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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
SCHEDULE 14D-1
(TENDER OFFER STATEMENT PURSUANT TO
SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. 2)
--------------
E-SYSTEMS, INC.
(NAME OF SUBJECT COMPANY)
RTN ACQUISITION CORPORATION
RAYTHEON COMPANY
(BIDDER)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
269157301
(CUSIP NUMBER OF CLASS OF SECURITIES)
--------------
THOMAS D. HYDE, ESQ.
GENERAL COUNSEL
RAYTHEON COMPANY
141 SPRING STREET
LEXINGTON, MASSACHUSETTS 02173
(617) 862-6600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE BIDDER)
--------------
COPIES TO:
MARTIN LIPTON, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
<PAGE>
This Amendment No. 2 amends and supplements the Tender Offer Statement
on Schedule 14D-1, dated April 3, 1995 (as previously amended, the "Schedule
14D-1"), filed by Raytheon Company, a Delaware corporation ("Parent"), and its
wholly-owned subsidiary, RTN Acquisition Corporation, a Delaware corporation
(the "Purchaser"), in connection with their Offer as set forth in the Schedule
14D-1. Capitalized terms used and not defined herein shall have the meanings
ascribed thereto in the Schedule 14D-1. By this amendment the Schedule 14D-1 is
hereby amended as set forth below:
ITEM 10. ADDITIONAL INFORMATION.
Sections (c) and (e) of Item 10 are hereby amended and supplemented by
adding thereto the following:
(c) The Purchaser refiled its Premerger Notification and Report Form
with the FTC and Antitrust Division in connection with the purchase of Shares
pursuant to the Offer and the Merger under the HSR Act on April 12, 1995.
Accordingly, the waiting period under the HSR Act with respect to the Offer and
the Merger will expire at 11:59 p.m., New York City time, on April 27, 1995,
unless earlier terminated by the FTC or the Antitrust Division or the Purchaser
receives a request for additional information or documentary material prior
thereto.
(e) On April 5, 1995 Leon Sarfan and Edith Citron, alleged
stockholders of the Company, filed an amended complaint in the Court of Chancery
in Delaware. The amended complaint supplements the complaints filed by each of
these plaintiffs on April 3, 1995, and alleges, in addition to various of the
allegations described in their original complaints (filed as Exhibits (g)(1) and
(g)(2) to Amendment No. 1 to the Schedule 14D-1) and among other things, that
various of the defendants have breached their fiduciary duties to plaintiffs in
connection with the Offer and the Merger by (i) failing to play an active and
direct role in the sale of the Company and (ii) failing to disseminate
completely all material information in connection with the Offer and the Merger.
The amended complaint seeks, in addition to various of the remedies described in
the original complaints, a court order requiring the defendants to disseminate
completely all material facts to enable the Company's stockholders to make an
informed decision whether to accept the Offer. At the plaintiffs' request, the
Court of Chancery in Delaware has scheduled a hearing on April 25, 1995 on
plaintiffs' motion for a preliminary injunction to restrain closing of the
Offer. The foregoing disclosure is qualified in its entirety by reference to the
amended
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complaint, a copy of which is attached hereto as Exhibit (g)(9) and is
incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
Item 11 is hereby amended and supplemented by adding thereto to the
following:
(g)(9) -- Amended Complaint in Leon Sarfan v. E-Systems, Inc., (C.A. No.
------------------------------
14171) and Edith Citron v. Roland Haden, (C.A. No. 14172), filed
----------------------------
in the Court of Chancery in Delaware on April 5, 1995.
-2-
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Amendment No. 2 to the Schedule 14D-1 is
true, complete and correct.
Dated: April 13, 1995
RAYTHEON COMPANY
By:/s/ Christoph L. Hoffmann
--------------------------------
Name: Christoph L. Hoffmann
Title: Executive Vice President
RTN ACQUISITION CORPORATION
By:/s/ Christoph L. Hoffmann
--------------------------------
Name: Christoph L. Hoffmann
Title: President
-3-
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
(g)(9) -- Amended Complaint in Leon Sarfan v. E-Systems, Inc., (C.A. No.
------------------------------
14171) and Edith Citron v. Roland Haden, (C.A. No. 14172), filed
----------------------------
in the Court of Chancery in Delaware on April 5, 1995.
-4-
<PAGE>
EXHIBIT (g)(9)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ----------------------------------------------X
LEON SARFAN, :
:
Plaintiff, :
:
v. :
: Civil Action No. 14171
E-SYSTEMS, INC., C. ROLAND HADEN, :
MARTIN R. HOFFMAN, E. GENE KEIFFER, :
FRANCINE I. NEFF, JAMES A. BITONTI, :
S. LEE KLING, DAVID R. TACKE, :
E. F. BUEHRING, CHARLES A. GABRIEL, :
A. LOWELL LAWSON, RAYTHEON CO. and :
RTN ACQUISITION CORPORATION :
:
Defendants. :
- ----------------------------------------------X
EDITH CITRON, :
:
Plaintiff, :
:
v. :
: Civil Action No. 14172
ROLAND HADEN, MARTIN HOFFMAN, GENE :
KIEFFER, FRANCINE NEFF, JAMES BITONTI, :
LEE KLING, DAVID TACKE, F. BUEHRING, :
CHARLES GABRIEL, LOWELL LAWSON, :
E-SYSTEMS, INC., RAYTHEON CO. and :
RTN ACQUISITION COMPANY, :
:
Defendants. :
- ----------------------------------------------X
AMENDED COMPLAINT
-----------------
Plaintiffs, by their attorneys, allege upon information and belief,
except with respect to their ownership of E Systems, Inc. ("ESI" or the
"Company") common stock, as follows:
SUMMARY OF ACTION
-----------------
Plaintiffs bring this action on their own behalf and on behalf of all
similarly situated public shareholders of ESI seeking
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redress for the wrongful conduct of defendants alleged herein including the
wrongful actions and inactions by the ESI Board of Directors in connection with
the sale of ESI pursuant to materially deficient disclosures and without an
adequate process to explore the availability and viability of alternatives to
obtain the best transaction reasonably available to ESI shareholders. Plaintiffs
seek preliminary and permanent injunctive relief against the wrongful conduct by
defendants including wrongful actions and inactions of the ESI Board of
Directors, and against consummation of the Tender Offer and Merger Agreement
(defined below). Plaintiffs also seek damages resulting from the wrongful
conduct alleged herein.
PARTIES
-------
1. Plaintiffs are the owners of shares of common stock of defendant
ESI.
2. E-Systems, Inc. is a Delaware corporation with offices at 6250 LBJ
Freeway, P.O. Box 666248, Dallas, Texas 75266-0248. ESI, among other things,
designs, develops and integrates sophisticated reconnaissance and surveillance
systems, develops and produces a broad range of systems and products for
instantaneous communication, and develops and manufactures automatic control
products for aircraft. As of September 30, 1994, ESI had approximately
34,033,245 shares of stock outstanding held by over 10,000 shareholders of
record.
3. Defendant C. Roland Haden is a director of ESI.
2
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4. Defendant Martin R. Hoffman is a director of ESI.
6. Defendant E. Gene Keiffer is a director of ESI.
5. Defendant Francine I. Neff is a director of ESI.
6. Defendant James A. Bitonti is a director of ESI.
7. Defendant S. Lee Kling is a director of ESI.
8. Defendant David R. Tacke is a director of ESI.
9. Defendant E. F. Buehring is a director of ESI.
10. Defendant Charles A. Gabriel is a director ESI.
11. Defendant A. Lowell Lawson is Chairman, Chief Executive Officer,
President and a director of ESI.
12. The foregoing individuals (collectively the "Director Defendants"),
owe fiduciary duties to ESI and its shareholders.
13. Raytheon Co. ("Raytheon") is a Delaware corporation with executive
offices at 141 Spring Street, Lexington, Massachusetts 02173-7899. Raytheon,
among other things, designs, develops and manufactures electronic systems and
components. As of October 2, 1994, Raytheon had approximately 131,575,000 shares
of common stock outstanding.
14. RTN Acquisition Corporation ("RTN") is a wholly-owned subsidiary of
Raytheon which was incorporated under the laws of the State of Delaware on March
28, 1995 to effect the acquisition of ESI. Raytheon and RTN (collectively the
"Raytheon Defendants") have knowingly and substantially participated in, and are
benefitting from, the breaches of fiduciary duties alleged herein, and therefore
are liable as aiders and abettors thereof.
3
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CLASS ACTION ALLEGATIONS
------------------------
15. Plaintiffs bring this action on their own behalf and as a class
action on behalf of all shareholders of defendant ESI (except defendants herein
and any person, firm, trust, corporation or other entity related to or
affiliated with any of the defendants) or their successors in interest, who have
been or will be adversely affected by the conduct of defendants alleged herein.
16. This action is properly maintainable as a class action for the
following reasons:
(a) The class of shareholders for whose benefit this action is
brought is so numerous that joinder of all class members is impracticable. As
of September 30, 1994, there were over 34 million shares of ESI's common stock
outstanding owned by over 10,000 shareholders of record scattered throughout the
United States.
(b) There are questions of law and fact which are common to
members of the Class and which predominate over any questions affecting any
individual members. The common questions include, inter alia, the following:
----- ----
i. Whether one or more of the defendants has engaged in a plan
and scheme to enrich themselves at the expense of defendant ESI's public
stockholders;
ii. Whether the ESI Board has engaged in a proper process to
ensure maximization of shareholder value;
iii. Whether the Tender Offer (defined below) is being
undertaken pursuant to materially deficient disclosures in
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breach of fiduciary duties owed by the ESI Board of Directors to ESI's public
shareholders;
iv. Whether the Defendant Directors have breached their
fiduciary duties owed by them to plaintiffs and members of the Class, and/or
have aided and abetted in such breach, by virtue of their participation and/or
acquiescence and by their other conduct complained of herein;
v. Whether the Defendant Directors have wrongfully failed to
seek a purchaser of ESI at the highest possible price and, instead, have allowed
the valuable assets of defendant ESI to be acquired by Raytheon at an unfair and
inadequate price;
vi. Whether plaintiffs and the other members of the Class will
be irreparably damaged by the transactions complained of herein; and
vii. Whether defendants have breached or aided and abetted the
breaches of the fiduciary and other common law duties owed by them to plaintiffs
and the other members of the Class.
17. Plaintiffs are committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiffs are typical of the claims of the other members of the Class and
plaintiffs have the same interest as the other members of the Class.
Accordingly, plaintiffs are adequate representatives of the Class and will
fairly and adequately protect the interests of the Class.
18. Defendants have acted or refused to act on grounds generally
applicable to the Class, thereby making appropriate
5
<PAGE>
injunctive relief with respect to the Class as a whole.
19. The prosecution of separate actions by individual members of the
Class could create a risk of inconsistent or varying adjudications with respect
to individual members of the Class which would establish incompatible standards
of conduct for defendants or adjudications with respect to individual members of
the Class which would as a practical matter be dispositive of the interests of
the other members not parties to the adjudications.
20. Plaintiffs anticipate that there will not be any difficulty in the
management of this litigation.
21. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this action.
SUBSTANTIVE ALLEGATIONS
-----------------------
a. Background of the Transaction
-----------------------------
22. By at least late Summer 1994, ESI reportedly was among defense
companies persistently mentioned as a possible takeover target. On or about
September 30, 1994, ESI adopted a shareholder rights plan entitling shareholders
to buy one preferred share for $130 per share in the event of a hostile offer
for ESI (the "Rights Plan").
23. According to the Schedule 14D-9 (defined below), beginning sometime
in 1994, ESI consulted with Bear Stearns & Co., Inc. ("Bear Stearns") in
connection with considering strategic alternatives. Bear Stearns purportedly
performed "an extensive valuation" of ESI and considered numerous potential
acquisitions,
6
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and assisted ESI in adopting the Rights Plan. Purportedly with Bear Stearns'
assistance, ESI approached and was contacted by a "limited number of companies"
within the defense industry to discuss their interest in exploring a strategic
transaction with ESI. According to the Schedule 14D-9 while these companies
expressed a strong appreciation for, and interest in, ESI, for the most part
these companies generally indicated that their primary interest was a
transaction utilizing the stock. ESI and Bear Stearns purportedly concluded that
the use of stock would not yield a "meaningful premium" to ESI shareholders and
therefore a substantial possibility existed that any stock for stock transaction
would not be completed. This conclusion was apparently based on "comparable
price earnings multiples and other factors." According to the Schedule 14D-9,
several companies, and ESI, viewed $60 to $65 per ESI share as an appropriate
valuation range for ESI but none of the companies were willing to proceed
utilizing cash.
24. In or about the Fall of 1994, Bear Stearns was also engaged by
Raytheon to focus on possible acquisitions. Raytheon expressed an interest in
ESI, which Bear Stearns discussed with ESI. In late 1994, Bear Stearns provided
information to ESI and Raytheon regarding the other, purportedly based upon
publicly available information.
7
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b. ESI Management Wrongfully Commits To Negotiate
Exclusively With Raytheon And Commits To
Recommend The Sale of ESI At $64 Per Share
---------------------------------------------
25. Despite the fact that the ESI Board of Directors had not engaged an
independent financial advisor and had not engaged in an adequate process to
explore the availability and viability of alternatives to obtain the best
transaction reasonably available to ESI's public shareholders in the sale of
ESI, ESI Management, led by Lawson, apparently agreed to negotiate exclusively
with Raytheon as a condition to discussions and negotiations with Raytheon.
According to the Schedule 14D-9, Raytheon conditioned its discussions and
negotiations with ESI on ESI's commitment not to solicit possible acquisition
interest from third parties (the "Exclusive Negotiation Condition"). Moreover,
Raytheon advised ESI that Raytheon was unwilling to engage in a bidding contest
for ESI.
26. Nevertheless, on January 10, 1995, Lawson met with Dennis J.
Picard, Chairman and Chief Executive Officer of Raytheon, in Boston with Bear
Stearns. Lawson indicated that he believed an all cash offer above $60 per
share would be required. ESI Management thereafter continued discussions with
Raytheon representatives, meeting on January 23, 1995, February 6, 1995 and
March 8, 1995.
27. Still apparently without active and direct involvement of the ESI
Board, an adequate process to explore alternatives, or even the engagement of an
independent financial advisor, on March 23, 1995, in a meeting with Picard,
Lawson committed to recommending a sale of ESI to Raytheon at $64 per
8
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share, and secured for himself positions as a Director and Executive Vice
President of Raytheon following the Transaction. In addition, Lawson and Picard
discussed a termination fee in the event of a third party acquiror of ESI, and
the fact that continued discussions between ESI and Raytheon were subject to
completion of negotiations on "other matters", further due diligence, a mutually
acceptable definitive agreement and approval of ESI's Board of Directors.
28. Although Bear Stearns apparently attended the meetings between
Raytheon and ESI Management, Bear Stearns was not providing independent
financial advice to ESI. Indeed, through at least March 23, 1995, Bear Stearns
was apparently advising both ESI and Raytheon. According to the Schedule 14D-1
(defined below), Bear Stearns has, from time to time, rendered investment
banking services to Raytheon and its affiliates. However, neither ESI Management
nor the ESI Board of Directors engaged a separate financial advisor until March
29, 1995, when ESI engaged CS First Boston Corporation ("First Boston"). First
Boston had performed services for ESI in the past. In addition, on March 30,
1995, ESI engaged Morgan Stanley & Co., Incorporated ("Morgan Stanley") also as
a financial advisor. However, neither First Boston nor Morgan Stanley was
requested to solicit, and did not solicit, potential bidders for all or part of
ESI.
29. Moreover, Bear Stearns continued to render financial advisory
services to Raytheon, and has been engaged as dealer manager for the Tender
Offer (defined below). According to the
9
<PAGE>
Schedule 14D-1 (defined below), Bear Stearns is acting as dealer manager in
connection with the Tender Offer and as financial advisor to the Raytheon
Defendants in connection with the acquisition of ESI; and Raytheon has paid or
is obligated to pay Bear Stearns a fee of $5 million and has agreed to pay Bear
Stearns additional fees of $5 million upon commencement of the Tender Offer and
$4 million upon completion of the acquisition of ESI. Further, although the
Schedule 14D-9 states that Bear Stearns was never "formally engaged" by ESI, on
February 24, 1995, ESI paid Bear Stearns $75,000 purportedly "to cover Bear
Stearns' extensive work and assistance to date."
30. Neither the Schedule 14D-9 nor the Schedule 14D-1 contains any
evidence that the ESI Board of Directors played an active and direct role in the
sale of ESI. Further, the Schedule 14D-1 and Schedule 14D-9 contain no evidence
that the ESI Board was advised of or considered any discussions regarding a sale
of ESI to Raytheon prior to April 1, 1995. Rather, the ESI Board apparently was
presented with the Transaction on Saturday, April 1, 1995, and approved the
Transaction the following day on Sunday, April 2, 1995. Further, the analysis,
presentations and opinions of First Boston and Morgan Stanley apparently were
rendered after, at most, a mere four to five days of involvement following their
engagement.
31. Despite the foregoing and apparently having been advised that there
had been no solicitation of possible acquisition interest from others subsequent
to acceptance of the Exclusive Negotiation Condition, the Board approved and
adopted the Agreement
10
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and Plan of Merger, dated as of April 2, 1995, by and among E Systems, Inc., RTN
Acquisition Corporation and Raytheon Company (the "Merger Agreement"). The
Merger Agreement provides, among other things, that Raytheon will use its best
efforts and take all reasonable steps to cause Lawson to be appointed a director
of Raytheon for a term expiring in 1998; that the Raytheon Defendants have
agreed to authorization of amendments to Lawson's employment contract to entitle
him to serve as Chief Executive Officer of the surviving corporation for a
period of 3 years; that approximately 20 "key executives" ESI will receive
consideration in connection with the grant of stock options by Raytheon in July
1995; that the Transaction will not trigger ESI's Rights Plan and that ESI's
Board will redeem the rights thereunder prior to RTN's acceptance of shares
under the Tender Offer (defined below), and the ESI Board will not otherwise
redeem such rights or amend or terminate the Rights Plan unless a court so
orders, the ESI Board determines by majority vote that the failure to do so
could be a breach of fiduciary duty or the Merger Agreement is terminated; that
ESI may not solicit, facilitate or encourage third party interest in acquiring
ESI unless an unsolicited written proposal is made and the Board determines by
majority vote, after consultation with its financial advisors and outside legal
counsel, that failing to explore such interests would create a reasonable
possibility of a breach of the Board's fiduciary duties (the "No Shop
Provision"); and that Raytheon is entitled to a $75 million termination fee plus
up to another $20 million in expenses if ESI accepts a competing
11
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transaction (the "Termination Fee").
32. On April 3, 1995, Raytheon and ESI announced they had entered into
the Merger Agreement pursuant to which Raytheon will acquire ESI for $64 cash
per share, or an aggregate $2.3 billion, and that the first step tender offer
would commence on April 3, 1995.
c. The Tender Offer Is Commenced Pursuant To
Materially Deficient Disclosures
-----------------------------------------
33. Pursuant to the Merger Agreement, on April 3, 1995, RTN commenced
an offer to purchase for cash all outstanding shares of common stock of ESI at
$64 per share ("the Tender Offer"). The Tender Offer is scheduled to expire
Friday, April 28, 1995 at midnight, unless extended. In connection with the
Tender Offer, the Raytheon Defendants disseminated the Schedule 14D-1 and Offer
to Purchase (collectively "the Schedule 14D-1"). Also, on April 3, 1995, ESI and
the ESI Board of Directors disseminated the Schedule 14D-9 recommending
acceptance of the transaction by ESI stockholders. However, as set forth below,
the Schedule 14D-9 is materially deficient, in violation of fiduciary duties
owed by the ESI Board of Directors to ESI's public shareholders.
34. The Schedule 14D-9 states that at the April 2, 1995 meetings of the
ESI Board of Directors, First Boston and Morgan Stanley made presentations to
the Board "relating to financial considerations with respect to the Merger," and
"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." Further, the
Schedule 14D-9 states that the First Boston and Morgan
12
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Stanley presentations were among the factors considered by the Board in
approving and recommending the Transaction. However, the Schedule 14D-9 does not
disclose the range of values for ESI shares or the analyses by First Boston or
Morgan Stanley underlying their fairness opinions, such as any discounted cash
flow analysis, comparable acquisition analysis or comparable public traded
companies analysis.
35. The Schedule 14D-9 also states that Bear Stearns performed "an
extensive valuation" of ESI. However, the Schedule 14D-9 discloses neither the
valuation nor the underlying analysis.
36. The Schedule 14D-9 states that ESI approached and was contacted by
a "limited number of companies" within the defense industry to discuss their
interest in exploring a strategic transaction with ESI, that for the most part
these companies generally indicated that their primary interest was a
transaction utilizing stock, that in discussing a possible cash transaction
several companies concurred with ESI that $60-$65 per share was an appropriate
valuation range for the Company but that none of these companies were willing to
proceed utilizing cash. The Schedule 14D-9 adds that given comparable price
earnings multiples and other factors, 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. However, the Schedule 14D-9 fails to
disclose the number of companies approached by ESI or Bear Stearns on behalf of
ESI, the number of companies which contacted
13
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ESI or Bear Stearns on behalf of ESI or the terms or structure of any possible
transactions discussed. Moreover, the Schedule 14D-9 does not disclose the
timing of any of the contacts with other companies, the capacity in which Bear
Stearns was acting with respect to ESI in connection with such contacts or
whether Bear Stearns was engaged by or otherwise representing Raytheon or any of
the "limited number of companies" at the time of or in connection with any such
contacts. Nor does the Schedule 14D-9 disclose the "comparable price earnings
multiples and other factors" which apparently formed the basis for the
conclusion that the use of stock would not yield a "meaningful premium".
37. Moreover, the Schedule 14D-9 states that beginning in 1994 ESI
consulted extensively with Bear Stearns, that in or about the Fall of 1994 Bear
Stearns was engaged by Raytheon and that through March 23, 1995 Bear Stearns
assisted both ESI and Raytheon. However, the Schedule 14D-9 fails to disclose
the terms or nature of ESI's engagement or employment of Bear Stearns, or
whether Bear Stearns' work for ESI preceded Raytheon's engagement of Bear
Stearns to explore possible acquisitions.
38. The Schedule 14D-9 states that at the March 23, 1995 meeting between
Lawson and Picard, Lawson advised Picard that he would support and recommend a
Raytheon transaction at $64 a share, and that Lawson and Picard discussed a
termination fee and the fact that continued discussions were subject, among
other things, to completion of negotiations on "other matters." However, the
Schedule 14D-9 does not state whether Lawson's $64 offer was
14
<PAGE>
unsolicited or in response to an earlier offer or proposal by Raytheon, and does
not disclose the substance of any negotiations of terms leading to the $64
price. Moreover, the Schedule 14D-9 fails to disclose the substance of the
discussions relating to the termination fee, and does not identify the "other
matters" or how they were resolved.
39. The Schedule 14D-9 states that, among the factors, the ESI Board
considered the Exclusive Negotiation Condition and the fact that Raytheon was
not willing to engage in a bidding contest for ESI, in approving and
recommending the Transaction. The Schedule 14D-9 further states that in
determining that the Exclusive Negotiation Condition was an "appropriate course
of action" the Board considered, among other things, "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." However, the Schedule
14D-9 fails to disclose when the Exclusive Negotiation Condition was imposed and
who from ESI accepted the condition, when the ESI Board first learned of or
considered the condition, whether the ESI Board ever authorized the condition or
the specific factual basis for the Board's conclusion with respect to the
condition and underlying considerations.
40. The Schedule 14D-9 states that at the April 1, 1995 meeting, the
ESI Directors discussed "their views of the Merger and alternatives for the
Company." However, the Schedule 14D-9 does
15
<PAGE>
not state the substance of the directors' "views" or identify the "alternatives"
discussed for the Company.
41. The Schedule 14D-9 states that one of the factors considered by the
Board in approving and recommending the Transaction was the Board's familiarity
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 management of the Company, both at the meetings on April 1 and
April 2, 1995, and their prior Board meetings, including the prospects if the
Company were to remain independent, and the presentations of First Boston and
Morgan Stanley on April 2, 1995. However, the Schedule 14D-9 does not disclose
the facts presented by management at the April 1 or April 2 meetings or any
"prior board meetings". Nor does the Schedule 14D-9 even identify any prior
Board meeting at which the ESI Board considered any alternative including any
transaction with Raytheon. Moreover, the Schedule 14D-9 does not disclose "the
prospects of the Company if it were to remain independent."
42. The Schedule 14D-9 states that among other factors considered in
approving and recommending the Transaction, the ESI Board considered the effect
of recent mergers and consolidations in the defense industry on the competitive
balance in the industry. However, the Schedule 14D-9 does not identify the
"effect" or the Board's conclusions with respect thereto.
43. In accordance with the foregoing, the proposed Transaction is
wrongful, unfair and harmful to ESI's public
16
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stockholders, and is being undertaken pursuant to materially deficient
disclosures. The proposed Transaction will deny plaintiffs and other Class
members their rights to share fairly in the true value of the Company's assets
and future growth in profits and earnings, while instead usurping the same for
the benefit of defendant Raytheon.
44. Defendants, acting in concert, have violated their fiduciary duties
owed to the public shareholders of ESI and put certain of defendants' own
personal interests and the interests of defendant Raytheon ahead of the
interests of the ESI public shareholders.
45. The Director Defendants, in violation of fiduciary duties to ESI's
public shareholders, apparently failed to (1) undertake an adequate evaluation
of ESI's worth as a potential merger/acquisition candidate; (2) take adequate
steps to enhance ESI's value and/or attractiveness as a merger/acquisition
candidate; (3) effectively expose ESI to the marketplace in an effort to create
an active and open auction for ESI; (4) play an active and direct role in the
sale of ESI including the exploration of alternatives to obtain the best
transaction reasonably available to ESI's shareholders; or (5) disseminate
completely all material information in connection with the Transaction.
Instead, defendants have agreed to a sale of ESI to Raytheon and have included
the No Shop Provision and the Termination Fee, and have commenced the Tender
Offer pursuant to materially deficient disclosures.
17
<PAGE>
46. While the Director Defendants of ESI should continue to seek out
other possible purchasers of the assets of ESI or its stock in a manner designed
to obtain the best transaction reasonably available for ESI's shareholders, or
seek to enhance the value of ESI for all its current shareholders, they have
instead resolved to wrongfully allow Raytheon to obtain the valuable assets of
ESI at a price which unfairly and disproportionately benefits Raytheon.
47. These tactics pursued by the defendants are, and will continue to
be, wrongful, unfair and harmful to ESI's public shareholders. These maneuvers
by the defendants will deny members of the Class their right to share fairly in
the true value of ESI's assets, future earnings and businesses.
48. In contemplating, planning and/or effecting the foregoing specified
acts and in pursuing and timing the Transaction, defendants are not acting in
good faith toward plaintiffs and the Class, and defendants have breached, and
are breaching, their fiduciary duties to plaintiffs and the Class.
49. Because the Defendant Directors (and those acting in concert with
them) dominate and control the business and corporate affairs of ESI and because
they are in possession of private corporate information concerning ESI's
businesses and future prospects, there exists an imbalance and disparity of
knowledge and economic power between the defendants and the public shareholders
of ESI which makes it inherently unfair to ESI' public shareholders.
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50. By reason of the foregoing acts, practices and course of conduct,
the Director Defendants have failed to use the required care and diligence in
the exercise of their fiduciary obligations owed to ESI and their public
shareholders.
51. As a result of the actions of the defendants, plaintiffs and the
Class have been and will be damaged deprived of a sale price arrived at as a
product of an adequate process to maximize shareholder value.
52. Unless enjoined by this Court, the wrongful conduct of Defendants
will continue, all to the irreparable harm of the Class.
53. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment as follows:
a. Declaring that this action may be maintained as a class
action;
b. Declaring that the proposed Transaction is unfair, unjust
and inequitable to plaintiffs and the other members of the Class;
c. Enjoining preliminarily and permanently the defendants from
taking any steps necessary to effect the proposed Transaction without an
adequate process to maximize shareholder value, and enjoining any improper
device which impedes maximization of shareholder value;
d. Ordering the Director Defendants and ESI to disseminate
completely all material facts to enable ESI shareholders to make an informed
decision whether to accept the
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Transaction;
e. Requiring defendants to compensate plaintiffs and the members
of the Class for all losses and damages suffered and to be suffered by them as a
result of the acts and transactions complained of herein, together with
prejudgment and post-judgment interest;
f. Awarding plaintiffs the costs and disbursements of this
action, including reasonable attorneys', accountants', and experts' fees; and
g. Granting such other and further relief as may be just and
proper.
Dated: April 5, 1995 CHIMICLES, JACOBSEN & TIKELLIS
/s/ Robert J. Kriner, Jr.
------------------------------
Pamela S. Tikellis
James C. Strum
Robert J. Kriner, Jr.
One Rodney Square
P.O. Box 1035
Wilmington, DE 19899
(302) 656-2500
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
/s/ Joseph A. Rosenthal
------------------------------
Joseph A. Rosenthal
Suite 214
First Federal Plaza
Post Office Box 1070
Wilmington, Delaware 19801
Attorneys for Plaintiffs
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OF COUNSEL:
WOLF HALDENSTEIN ADLER FREEMAN
& HERZ, LLP
Jeffery G. Smith, Esquire
270 Madison Avenue, 9th Floor
New York, New York 10016
ABBEY & ELLIS
212 East 39th Street
New York, New York 10016
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