophy and that, when added to
base salaries, result in a reasonable and competitive total cash compensation
package that appropriately reflects the Company's relative size and
performance.
LONG-TERM INCENTIVES
Long-term incentives are provided to align the financial interests of the
Company's executives, and other key individuals who contribute to the success
of the Company, with those of the shareholders. To accomplish this, the Company
primarily uses stock options as its long-term incentive vehicle.
Stock options are granted at 100 percent of the prevailing market value on
the day of grant and to encourage a longer term perspective, become exercisable
in one-third increments over a three-year period following the date of grant.
Therefore, the options are of value to the recipients only if shareholders also
benefit from stock price appreciation. It should also be noted that the
Committee has not repriced outstanding options, again reinforcing the
philosophy that recipients do not benefit from stock price appreciation unless
shareholders also benefit.
In limited circumstances and for special long-term incentives, restricted
stock awards are used. Generally, these restricted stock awards contain a ten-
year vesting restriction which also encourages long-term employment with the
Company.
The number of stock options and/or restricted stock awards granted is based
on the recipient's position and level of responsibility, the resulting
opportunity to impact on the success of the Company and competitive practices
as reported in an extensive survey of Long-term Incentive Compensation
Practices conducted annually by a major consulting firm.
Stock options are granted to key management and technical employees whose
performance contributes significantly to the successful results of the Company.
The last general stock option award was November 16, 1993 and at that time 3.4
percent of the total employee population received awards. The less frequently
used restricted stock awards were granted at the same time to less than one
percent of the total employee population. Each of the restricted award
recipients has been identified by management and confirmed by the Committee as
individuals for whom special long-term performance incentive and employment
retention is desirable.
EXECUTIVE COMPENSATION
In determining the CEO and other executive officers' compensation for 1994,
the Committee took into account all of the performance measures and other
factors previously described as well as their perception of the executive
officer's past and expected future contributions. In January of 1994, Mr.
Lawson was promoted to Chief Executive Officer and President. Upon Mr.
Keiffer's retirement in August of 1994, the Board of Directors selected Mr.
Lawson to succeed Mr. Keiffer as Chairman of the Board and Chief Executive
Officer. At the time of Mr. Lawson's promotions and increased responsibility,
the Compensation and Benefits Committee approved base salary increases and, at
the time of his promotion to Chairman of the Board, a special long-term award
was approved that was designed to provide a total compensation package that is
competitive with compensation provided for similar positions at other
companies.
The Committee placed special emphasis on Mr. Lawson's personal dedication to
assuring the Company's on-going success during the leadership transition that
occurred during 1994 in making adjustments to his base salary and the
determination of his annual incentive award.
I-14
<PAGE>
While profits moderately decreased, due primarily to one time write-offs
associated with new business activities, the Committee took into account the
record high annual new business bookings and record high year end backlog that
were achieved despite the continuing reduction in the U.S. Defense budget and
program cancellations throughout the defense electronics and intelligence
communities. The strong bookings performance has positioned the Company for
future growth. Also, dividends were increased by nine percent thus benefiting
all shareholders.
Based on review of peer company compensation survey data, the total cash
compensation of the Company's Chief Executive Officer is below the survey's
predicted value and below the median compensation level paid to executive
officers at peer companies.
FEDERAL INCOME TAX CONSIDERATIONS
In 1993, the Internal Revenue Code was amended to place a $1 million cap on
the deductibility of compensation paid to executives of publicly held
corporations. The Committee took this change into account, however upon review
of the available regulations and interpretations, decided that it would not
make the deductibility of the Company's compensation for federal income tax
purposes a criterion to be used in establishing compensation to the named
executives during the present cycle. The Committee took into consideration the
belief that very little, if any, of the current compensation levels of these
executives will be subject to the cap. The Committee continues to recognize
that compensation should meet standards of reasonableness and necessity, which
have been part of the Internal Revenue Code for many years.
This report of the Compensation and Benefits Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent it shall be
specifically incorporated by reference; and shall not otherwise be deemed filed
under such Acts.
S. Lee Kling
Francine I. Neff
James A. Bitonti
I-15
<PAGE>
The following performance graph reflects a comparison of the cumulative total
return (change in stock price plus reinvested dividends) of the Company's
Common Stock with Standard & Poor's 500 Stock Index and Standard & Poor's
Aerospace/Defense Index for the years 1989 through 1994. The graph is
constructed on the assumption that $100 was invested on December 31, 1989, in
each of the Company's Common Stock, the S&P 500 Stock Index and the S&P
Aerospace/Defense Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
E-SYSTEMS, INC., S&P 500 AND S&P AEROSPACE/DEFENSE INDICES
[CHART TO APPEAR]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
E-Systems, Inc.................. $100.00 $114.20 $128.33 $143.32 $155.11 $153.23
S&P 500......................... 100.00 96.90 126.42 138.05 149.76 151.74
S&P Aerospace/Defense........... 100.00 104.39 124.79 131.29 170.75 184.70
</TABLE>
PENSION PLAN TABLE
SALARIED RETIREMENT PLAN
The following table indicates the estimated annual benefits payable upon
retirement at age 65 for the Named Executive Officers in a specified
compensation and years of service classifications under the E-Systems, Inc.
Salaried Retirement Plan (the "Salaried Retirement Plan"), a defined benefit
plan. These benefits are not subject to any Social Security offset.
I-16
<PAGE>
For purposes of calculating benefits pursuant to this plan, the 1994
compensation for the individuals listed in the Summary Compensation Table is
$150,000 each, which is the maximum permitted by law and regulation.
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------
REMUNERATION (A) 15 20 25 30 35
- ---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$400,000................................ $30,000 $42,000 $54,000 $66,000 $78,000
500,000................................ 30,000 42,000 54,000 66,000 78,000
600,000................................ 30,000 42,000 54,000 66,000 78,000
700,000................................ 30,000 42,000 54,000 66,000 78,000
800,000................................ 30,000 42,000 54,000 66,000 78,000
</TABLE>
- --------
(a) Covered Remuneration consists of base salary and incentive compensation
paid in the calendar year and differs from the amounts set forth in the
Summary Compensation Table, which reflects incentive compensation and
certain other benefits on an accrual, rather than paid, basis. For purposes
of calculating benefits pursuant to this plan, the 1994 compensation for
the individuals listed in the Summary Compensation Table is $150,000 each,
which is the maximum permitted by law and regulation.
Years of "benefit service" for the individuals listed in the Summary
Compensation Table are as follows: Mr. Lawson: 30 years; Dr. Heil: 6 years; Mr.
Cullen: 9 years; Mr. Marino: 4 years and Mr. Crowley: 24 years.
Since the foregoing table applies only to the Named Executive Officers, it
does not identify the retirement benefits available to other salaried
personnel. In 1994, the Company contributed $38,516,000 to the Salaried
Retirement Plan, which covers approximately 12,000 employees. Because of the
$150,000 limit permitted by law and regulation, the Company implemented on
December 1, 1993, a non-qualified Supplemental Retirement Plan to provide
additional retirement benefits to those employees otherwise covered by the
Salaried Retirement Plan.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective June 1, 1982 the Board adopted the E-Systems, Inc. Supplemental
Executive Retirement Plan (the "Supplemental Executive Retirement Plan") for
the purposes of providing to selected executive employees of the Company
retirement income as a supplement to compensation and employee benefits
otherwise payable. The participants are those persons selected by the Board
with the approval of the Chairman of the Board and Chief Executive Officer and
the Compensation and Benefits Committee of the Board. Only officers and other
key employees, who are expected to contribute materially to the success of the
Company's business by their ability, ingenuity and industry, are eligible to
participate. Benefits payable under the Supplemental Executive Retirement Plan
constitute general obligations of the Company. The Supplemental Executive
Retirement Plan may be amended or discontinued by the Board of Directors at any
time; however, such amendment or discontinuance shall not adversely affect the
rights of, or reduce the benefits payable to, a participant (or beneficiary)
under the Supplemental Executive Retirement Plan who has been selected for
participation prior to the effective date of such amendment or discontinuance.
Each of the persons named in the Summary Compensation Table and five other
officers are covered by the Supplemental Executive Retirement Plan, which
provides for a retirement benefit equal to a specified percentage of the
participant's "Average Monthly Compensation". Amounts payable under the
Supplemental Executive Retirement Plan are reduced by payments under the
Salaried Retirement Plan and the recipient's primary Social Security benefit.
"Average Monthly Compensation" is defined as the sum of (i) the salary paid the
employee during the three consecutive years out of the ten years preceding
retirement or disability which yields the highest monthly amount when divided
by 36 and (ii) the incentive compensation paid the employee during the three
consecutive years out of the ten years preceding retirement or disability which
I-17
<PAGE>
yields the highest monthly amount when divided by 36. The amounts of
compensation given on an annual basis in the Summary Compensation Table for
each of the persons covered by the Supplemental Executive Retirement Plan
somewhat overstate the covered compensation used in calculating the Average
Monthly Compensation, primarily because of the difference between the accrual
method required by the Summary Compensation Table and the cash basis used in
the Supplemental Executive Retirement Plan calculations.
The estimated annual supplemental benefit for the individuals named in the
Summary Compensation Table based on their current compensation levels, assuming
retirement at age 65, are as follows: Mr. Lawson $518,201; Mr. Cullen $211,617;
Dr. Heil $309,167; Mr. Marino $298,224 and Mr. Crowley $218,007.
The Company has placed an amount of funds approximately equivalent to the
actuarial present value of benefits payable under the Supplemental Plan and
certain employment contracts for retirement, disability and survivor's benefits
in two trusts with an independent trustee who will distribute the benefit as
required under the Supplemental Executive Retirement Plan and such employment
contracts. The trusts are irrevocable and have received favorable rulings by
the Internal Revenue Service. The funds in the trusts would be subject to the
claims of the creditors of the Company in the event of the Company's insolvency
or bankruptcy. The establishment and funding of the trusts will not increase
the benefits due to any participant.
DIRECTOR'S COMPENSATION AND RETIREMENT
Directors of the Company are paid a retainer fee of $2,000 per month and
$1,200 for each board meeting attended. Directors are also paid $1,200 per
committee meeting for meetings attended, except that the Chairman of the
committee is paid $1,500. Directors who are officers of the Company, and Mr.
Tacke and Mr. Keiffer receive no additional compensation for their services as
Directors or committee members.
In August of 1987 the Board of Directors established a retirement policy.
Directors with ten years or more of service on the Board at the time of
retirement are eligible for post-retirement remuneration equal to 100% of the
annual Board retainer in effect at the time of retirement, payable monthly, for
a term equal to the length of service of such director on the Board. Upon the
director's death, the surviving spouse is entitled to receive the amount of the
remainder of such term or until the spouse's death, whichever occurs first. In
addition, during active service and the retirement period, a death benefit in
the amount of $100,000 payable to the director's surviving spouse is provided.
The mandatory retirement age for management directors who are corporate
officers, including the Chairman of the Board and Chief Executive Officer, is
65. For outside directors, the mandatory retirement age is 70. All incumbent
1987 directors were excepted from mandatory retirement, although each may avail
himself or herself of the provisions of the retirement policy as adopted. If a
director has served five years or more on the Board but has not attained
retirement age, a pro rata benefit is payable to the director or surviving
spouse upon inability to continue service due to illness, disability or
infirmity. No retirement benefit or death benefit is payable to a management
director who is a participant in the Supplemental Executive Retirement Plan or
is receiving supplemental pension benefits payable pursuant to an employment
contract.
EMPLOYMENT AGREEMENTS
Mr. Keiffer retired from the Company effective September 1, 1994. He was
employed under an agreement effective October 25, 1989, whereby he agreed to
render his exclusive services to the Company for a period ending August 25,
1994 when he attained the mandatory retirement age of 65. His monthly
retirement benefit, as defined in the Supplemental Executive Retirement Plan,
equals 65% of his Average Monthly Compensation. Mr. Keiffer and his wife are to
receive medical, hospital and surgical insurance coverage in accordance with
levels maintained by the Company for its executive officers for the remainder
of their lives. On Mr. Keiffer's death, his widow is to receive 50% of the
retirement amount for the remainder of her life.
Mr. Keiffer's employment agreement also provides for the continuation of
certain of his business and other perquisites upon retirement. These include
dues, fees and assessments, and business, but not personal,
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<PAGE>
expenses to maintain membership in two specified country clubs; preparation of
federal and state income tax returns, and upon death, preparation of the estate
tax returns; estate planning services; home security service, including
monitoring and neighborhood patrol as applicable; not less than $250,000
accidental death and dismemberment insurance coverage; and business travel
accident insurance in an amount of not less than $300,000 for Mr. Keiffer and
$150,000 for his wife.
The Company has agreed to furnish Mr. Keiffer, as well as other corporate
officers, including those named in the Summary Compensation Table, certain pre-
and post-retirement life insurance benefits. An amount equal to two times their
respective annual salaries is to be provided prior to retirement for all
corporate officers and for all, except Mr. Keiffer, following their retirement.
The Company is to provide life insurance benefit to Mr. Keiffer equal to two
times his annual salary and incentive compensation for the most recent
completed year prior to his retirement. The value of this insurance benefit has
been included in the Summary Compensation Table.
Mr. Lawson is employed under an agreement which extends through January 16,
1998. Under the agreement, he has agreed to render his exclusive services to
the Company. The agreement provides for full vesting of Mr. Lawson's benefits
under the Supplemental Executive Retirement Plan, which he may receive upon
retirement following his attaining age 60 on January 16, 1998. The terms and
benefits of his employment agreement are otherwise essentially identical to
those described for Mr. Keiffer, except that the minimum annual compensation is
the base salary most recently approved by the Board. As discussed in the
Schedule 14D-9, the Merger Agreement provides that prior to consummation of the
Offer, the Board (and following consummation of the Offer and before the
Effective Time, a majority of the Continuing Directors) may authorize
amendments to the Company's employment contract with Mr. Lawson to provide that
he shall serve as Chief Executive Officer of the Surviving Corporation
following the Effective Time and (unless he earlier resigns) for a period of
three years thereafter.
In December 1990 the Board approved an employment contract for Dr. Heil,
which replaced a previous contract that expired October 12, 1988. The agreement
provides for a term through February 24, 2000 and an automatic renewal for an
additional three years to February 24, 2003 if neither Dr. Heil nor the Company
notify the other that no renewal is to occur. As of November 22, 1993, Dr.
Heil's agreement was amended, effective December 1, 1993, vesting his benefits
under the Supplemental Executive Retirement Plan, which he may receive on
February 24, 1998 when he will be 60 years old. Whereupon he will receive a
retirement benefit equal to 50 percent of Average Monthly Compensation as that
term is defined in the Supplemental Executive Retirement Plan. If Dr. Heil
retires on or after February 24, 2000, the benefit will increase to 55 percent
of Average Monthly Compensation, and if the agreement is extended to February
24, 2003 and Dr. Heil retires on or after such date, the benefit will be
increased to 65 percent of Average Monthly Compensation. Other terms of the
employment contract are essentially identical to those described previously for
Mr. Keiffer, except that the minimum annual compensation is the base salary
most recently approved by the Board.
Mr. Crowley has been employed under an agreement effective June 28, 1978, as
amended, whereby he agreed to render his exclusive services to the Company for
a period ending February 1990. The benefits under this contract are fully
vested. Terms of the employment contract are essentially identical to that
described for Mr. Keiffer, except that the minimum annual compensation is the
base salary most recently approved by the Board. Mr. Crowley retired from the
Company effective March 1, 1995.
Mr. Marino is employed under an agreement dated October 14, 1991, amended
December 1, 1993. The agreement provides for a term to October 14, 2001 and an
automatic renewal for an additional two years to February 3, 2004 and three
years to February 3, 2007, respectively, if neither Mr. Marino nor the Company
notify the other then no renewal is to occur. If the contract is not extended
beyond February 3, 2001, he may retire and receive a retirement benefit equal
to 50 percent of Average Monthly Compensation as that term is defined in the
Supplemental Executive Retirement Plan. If Mr. Marino completes the second
renewal period
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<PAGE>
to age 62, the retirement benefit increases to 55 percent of Average Monthly
Compensation, and if he completes the third renewal period to age 65, the
retirement benefit will be 65 percent of the Average Monthly Compensation.
Effective December 1, 1993, Mr. Marino's rights to benefits payable under the
Supplemental Executive Retirement Plan became nonforfeitable. Other terms of
the employment contract are essentially identical to those described previously
for Mr. Keiffer, except that the minimum annual compensation is the base salary
most recently approved by the Board.
Mr. Cullen is employed under an agreement dated October 14, 1991 and amended
on November 22, 1993. The agreement provides for a term to November 8, 2000 and
an automatic renewal for an additional two years to November 8, 2002, and three
years to November 8, 2005, respectively, if neither Mr. Cullen nor the Company
notify the other that no renewal is to occur. On November 8, 2000, Mr. Cullen
will be 60 years of age. At that time he may retire and receive a retirement
benefit equal to 50 percent of Average Monthly Compensation as that term is
defined in the Supplemental Executive Retirement Plan. If Mr. Cullen completes
the second renewal period to age 62, the retirement benefit increases to 55
percent of Average Monthly Compensation, and if he completes the third renewal
period to age 65, the retirement benefit will be 65 percent of Average Monthly
Compensation. Effective December 1, 1993, Mr. Cullen's rights to benefits
payable under the Supplemental Executive Retirement Plan became nonforfeitable.
Other terms of the employment contract are essentially identical to those
described for Mr. Keiffer, except that the minimum annual compensation is the
base salary most recently approved by the Board.
In each of the aforementioned employment contracts, the Company has assumed
the obligation to pay certain fees and expenses of counsel incurred if legal
action is required by an executive to enforce his rights under the contract.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Commission and the New York Stock
Exchange. Officers, directors and greater than ten-percent shareholders are
required by Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company,
the Company believes that during the fiscal year ended December 31, 1994 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with, except that one
report, covering one transaction involving 500 Shares, was filed late by Gen.
Charles A. Gabriel, a director of the Company.
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<PAGE>
SCHEDULE II
CERTAIN TRANSACTIONS IN SHARES OF COMMON STOCK OF
E-SYSTEMS, INC. EFFECTED DURING THE PAST 60 DAYS
On February 9, 1995, the trustees of the Company's Employee Stock Ownership
Trust purchased 11,900 shares of the Company's Common Stock at an average price
of $43.99.
II-1
<PAGE>
EXHIBIT 1
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 2,
1995 (the "Agreement"), by and among E-SYSTEMS, INC., a Dela-
ware corporation (the "Company"), RTN ACQUISITION CORPORATION,
a Delaware corporation (the "Purchaser"), and RAYTHEON COMPANY,
a Delaware corporation ("Parent"). The Company and the Pur-
chaser are hereinafter sometimes collectively referred to as
the "Constituent Corporations."
RECITALS
WHEREAS, the Boards of Directors of Parent, the Pur-
chaser and the Company have each approved the acquisition of
the Company by Parent upon the terms and subject to the condi-
tions set forth herein;
WHEREAS, in furtherance of such acquisition, the
Boards of Directors of Parent, the Purchaser and the Company
have each approved the merger of the Purchaser with and into
the Company in accordance with the terms of this Agreement and
the General Corporation Law of the State of Delaware (the
"DGCL") and with any other applicable law; and
WHEREAS, the Board of Directors of the Company (the
"Board") has, in light of and subject to the terms and condi-
tions set forth herein, (i) determined that (x) the consider-
ation to be paid for each Share in the Offer and the Merger (as
hereinafter defined) is fair to the stockholders of the Com-
pany, and (y) the Offer and the Merger are otherwise in the
best interests of the Company and its stockholders, and (ii)
resolved to approve and adopt this Agreement and the transac-
tions contemplated hereby and to recommend acceptance of the
Offer and approval and adoption by the stockholders of the
Company of this Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual representations, warranties, covenants, agreements
and conditions contained herein, the parties hereto agree as
follows:
ARTICLE I
THE OFFER
Section 1.01. The Offer. (a) Provided that this
Agreement shall not have been terminated in accordance with<PAGE>
<PAGE>
Article IX hereof and none of the events set forth in Annex I
hereto shall have occurred and be existing, as promptly as
practicable (but in no event later than five business days from
the date hereof) Purchaser shall commence (within the meaning
of Rule 14d-2 under the Securities Exchange Act of 1934, as
amended (including the rules and regulations promulgated
thereunder, the "Exchange Act")) an offer to purchase all out-
standing shares of Common Stock, par value $1.00 per share (the
"Shares"), of the Company including the associated Preferred
Stock Purchase Rights issued pursuant to the Rights Agreement
dated as of October 7, 1994 (the "Rights Agreement") between
the Company and Society National Bank, as Rights Agent (the
"Rights"), at a price of $64.00 per Share net to the seller in
cash (the "Offer") and, subject to the conditions of the Offer,
shall use all reasonable efforts to consummate the Offer. Ex-
cept where the context otherwise requires, all references
herein to the Shares shall include the associated Rights. The
obligation of the Purchaser to consummate the Offer and to ac-
cept for payment and to pay for any Shares tendered pursuant
thereto shall be subject to only those conditions set forth in
Annex I hereto.
(b) Without the prior written consent of the Com-
pany, the Purchaser shall not (i) decrease the price per Share
or change the form of consideration payable in the Offer, (ii)
decrease the number of Shares sought, (iii) amend or waive
satisfaction of the Minimum Condition (as defined in Annex I)
or (iv) impose additional conditions to the Offer or amend any
other term of the Offer in any manner adverse to the holders of
Shares. Upon the terms and subject to the conditions of the
Offer, the Purchaser will accept for payment and purchase, as
soon as permitted under the terms of the Offer, all Shares
validly tendered and not withdrawn prior to the expiration of
the Offer.
(c) Each of Parent and the Purchaser, on the one
hand, and the Company, on the other hand, agrees promptly to
correct any information provided by it for use in the documents
filed by Parent and the Purchaser with the Securities and Ex-
change Commission (the "SEC") in connection with the Offer (the
"Offer Documents") if and to the extent that it shall have be-
come false or misleading in any material respect, and Parent
and the Purchaser further agree to take all steps necessary to
cause the Offer Documents as so corrected to be filed with the
SEC and to be disseminated to stockholders of the Company, in
each case as and to the extent required by applicable federal
securities laws. The Company and its counsel shall be given a
reasonable opportunity to review and comment upon any Offer
Documents to be filed with the SEC prior to any such filing.
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<PAGE>
(d) The Offer shall be made by means of an offer to
purchase which shall provide for an initial expiration date of
20 business days from the date of commencement. Parent and the
Purchaser agree that the Purchaser shall not terminate or
withdraw the Offer or extend the expiration date of the Offer
unless at the expiration date of the Offer the conditions to
the Offer described in Annex I hereto shall not have been sat-
isfied or earlier waived. If at the expiration date of the
Offer, the conditions to the Offer described in Annex I hereto
shall not have been satisfied or earlier waived but, in the
reasonable belief of Parent, may be satisfied prior to Septem-
ber 30, 1995, the Purchaser shall extend the expiration date of
the Offer for an additional period or periods of time until the
earlier of (i) the date such conditions are satisfied or ear-
lier waived and the Purchaser becomes obligated to accept for
payment and pay for Shares tendered pursuant to the Offer or
(ii) this Agreement is terminated in accordance with its terms;
provided that this sentence shall not be applicable in the
event the conditions set forth in paragraph (c)(ii) of Annex I
hereto shall not have been satisfied or earlier waived at the
expiration date of the Offer. Any individual extension of the
Offer shall be for a period of no more than 15 business days.
Section 1.02. Company Actions. (a) The Company
---------------
hereby approves of and consents to the Offer and represents
that (i) the Board, at a meeting duly called and held, has, in
light of and subject to the terms and conditions set forth
herein, [unanimously] (x) determined that the consideration to
be paid for each Share in the Offer and the Merger is fair to
the stockholders of the Company and the Offer and the Merger
are otherwise in the best interests of the Company and its
stockholders and (y) approved and adopted this Agreement and
the transactions contemplated hereby, including the Offer and
the Merger, and resolved to recommend acceptance of the Offer
and approval and adoption of this Agreement by the stockholders
of the Company and (ii) CS First Boston Corporation and Morgan
Stanley & Co. Incorporated, the Company's financial advisors,
have each rendered to the Board their opinion that the per
share consideration to be received by the stockholders of the
Company pursuant to the Offer and the Merger is fair to such
stockholders from a financial point of view.
(b) The Company hereby agrees promptly to prepare
and, after affording the Purchaser a reasonable opportunity to
review and comment thereon, to file with the SEC and to mail to
its stockholders, a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (together with any
amendments or supplements thereto, the "Schedule 14D-9") con-
taining the recommendation described in Section 1.02(a) hereof
and to disseminate the Schedule 14D-9 as required by Rule 14d-9
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<PAGE>
promulgated under the Exchange Act; provided, however, that,
subject to the provisions of Article IX, such recommendation
may be withdrawn, modified or amended to the extent that the
Board deems it necessary to do so in the exercise of its fidu-
ciary and other legal obligations after consultation with out-
side counsel. Each of the Company, on the one hand, and Parent
and the Purchaser, on the other hand, agree promptly to correct
any information provided by either of them for use in the
Schedule 14D-9 if and to the extent that it shall have become
false or misleading in any material respect, and the Company
further agrees to take all steps necessary to cause the Sched-
ule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to the stockholders of the Company, in each case
as and to the extent required by applicable federal securities
laws.
(c) In connection with the Offer, the Company will
furnish the Purchaser with such information (which will be
treated and held in confidence by the Purchaser in accordance
with the terms of the Confidentiality Agreement (as hereinafter
defined)) and assistance as the Purchaser or its agents or rep-
resentatives may reasonably request in connection with the
preparation of the Offer and communicating the Offer to the
record and beneficial holders of the Shares.
Section 1.03. Directors. (a) Subject to compliance
---------
with the DGCL, the Company's Certificate of Incorporation and
other applicable law, promptly upon the payment by the Pur-
chaser for Shares purchased pursuant to the Offer, and from
time to time thereafter, the Company shall, upon request of
Parent, promptly use its best efforts to take all actions nec-
essary to cause a majority of the directors of the Company to
consist of Parent's designees, including by accepting the res-
ignations of those incumbent directors designated by the Com-
pany or increasing the size of the Board and causing Parent's
designees to be elected. The date on which Purchaser's desig-
nees constitute at least a majority of the Board is herein re-
ferred to as the "Control Date."
(b) The Company's obligations to appoint Parent's
designees to the Board shall be subject to Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder, if applicable. The
Company shall promptly take all actions required pursuant to
such Section and Rule in order to fulfill its obligations under
this Section 1.03 and shall include in the Schedule 14D-9 such
information with respect to the Company and its officers and
directors as is required under such Section and Rule in order
to fulfill its obligations under this Section 1.03. Parent
will supply any information with respect to itself and its
-4-
<PAGE>
designees, officers, directors and affiliates required by such
Section and Rule to the Company.
(c) Following the election or appointment of Par-
ent's designees pursuant to this Section 1.03 and prior to the
Effective Time (as hereinafter defined), any amendment or ter-
mination of this Agreement by the Company or the Board, any
extension by the Company or the Board, of the time for the
performance of any of the obligations or other acts of Parent
or the Purchaser or waiver of any of the Company's rights
hereunder, will require the concurrence of, and shall be ef-
fective if and only if approved by, a majority of the directors
of the Company then in office who are not affiliated with Par-
ent and were not designated by Parent and (i) were also non-
management directors of the Company on the date hereof or (ii)
were elected subsequent to the date hereof by, or on the rec-
ommendation of (x) directors who were directors on the date
hereof or (y) the Continuing Directors (the persons referred to
in clauses (i) and (ii) being the "Continuing Directors"), even
if such majority of the Continuing Directors does not consti-
tute a majority of all directors then in office. Until the
Effective Time, the Board shall include three Continuing
Directors (subject to their availability and willingness to
serve).
(d) During the five-year period immediately follow-
ing the Control Date, the Company shall maintain an Advisory
Board for the purpose of consulting on matters related to the
business of the Company. The members of the Advisory Board
shall be chosen by mutual agreement of the Chief Executive
Officer of the Company and the Chief Executive Officer of Par-
ent from among the individuals who constitute the Board on the
date hereof, including any of the Continuing Directors, and
representatives of Parent. Parent shall provide or cause the
Company to provide compensation and benefits to the members of
the Advisory Board that, in the aggregate, are no less favor-
able than those provided to the Company's directors as of the
date hereof. Purchaser agrees that it will pay, or will cause
the Surviving Corporation to pay, in accordance with the terms
of the director retirement policy and the Executive Perquisites
for Outside Board Directors of the Company in effect as of the
date hereof, the retirement benefit and perquisites provided
for therein to those directors who are directors of the Company
on the date hereof and who, after either the Control Date or
the Effective Time, do not continue on the Board or become mem-
bers of the Advisory Board.
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<PAGE>
ARTICLE II
THE MERGER
Section 2.01. The Merger. (a) In accordance with
----------
the provisions of this Agreement and the DGCL, at the Effective
Time, the Purchaser shall be merged with and into the Company
(the "Merger"), and the Company shall be the surviving corpo-
ration (hereinafter sometimes called the "Surviving Corpora-
tion") and shall continue its corporate existence under the
laws of the State of Delaware. At the Effective Time the sep-
arate existence of the Purchaser shall cease.
(b) The name of the Surviving Corporation shall be
"E-Systems, Inc."
(c) The Merger shall have the effects on the Company
and the Purchaser as Constituent Corporations of the Merger as
provided under the DGCL. As of the Effective Time, the Company
shall be a wholly-owned subsidiary of Parent.
Section 2.02. Effective Time. The Merger shall be-
--------------
come effective at the time of filing of, or at such later time
specified in, a certificate of merger (the "Certificate of
Merger") (or, if applicable, a certificate of ownership and
merger), in the form required by and executed in accordance
with the DGCL, filed with the Secretary of State of the State
of Delaware (the "Delaware Secretary of State") in accordance
with the provisions of Section 251 of the DGCL (or in the event
Section 3.04 hereof is applicable, Section 253 of the DGCL).
The date and time when the Merger shall become effective is
herein referred to as the "Effective Time."
Section 2.03. Certificate of Incorporation and By-
------------------------------------
Laws of Surviving Corporation. Subject to Section 2.01(b), the
-----------------------------
Certificate of Incorporation and By-Laws of the Purchaser shall
be the Certificate of Incorporation and By-Laws of the Surviv-
ing Corporation until thereafter amended as provided by law.
Section 2.04. Directors and Officers of Surviving
-----------------------------------
Corporation. (a) Subject to applicable law, the directors of
-----------
the Purchaser immediately prior to the Effective Time shall be
the initial directors of the Surviving Corporation and shall
hold office until their respective successors are duly elected
and qualified, or their earlier death, resignation or removal.
(b) The officers of the Company immediately prior to
the Effective Time shall be the initial officers of the Sur-
viving Corporation and shall hold office until their respective
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<PAGE>
successors are duly elected and qualified, or their earlier
death, resignation or removal.
Section 2.05. Further Assurances. If, at any time
------------------
after the Effective Time, the Surviving Corporation shall con-
sider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or de-
sirable to vest, perfect or confirm of record or otherwise in
the Surviving Corporation its right, title or interest in, to
or under any of the rights, properties or assets of either of
the Constituent Corporations acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, the of-
ficers of the Surviving Corporation shall be authorized to ex-
ecute and deliver, in the name and on behalf of each of the
Constituent Corporations or otherwise, all such deeds, bills of
sale, assignments and assurances and to take and do, in the
name and on behalf of each of the Constituent Corporations or
otherwise, all such other actions and things as may be neces-
sary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, prop-
erties or assets in the Surviving Corporation or otherwise to
carry out this Agreement in accordance with its terms.
ARTICLE III
CONVERSION OF SHARES
Section 3.01. Effect on Shares and the Purchaser's
------------------------------------
Capital Stock. (a) As of the Effective Time, by virtue of the
-------------
Merger and without any action on the part of the holders
thereof, each Share issued and outstanding immediately prior to
the Effective Time (other than any Shares held by Parent, the
Purchaser or any subsidiary of Parent or the Purchaser or in
the treasury of the Company, which Shares, by virtue of the
Merger and without any action on the part of the holder there-
of, shall be cancelled and retired and shall cease to exist
with no payment being made with respect thereto, and other than
any Dissenting Shares (as hereinafter defined)) shall be con-
verted into the right to receive $64.00 net to its holder in
cash or any higher price per Share paid in the Offer (the
"Merger Price"), payable to the holder thereof, without inter-
est thereon, as set forth in Section 4.02 hereof.
(b) As of the Effective Time, by virtue of the
Merger and without any action on the part of the holders
thereof, each share of capital stock of the Purchaser issued
and outstanding immediately prior to the Effective Time shall
be converted into and become one fully paid and nonassessable
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<PAGE>
share of Common Stock, par value $1.00 per share, of the Sur-
viving Corporation.
Section 3.02. Company Option Plans. (a) The Com-
--------------------
pany shall take all actions necessary to provide that, immedi-
ately prior to the consummation of the Offer, (i) each out-
standing option to purchase Shares (the "Options") granted un-
der any of the Company's 1980 Stock Option Plan, 1982 Incentive
Stock Option Plan, the Company's 1988 Employee Stock Option
Plan or the Company's 1994 Employee Stock Option Plan, each as
amended (collectively, the "Option Plans"), whether or not then
exercisable or vested, shall become fully exercisable and
vested, (ii) each Option which is then outstanding shall be
cancelled and (iii) in consideration of such cancellation, and
except to the extent that Parent or the Purchaser and the
holder of any such Option otherwise agree, the Company (or, at
Parent's option, Parent or the Purchaser) shall pay to such
holders of Options an amount in respect thereof equal to the
product of (A) the excess, if any, of the Merger Price over the
exercise price thereof and (B) the number of Shares subject
thereto (such payment to be net of applicable withholding
taxes); provided that the foregoing shall not require any ac-
tion which violates the Option Plans; provided, further, that
if it is determined that compliance with any of the foregoing
would cause any individual subject to Section 16 of the Ex-
change Act to become subject to the profit recovery provisions
thereof, any Options held by such individual will be cancelled
or purchased, as the case may be, as promptly thereafter as
possible so as not to subject such individual to any liability
pursuant to Section 16, and such individual will be entitled to
receive from the Company or the Surviving Corporation at the
Effective Time or as soon as practicable thereafter (or, if
later, the date six months and one day following the grant of
such option), for each Share subject to an Option, an amount
equal to the excess, if any, of the Merger Price over the per
Share exercise price of such Option.
(b) Except as provided herein or as otherwise agreed
to by the parties and to the extent permitted by the Option
Plans, (i) the Option Plans shall terminate as of the Effective
Time and the provisions in any other plan, program or arrange-
ment, providing for the issuance or grant by the Company or any
of its subsidiaries of any interest in respect of the capital
stock of the Company or any of its subsidiaries (other than the
EMASS Option Plan (as hereinafter defined)) shall be deleted as
of the Effective Time and (ii) the Company shall use all rea-
sonable efforts to ensure that following the Effective Time no
holder of Options or any participant in the Option Plans or any
other such plans, programs or arrangements (other than the
EMASS Option Plan) shall have any right thereunder to acquire
-8-
<PAGE>
any equity securities of the Company, the Surviving Corporation
or any subsidiary thereof.
(c) The Company shall take all actions to provide
that each share of restricted stock granted under the Option
Plans shall become fully vested and free of restrictions im-
mediately prior to the consummation of the Offer and that any
holder of a restricted stock grant may elect to authorize the
Company to retain a number of Shares from such grant having an
aggregate value (based upon $64.00 per Share) equal to the sum
of (i) the aggregate purchase price for such Shares under the
applicable Option Plan and (ii) any withholding taxes appli-
cable to the vesting of such grant, in lieu of the payment of
such amount in cash.
Section 3.03. Stockholders' Meeting. (a) If re-
---------------------
quired by applicable law in order to consummate the Merger, the
Company, acting through the Board, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a
special meeting of its stockholders (the "Special Meet-
ing") as soon as practicable following the purchase of and
payment for Shares by the Purchaser pursuant to the Offer
for the purpose of considering and adopting this Agreement
and such other matters as may be necessary to consummate
the transactions contemplated herein;
(ii) prepare and file with the SEC a preliminary
proxy statement relating to the matters to be considered
at the Special Meeting pursuant to this Agreement and use
its reasonable best efforts (x) to obtain and furnish the
information required to be included by the SEC in the
Proxy Statement (as hereinafter defined) and, after con-
sultation with Parent, to respond promptly to any comments
made by the SEC with respect to the preliminary proxy
statement and to cause a definitive proxy statement (the
"Proxy Statement") to be mailed to its stockholders and
(y) subject to the fiduciary obligations of the Board un-
der applicable law, to obtain the necessary approval and
adoption of this Agreement and such other matters as may
be necessary to consummate the transactions contemplated
hereby by its stockholders; and
(iii) subject to the fiduciary obligations of the
Board under applicable law after consultation with outside
counsel, include in the Proxy Statement the recommendation
-9-
<PAGE>
of the Board that stockholders of the Company vote in fa-
vor of the adoption of this Agreement and such other mat-
ters as may be necessary to consummate the transactions
contemplated hereby.
(b) Parent agrees that it will vote, or cause to be
voted, all of the Shares then owned by it, the Purchaser or any
of its other subsidiaries in favor of the approval and adoption
of this Agreement and such other matters as may be necessary to
consummate the transactions contemplated hereby.
Section 3.04. Merger Without Meeting of Stockhold-
------------------------------------
ers. Notwithstanding Section 3.03 hereof, in the event that
---
Parent, the Purchaser or any other subsidiary of Parent shall
acquire at least 90% of the outstanding Shares pursuant to the
Offer or otherwise, the parties hereto agree, at the request of
Parent or the Purchaser, to take all necessary and appropriate
action to cause the Merger to become effective as soon as
practicable after the acceptance for payment and purchase of
Shares by the Purchaser pursuant to the Offer without a meeting
of stockholders of the Company in accordance with Section 253
of the DGCL.
Section 3.05. Consummation of the Merger. As soon
--------------------------
as practicable after the satisfaction or waiver of the condi-
tions set forth in Article VIII hereof, the Surviving Corpora-
tion shall execute in the manner required by the DGCL and file
with the Delaware Secretary of State the Certificate of Merger
(or, in the event Section 3.04 hereof is applicable, the Pur-
chaser shall execute in the manner required by the DGCL and
file with the Delaware Secretary of State a certificate of
ownership and merger), and the parties shall take such other
and further actions as may be required by law to make the
Merger effective as promptly as is practicable.
ARTICLE IV
DISSENTING SHARES; PAYMENT FOR SHARES
Section 4.01. Dissenting Shares. Notwithstanding
-----------------
anything in this Agreement to the contrary, Shares outstanding
immediately prior to the Effective Time and held by a holder
who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such Shares in
accordance with Section 262 of the DGCL, if such Section 262
provides for appraisal rights for such Shares in the Merger
("Dissenting Shares"), shall not be converted into the right to
receive the Merger Price, as provided in Section 3.01 hereof,
unless and until such holder fails to perfect or withdraws or
-10-
<PAGE>
otherwise loses his right to appraisal and payment under the
DGCL. If, after the Effective Time, any such holder fails to
perfect or withdraws or loses his right to appraisal, such
Dissenting Shares shall thereupon be treated as if they had
been converted as of the Effective Time into the right to re-
ceive the Merger Price to which such holder is entitled, with-
out interest or dividends thereon. The Company shall give
Parent prompt notice of any demands received by the Company for
appraisal of Shares and Parent shall have the right to partic-
ipate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written
consent of Parent, make any payment with respect to, or settle
or offer to settle, any such demands.
Section 4.02. Payment for Shares. (a) From and
------------------
after the Effective Time, a bank or trust company to be desig-
nated by Parent (and reasonably acceptable to the Company)
shall act as paying agent (the "Paying Agent") in effecting the
payment of the Merger Price for certificates (the "Certifi-
cates") formerly representing Shares and entitled to payment of
the Merger Price pursuant to Section 3.01 hereof. At the Ef-
fective Time, Parent or the Purchaser shall deposit, or cause
to be deposited, in trust with the Paying Agent for the benefit
of holders of Shares the aggregate Merger Price to which hold-
ers of Shares shall be entitled at the Effective Time pursuant
to Section 3.01 hereof.
(b) Promptly after the Effective Time, Parent shall
cause the Paying Agent to mail to each record holder of Cer-
tificates that immediately prior to the Effective Time repre-
sented Shares (other than Certificates representing Shares held
by Parent or the Purchaser, any subsidiary of Parent or the
Purchaser or in the treasury of the Company) a form of letter
of transmittal which shall specify that delivery shall be ef-
fected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the
Paying Agent and instructions for use in surrendering such
Certificates and receiving the Merger Price therefor. Upon the
surrender of each such Certificate, the Paying Agent shall pay
the holder of such Certificate in exchange therefor cash in an
amount equal to the Merger Price multiplied by the number of
Shares formerly represented by such Certificate, and such Cer-
tificate shall forthwith be cancelled. Until so surrendered,
each such Certificate (other than Certificates representing
Dissenting Shares and Certificates representing Shares held by
Parent or the Purchaser, any subsidiary of Parent or the Pur-
chaser or in the treasury of the Company) shall represent
solely the right to receive the aggregate Merger Price relating
thereto. No interest shall be paid or accrued on such Merger
Price.
-11-
<PAGE>
(c) Promptly following the date which is nine months
after the Effective Time, the Paying Agent shall deliver to
Parent all cash, Certificates and other documents in its pos-
session relating to the transactions described in this Agree-
ment, and the Paying Agent's duties shall terminate. Thereaf-
ter, each holder of a Certificate formerly representing a Share
(other than Certificates representing Dissenting Shares and
Certificates representing Shares held by Parent or the Pur-
chaser, any subsidiary of Parent or the Purchaser or in the
treasury of the Company) may surrender such Certificate to
Parent and (subject to applicable abandoned property, escheat
and similar laws) receive in consideration therefor the ag-
gregate Merger Price relating thereto, without any interest or
dividends thereon.
(d) The Merger Price shall be net to each holder of
Certificates in cash, subject to reduction only for any appli-
cable federal back-up withholding or, as set forth in Section
4.02(e), stock transfer taxes payable by such holder.
(e) If payment of cash in respect of any Certificate
is to be made to a person other than the person in whose name
such Certificate is registered, it shall be a condition to such
payment that the Certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and
that the person requesting such payment shall have paid any
transfer and other taxes required by reason of such payment in
a name other than that of the registered holder of the Certif-
icate surrendered or shall have established to the satisfaction
of Parent or the Paying Agent that such tax either has been
paid or is not payable.
(f) After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corpo-
ration of any Shares which were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certifi-
cates formerly representing Shares (other than Certificates
representing Shares held by Parent or the Purchaser, any sub-
sidiary of Parent or the Purchaser or in the treasury of the
Company) are presented to Parent, the Surviving Corporation or
the Paying Agent, they shall be surrendered and cancelled in
return for the payment of the aggregate Merger Price relating
thereto, without interest, as provided in this Article IV,
subject to applicable law in the case of Dissenting Shares.
-12-
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the
Purchaser as follows:
Section 5.01. Organization. The Company and each of
------------
its Significant Subsidiaries (as defined below) is a corpora-
tion duly organized, validly existing and in good standing un-
der the laws of their respective jurisdictions of incorporation
and the Company and each of its Significant Subsidiaries has
all requisite corporate power and authority to own, lease and
operate their respective properties and to carry on their re-
spective businesses as now being conducted. The Company and
each of its subsidiaries is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary,
except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not, individ-
ually or in the aggregate, have a material adverse effect on
the business, operations, assets, financial condition or re-
sults of operations of the Company and its subsidiaries taken
as a whole (a "Company Material Adverse Effect"). The Company
owns directly all of the outstanding capital stock of each of
its Significant Subsidiaries. As used in this Agreement a
"Significant Subsidiary" means a corporation which is a "sig-
nificant subsidiary" within the meaning of Rule 1-02(w) of
Regulation S-X.
Section 5.02. Capitalization. The authorized capi-
--------------
tal stock of the Company consists of 50,000,000 Shares and
185,000 shares of preferred stock, par value $20.00 per share
("Company Preferred Stock"). As of March 30, 1995, there were
34,173,453 Shares and no shares of Company Preferred Stock is-
sued and outstanding, and there are no Shares or shares of
Company Preferred Stock held in the Company's treasury. As of
the date hereof, there were outstanding options to purchase
2,391,703 Shares under the Option Plans. Except for the Rights
granted pursuant to the Rights Agreement (which shall be re-
deemed pursuant to Section 7.10 hereof), Options under the Op-
tion Plans (which shall be cancelled pursuant to Section
3.02(a) hereof), options outstanding to purchase not more than
920,000 shares of common stock of the Company's subsidiary,
EMASS, Inc. ("EMASS") pursuant to the EMASS 1994 Employee Stock
Option Plan (the "EMASS Option Plan") (which options will
become fully vested upon consummation of the Offer and remain
outstanding after the Effective Time), and additional options
to purchase up to 150,000 shares of EMASS common stock which
-13-
<PAGE>
may be granted at the Company's or EMASS's discretion prior to
the Control Date, there were not as of the date hereof, and at
all times thereafter through the Control Date there will not
be, any existing options, warrants, calls, subscriptions, or
other rights or other agreements or commitments obligating the
Company or any of its subsidiaries to issue, transfer or sell
any shares of capital stock of the Company or any of its sub-
sidiaries or any other securities convertible into or evidenc-
ing the right to subscribe for any such shares. All issued and
outstanding Shares are duly authorized and validly issued,
fully paid, non-assessable and free of preemptive rights with
respect thereto.
Section 5.03. Authority. The Company has full cor-
---------
porate power and authority to execute and deliver this Agree-
ment and, subject to the approval of its stockholders, if re-
quired, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consumma-
tion of the transactions contemplated hereby have been duly and
validly authorized and approved by the Board, and other than
the approval by its stockholders, if required, no other corpo-
rate proceedings are necessary to authorize this Agreement or
the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
the Company and, assuming this Agreement constitutes a legal,
valid and binding agreement of the other parties hereto, it
constitutes a legal, valid and binding agreement of the Com-
pany, enforceable against it in accordance with its terms.
Section 5.04. No Violations; Consents and Approvals.
-------------------------------------
(a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof
will (i) violate any provision of its certificate of incorpo-
ration or by-laws, (ii) 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,
cancellation or acceleration or any right which becomes effec-
tive upon the occurrence of a merger, consolidation or change
in control or ownership, under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture or other in-
strument of indebtedness for money borrowed to which the Com-
pany or any of its subsidiaries is a party, or by which the
Company or any of its subsidiaries or any of their respective
properties is bound, or (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,
cancellation or acceleration or any right which becomes effec-
tive upon the occurrence of a merger, consolidation or change
in control or ownership, under, any of the terms, conditions or
-14-
<PAGE>
provisions of any license, franchise, permit or agreement to
which the Company or any of its subsidiaries is a party, or by
which the Company or any of its subsidiaries or any of their
respective properties is bound, or (iv) violate any statute,
rule, regulation, order or decree of any public body or au-
thority by which the Company or any of its subsidiaries or any
of their respective properties is bound, excluding from the
foregoing clauses (ii), (iii) and (iv) violations, breaches,
defaults or rights under the laws of any jurisdiction outside
the United States or which, either individually or in the ag-
gregate, would not have a Company Material Adverse Effect or
materially impair the Company's ability to consummate the
transactions contemplated hereby or for which the Company has
received or, prior to the consummation of the Offer, shall have
received appropriate consents or waivers.
(b) No filing or registration with, notification to,
or authorization, consent or approval of, any governmental en-
tity is required in connection with the execution and delivery
of this Agreement by the Company, or the consummation by the
Company of the transactions contemplated hereby, except (i)
expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
(ii) in connection, or in compliance, with the provisions of
the Exchange Act, (iii) the filing of the Certificate of Merger
with the Delaware Secretary of State, (iv) such filings and
consents as may be required under any environmental law per-
taining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by
this Agreement, (v) filing with, and approval of, the New York
Stock Exchange, Inc. and the SEC with respect to the delisting
and deregistration of the Shares, (vi) such consents, approv-
als, orders, authorizations, notifications, registrations,
declarations and filings as may be required under the corpora-
tion, takeover or blue sky laws of various states or non-U.S.
change-in-control laws or regulations and (vii) such other
consents, approvals, orders, authorizations, notifications,
registrations, declarations and filings not obtained or made
prior to the consummation of the Offer the failure of which to
be obtained or made would not, individually or in the aggre-
gate, have a Company Material Adverse Effect, or materially
impair the Company's ability to perform its material obliga-
tions hereunder or prevent the consummation of any of the
transactions contemplated hereby.
Section 5.05. SEC Documents; Financial Statements.
-----------------------------------
(a) The Company has made available to Parent and the Purchaser
copies of each registration statement, report, proxy statement,
information statement or schedule filed with the SEC by the
Company since January 1, 1993 (the "SEC Documents"). As of
-15-
<PAGE>
their respective dates, the Company's SEC Documents complied in
all material respects with the applicable requirements of the
Securities Act of 1933, as amended, and the Exchange Act, as
the case may be, and none of such SEC Documents contained any
untrue statement of a material fact or omitted to state a mate-
rial fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) As of their respective dates, the consolidated
financial statements of the Company included in the Company's
Reports on Form 10-K and Reports on Form 10-Q included in the
SEC Documents were prepared in accordance with generally ac-
cepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated therein
or in the notes thereto) and fairly presented the Company's
consolidated financial position and that of its consolidated
subsidiaries as at the dates thereof and the consolidated re-
sults of their operations and statements of cash flows for the
periods then ended (subject, in the case of unaudited state-
ments, to the lack of footnotes thereto, to normal year-end
audit adjustments and to any other adjustments described
therein).
Section 5.06. Absence of Certain Changes; No Undis-
-------------------------------------
closed Liabilities. (a) Since December 31, 1994, except as
------------------
disclosed in the SEC Documents filed prior to the date hereof,
the Company has not (i) incurred any liability, whether or not
accrued, contingent or otherwise, or suffered any event or oc-
currence (other than events or occurrences which relate to
general economic conditions or conditions generally affecting
the defense industry) which, individually or in the aggregate,
would have a Company Material Adverse Effect or (ii) made any
changes in accounting methods, principles or practices or (iii)
declared, set aside or paid any dividend or other distribution
with respect to its capital stock, other than regular quarterly
cash dividends at a rate not exceeding $.375 per Share per
quarter, payable on the Company's customary dividend payment
dates. Since December 31, 1994 to the date of this Agreement,
each of the Company and its subsidiaries has conducted its
operations according to its ordinary course of business con-
sistent with past practice.
(b) Except as and to the extent disclosed by the
Company in the SEC Documents, as of December 31, 1994, neither
the Company nor any of its subsidiaries had any material
liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that would be required by
generally accepted accounting principles to be reflected on a
consolidated balance sheet of the Company and its subsidiaries
-16-
<PAGE>
(including the notes thereto) or which would have, individually
or in the aggregate, a Company Material Adverse Effect.
Section 5.07. Litigation. Except as disclosed by
----------
the Company in the SEC documents, there is no suit, claim, ac-
tion, proceeding or investigation pending or, to the knowledge
of the Company, threatened against the Company or any of its
subsidiaries or any of their respective properties or assets
before any court or governmental entity with respect to which
there is a reasonable likelihood of a determination which, in-
dividually or in the aggregate, would have a Company Material
Adverse Effect. Except as disclosed by the Company in the SEC
Documents, neither the Company nor any of its subsidiaries is
subject to any outstanding order, writ, injunction or decree
which, insofar as can be reasonably foreseen, individually or
in the aggregate, in the future would have a Company Material
Adverse Effect.
Section 5.08. Compliance with Applicable Law. Ex-
------------------------------
cept as disclosed by the Company in the SEC Documents, the
Company and its subsidiaries hold all permits, licenses, vari-
ances, exemptions, orders and approvals of all governmental
entities necessary for the lawful conduct of their respective
businesses (the "Company Permits"), except for failures to hold
such permits, licenses, variances, exemptions, orders and ap-
provals which would not, individually or in the aggregate, have
a Company Material Adverse Effect. Except as disclosed by the
Company in the SEC Documents, the Company and its subsidiaries
are in compliance with the terms of the Company Permits, except
where the failure so to comply would not have a Company Mate-
rial Adverse Effect. Except as disclosed by the Company in the
SEC Documents, the businesses of the Company and its subsid-
iaries are not being conducted in violation of any law, ordi-
nance or regulation of any governmental entity except for vio-
lations or possible violations which individually or in the
aggregate do not, and, insofar as reasonably can be foreseen,
in the future will not, have a Company Material Adverse Effect.
Except as disclosed by the Company in the SEC Documents, and
except for the audit by the Internal Revenue Service of the
Company's qualified benefit plans currently being conducted, no
investigation or review by any governmental entity with respect
to the Company or any of its subsidiaries is pending or, to the
best knowledge of the Company, threatened nor, to the best
knowledge of the Company, has any governmental entity indicated
an intention to conduct the same, other than, in each case,
those which the Company reasonably believes will not have a
Company Material Adverse Effect.
Section 5.09. Taxes. Each of the Company and its
-----
subsidiaries has filed, or caused to be filed, all federal,
-17-
<PAGE>
state, local and foreign income and other material tax returns
required to be filed by it, has paid or withheld, or caused to
be paid or withheld, all taxes of any nature whatsoever, with
any related penalties, interest and liabilities (any of the
foregoing being referred to herein as a "Tax"), that are shown
on such tax returns as due and payable, or otherwise required
to be paid, other than such Taxes as are being contested in
good faith and for which adequate reserves have been estab-
lished and other than where the failure to so file, pay or
withhold would not have a Company Material Adverse Effect.
There are no material claims or assessments pending against the
Company or its subsidiaries for any alleged deficiency in any
Tax, and the Company does not know of any threatened Tax claims
or assessments against the Company or any of its subsidiaries
which if upheld would have a Company Material Adverse Effect.
None of the Company or any of its subsidiaries has made an
election to be treated as a "consenting corporation" under
Section 341(f) of the Internal Revenue Code of 1986, as amended
(the "Code"). There is no material deferred inter-company gain
within the meaning of the Treasury Regulations promulgated un-
der Section 1502 of the Code. There are no waivers or exten-
sions of any applicable statute of limitations to assess any
material Taxes. Other than with respect to returns for the
1994 taxable year, there are no outstanding requests for any
extension of time within which to file any material return or
within which to pay any material Taxes shown to be due on any
return.
Section 5.10. Certain Employee Plans. Each "em-
----------------------
ployee benefit plan," as defined in Section 3(3) of the Em-
ployee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained by the Company or any of its subsidiaries
(the "Plans") complies in all respects with all applicable re-
quirements of ERISA (to the extent required to so comply) and
the Code and other applicable laws, except where failure so to
comply would not have a Company Material Adverse Effect. No
"reportable event" (as such term is defined in ERISA) or ter-
mination has occurred with respect to any Plan under circum-
stances which present a risk of liability to any governmental
entity or other person which would have a Company Material
Adverse Effect. None of the Plans is a multiemployer plan, as
such term is defined in ERISA. Neither the Company and its
subsidiaries, nor any of their respective directors, officers,
employees or agents has, with respect to any Plan, engaged in
any "prohibited transaction", as such term is defined in Sec-
tion 4975 of the Code or Section 406 of ERISA, nor has any Plan
engaged in any such prohibited transaction which could reason-
ably be expected to result in any taxes or penalties or pro-
hibited transactions under Section 4975 of the Code or under
-18-
<PAGE>
Section 502(i) of ERISA, which in the aggregate could reason-
ably be expected to have a Company Material Adverse Effect.
Copies of all of the Company's Plans covering United States
employees of the Company and any related trusts and summary
plan descriptions have been made available to the Purchaser.
Except as specifically contemplated by this Agreement, or as
provided in the SERP (as defined in Section 7.11), the Amended
and Restated Indemnification Agreements between the Company and
its directors and officers, the Option Plans or the EMASS
Option Plan, neither the execution and delivery of this Agree-
ment nor the consummation of the transactions contemplated
hereby will result in, cause the accelerated vesting or deliv-
ery of, or increase the amount or value of, any payment or
benefit to any employee or former employee of the Company or
any of its subsidiaries.
Section 5.11. Rights Agreement. The Board has taken
----------------
all necessary action (i) to provide that neither Parent nor the
Purchaser will become an "Acquiring Person," that no "Trigger-
ing Event," "Stock Acquisition Date" or "Distribution Date" (as
such terms are defined in the Rights Agreement) will occur and
that Section 13 of the Rights Agreement will not be triggered,
in each case as a result of the announcement, commencement or
consummation of the Offer, the execution or delivery of this
Agreement or any amendment hereto or the consummation of the
transactions contemplated hereby and (ii) to redeem the Rights
effective immediately prior to the Purchaser's acceptance of
Shares for purchase pursuant to the Offer.
Section 5.12. Information. None of the Schedule
-----------
14D-9, the Proxy Statement, if any, or any other document filed
or to be filed by or on behalf of the Company with the SEC or
any other governmental entity in connection with the transac-
tions contemplated by this Agreement contained when filed or
will, at the respective times filed with the SEC or other gov-
ernmental entity and, in addition, in the case of the Proxy
Statement, if any, at the date it or any amendment or supple-
ment is mailed to stockholders and at the time of any Special
Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not
misleading; provided that the foregoing shall not apply to in-
formation supplied by Parent or the Purchaser specifically for
inclusion or incorporation by reference in any such document.
The Schedule 14D-9 and the Proxy Statement, if any, will comply
as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. None of
the information supplied by the Company specifically for in-
clusion or incorporation by reference in the Offer Documents or
-19-
<PAGE>
in any other document filed or to be filed by or on behalf of
Parent or the Purchaser with the SEC or any other governmental
entity in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not
misleading.
Section 5.13. Delaware Section 203. The Board has
--------------------
taken all appropriate and necessary action such that the pro-
visions of Section 203 of the DGCL will not apply to any of the
transactions contemplated by this Agreement.
Section 5.14. Broker's Fees. Except for CS First
-------------
Boston Corporation and Morgan Stanley & Co. Incorporated, nei-
ther the Company nor any of its subsidiaries or any of its di-
rectors or officers has incurred any liability not already paid
and disclosed to Parent or will incur any liability for any
broker's fees, commissions, or financial advisory or finder's
fees in connection with any of the transactions contemplated by
this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND
THE PURCHASER
Parent and the Purchaser represent and warrant to the
Company as follows:
Section 6.01. Organization. Each of Parent and the
------------
Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of Delaware and each of Parent
and the Purchaser has all requisite corporate power and au-
thority to own, lease and operate its properties and to carry
on its business as now being conducted. Purchaser is a wholly
owned subsidiary of Parent.
Section 6.02. Authority. Each of Parent and the
---------
Purchaser has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions con-
templated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly and validly authorized and approved by the Board
of Directors of each of Parent and the Purchaser and by Parent
as the sole stockholder of the Purchaser and no other corporate
proceedings are necessary to authorize this Agreement or the
consummation of the transactions contemplated hereby. This
-20-
<PAGE>
Agreement has been duly and validly executed and delivered by
each of Parent and the Purchaser and, assuming this Agreement
constitutes a legal, valid and binding agreement of the Com-
pany, it constitutes a legal, valid and binding agreement of
each of Parent and the Purchaser, enforceable against them in
accordance with its terms.
Section 6.03. No Violations; Consents and Approvals.
-------------------------------------
(a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor
compliance by Parent or the Purchaser with any of the provi-
sions hereof will (i) violate any provision of their respective
certificates of incorporation or by-laws, (ii) result in a
violation or breach of, or constitute (with or without due no-
tice or lapse of time or both) a default, or give rise to any
right of termination, cancellation or acceleration or any right
which becomes effective upon the occurrence of a merger, under,
any of the terms, conditions or provisions of any note, bond,
mortgage, indenture or other instrument of indebtedness for
money borrowed to which Parent or the Purchaser is a party, or
by which Parent or the Purchaser or any of their respective
properties is bound, (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,
cancellation or acceleration or any right which becomes effec-
tive upon the occurrence of a merger, under, any of the terms,
conditions or provisions of any license, franchise, permit or
agreement to which Parent or the Purchaser is a party, or by
which Parent or the Purchaser or any of their respective prop-
erties is bound, or (iv) violate any statute, rule, regulation,
order or decree of any public body or authority by which Parent
or the Purchaser or any of its respective properties is bound,
excluding from the foregoing clauses (ii), (iii) and (iv) vio-
lations, breaches, defaults or rights which, either individu-
ally or in the aggregate, would not have a material adverse
effect on Parent's or the Purchaser's ability to perform their
respective obligations pursuant to this Agreement or consummate
the Offer and the Merger (a "Parent Material Adverse Effect")
or for which Parent or the Purchaser has received appropriate
consents or waivers.
(b) No filing or registration with, notification to,
or authorization, consent or approval of, any governmental en-
tity is required by Parent or the Purchaser in connection with
the execution and delivery of this Agreement, or the consumma-
tion by Parent or the Purchaser of the transactions contem-
plated hereby, except (i) expiration of the waiting period un-
der the HSR Act, (ii) in connection, or in compliance, with the
provisions of the Exchange Act, (iii) the filing of the Cer-
tificate of Merger with the Delaware Secretary of State, (iv)
-21-
<PAGE>
such filings and consents as may be required under any envi-
ronmental law pertaining to any notification, disclosure or
required approval triggered by the Merger or the transactions
contemplated by this Agreement, (v) such consents, approvals,
orders, authorizations, notifications, approvals, registra-
tions, declarations and filings as may be required under the
corporation, takeover or blue sky laws of various states [or
non-U.S. change-in-control laws or regulations] and (vi) such
other consents, orders, authorizations, registrations, decla-
rations and filings not obtained prior to the Effective Time
the failure of which to be obtained or made would not, indi-
vidually or in the aggregate, have a Parent Material Adverse
Effect.
Section 6.04. Information. Neither the Offer Docu-
-----------
ments nor any other document filed or to be filed by or on be-
half of Parent or the Purchaser with the SEC or any other gov-
ernmental entity in connection with the transactions contem-
plated by this Agreement contained when filed or will, at the
respective times filed with the SEC or other governmental en-
tity, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not
misleading; provided that the foregoing shall not apply to in-
formation supplied by the Company specifically for inclusion or
incorporation by reference in any such document. The Offer
Documents will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regula-
tions thereunder. None of the information supplied by Parent
or the Purchaser specifically for inclusion or incorporation by
reference in the Schedule 14D-9, the Proxy Statement, if any,
or any other document filed or to be filed by or on behalf of
the Company with the SEC or any other governmental entity in
connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or nec-
essary in order to make the statements made therein, in light
of the circumstances under which they were made, not mislead-
ing.
Section 6.05. Broker's Fees. Except for Bear,
-------------
Stearns & Co. Inc., neither Parent nor the Purchaser, nor any
of their respective subsidiaries or directors or officers, has
incurred or will incur any liability for any broker's fees,
commissions, or financial advisory or finder's fees in connec-
tion with any of the transactions contemplated by this Agree-
ment.
-22-
<PAGE>
Section 6.06. Financing. Parent or the Purchaser
---------
will have at the time of acceptance for payment and purchase of
Shares under the Offer and at the Effective Time, the funds
necessary to consummate the Offer and the Merger and the
transactions contemplated thereby and to pay related fees and
expenses.
ARTICLE VII
COVENANTS
Section 7.01. Conduct of Business of the Company.
----------------------------------
Except as contemplated by this Agreement or as expressly agreed
to in writing by Parent, during the period from the date of
this Agreement to the Control Date, each of the Company and its
subsidiaries will conduct its operations according to its or-
dinary course of business consistent with past practice, and
will use commercially reasonable efforts to preserve intact its
business organization, to keep available the services of its
key employees and to maintain satisfactory relationships with
suppliers, distributors, customers and others having material
business relationships with it and will take no action not re-
quired by law which would materially adversely affect the
ability of the parties to consummate the transactions contem-
plated by this Agreement or be materially inconsistent with
such transactions. The Company shall make such notifications
to the U.S. Department of Defense and certain other classified
customers of the Company as the Company determines are neces-
sary to comply with the foregoing covenant.
Section 7.02. Acquisitions and Divestitures. Prior
-----------------------------
to the Control Date, the Company shall keep Parent advised of
the status of all discussions and negotiations concerning pos-
sible acquisitions and divestitures by the Company or any of
its subsidiaries of any corporations or businesses, and the
Company agrees that without the prior written consent of Parent
it shall not make, or agree to make, any such acquisition or
divestiture; provided that the foregoing restriction shall not
apply to the transactions involving Asta and ATM previously
disclosed by the Company to Parent. Other acquisition or dis-
position transactions will be determined by mutual agreement
after consultation between the chief executive officers of
Parent and the Company.
Section 7.03. No Solicitation. (a) The Company
---------------
agrees that, prior to the Effective Time, it shall not, and
shall not authorize or permit any of its subsidiaries or any of
its or its subsidiaries' directors, officers, employees, agents
-23-
<PAGE>
or representatives, directly or indirectly, to solicit, ini-
tiate, facilitate or encourage (including by way of furnishing
or disclosing non-public information) any inquiries or the
making of any proposal with respect to any merger, consolida-
tion or other business combination involving the Company or its
subsidiaries or acquisition of all or substantially all of the
assets or capital stock of the Company and its subsidiaries
taken as a whole (an "Acquisition Transaction") or negotiate,
explore or otherwise engage in substantive discussions with any
person (other than Parent, the Purchaser or their respective
directors, officers, employees, agents and representatives)
with respect to any Acquisition Transaction or enter into any
agreement, arrangement or understanding requiring it to aban-
don, terminate or fail to consummate the Merger or any other
transactions contemplated by this Agreement; provided that the
Company may, in response to an unsolicited written proposal
with respect to an Acquisition Transaction from a third party,
furnish information to, and negotiate, explore or otherwise
engage in substantive discussions with such third party, and
enter into any such agreement, arrangement or understanding, in
each case only if the Board determines in good faith by a ma-
jority vote, after consultation with its financial advisors and
outside legal counsel of the Company, that failing to take such
action would create a reasonable possibility of a breach of the
fiduciary duties of the Board in connection with seeking an Ac-
quisition Transaction that is more favorable to the stockhold-
ers of the Company than the Offer and the Merger.
(b) The Company shall immediately advise Parent in
writing of the receipt of any inquiries or proposals relating
to an Acquisition Transaction and any actions taken pursuant to
Section 7.03(a), unless the Board determines in good faith by a
majority vote, after consultation with its outside legal
counsel, that taking such action would create a reasonable
possibility of a breach of the fiduciary duties of the Board in
connection with seeking an Acquisition Transaction that is more
favorable to the stockholders of the Company than the Offer and
the Merger.
Section 7.04. Access to Information. From the date
---------------------
of this Agreement until the Effective Time, and subject to any
access, disclosure, copying or other limitations imposed by
applicable law or the terms of any of the Company's or its
subsidiaries' classified contracts (including any such con-
tracts or arrangements with the U.S. or foreign governments),
the Company will give Parent and its authorized representatives
(including counsel, environmental and other consultants, ac-
countants and auditors) access during normal business hours
upon reasonable prior notice to all facilities, personnel and
operations and to all books and records of the Company and its
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<PAGE>
subsidiaries, will permit Parent to make such inspections as it
may reasonably require and will cause its officers and those of
its subsidiaries to furnish Parent with such financial and op-
erating data and other information with respect to its business
and properties as Parent may from time to time reasonably re-
quest. Parent agrees that any information furnished to it, its
subsidiaries or its authorized representatives pursuant to this
Section 7.04 will be subject to the provisions of the letter
agreement dated January 23, 1995 between Parent and the Company
(the "Confidentiality Agreement").
Section 7.05. Reasonable Best Efforts; Other Ac-
----------------------------------
tions. Subject to the terms and conditions herein provided and
-----
applicable law, each of the Company, Parent and the Purchaser
shall use its reasonable best efforts promptly to take, or
cause to be taken, all other actions and do, or cause to be
done, all other things necessary, proper or appropriate under
applicable laws and regulations to consummate and make effec-
tive the transactions contemplated by this Agreement, includ-
ing, without limitation, using such reasonable best efforts to
(i) obtain all necessary consents, approvals or waivers under
its material contracts and (ii) lift any legal bar to the
Merger; provided, however, that the foregoing shall not require
Parent, the Purchaser or any other affiliate of Parent to agree
to any action or restriction which, if imposed by a governmen-
tal entity, would constitute a condition described in paragraph
(a) of Annex I to this Agreement.
Section 7.06. Public Announcements. Before issuing
--------------------
any press release or otherwise making any public statements
with respect to this Agreement, the Offer or the Merger, Par-
ent, the Purchaser and the Company will consult with each other
as to its form and substance and shall not issue any such press
release or make any such public statement prior to such con-
sultation, except in either case as may be required by law or
any obligations pursuant to any listing agreement with any na-
tional securities exchange.
Section 7.07. Notification of Certain Matters. Each
-------------------------------
of the Company and Parent shall give prompt notice to the other
party of (i) the occurrence, or non-occurrence, of any event
the occurrence, or non-occurrence, of which would be likely to
cause either (A) any representation or warranty of any party
contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the
acceptance for payment of Shares pursuant to the Offer, (B) any
condition set forth in Annex I to be unsatisfied in any mate-
rial respect at any time from the date hereof to the date the
Purchaser purchases Shares pursuant to the Offer or (C) any
condition set forth in Article VIII hereof to be unsatisfied in
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<PAGE>
any material respect at any time from the date hereof to the
Effective Time, and (ii) any material failure of the Company or
Parent, as the case may be, or any officer, director, employee
or agent thereof, to comply with or satisfy any covenant, con-
dition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice
pursuant to this Section 7.07 shall not limit or otherwise
affect the remedies available hereunder to the party receiving
such notice.
Section 7.08. Indemnification. (a) From and after
---------------
the Effective Time, Parent shall, and shall cause the Surviving
Corporation to, indemnify, defend and hold harmless the present
and former officers, directors, employees and agents of the
Company and its subsidiaries (the "Indemnified Parties")
against all losses, claims, damages, expenses or liabilities
arising out of or related to actions or omissions or alleged
actions or omissions occurring at or prior to the Effective
Time (i) to the full extent permitted by Delaware law or, if
the protections afforded thereby to an Indemnified Person are
greater, (ii) to the same extent and on the same terms and
conditions (including with respect to advancement of expenses)
provided for in the Company's Certificate of Incorporation and
By-Laws and agreements in effect at the date hereof (to the
extent consistent with applicable law), which provisions will
survive the Merger and continue in full force and effect after
the Effective Time. Without limiting the foregoing, (i) Parent
shall, and shall cause the Surviving Corporation to, periodi-
cally advance expenses (including attorney's fees) as incurred
by an Indemnified Person with respect to the foregoing to the
full extent permitted under applicable law, and (ii) any de-
termination required to be made with respect to whether an In-
demnified Party shall be entitled to indemnification shall, if
requested by such Indemnified Party, be made by independent
legal counsel selected by the Surviving Corporation and rea-
sonably satisfactory to such Indemnified Party.
(b) For a period of six years after the Effective
Time, Parent shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance main-
tained by the Company (provided that Parent may substitute
therefor policies with reputable and financially sound carriers
of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to
claims arising from or related to facts or events which oc-
curred at or before the Effective Time; provided, however, that
Parent shall not be obligated to make annual premium payments
for such insurance to the extent such premiums exceed 250% of
the annual premiums paid as of the date hereof by the Company
for such insurance (the "Maximum Amount"). If the amount of
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<PAGE>
the annual premiums necessary to maintain or procure such in-
surance coverage exceeds the Maximum Amount, Parent and the
Surviving Corporation shall maintain the most advantageous
policies of directors' and officers' insurance obtainable for
an annual premium equal to the Maximum Amount.
(c) The provisions of this Section 7.08 are intended
to be for the benefit of, and shall be enforceable by each In-
demnified Party, his or her heirs and his or her representa-
tives.
Section 7.09. Expenses. Except as set forth in
--------
Section 9.05(b) hereof, Parent and the Company shall bear their
respective expenses incurred in connection with this Agreement,
the Offer and the Merger, including, without limitation, the
preparation, execution and performance of this Agreement and
the transactions contemplated hereby, and all fees and expenses
of investment bankers, finders, brokers, agents, representa-
tives, counsel and accountants.
Section 7.10. Rights Agreement. Except as contem-
----------------
plated by Section 5.11 hereof, the Company shall not redeem the
Rights or amend or terminate the Rights Agreement prior to the
consummation of the Offer unless (i) required to do so by order
of a court of competent jurisdiction (ii) the Board determines
in good faith by a majority vote that the failure to make such
redemption, amendment or termination would create a reasonable
possibility of a breach of the Board's fiduciary duties under
applicable law or (iii) this Agreement has theretofore been
terminated.
Section 7.11. Employee Benefits. (a) Following the
-----------------
consummation of the Offer, (i) Purchaser shall cause the Com-
pany to honor in accordance with their terms the employment
contracts and other arrangements set forth on Schedule 7.11,
the Company's Executive Supplemental Retirement Plan ("SERP"),
the Trust Agreement between the Company and Society National
Bank dated as of May 19, 1994, and the Trust Agreement between
the Company and AmeriTrust Company National Association dated
as of June 23, 1987, as amended, in each case as in effect on
the date hereof and as amended as contemplated by this Agree-
ment, and (ii) Parent shall unconditionally guarantee the
prompt payment when due of all amounts payable pursuant to the
terms of the aforementioned employment contracts and the SERP,
including any costs incurred by employees or former employees
(or their respective beneficiaries) in enforcing their rights
under such contracts or under the SERP. The provisions of the
preceding sentence are intended to be for the benefit of, and
shall be enforceable by, each of the employees and former em-
ployees (and their respective beneficiaries) who are parties to
-27-
<PAGE>
such employment contracts or such other arrangements, who are
participants in the SERP or such other arrangements, or who are
beneficiaries under either of such Trust Agreements.
(b) Until the third anniversary of the Effective
Time, Purchaser shall provide or cause the Company to provide
to individuals who are employed by the Company or any of its
subsidiaries employee benefits that are in the aggregate no
less favorable than those provided to them as of the date
hereof. Without limiting the generality of the foregoing,
Parent agrees that, following the Effective Time, employees of
the Surviving Corporation shall be eligible to participate in
Parent's various compensation plans on a basis comparable to
that of similarly situated employees of Parent and its
subsidiaries.
(c) Before the consummation of the Offer, the Com-
pany shall take all steps necessary to ensure that none of the
transactions contemplated by this Agreement shall constitute or
result in a "Change of Control" as defined in the Company's
Salaried Employees Retirement Plan and HRB Systems, Inc. Sala-
ried Employees Retirement Plan.
(d) Parent and Purchaser agree that prior to the
consummation of the Offer, the Board (and following consumma-
tion of the Offer and prior to the Effective Time, a majority
of the Continuing Directors) may (i) amend the ESOP to provide
for full vesting of all account balances and allocations of all
unallocated shares, or the proceeds thereof, as of the Effec-
tive Time, and to make other technical or administrative
amendments related thereto, (ii) terminate the ESOP as of the
Effective Time and provide for the orderly liquidation of the
assets thereof or, with the consent of Purchaser (which consent
shall not be unreasonably withheld), merge the ESOP with and
into another tax-qualified plan, (iii) amend the Company's
Employee Savings Plan to increase, as of the Effective Time,
the Company's contributions thereunder to reflect any cessation
of ESOP contributions (net of contributions for the benefit of
employees of the Surviving Corporation under Parent's employee
stock ownership plan ("Parent's ESOP"), as described in the
succeeding sentence), (iv) authorize amendments to the employ-
ment contract with the Company's Chairman and Chief Executive
Officer to provide that such individual shall serve as Chief
Executive Officer of the Surviving Corporation following the
Effective Time and (unless he earlier resigns) for a period of
3 years thereafter. Parent and the Purchaser agree that if
contributions to the ESOP cease on or after the Effective Time,
then as of the date of such cessation, the employees of the
Surviving Corporation and its subsidiaries who would otherwise
have been eligible to receive allocations under the ESOP shall
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<PAGE>
be eligible to participate in Parent's ESOP as of the date of
such cessation. For purposes of the preceding sentence, all
service with the Company and its subsidiaries shall be recog-
nized for eligibility and vesting purposes.
(e) Parent recognizes that the Company's business
presents special situations with respect to the retention and
recruitment of employees and executives and Parent agrees that
the Chief Executive Officer of the Company may from time to
time propose special arrangements for such employees and execu-
tives for consideration by Parent. Parent also recognizes that
there are approximately 20 key executives of the Company who,
in accordance with the usual procedures of the Compensation
Committee of Parent, will receive appropriate consideration in
connection with the grant of stock options by Parent at the
customary time in July 1995.
Section 7.12. Board Representation. At the Effec-
--------------------
tive Time or as soon as practicable thereafter, Parent shall
use its best efforts and take all reasonable steps to cause A.
Lowell Lawson to be appointed as a director of Parent for a
term ending at the 1998 annual meeting of stockholders of
Parent.
Section 7.13. Maintenance of the Company's Head-
----------------------------------
quarters and Separate Identity. It is Parent's and the Pur-
------------------------------
chaser's present intent to operate the Company as a subsidiary
of Parent under the Company's current name, with the same man-
agement and organizational structure and in its current head-
quarters in Dallas, Texas.
Section 7.14. EMASS. Parent and the Purchaser
-----
acknowledge that they have been informed of the Company's
business plan for EMASS and that they are aware of the Com-
pany's commitment to implement that plan so long as it rep-
resents sound business judgment. Although Parent does not
currently have sufficient information to commit to a specific
course of action, Parent and the Purchaser currently plan to
pursue and implement, within the same time frames and upon the
same terms and conditions, that portion of such business plan
that contemplates a public offering, spin-off or similar
transaction with respect to the capital stock of EMASS so long
as the management of the Purchaser and Parent concur with the
management of the Company that plan implementation represents
the exercise of sound business judgment.
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<PAGE>
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF PARENT,
THE PURCHASER AND THE COMPANY
The respective obligations of each party to effect
the Merger shall be subject to the satisfaction or, if permis-
sible, waiver at or prior to the Effective Time of each of the
following conditions:
Section 8.01. Purchase of Shares. The Purchaser
------------------
shall have accepted for payment and paid for Shares pursuant to
the Offer in accordance with the terms thereof; provided that
this condition shall be deemed to have been satisfied with re-
spect to the obligation of Parent and the Purchaser to effect
the Merger if the Purchaser fails to accept for payment or pay
for Shares pursuant to the Offer in violation of the terms of
the Offer or of this Agreement.
Section 8.02. Stockholder Approval. The vote of the
--------------------
stockholders of the Company necessary to consummate the trans-
actions contemplated by this Agreement shall have been ob-
tained, if required by applicable law.
Section 8.03. No Legal Impediments. No statute,
--------------------
rule, regulation, judgment, writ, decree, order or injunction
shall have been promulgated, enacted, entered or enforced, and
no other action shall have been taken, by any domestic, foreign
or supranational government or governmental, administrative or
regulatory authority or agency of competent jurisdiction or by
any court or tribunal of competent jurisdiction, domestic,
foreign or supranational, that in any of the foregoing cases
has the effect of making illegal or directly or indirectly
restraining, prohibiting or restricting the consummation of the
Merger.
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.01. Termination. This Agreement may be
-----------
terminated (and the Merger contemplated hereby may be abandoned
notwithstanding approval thereof by the stockholders of the
Company) at any time prior to the Effective Time:
(a) by mutual written consent of the Boards of Di-
rectors of Parent and the Company;
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<PAGE>
(b) by either Parent or the Company if, without any
material breach of such terminating party of its obliga-
tions under this Agreement, the purchase of Shares pursu-
ant to the Offer shall not have occurred on or before
September 30, 1995, which date may be extended by mutual
written consent of the parties hereto;
(c) by Parent or the Company if the Offer expires or
is terminated or withdrawn pursuant to its terms without
any Shares being purchased thereunder; provided, however,
that Parent may not terminate this Agreement pursuant to
this Section 9.01(c) if Parent's or the Purchaser's ter-
mination of, or failure to accept for payment or pay for
any Shares tendered pursuant to, the Offer does not follow
the occurrence, or failure to occur, as the case may be,
of any condition set forth in Annex I hereto or is other-
wise in violation of the terms of the Offer or this
Agreement;
(d) by either Parent or the Company if any court of
competent jurisdiction in the United States or other gov-
ernmental body in the United States shall have issued an
order (other than a temporary restraining order), decree
or ruling or taken any other action restraining, enjoining
or otherwise prohibiting the purchase of Shares pursuant
to the Offer or the Merger, and such order, decree, ruling
or other action shall have become final and nonappealable;
provided that the party seeking to terminate this Agree-
ment shall have used its reasonable best efforts, subject
to Section 7.05, to remove or lift such order, decree or
ruling; or
(e) by the Company if the Offer has not been timely
commenced in accordance with Section 1.01(a) hereof.
Section 9.02. Termination by Parent. This Agreement
---------------------
may be terminated and the Offer and the Merger may be abandoned
by action of the Board of Directors of Parent, at any time
prior to the purchase of Shares pursuant to the Offer, if (a)
the Board shall withdraw, modify or change its recommendation
or approval in respect of this Agreement or the Offer in a
manner adverse to Parent, (b) the Board shall have recommended
any proposal other than by Parent or the Purchaser in respect
of an Acquisition Transaction or (c) any corporation, partner-
ship, person, other entity or group (as defined in Section
13(d)(3) of the Exchange Act) other than Parent or the Pur-
chaser or any of their respective subsidiaries or affiliates
shall have become the beneficial owner of more than 20% of the
outstanding Shares (either on a primary or a fully diluted
basis).
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<PAGE>
Section 9.03. Termination by the Company. This
--------------------------
Agreement may be terminated and the Merger may be abandoned by
action of the Board, at any time prior to the Effective Time,
(a) if there shall be a material breach of any of Parent's or
the Purchaser's representations, warranties or covenants here-
under, which breach shall not be cured within ten days of no-
tice thereof, or (b) to allow the Company to enter into an
agreement in respect of an Acquisition Transaction which the
Board has determined is more favorable to the Company and its
stockholders than the transactions contemplated hereby (pro-
vided that the termination described in this clause (b) shall
not be effective unless and until the Company shall have paid
to Parent the fee described in Section 9.05(b) hereof).
Section 9.04. Procedure for Termination. In the
-------------------------
event of termination and abandonment of the Merger and the Of-
fer by Parent or the Merger by the Company pursuant to this
Article IX, written notice thereof shall forthwith be given to
the other.
Section 9.05. Effect of Termination. (a) In the
---------------------
event of termination of this Agreement pursuant to this Article
IX, the Merger shall be deemed abandoned and this Agreement
shall forthwith become void, without liability on the part of
any party hereto except as provided in this Section 9.05 and
Sections 1.02(c) and 7.09 and the last sentence of Section
7.04, except that nothing herein shall relieve any party from
liability for any breach of this Agreement.
(b) If (i) Parent shall have terminated this Agree-
ment pursuant to Section 9.02 hereof or (ii) the Company shall
have terminated this Agreement pursuant to Section 9.03(b)
hereof, then in either such case the Company shall promptly,
but in no event later than two business days after the date of
such termination or event, pay Parent a termination fee of
$75,000,000 plus an amount, not in excess of $20,000,000, equal
to Parent's actual and reasonably documented out-of-pocket
expenses directly attributable to the negotiation and execution
of this Agreement and the attempted financing and completion of
the Offer and the Merger, which amount shall be payable in same
day funds, provided, that no fee or expense reimbursement shall
be paid pursuant to this Section 9.05(b) if Parent shall be in
material breach of its obligations hereunder. In no event
shall the Company be required to pay more than one termination
fee and reimbursement of expenses pursuant to this Section
9.05(b).
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<PAGE>
ARTICLE X
DEFINITIONS
Section 10.01. Terms Defined in the Agreement. The
following terms used herein shall have the meanings ascribed in
the indicated sections.
<TABLE>
<S> <C>
Acquisition Transaction.......................... 7.03(a)
Agreement........................................ Preamble
Board............................................ Recitals
Certificate of Merger............................ 2.02
Certificates..................................... 4.02(a)
Code............................................. 5.09
Company.......................................... Preamble
Company Material Adverse Effect.................. 5.01
Company Permits.................................. 5.08
Company Preferred Stock.......................... 5.02
Constituent Corporations......................... Preamble
Continuing Directors............................. 1.03(c)
Control Date..................................... 1.03(a)
Delaware Secretary of State...................... 2.02
DGCL............................................. Recitals
Dissenting Shares................................ 4.01
Effective Time................................... 2.02
EMASS............................................ 5.02
EMASS Option Plan................................ 5.02
ERISA............................................ 5.10
Exchange Act..................................... 1.01(a)
HSR Act.......................................... 5.04(b)
Merger........................................... 2.01(a)
Merger Price..................................... 3.01
Minimum Condition................................ Annex I
Offer............................................ 1.01(a)
Offer Documents.................................. 1.01(c)
Option Plans..................................... 3.02(a)
Options.......................................... 3.02(a)
Parent........................................... Preamble
Parent Material Adverse Effect................... 6.03(a)
Paying Agent..................................... 4.02(a)
person........................................... 11.09
Plans............................................ 5.10
Proxy Statement.................................. 3.03(a)(ii)
Purchaser........................................ Preamble
Rights........................................... 1.01(a)
Rights Agreement................................. 1.01(a)
Schedule 14D-9................................... 1.02(b)
SEC.............................................. 1.01(c)
SEC Documents.................................... 5.05(a)
Shares........................................... 1.01(a)
</TABLE>
-33-
<PAGE>
<TABLE>
<S> <C>
Significant Subsidiary........................... 5.01
Special Meeting.................................. 3.03(a)(i)
subsidiary....................................... 11.09
Surviving Corporation............................ 2.01(a)
Tax.............................................. 5.09
</TABLE>
ARTICLE XI
MISCELLANEOUS
Section 11.01. Amendment and Modification. At any
--------------------------
time prior to the Effective Time, subject to applicable law and
the provisions of Section 1.03(c) hereof, this Agreement may be
amended, modified or supplemented only by written agreement
(referring specifically to this Agreement) of Parent, the Pur-
chaser and the Company with respect to any of the terms con-
tained herein; provided, however, that after any approval and
adoption of this Agreement by the stockholders of the Company,
no such amendment, modification or supplementation shall be
made which reduces the Merger Price or the form of consider-
ation therefor or which in any way materially adversely affects
the rights of such stockholders, without the further approval
of such stockholders.
Section 11.02. Waiver. At any time prior to the
------
Effective Time, Parent and the Purchaser, on the one hand, and
the Company, on the other hand, may (i) extend the time for the
performance of any of the obligations or other acts of the
other, (ii) waive any inaccuracies in the representations and
warranties of the other contained herein or in any documents
delivered pursuant hereto and (iii) waive compliance by the
other with any of the agreements or conditions contained herein
which may legally be waived. Any such extension or waiver
shall be valid only if set forth in an instrument in writing
specifically referring to this Agreement and signed on behalf
of such party.
Section 11.03. Survivability; Investigations. The
-----------------------------
respective representations and warranties of Parent, the Pur-
chaser and the Company contained herein or in any certificates
or other documents delivered prior to or as of the Effective
Time (i) shall not be deemed waived or otherwise affected by
any investigation made by any party hereto and (ii) shall not
survive beyond the Effective Time. The covenants and agree-
ments of the parties hereto (including the Surviving Corpora-
tion after the Merger) shall survive the Effective Time without
limitation (except for those which, by their terms, contemplate
a shorter survival period).
-34-
<PAGE>
Section 11.04. Notices. All notices and other com-
-------
munications hereunder shall be in writing and shall be deliv-
ered personally or by next-day courier or telecopied with con-
firmation of receipt, to the parties at the addresses specified
below (or at such other address for a party as shall be speci-
fied by like notice; provided that notices of a change of ad-
dress shall be effective only upon receipt thereof). Any such
notice shall be effective upon receipt, if personally delivered
or telecopied, or one day after delivery to a courier for next-
day delivery.
(a) if to the Company, to
E-Systems, Inc.
6250 LBJ Freeway
Dallas, Texas 75240
Telecopy: (214) 392-4890
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2000
Attention: Peter A. Atkins, Esq.
(b) if to Parent or the Purchaser, to
Raytheon Company
141 Spring Street
Lexington, Massachusetts 02173
Telecopy: (617) 860-2924
Attention: Thomas D. Hyde, Vice President
and General Counsel
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy: (212) 403-2000
Attention: Elliott V. Stein, Esq.
Section 11.05. Assignment. This Agreement and all
----------
of the provisions hereof shall be binding upon and inure to the
benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of
-35-
<PAGE>
the rights, interests or obligations hereunder shall be as-
signed by any of the parties hereto without the prior written
consent of the other parties. This Agreement, except for the
provisions of Sections 1.03(d), 3.02(a), 7.08, 7.11(a) and 7.12
(which are intended to be for the benefit of the persons iden-
tified therein, and may be enforced by such persons), is not
intended to confer any rights or remedies hereunder upon any
other person except the parties hereto.
Section 11.06. Governing Law. This Agreement shall
-------------
be governed by the laws of the State of Delaware (regardless of
the laws that might otherwise govern under applicable Delaware
principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect,
performance and remedies.
Section 11.07. Counterparts. This Agreement may be
------------
executed 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.
Section 11.08. Severability. In case any one or
------------
more of the provisions contained in this Agreement should be
invalid, illegal or unenforceable in any respect against a
party hereto, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be
affected or impaired thereby and such invalidity, illegality or
unenforceability shall only apply as to such party in the spe-
cific jurisdiction where such judgment shall be made.
Section 11.09. Interpretation. The article and
--------------
section headings contained in this Agreement are solely for the
purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or inter-
pretation of this Agreement. As used in this Agreement, (i)
the term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unin-
corporated organization and a government or any department or
agency thereof; and (ii) the term "subsidiary" of any specified
corporation shall mean any corporation of which a majority of
the outstanding securities having ordinary voting power to
elect a majority of the board of directors are directly or in-
directly owned by such specified corporation or any other per-
son of which a majority of the equity interests therein are,
directly or indirectly, owned by such specified corporation.
Section 11.10. Guarantee. Parent hereby guarantees
---------
the due performance by the Purchaser of all of the Purchaser's
obligations (including obligations to cause the Company to take
-36-
<PAGE>
or refrain from taking action) under this Agreement or incurred
in connection with the Offer and the Merger.
Section 11.11. Post-Control Date Actions. Notwith-
-------------------------
standing anything in this Agreement to the contrary, from and
after the Control Date the Company shall not be deemed for
purposes hereof to be in breach of this Agreement if such
breach was caused by Parent in its capacity as the controlling
stockholder of the Company or by action of the Board taken with
the approval of a majority of Parent's designees thereto.
Section 11.12. Entire Agreement. This Agreement,
----------------
including the schedules, annexes and exhibits hereto and the
documents and instruments referred to herein and therein, to-
gether with the Confidentiality Agreement, embodies the entire
agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein and supersedes
all prior agreements and understandings between the parties
with respect to such subject matter. There are no representa-
tions, promises, warranties, covenants, or undertakings in re-
spect of such subject matter, other than those expressly set
forth or referred to herein and therein.
-37-
<PAGE>
IN WITNESS WHEREOF, Parent, the Purchaser and the
Company have caused this Agreement to be signed by their re-
spective duly authorized officers as of the date first above
written.
RAYTHEON COMPANY
By: /s/ David S. Dwelley
--------------------------
Name:
Title:
RTN ACQUISITION CORPORATION
By: /s/ Herbert Deitcher
--------------------------
Name:
Title:
E-SYSTEMS, INC.
By: /s/ A. Lowell Lawson
--------------------------
Name:
Title:
-38-
<PAGE>
ANNEX I
Conditions to the Offer. Notwithstanding any other
-----------------------
provision of the Offer, the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) promulgated
under the Exchange Act (relating to the Purchaser's obligation
to pay for or return tendered Shares promptly after termination
or withdrawal of the Offer), pay for, and (subject to any such
rules or regulations) may delay the acceptance for payment of
any tendered Shares and (except as provided in this Agreement)
amend or terminate the Offer as to any Shares not then paid for
if (i) the condition that there shall be validly tendered and
not withdrawn prior to the expiration of the Offer a number of
Shares which represents at least a majority of the number of
Shares outstanding on a fully diluted basis (assuming the
exercise of all outstanding Options) shall not have been sat-
isfied (the "Minimum Condition") or (ii) any applicable waiting
period under the HSR Act shall not have expired or been termi-
nated prior to the expiration of the Offer or (iii) at any time
after the date of this Merger Agreement and before the time of
payment for any such Shares (whether or not any Shares have
theretofore been accepted for payment or paid for pursuant to
the Offer), any of the following conditions exists:
(a) there shall be in effect an injunction or other
order, decree, judgment or ruling by a court of competent ju-
risdiction or by a governmental, regulatory or administrative
agency or commission of competent jurisdiction or a statute,
rule, regulation, executive order or other action shall have
been promulgated, enacted, taken or threatened by a governmen-
tal authority or a governmental, regulatory or administrative
agency or commission of competent jurisdiction which in any
such case (i) restrains or prohibits the making or consummation
of the Offer or the consummation of the Merger, (ii) prohibits
or restricts the ownership or operation by Parent or the Pur-
chaser (or any of their respective affiliates or subsidiaries)
of any portion of its or the Company's business or assets which
is material to the business of all such entities taken as a
whole, or compels Parent or the Purchaser (or any of their re-
spective affiliates or subsidiaries) to dispose of or hold
separate any portion of its or the Company's business or assets
which is material to the business of all such entities taken as
a whole, (iii) imposes material limitations on the ability of
the Purchaser effectively to acquire or to hold or to exercise
full rights of ownership of the Shares, including, without
limitation, the right to vote the Shares purchased by the Pur-
chaser on all matters properly presented to the stockholders of
the Company, (iv) imposes any material limitations on the
ability of Parent or the Purchaser or any of their respective
<PAGE>
affiliates or subsidiaries effectively to control in any mate-
rial respect the business and operations of the Company and its
subsidiaries, or (v) which otherwise would materially adversely
affect the Company and its subsidiaries taken as a whole; or
(b) this Agreement shall have been terminated by the
Company, Parent or the Purchaser in accordance with its terms; or
(c) (i) the representations and warranties made by
the Company in this Agreement shall not have been true and
correct in all material respects when made, or shall have
ceased to be true and correct in all material respects as of
the Expiration Date (as defined in the Offer Documents) as if
made as of such date, or (ii) as of the Expiration Date the
Company shall not in all material respects have performed its
material obligations and agreements and complied with its ma-
terial covenants to be performed and complied with by it under
this Agreement; or
(d) there shall have occurred (i) any general sus-
pension of, or limitation on prices for, trading in securities
on any national securities exchange or the over-the-counter
market, (ii) a declaration of a banking moratorium or any sus-
pension of payments in respect of banks in the United States
(whether or not mandatory), (iii) from the date of this Merger
Agreement through the date of termination or expiration of the
Offer, a decline of at least 25% in the Standard & Poor's 500
Index, or (iv) in the case of any of the foregoing existing at
the time of the execution of this Agreement, a material ac-
celeration or worsening thereof; or
(e) Parent, the Purchaser and the Company shall have
agreed that the Purchaser shall amend the Offer to terminate
the Offer or postpone the payment for Shares pursuant thereto.
The foregoing conditions are for the sole benefit of
Parent and the Purchaser and may be asserted by Parent or the
Purchaser regardless of the circumstances (including any action
or inaction by Parent or the Purchaser) giving rise to any such
conditions and may be waived by Parent or the Purchaser in
whole or in part at any time and from time to time, in each
case, in the exercise of the good faith judgment of Parent and
the Purchaser and subject to the terms of this Agreement. The
failure by Parent or the Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
-2-
<PAGE>
EXHIBIT 2
E-SYSTEMS
VICE PRESIDENT
January 23, 1995
PERSONAL & CONFIDENTIAL
- -----------------------
Mr. Peter D'Angelo
Vice President and Chief Financial Officer
Raytheon Company
141 Spring Street
Lexington, MA 02173
Dear Peter:
You have requested information from E-Systems, Inc. ("E-Systems" or the
"Company") in connection with our mutual consideration of a possible business
combination (the "Possible Transaction"). The Evaluation Materials (as defined
below) will be provided to you exclusively for the purpose of evaluating your
interest in the Possible Transaction. This letter confirms the agreement (the
"Agreement") between E-Systems and Raytheon Company and based on the following
terms and conditions we are willing to make such information available to you:
DISCLOSURE OF EVALUATION MATERIALS
As a condition to E-Systems furnishing Evaluation Materials to you, we are
requiring that you agree, as set forth below, to treat confidentially such
information that either E-Systems, Bear, Stearns & Co. Inc. ("Bear Stearns"),
or either of our representatives or agents furnish to you in connection with
the Possible Transaction involving the Company, whether furnished orally or in
writing (whatever the form or data storage medium) or gathered by inspection
and regardless of whether specifically identified as confidential, together
with analyses, compilations, studies or other documents prepared by you, or by
your agents, representatives (including attorneys, accountants and financial
advisors) or employees which contain or otherwise reflect such information or
your review of, or interest in, the Company (collectively, the "Evaluation
Materials"). You recognize and acknowledge the competitive value of the
Evaluation Materials and the damage that could result to the Company if the
Evaluation Materials were used or disclosed except as authorized by this
Agreement.
The term "Evaluation Materials" does not include information which (i) is or
becomes generally available to the public other than as a result of a
disclosure by you or your representatives; (ii) was or becomes available to you
on a non-confidential basis from a source other than the Company or its
representatives, provided that such source is not prohibited from disclosing
such information to you by a contractual, legal or fiduciary obligation to the
Company or its representatives, or (iii) has been independently developed by
you and not derived from the Evaluation Materials.
INTERIM RESTRICTIONS ON DISCLOSURE
Until such time as you receive a specific written consent, given pursuant to
this paragraph of this Agreement signed by the Company specifically permitting
you to disclose the information covered by this Agreement to non-employees of
your company such as your representatives, agents, advisors, attorneys and
other experts (except Bear Stearns), you will not disclose the fact that
discussions or negotiations are contemplated, are taking place or have taken
place concerning the Possible Transaction between you and the
<PAGE>
Company, the Evaluation Materials, or the existence or contents of this
Agreement to anyone other than Bear Stearns, your full-time employees, officers
and directors who have a need to know such information solely for the purpose
of evaluating the Possible Transaction between you and the Company.
USE OF EVALUATION MATERIALS
You agree not to use any of the Evaluation Materials for any purpose other
than the exclusive purpose of evaluating the Possible Transaction. You agree
that the Evaluation Materials will be kept completely confidential by you and
your representatives; provided, however, that (i) any of such information may
be disclosed to those of your directors, officers, employees (and, after
receipt of the consent referenced in the Interim Restrictions on Disclosure
paragraph set forth above, agents and representatives) who need to know such
information solely for the purpose of evaluating the Possible Transaction
between you and the Company (it being understood that such directors, officers,
employees, agents and representatives shall be informed by you of the
confidential nature of such information and shall be directed by you, and shall
each agree to treat such information confidentially in accordance with this
Agreement), and (ii) any other disclosure of such information may be made if E-
Systems consents in writing prior to any disclosure. Without limiting the
generality of the foregoing, in the event that the Possible Transaction is not
consummated neither you nor your directors, officers, employees, agents or
representatives shall continue to use any of the Evaluation Materials for any
purpose.
You will be responsible for any breach of this Agreement by your directors,
officers, representatives, agents and employees (including your employees who,
subsequent to the first date of disclosure of Evaluation Materials hereunder,
become former employees). You agree, at your sole expense, to take all
reasonable measures to restrain your directors, officers, representatives,
agents and employees (and former employees) from unauthorized disclosure or use
of the Evaluation Materials.
You acknowledge that you are aware, and that you will advise your directors,
officers, representatives, agents and employees who are informed as to the
matters which are the subject of this letter, that the United States securities
laws prohibit any person who has received from an issuer any material, non-
public information from purchasing or selling securities of such issuer or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell
such securities.
SECURITY PURCHASES
For a period of two years from the date of this Agreement, you and your
representatives, agents or affiliates shall not, directly or indirectly, and
you shall cause any person or entity controlled by you not to, without the
prior written consent of the Board of Directors of the Company, (i) in any
manner acquire, agree to acquire or make any proposal to acquire, directly or
indirectly, any securities or property of the Company or any of its affiliates,
(ii) propose to enter into, directly or indirectly, any merger, consolidation,
recapitalization, business combination or other similar transaction involving
the Company or any of its affiliates, (iii) make, or in any way participate in
any "solicitation" of "proxies" (as such terms are used in the proxy rules of
the Securities and Exchange Commission) to vote, to advise or influence any
person with respect to the voting of any voting securities of the Company or
any of its affiliates, (iv) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the 1934 Act with respect to any
voting securities of the Company or any of its affiliates, (v) otherwise act,
alone or in concert with others, to seek to control or influence the
management, Board of Directors or policies of the Company, (vi) disclose any
intention, plan or arrangement inconsistent with the foregoing, or (vii)
advise, assist or encourage any other persons in connection with any of the
foregoing. You also agree during such period not to (a) request the Company (or
its representatives), directly or indirectly, to amend or waive any provision
of this paragraph (including this sentence), (b) take any action which might
require the Company or any of its affiliates to make a public announcement with
respect to any matters covered by this Agreement or (c) communicate with the
Company's shareholders.
2
<PAGE>
Notwithstanding the foregoing provisions of this paragraph, such provisions
shall not prevent you from acquiring or proposing to acquire securities of the
Company pursuant to an offer to acquire the entire Company, if the Company has
recommended to its shareholders a proposal by a third party for the acquisition
of the Company, or has executed an acquisition agreement with a third party
relating to such a proposal or the Board of Directors of the Company has
determined to offer the Company for sale.
NON-DISCLOSURE
The public disclosure of your possible interest in the Possible Transaction
could have a material adverse effect on the Company's business. Accordingly,
unless you are advised by written opinion of counsel that disclosure is
required by applicable law, you agree that without the prior written consent of
E-Systems, you will not, and you will direct your directors, officers,
employees, agents and representatives not to, disclose to any person either the
fact that discussions or negotiations are taking or have taken place concerning
the Possible Transaction between you and E-Systems or any of the terms,
conditions or other facts with respect to the Possible Transaction, including
the status thereof. The term "person" as used in this letter shall be broadly
interpreted to include without limitation any corporation, company,
governmental agency or body, partnership or individual. Unless and until the
restrictions in the Interim Restrictions on Disclosure paragraph set forth in
this Agreement are waived or lifted by E-Systems in accordance with the terms
of that paragraph, you will not disclose any information pertaining to your
discussions with the Company, the Possible Transaction, the Evaluation
Materials or the existence or contents of this Agreement to anyone other than
Bear Stearns, your full-time employees, officers and directors who have a need
to know such information solely for the purpose of evaluating the Possible
Transaction between you and the Company.
COMPELLED DISCLOSURE
In the event that you or any of your representatives receive a request or are
required (by deposition interrogatory, request for documents, subpoena, civil
investigative demand or similar process) to disclose all or any part of the
information contained in the Evaluation Materials, you or your representatives,
as the case may be, agree to (i) immediately notify E-Systems of the existence,
terms and circumstances surrounding such a request, (ii) consult with E-Systems
on the advisability of taking legally available steps to resist or narrow such
request, and (iii) assist E-Systems in seeking a protective order or other
appropriate remedy. In the event that such protective order or other remedy is
not obtained, (i) you or your representatives, as the case may be, may disclose
to any tribunal only that portion of the Evaluation Materials which you are
advised by written opinion of counsel is legally required to be disclosed, and
shall exercise reasonable efforts to obtain assurance that confidential
treatment will be accorded such and (ii) you shall not be liable for such
disclosure unless disclosure to any such tribunal was caused by or resulted
from a previous disclosure by you or your representatives not permitted by this
Agreement.
RETURN OF DOCUMENTS
Upon E-Systems' request you shall promptly deliver to E-Systems all written
Evaluation Materials and any other written materials (whatever the form or
storage medium) containing or reflecting any information in the Evaluation
Materials (whether prepared by the Company, their advisors or otherwise) and
will not retain any copies, extracts or other reproductions (whatever the form
or storage medium) in whole or in part of such materials. Upon E-Systems'
request, all documents, memoranda, notes and other writings or data whatsoever
(whatever the form or data storage medium) prepared by you or your advisors
based on the information in the Evaluation Materials shall be destroyed, and
such destruction shall be certified in writing to E-Systems by an authorized
officer supervising such destruction.
NO UNAUTHORIZED CONTACT
During the course of your evaluation, all inquiries and other communications
are only to be made directly to Bear Stearns or employees of the Company
specified in advance by Bear Stearns or Harry L. Thurmon. Accordingly, you
agree not to directly or indirectly contact or communicate with any executive
or
3
<PAGE>
other employee of the Company pertaining to information related to the Possible
Transaction or any Evaluation Materials, or to seek any information in
connection therewith from such person without the express consent of Bear
Stearns or E-Systems.
NON-SOLICITATION
Without E-Systems' prior written consent, you will not for a period of two
years from the date hereof directly or indirectly solicit for employment any
person who is now employed by the Company (or whose activities are dedicated to
the Company) in an executive or management level technical position or
otherwise considered a key employee. For purposes hereof, the term solicit
shall not include the solicitations by general advertisement.
NO REPRESENTATION OR WARRANTY
Although E-Systems has endeavored to include in the Evaluation Materials
information known to them which they believe to be relevant for the purpose of
your investigation, you acknowledge and agree that neither the Company, Bear
Stearns nor any of E-Systems' other representatives or agents is making any
representation or warranty, expressed or implied, as to the accuracy or
completeness of the Evaluation Materials, and none of the Company, Bear Stearns
nor any of E-Systems' other representatives or agents, nor any of their
respective officers, directors, employees, representatives, stockholders,
owners, affiliates, advisors or agents, will have any liability to you or any
other person resulting from use of the Evaluation Materials by you or any of
your representatives. Only those representations or warranties that are
included in an agreement between the parties for the Possible Transaction (the
"Transaction Agreement") when, as, and if it is executed, and subject to such
limitations and restrictions as may be specified in the Transaction Agreement,
will have any legal effect.
The parties acknowledge and agree that no contract or agreement providing for
the Possible Transaction shall be deemed to exist between them unless and until
the Transaction Agreement has been executed and delivered and the parties
hereby waive, in advance, any claims (including, without limitation, breach of
contract) in connection with the Possible Transaction unless and until the
Transaction Agreement has been executed by both parties and delivered to each
party thereto. The parties also agree that unless and until the Transaction
Agreement between them with respect to the Possible Transaction has been
executed by both parties and delivered, neither party nor any of their
officers, directors, employees, stockholders, owners, affiliates,
representatives, advisors or agents has any legal obligation of any kind
whatsoever with respect to any such transaction by virtue of this Agreement or
any other written or oral expression with respect to such transaction except,
in the case of this Agreement, for the matters specifically agreed to herein.
For purposes of this Agreement, the term Transaction Agreement does not
include an executed letter of intent or any other preliminary written
agreement, nor does it include any written or oral acceptance of an offer by
you. You further understand that nothing in this Agreement shall be deemed to
give you any claim or rights with respect to any business, assets or rights of
the Company; nor shall it prevent the Company from discussing or consummating
any possible business ventures, transactions or combinations with any other
person or persons; nor shall you have any claims whatsoever against the
Company, Bear Stearns, or any of their respective officers, directors,
employees, stockholders, owners, affiliates, representatives, advisors or
agents arising out of or relating to the Possible Transaction (other than those
as against the parties to the Transaction Agreement for such transaction with
you in accordance with the terms thereof).
LEGAL REMEDY
It is further understood and agreed that no failure or delay by E-Systems in
exercising any right, power or privilege hereunder shall operate as a waiver
hereof nor shall any single or partial exercise thereof preclude any other or
further exercise of any right, power or privilege hereunder. You also
understand and agree that money damages would not be a sufficient remedy for
any breach of this Agreement by you or your directors,
4
<PAGE>
officers, agents, representatives or employees and that E-Systems will be
entitled to specific performance and injunctive relief as remedies for any such
breach. Such remedies shall not be deemed to be the exclusive remedies for a
breach of this Agreement by you or your directors, officers, agents,
representatives or employees but shall be in addition to all other remedies
available at law or equity.
GOVERNING LAW
This letter Agreement shall be governed and construed in accordance with the
laws of the State of New York without giving effect to its conflict of law
principles or rules. All obligations under this Agreement shall terminate upon
the earlier of (i) the closing of the Possible Transaction or (ii) the third
anniversary of the date of this Agreement.
MISCELLANEOUS
This Agreement constitutes the entire agreement between the parties hereto
regarding the Evaluation Materials and rights and obligations hereunder with
respect thereto and supersedes any prior agreements, written or oral, with
respect thereto. This Agreement may be changed only by a written agreement
signed by an authorized representative of the party against whom enforcement of
any waiver, change, modification, or discharge is sought.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
If you concur with the foregoing, please sign and return one copy of this
letter which will constitute our Agreement with respect to the subject matter
of this letter.
Very truly yours,
E-SYSTEMS, INC.
By: /s/ Harry L. Thurmon
---------------------------------
HARRY L. THURMON
VICE PRESIDENT--NEW BUSINESS
DEVELOPMENT
Accepted and Agreed to:
RAYTHEON COMPANY
By: /s/ Peter D'Angelo
---------------------------------
PETER D'ANGELO
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
5
<PAGE>
EXHIBIT 3
<PAGE>
[LOGO OF RAYTHEON APPEARS HERE] [LOGO OF E-SYSTEMS APPEARS HERE]
FOR IMMEDIATE RELEASE
RAYTHEON AND E-SYSTEMS COMBINE IN MERGER
VALUED AT $2.3 BILLION
Raytheon Launches Cash Tender Offer For E-Systems
Creates Company With Over $12 Billion In Revenues
--------------------------------------------
Lexington, Massachusetts/Dallas, Texas, April 3, 1995 - The boards of
directors of RAYTHEON Company (NYSE:RTN) and E-Systems, Inc. (NYSE:ESY) said
today that they have entered into a definitive agreement to combine the two
companies and have unanimously approved a fully financed $64 per share cash
offer by Raytheon for E-Systems outstanding shares. The merger creates a company
with over $12 billion in annualized revenues in a transaction that is expected
to provide a small increase in Raytheon's earnings per share in 1995 and an
increasingly positive contribution to earnings per share thereafter.
The transaction, valued at approximately $2.3 billion, will be effected
through a cash tender offer that commenced today. The offer is subject to the
receipt of a majority of the E-Systems common shares outstanding and
Hart-Scott-Rodino antitrust review. Unless otherwise extended, the tender offer
is expected to close at midnight on April 28, 1995.
Raytheon has received financing commitments from Chemical Bank, Bank of
America National Trust and Savings Association and The Chase Manhattan Bank to
provide up to $3 billion in the aggregate in unsecured financing to support the
tender offer.
Dennis J. Picard, Raytheon Chairman and Chief Executive Officer, said, "We
are very fortunate to be combining with such a successful growing company in
the defense and government electronics business. The merger of E-Systems and
Raytheon is consistent with our strategy to remain a strong diversified
commercial company and a top tier player in defense. The combination opens new
defense and commercial markets worldwide, brings our annualized electronics
sales to $6 billion and our current electronics backlog to $8 billion. Even
after the merger with E-Systems, over 50 percent of Raytheon's revenues will be
commercial, and we remain committed to growing our commercial businesses.
Despite the added debt due to the merger, our strong balance sheet and cash flow
will provide us with the flexibility to make future acquisitions in our
commercial and defense businesses.
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<PAGE>
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"Raytheon and E-Systems have complementary capabilities and cultures. Our
two companies share a common set of values, high integrity, and strong
determination to deliver high-quality products and services to our customers. We
look forward to welcoming the E-Systems employees to the Raytheon family," Mr.
Picard added.
Lowell Lawson, who will remain Chairman and Chief Executive Officer of
E-Systems and will join Raytheon as an Executive Vice President and a member of
its board of directors, said, "Our board and management team have endorsed the
combination of E-Systems and Raytheon in order to provide our stockholders,
employees, communities, customers and programs with the support necessary to
continue to grow and prosper within the global defense electronics industry.
Raytheon shares the values that we hold important and has made significant
strides in transferring its defense technologies to non-defense areas just as we
have. We are pleased that E-Systems, which will become a wholly-owned subsidiary
of Raytheon, will continue to be headquartered in Dallas, Texas and will operate
under the E-Systems name. The E-Systems board will become an advisory board with
both E-Systems and Raytheon members.
"Raytheon will help support our efforts to effectively serve our unique
customers, guarantee our position as a leader in the defense and government
electronics business and continue our long-standing strategy of expanding our
defense technologies into commercial markets. E-Systems businesses continue to
find a strong customer base both within and beyond the defense electronics
industry. Raytheon gives us an enhanced position for accomplishing our business
objectives," Mr. Lawson concluded.
Bear, Stearns & Co. Inc. is financial advisor to Raytheon and dealer
manager for the tender offer. The tender offer will be made only pursuant to
definitive offering documents to be filed with the Securities and Exchange
Commission.
E-Systems, headquartered in Dallas, Texas with 1994 sales of approximately
$2.0 billion, had a record year-end backlog in excess of $2.6 billion. The
Company's largest business segments include the design, development and
production of reconnaissance and surveillance systems and command, control and
communications for the U.S. government. In addition, the Company has significant
business in the areas of mass storage, electronic imaging and other
information-based technologies. The Company has approximately 16,000 employees.
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Raytheon, headquartered in Lexington, Massachusetts, had 1994 sales of
approximately $10.0 billion with a total backlog of approximately $8.0 billion.
The Company has approximately 60,000 employees in four major businesses
including defense and commercial electronics, engineering and construction,
aircraft, and major appliances.
Contacts:
Elizabeth Heller Allen John E. Kumpf
Raytheon Company E-Systems, Inc.
617/860-2141 214/392-4923
Joele Frank
Abernathy MacGregor Scanlon
212/371-5999
# # #
<PAGE>
EXHIBIT 4
E-SYSTEMS
A. LOWELL LAWSON
Chairman and C.E.O.
April 3, 1995
Dear Stockholder:
I am pleased to inform you that on April 2, 1995, E-Systems, Inc. entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Raytheon
Company and RTN Acquisition Corporation ("Purchaser"). Pursuant to the Merger
Agreement, Purchaser today commenced a tender offer to purchase all outstanding
shares of E-Systems' Common Stock for $64 per share in cash. Under the Merger
Agreement, the tender offer will be followed by a merger of Purchaser into E-
Systems. In the merger, which is subject to receipt of stockholder approval,
each common share outstanding will be converted into the same consideration as
is paid in the tender offer (other than shares held by dissenting stockholders,
if applicable).
Your Board of Directors has unanimously approved the Merger Agreement, the
tender offer and the merger and determined that the tender offer and merger are
fair to, and in the best interests of, E-Systems and its stockholders.
Accordingly, the Board of Directors recommends that stockholders accept the
offer and tender their shares.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including, among other things, the opinions of each of CS First
Boston Corporation and Morgan Stanley & Co. Incorporated, E-Systems' financial
advisors, that the cash consideration of $64 per share to be received by the
stockholders pursuant to the offer and the merger is fair to such stockholders
from a financial point of view.
Additional information with respect to the transaction is contained in the
enclosed Schedule 14D-9, including copies of the full texts of the opinions of
the financial advisors, and we urge you to consider this information carefully.
Sincerely,
/s/ A. L. Lawson
CORPORATE OFFICES
POST OFFICE BOX 660248 . DALLAS, TEXAS 75266-0248 . (214) 661-1000
<PAGE>
EXHIBIT 5
[LOGO OF CS FIRST BOSTON CORPORATION APPEARS HERE]
CS First Boston Corporation 55 East 52nd Street
New York, NY 10055-0186
Telephone 212 909 2000
April 2, 1995
The Board of Directors
E-Sytems, Inc.
6250 LBJ Freeway
Dallas, Texas 75240
Dear Sirs:
You have asked us to advise you with respect to the fairness to the
stockholders of E-Systems, Inc. (the "Company"), other than Raytheon Company
(the "Acquiror"), from a financial point of view of the consideration to be
received by such stockholders pursuant to the terms of the Merger Agreement,
dated as of April 2, 1995 (the "Merger Agreement"), among the Company, the
Acquiror and a subsidiary of the Acquiror to be established to effectuate the
Merger (the "Sub"). The Merger Agreement provides for the Sub to make a tender
offer at $64.00 per share in cash for the common stock, par value $1.00 per
share, of the Company (the "Offer"). The Offer will be followed by the merger
(the "Merger") of the Company with the Sub pursuant to which the Company will
become a wholly owned subsidiary of the Acquiror and each outstanding share of
common stock of the Company not owned by the Sub will be converted into the
right to receive $64.00 in cash.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company. We have also
reviewed certain other information, including the Merger Agreement and
financial forecasts, provided to us by the Company and have met with the
Company's management to discuss the business and prospects of the Company.
We have also considered certain financial and stock market data of the
Company, and we have compared that data with similar data for other publicly
held companies in businesses similar to those of the Company and we have
considered the financial terms of certain other business combinations and
other transactions which have recently been effected. We also considered such
other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied
on its being complete and accurate in all material respects. With respect to
the financial forecasts, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Company's management as to the future financial performance
of the Company. In addition, we have not made an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the
Company, nor have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof. We were not
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of the Company. We have not been requested to opine
as to, and our opinion does not in any manner address, the Company's
underlying business decision to effect the Merger.
We have been engaged by the Board of Directors of the Company in connection
with the Offer and the Merger and will receive a fee for rendering this
opinion.
<PAGE>
In the past, we have performed certain investment banking services for the
Company and have received customary fees for such services.
In the ordinary course of our business, CS First Boston and its affiliates
may actively trade the debt and equity securities of both the Company and the
Acquiror for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors only in connection with its consideration of the Offer and the
Merger, does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed Merger or whether or not such
stockholder should tender shares pursuant to the Offer and is not to be quoted
or referred to, in whole or in part, in any registration statement, prospectus
or proxy statement, or in any other document used in connection with the
offering or sale of securities, nor shall this letter be used for any other
purposes, without CS First Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the stockholders of the
Company in the Offer and the Merger is fair to such stockholders, other than
the Acquiror, from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
/s/ J. Craig Oxman
By: _________________________________
J. CRAIG OXMAN
MANAGING DIRECTOR
2
<PAGE>
EXHIBIT 6
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
1251 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(212) 703-4000
April 2, 1995
Board of Directors
E-Systems, Inc.
6250 LBJ Freeway
Dallas, Texas 75266
Members of the Board:
We understand that E-Systems, Inc. ("E-Systems" or the "Company"), Raytheon
Company ("Raytheon") and RTN Acquisition Corp., a wholly owned subsidiary of
Raytheon ("Acquisition Sub") have entered into an Agreement and Plan of Merger,
dated as of the date hereof, (the "Merger Agreement") which provides, among
other things, for (i) the commencement by Acquisition Sub of a tender offer
(the "Tender Offer") for all outstanding shares of common stock, par value
$1.00 per share (the "Common Stock") of E-Systems for $64.00 per share net to
the seller in cash, and (ii) the subsequent merger (the "Merger") of
Acquisition Sub with and into E-Systems. Pursuant to the Merger, E-Systems will
become a wholly owned subsidiary of Raytheon and each outstanding share of
Common Stock, other than shares held in treasury or held by Raytheon or any
affiliate of Raytheon or as to which dissenters' rights have been perfected,
will be converted into the right to receive $64.00 per share in cash. The terms
and conditions of the Tender Offer and the Merger are more fully set forth in
the Merger Agreement.
You have asked for our opinion as to whether the consideration to be received
by the holders of shares of Common Stock pursuant to the Tender Offer and the
Merger is fair from a financial point of view to such holders other than
Raytheon and its affiliates.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company;
(ii) analyzed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of
the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(viii) reviewed the Merger Agreement; and
(ix) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we
<PAGE>
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of the Company. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of all or any
part of the Company or any of its assets nor did we participate in discussions
and negotiations among representatives of the Company, Raytheon and their
financial and legal advisors. Furthermore, we did not participate in
discussions and negotiations with any of the parties, other than Raytheon,
which may have expressed interest in the possible acquisition of all or any
part of the Company or any of its assets or constituent businesses.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose without
our prior written consent.
Based on and subject to the foregoing, we are of the opinion on the date hereof
that the consideration to be received by the holders of shares of Common Stock
pursuant to the Tender Offer and the Merger is fair from a financial point of
view to such holders other than Raytheon and its affiliates.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ James B. Stynes
------------------------------------
JAMES B. STYNES
MANAGING DIRECTOR
2
