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SETTLEMENT AGREEMENT AND
MUTUAL RELEASE
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This
Settlement Agreement and Mutual Release (“Release”) is
entered into by and between Levine Leichtman Capital Partners III,
L.P. (“Levine Leichtman”), a California limited
partnership, on the one hand, and Frederick H. Kopko (“F.
Kopko”), and the following parties who are collectively
referred to as the “Defendants,” on the other: Butler
International, Inc., a Maryland corporation (“Butler”);
Butler Service Group, Inc., a New Jersey corporation; Butler
Services International, Inc., a Delaware corporation; Butler
Telecom, Inc., a Delaware corporation; Butler Services, Inc., a
Delaware corporation; Butler Utility Service, Inc., a Delaware
corporation; Butler Publishing, Inc., a Delaware corporation
(collectively, the “Companies”); AAC Corp., a Delaware
corporation (“AAC”); Sylvan Insurance Co., Ltd., a
company organized under the laws of Bermuda (“Sylvan”);
Data Performance, Inc., a New Jersey corporation
(“DPI”); and Edward M. Kopko (“E. Kopko”)
(Levine Leichtman, F. Kopko and the defendants are collectively
referred to herein as the “Parties” and each as a
“Party”).
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WHEREAS, on June 30, 2006, Levine Leichtman and the
Companies entered into a certain Securities Purchase Agreement
(“SPA”); and
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WHEREAS, pursuant to the SPA, Levine Leichtman was to
provide a total of $35 million of senior and subordinated debt
financing to Butler, of which $2.5 million was funded on June 30,
2006, as a bridge loan to be repaid within 45 days of June
30,
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Settlement
Agreement
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Page 1 of 14
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2006, and $35
million was to be funded on or prior to September 30, 2006, upon
the satisfaction of certain closing conditions, each as set forth
in the SPA; and
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WHEREAS, pursuant to the SPA, Butler issued to Levine
Leichtman an unsecured note in the original principal amount of
$2.5 million (the “Unsecured Note”) with a 15% interest
rate and a maturity date of August 14, 2006; and
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WHEREAS, pursuant to the SPA, Butler granted Levine
Leichtman the right to purchase an aggregate of one million, forty
one thousand, two hundred fifty-four (1,041,254) shares of
Butler’s common stock pursuant to a warrant (the
“Warrant”), which was exercisable for a period often
(10) years at an exercise price of $2.13 per share subject to the
terms and conditions set forth therein; and
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WHEREAS, pursuant to the terms of a General and Continuing
Guaranty (the “Sylvan/AAC/DPI Guaranty”), Sylvan, AAC
and DPI agreed to guarantee all indebtedness owed to Levine
Leichtman; and
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WHEREAS, E. Kopko provided a personal guaranty (the
“Personal Guaranty”) with respect to the obligations
owed under the SPA; and
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WHEREAS, on August 14, 2006, Butler and Levine Leichtman
entered into a first amendment to the SPA and to the Unsecured Note
due 2006 (the “First Amendment”) pursuant to which,
among other things, the Unsecured Note was amended to
permit
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Settlement
Agreement
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Page 2 of 14
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one payment of
$1.0 million on August 15, 2006, and the maturity date was extended
to August 25, 2006. Butler made the required payments on August 15,
2006 and August 25, 2006; and
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WHEREAS, under the terms of the SPA, as amended, the
remaining $35 million debt facility was to be funded upon the
satisfaction of certain closing conditions; and
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WHEREAS, two of the conditions to closing of the $35 million
funding, set forth in Section 6.2(f) of the SPA were (i) the
absence of “any injunction, order, decree or ruling that
prohibits or limits any of the transactions contemplated by the
[SPA]” and (ii) the absence of “any action, suit,
proceeding or investigation...that (a) draws into question the
validity, legality or enforceability . . . of the [SPA]. . . or the
consummation of the transactions contemplated thereby”;
and
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WHEREAS, on July 12, 2006, Knott Partners, L.P. forwarded a
letter to E. Kopko (the “Knott Letter”) seeking to
negotiate an alternative transaction to the SPA and specifically
objecting to the terms of the SPA; and
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WHEREAS, as required by the terms of the SPA, Butler
immediately notified Levine Leichtman of the Knott Letter;
and
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Settlement
Agreement
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Page 3 of 14
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WHEREAS, on August 23, 2006, Thomas J. Carley and Charles
Jobson filed a class action complaint (“Carley and Jobson
Complaint”) against Butler and Butler’s directors,
which questioned the validity of the SPA and the Warrant;
and
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WHEREAS, the Carley and Jobson Complaint sought, among other
things (i) an injunction preliminarily and permanently enjoining
Butler from closing on the loans set forth in the SPA; and (ii) a
declaration that the issuance of the Warrant was null and void and
ultra vires ; and
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WHEREAS, as required by the terms of the SPA, Butler
immediately notified Levine Leichtman of the Carley and Jobson
Complaint; and
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WHEREAS, Levine Leichtman perceived increased risk
associated with its potential investment due to, principally, the
perceived risk presented by the Knott Letter (given Knott’s
history with the Companies) and the Carley and Jobson Complaint,
such that on September 6, 2006, Levine Leichtman contacted Butler
seeking to modify the terms of its debt facility contemplated by
the SPA to eliminate the Warrant and provide for an enhanced cash
return to Levine Leichtman through: (i) a discounted issuance price
on the notes; and (ii) an increased and fixed interest rate on the
notes, in lieu of the variable rate originally provided;
and
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Settlement
Agreement
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Page 4 of 14
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WHEREAS, the consummation of the transactions contemplated
by the SPA did not occur on or prior to September 30, 2006
principally as a result of Butler failing to satisfy the closing
conditions set forth in section 6.2 of the SPA, including section
6.2(f) (“No Injunction, Order, or Suit”), and Butler
was unable to satisfy section 6.2(f) principally because of the
Knott Letter and the Carley and Jobson Complaint; and
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WHEREAS, as of September 30, 2006, Levine Leichtman’s
funding commitment under the SPA terminated when Levine Leichtman
declined to consummate the transactions contemplated by the SPA as
a result of Butler’s inability to satisfy the conditions to
closing set forth in Section 6.2(f) principally as a result of the
Knott Letter and the Carley and Jobson Complaint; and
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WHEREAS, on October 12, 2006, Levine Leichtman filed a
lawsuit in the Los Angeles Superior Court against the Companies,
AAC, Sylvan, DPI and E. Kopko, Case No. BC360205 for Breach of
Contract and Negligent Misrepresentation alleging, among other
things, that the Companies failed to fulfill certain closing
conditions set forth in the SPA, including Section 6.3(f) (the
“Action”); and
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WHEREAS, on November 3, 2006, in a letter to Levine
Leichtman, Butler asserted that the Warrant had been terminated
because of the failure to consummate the transactions contemplated
by the SPA; and
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Settlement
Agreement
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Page 5 of 14
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WHEREAS, the Parties wish to settle the Action and resolve
all claims among them.
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AGREEMENT
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NOW, THEREFORE, in consideration of the premises and mutual
promises herein made, and in consideration of the representations,
warranties and covenants herein contained, the Parties agree as
follows:
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1.
Recitals Conclusive . California Evidence Code section 622
applies to the recitals stated above, which are therefore
conclusively determined to be true as between the parties to this
Release.
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2.
Payment to Levine Leichtman . Upon execution of this
Release, Defendants immediately shall pay to Levine Leichtman the
sum of $1,265,000 by wire transfer to the following
account:
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Levine
Leichtman Capital Partners III, L.P.
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Bank of
America
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2049 Century
Park East
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Los Angeles, CA
90067
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Attention:
Cheryl Stewart
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ABA
#026-009-593
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Accounts #:
11546-02404
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Settlement
Agreement
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Page 6 of 14
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3.
Dismissal of Action . Promptly upon receipt of good funds in
the amount of $1,265,000, Levine Leichtman shall file a dismissal
of the Action with prejudice.
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4.
Agreements Terminated . Effective upon the payment reflected
in paragraph 1, except as expressly set forth below, the following
are hereby terminated and shall be of no furt
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