THIRD MODIFICATION AGREEMENT
TO STOCK PURCHASE AGREEMENT
This Third Modification Agreement (the "Modification
Agreement") is entered into as of September ___, 1999, by and
between Engineered Systems and Electronics, Inc.,
a Missouri corporation ("Buyer"), and ESCO Electronics
Corporation, a Missouri corporation ("ESCO"), and Defense Holding
Corp., a Delaware corporation ("DHC") (Buyer, ESCO and DHC are
sometimes hereinafter collectively referred to as the "Parties").
Recitals
WHEREAS, the Parties have entered into the Stock Purchase
Agreement dated August 23, 1999 ("Stock Purchase Agreement"),
whereby Buyer agrees to purchase from Sellers, on the terms and
conditions set forth in the Stock Purchase Agreement, one
thousand (1,000) shares of the common stock, $1 par value per
share, of Systems & Electronics Inc., a Delaware corporation
which is a direct wholly-owned subsidiary of DHC and an indirect
wholly-owned subsidiary of ESCO;
WHEREAS, the Parties desire to amend the Stock Purchase
Agreement as provided below; and
WHEREAS, Engineered Support Systems, Inc. has executed a
joinder to the Stock Purchase Agreement as of the same date
thereof, and it acknowledges and agrees to the modification of
the Stock Purchase Agreement as set forth below.
NOW, THEREFORE, the parties agree as follows:
1.Subparagraph (b) of Section 2.7 shall be replaced by the
following:
(b) At Closing, Buyer may deliver to Sellers a
description of the payroll checks and other payroll transfers
which Buyer desires to make against Sellers' account
immediately following Closing ("Special Payroll"). On
October 8, 1999, Buyer will deposit the amount of the Special
Payroll in immediately available funds with Sellers in an
account designated by Sellers and Sellers will honor the
Special Payroll checks and transfers. Other payroll checks
and transfers issued prior to Closing from payroll account
number 3750928824 have already been charged to Company
("Payroll Account Checks"). With respect to all checks or
other transfers, other than the special payroll and the
Payroll Account Checks, which Buyer has made on Sellers' or
its Affiliates' accounts and which are outstanding at
Closing, for each successive seven-day period following the
Closing, the total of all checks of the Company issued by the
Company prior to the Effective Time, other than the Special
Payroll, made payable from accounts of the Sellers or their
Affiliates, which clear such accounts during such seven-day
period, shall be submitted, together with any associated bank
charges, in an invoice by Sellers to the Company for payment
by the Company no later than five (5) days after submission
of such invoice. One hundred eighty (180) days after
Closing, Sellers shall cancel all such checks which remain
outstanding, and the Company will be responsible for any
indebtedness related thereto. The Company shall be liable
for all obligations in connection with such checks originally
issued on accounts of Sellers and their Affiliates, including
those under escheat laws, and shall hold Sellers harmless
with respect thereto;
2. Subparagraphs (a) and (b) of Section 2.9 shall be modified
to include the following new subparagraphs:
(a)(x) the split-dollar life insurance policy on
the life of X. Xxxxxxxx and all benefits and rights
thereunder.
(a)(xi) any material and inventory related to the DCSI
products.
(b)(viii) all liabilities and obligations in
connection with the split-dollar life insurance policy on the
life of X. Xxxxxxxx.
(b)(ix) all liabilities related to any material and
inventory related to the DCSI products.
3. Section 6.6 is modified to the extent that it shall include
in Exhibit C provisions for the following additional services:
a. For 1 year following Closing, the Company shall provide
field marketing services in connection with any of the Sellers'
businesses, including those of their Affiliates. These services
shall be provided in return for compensation payable by Sellers
to the Company of $65 per hour of employee services, plus
reimbursement of direct out-of-pocket travel costs. These
payments will be made within 5 days after delivery of
appropriate invoices by the Company to Sellers showing time
expended, by subsidiary and subject matter, and itemization of
travel expenses. Support for travel expenses will be provided
by the Company upon request of Sellers.
b. For 6 months following Closing, the Company shall provide
to Distribution Control Systems, Inc. ("DCSI") shock and
vibration testing in St. Louis, Missouri, and technical,
production and testing support related to completing the
production transition in Sanford, Florida. These services shall
be provided in return for compensation payable by Sellers (or
DCSI) to the Company of the fully-burdened cost exclusive of
general and administrative costs, plus an additional 20%, except
that cost of travel shall be limited to the reimbursement of
direct out-of-pocket travel costs without further markup. These
payments will be made within 5 days after delivery of
appropriate invoices by the Company to Sellers showing the
calculation of the charges and itemization of travel expenses.
Support for travel expenses will be provided by the Company upon
request of Sellers.
c. For 1 year following Closing, the Company shall provide to
DCSI storage and shipping services with respect to DCSI
inventory held in Sanford, Florida. These services shall be
provided in return for compensation payable by Sellers (or DCSI)
to the Company of the fully burdened cost exclusive of general
and administrative costs, except that the costs of freight shall
be limited to the reimbursement of direct out-of-pocket freight
costs without further markup. These costs will be paid within 5
days after delivery of appropriate invoices by the Company to
Sellers showing itemization of such freight expenses. Support
for freight expenses will be provided by the Company upon
request of Sellers.
d. For 3 years following Closing, the Company will hold
inspection and testing records for DCSI and make such records
available to DCSI employees or ship such records to a location
designated by DCSI. These services shall be provided at no
charge other than the direct out-of-pocket freight and postage
costs incurred by DCSI. These costs will be paid within 5 days
after delivery of appropriate invoices by the Company to Sellers
showing itemization of such freight and postage expenses.
Support for freight and postage expenses will be provided by the
Company upon request of Sellers.
4.Added to Section 7.11, beginning on page 41, shall be an
additional subparagraph (d) as follows:
(d) The Company shall continue after Closing to pay to the
Sellers any amounts which are paid by Sellers or their
Affiliates to Third Parties after Closing with respect to
expenses incurred on behalf of the Company relating to events
prior to Closing arising in the ordinary course of business
(and unrelated to the sale of the Company hereunder),
including without limitation amounts owing for lawyers' fees,
accountants' fees, bank charges and insurance premiums, as
examples, rendered on behalf of the Company. Such requests
for payment shall be made pursuant to a reasonably itemized
invoice submitted by Sellers to the Company, and they shall be
paid by the Company within five days of the Company's receipt
of such invoice. Support for such invoices shall be provided
by the Sellers upon request of the Company. The foregoing
obligations shall continue until such time as no further
claims remain outstanding with respect to matters occurring on
or before the Closing Date.
5. Subparagraph (c) of Section 6.7 shall be modified by adding
the following sentence:
To the extent of the foregoing LOCs/Bonds issued by or
on behalf of Sellers are permitted by Sellers to
continue after Closing, Buyer will reimburse Sellers
or any appropriate Affiliate for the actual costs of
maintaining such LOCs/Bonds (pro rated to the date
of Closing), such reimbursement to be paid within 5
days of the delivery of a reasonably itemized
invoice by Sellers to Buyer, and Buyer will provide
backstop letters of credit at Closing. Support for
such invoices shall be provided by the Sellers upon
request of the Company.
6. Section 7.16, beginning on page 44, is amended to provide
that the 1997 and 1998 audited financial statements to be
delivered by the Sellers prior to Closing will be delivered on or
before 12:00 pm on Monday, September 27, 1999. These audited
financials shall not include the Comtrak Division assets,
liabilities and results of operations and shall not include ESCO
Electronica de Mexico, S.A. de C.V.
7. A new Section 7.18 shall be added as follows:
7.18. INSURANCE, WORKERS' COMPENSATION AND OTHER THIRD
PARTY OBLIGATIONS.
(a) After the Closing, Buyer shall reimburse Sellers
and their Affiliates for expenditures made by Sellers and
their Affiliates that (1) are liabilities of the Company or
assumed by Buyer pursuant to this Agreement, (2) continue to
be obligations of Sellers or Affiliates to third parties
under prior contracts which directly relate to the Company,
and (3) are attributable to the Company by any applicable
insurer and/or claims administrator ("Third Party
Administrator")(such liability for expenditures, hereinafter
"Third Party Obligations"). Third Party Obligations for
which Buyer shall reimburse Sellers ("Reimbursable Amounts")
include, without limitation:
(i) Qualified Self-Insured Workers' Compensation
obligations required by the State of Missouri, including,
without limitation, the surety bonding;
(ii) Insured losses occurring prior to closing
but reported subsequent to closing;
(iii) Reimbursement of retained losses (including
allocated and unallocated loss adjustment expense) under
various self-insured, deductible, retrospectively rated or
similar programs under which the Workers' Compensation,
General and Automobile Liability policies have or may have
been written;
(iv) Provision for a "cash account" to fund the
payment by the Third Party Administrator administering the
above losses; and
(v) Provision of collateral securing the unpaid
portion of the obligations described in this Section 7.18,
including, without limitation, letters of credit, security
bonds, promissory notes, or similar financial guarantee
instruments.
(b) In addition to Reimbursable Amounts, Buyer shall
pay Sellers and their Affiliates for their direct out-of-
pocket costs for providing required collateral for Third
Party Obligations ("Collateral Costs").
(c) Sellers shall notify Buyer in writing and in
reasonable detail on the first of each month of the
Reimbursable Amounts and Collateral Costs owed by Buyer
under this Section. Buyer shall pay Sellers the
Reimbursable Amounts and Collateral Costs owed within 5 days
of Seller's notice under this Section. Support for such
charges will be provided by the Sellers upon the request of
the Company.
(d) In the event that policies of insurance covering
the period prior to the Closing are triggered subsequent to
the Closing by a report of an earlier event, Buyer shall
notify such insurer, with copies to Sellers, in accordance
with the reporting provisions of the policy(ies). Buyer
also specifically acknowledges that any breach of such
reporting condition of any insurance policy(ies) shall be
its sole responsibility, and further agrees to indemnify and
hold harmless Seller from any liabilities arising therefrom.
(e) This Section shall supersede any other provision
of this Agreement to the extent that such other provision is
inconsistent with this Section.
8. Capitalized terms used herein, but not defined herein, shall
have the meanings set forth in the Stock Purchase Agreement.
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Modification Agreement to be executed as of the date first above
written.
ESCO: BUYER:
ESCO ELECTRONICS CORPORATION ENGINEERED SYSTEMS AND
Xxxxxx Xxxxx, ELECTRONICS, INC.
Senior Vice President and Xxxx X. Xxxxxxxx,
General Counsel Executive Vice President and
Chief Financial
Officer
DHC:
DEFENSE HOLDING CORP.
Xxxxxx Xxxxx,
Senior Vice President and
Secretary
JOINDER
The foregoing Modification Agreement is approved by the undersigned
and the undersigned hereby acknowledges and agrees this September
____, 1999 to such modification to the Stock Purchase Agreement and
joins therein.
ENGINEERED SUPPORT SYSTEMS,
INC.:
Xxxx X. Xxxxxxxx,
Executive Vice President and
Chief
Financial Officer
