UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 1-10596
ESCO TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1554045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8888 LADUE ROAD, SUITE 200
ST. LOUIS, MISSOURI 63124-2090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(314) 213-7200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No___
The number of shares of the registrant's common stock outstanding at January 31,
2005 was 12,609,659.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
December 31,
------------
2004 2003
---- ----
Net sales $ 104,375 96,396
Costs and expenses:
Cost of sales 68,509 66,270
Selling, general and administrative expenses 19,813 18,769
Interest income (481) (36)
Other (income) expenses, net (453) 614
---- ---
Total costs and expenses 87,388 85,617
Earnings before income taxes 16,987 10,779
Income tax expense 6,464 4,191
----- -----
Net earnings from continuing operations 10,523 6,588
Loss from discontinued operations, net of tax benefit of
$(656) in fiscal 2004 - (437)
- ----- ---- --- ----
Net earnings $ 10,523 6,151
====== =====
Earnings (loss) per share:
Basic - Continuing operations $ 0.82 0.51
- Discontinued operations - (0.03)
---- -----
- Net earnings $ 0.82 0.48
==== ====
Diluted - Continuing operations $ 0.80 0.50
- Discontinued operations - (0.04)
---- -----
- Net earnings $ 0.80 0.46
==== ====
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, September 30,
2004 2004
---- ----
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 60,357 72,281
Accounts receivable, net 69,248 77,729
Costs and estimated earnings on long-term
contracts, less progress billings of
$1,703 and $2,210, respectively 2,957 2,476
Inventories 48,204 44,287
Current portion of deferred tax assets 22,320 27,810
Other current assets 8,408 8,947
----- -----
Total current assets 211,494 233,530
Property, plant and equipment, net 69,496 69,103
Goodwill 69,437 68,949
Other assets 31,185 30,858
------ ------
$381,612 402,440
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $ 126 151
Accounts payable 28,598 32,455
Advance payments on long-term contracts, less costs
incurred of $9,627 and $8,017, respectively 3,303 4,305
Accrued salaries
8,048 11,896
Accrued taxes 3,072 4,454
Accrued other expenses 13,772 15,061
------ ------
Total current liabilities 56,919 68,322
------ ------
Deferred income 2,623 2,738
Pension obligations 13,905 13,899
Other liabilities 9,580 9,497
Long-term debt 407 368
--- ---
Total liabilities 83,434 94,824
Shareholders' equity:
Preferred stock, par value $.01 per share, authorized
10,000,000 shares -- --
Common stock, par value $.01 per share, authorized
50,000,000 shares, issued 14,184,571 and 14,148,902
shares, respectively 142 142
Additional paid-in capital 223,247 221,711
Retained earnings 126,486 115,963
Accumulated other comprehensive loss (279) (3,698)
---- ------
349,596 334,118
Less treasury stock, at cost: 1,591,413 and 1,257,352
common shares, respectively (51,418) (26,502)
------- -------
Total shareholders' equity 298,178 307,616
------- -------
$381,612 402,440
======== =======
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months Ended
December 31,
------------
2004 2003
---- ----
Cash flows from operating activities:
Net earnings $10,523 6,151
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Net loss from discontinued operations, net of tax - 437
Depreciation and amortization 3,119 2,841
Changes in operating working capital (1,265) 210
Effect of deferred taxes 1,122 487
Other 781 3,246
--- -----
Net cash provided by operating activities-
continuing operations 14,280 13,372
Net cash used by discontinued operations - (517)
--- ----
Net cash provided by operating activities 14,280 12,855
Cash flows from investing activities:
Capital expenditures- continuing operations (2,013) (2,513)
Capital expenditures- discontinued operations - (1,278)
----- -----
Net cash used by investing activities (2,013) (3,791)
Cash flows from financing activities:
Net decrease in short-term borrowings - (3,000)
Principal payments on long-term debt (42) (37)
Purchases of common stock into treasury
(24,928) -
Other (including exercise of stock options) 779 310
--- ---
Net cash used by financing activities (24,191 (2,727)
------- ------
Net (decrease) increase in cash and cash equivalents (11,924) 6,337
Cash and cash equivalents, beginning of period 72,281 31,285
------ ------
Cash and cash equivalents, end of period $ 60,357 37,622
====== ======
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements, in the opinion of
management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the results for the interim
periods presented. The consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not
include all the disclosures required by accounting principles generally
accepted in the United States of America (GAAP). For further information
refer to the consolidated financial statements and related notes included
in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2004.
The results for the three month period ended December 31, 2004 are not
necessarily indicative of the results for the entire 2005 fiscal year.
2. DISCONTINUED OPERATIONS - 2004
Microfiltration and Separations Businesses (MicroSep) - The MicroSep
businesses consisted of PTI Advanced Filtration Inc., PTI Technologies
Limited, and PTI S.p.A. Effective April 2, 2004, the Company completed the
sale of PTI Advanced Filtration Inc. (Oxnard, California) and PTI
Technologies Limited (Sheffield, England) to domnick hunter group plc for
$18 million in cash. On June 8, 2004, the Company completed the sale of PTI
S.p.A. (Milan, Italy) to a group of investors comprised of the subsidiary's
senior management for $5.3 million. An after-tax loss of $0.4 million
related to the MicroSep businesses is reflected in the Company's fiscal
2004 first quarter results in discontinued operations.
3. EARNINGS PER SHARE (EPS)
Basic EPS is calculated using the weighted average number of common shares
outstanding during the period. Diluted EPS is calculated using the weighted
average number of common shares outstanding during the period plus shares
issuable upon the assumed exercise of dilutive common share options and
vesting of performance-accelerated restricted shares (restricted shares) by
using the treasury stock method. The number of shares used in the
calculation of earnings per share for each period presented is as follows
(in thousands):
Three Months Ended
December 31,
------------
2004 2003
---- ----
Weighted Average Shares
Outstanding - Basic 12,793 12,838
Dilutive Options and Restricted
Shares 411 446
--- ---
Adjusted Shares- Diluted 13,204 13,284
====== ======
Options to purchase 1,500 shares of common stock at a price of $77.71 and
options to purchase 77,250 shares of common stock at a price of $48.58 were
outstanding during the three month periods ended December 31, 2004 and
2003, respectively, but were not included in the computation of diluted EPS
because the options' exercise prices were greater than the average market
price of the common shares. The options expire at various periods through
2013. Approximately 27,000 and 16,000 performance-accelerated restricted
shares were excluded from the respective computation of diluted EPS based
upon the application of the treasury stock method for the three month
periods ended December 31, 2004 and 2003, respectively.
Had compensation cost for the Company's stock option plans and
performance-accelerated restricted share plans been determined based on the
fair value at the grant date for awards outstanding during the three month
periods ended December 31, 2004 and 2003 consistent with the provisions of
SFAS 148, the Company's net earnings and net earnings per share would have
been as shown in the table below:
(Unaudited)
(Dollars in thousands, except per
share amounts)
Three Months Ended
December 31,
------------
2004 2003
---- ----
Net earnings, as reported $10,523 6,151
Add: stock-based employee compensation
expense included in reported net
earnings, net of tax 369 274
Less: total stock-based employee
compensation expense determined
under fair value based methods,
net of tax (918) (536)
---- ----
Pro forma net earnings $ 9,974 5,889
===== =====
Net earnings per share:
Basic - as reported $ 0.82 0.48
Basic - pro forma 0.78 0.46
==== ====
Diluted - as reported $ 0.80 0.46
Diluted - pro forma 0.76 0.44
==== ====
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the three month periods ended December 31,
2004 and 2003, respectively: expected dividend yield of 0% in both periods;
expected volatility of 28.3% and 23.9%; risk-free interest rate of 3.6% and
4.3%; and expected life based on historical exercise periods of 4.21 years
and 4.24 years.
4. INVENTORIES
Inventories consist of the following (in thousands):
December 31, September 30,
2004 2004
---- ----
Finished goods $ 13,758 11,444
Work in process, including long- term contracts 13,704 13,759
Raw materials 20,742 19,084
------ ------
Total inventories $ 48,204 44,287
========= ======
5. COMPREHENSIVE INCOME
Comprehensive income for the three-month periods ended December 31, 2004
and 2003 was $13.9 million and $8.6 million, respectively. For the three
month periods ended December 31, 2004 and 2003, the Company's comprehensive
income was positively impacted by foreign currency translation adjustments
of $3.4 million and $2.5 million, respectively.
6. BUSINESS SEGMENT INFORMATION
The Company is organized based on the types of products and services that
it offers. Under this organizational structure, the Company operates in
three segments: Filtration/Fluid Flow, Communications and Test.
Management evaluates and measures the performance of its operating segments
based on "Net Sales" and "EBIT", which are detailed in the table below.
EBIT is defined as earnings from continuing operations before interest and
taxes. "Corporate" consists of unallocated corporate office operating
charges. The table below is presented for continuing operations and
excludes discontinued operations.
($ in thousands) Three Months ended
December 31,
------------
NET SALES 2004 2003
--------- ---- ----
Filtration/Fluid Flow $ 44,004 39,909
Communications 33,533 31,414
Test 26,838 25,073
------ ------
Consolidated totals $104,375 96,396
======== ======
EBIT
Filtration/Fluid Flow $ 7,059 3,511 (1)
Communications 9,622 7,367
Test 2,082 2,197
Corporate (2,257) (2,332)
------ ------
Consolidated EBIT 16,506 10,743
Add: Interest income (481) (36)
---- ---
Earnings before income
taxes $ 16,987 10,779
====== ======
(1) Includes $0.7 million of exit costs related to the Filtertek
Puerto Rico facility described in detail in previous filings.
7. RETIREMENT AND OTHER BENEFIT PLANS
A summary of net periodic benefit expense for the Company's defined benefit
plans and postretirement healthcare and other benefits for the three month
periods ended December 31, 2004 and 2003 are shown in the following tables.
Effective December 31, 2003, the Company's defined benefit plan was frozen
and no additional benefits will be accrued after that date. Net periodic
benefit cost for each period presented is comprised of the following:
Three Months Ended
December 31,
------------
(Dollars in thousands) 2004 2003
---------------------- ---- ----
Defined benefit plans
Service cost $ - 140
Interest cost 663 623
Expected return on assets (713) (675)
Amortization of:
Actuarial loss 125 100
--- ---
Net periodic benefit cost $ 75 188
==== ===
Net periodic postretirement benefit cost for each period presented is
comprised of the following:
Three Months Ended
December 31,
------------
(Dollars in thousands) 2004 2003
---------------------- ---- ----
Service cost $ 8 5
Interest cost 10 8
Amortization of actuarial gain (8) (13)
-- ---
Net periodic postretirement
benefit cost $ 10 -
==== ===
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (R), "Share-Based Payment" (SFAS No. 123 (R)). This Statement
replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB No. 25, "Accounting for Stock Issued to Employees." SFAS 123
(R) requires all stock-based compensation to be recognized as an expense in
the financial statements and that such cost be measured according to the
fair value of stock options. SFAS 123 (R) will be effective for quarterly
periods beginning after June 15, 2005. The Company plans to adopt the
provisions of this Statement in the fourth quarter of fiscal 2005 on a
prospective basis. The Company currently provides the pro forma disclosures
required by SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," on a quarterly basis (see "Note 3 - Earnings
Per Share").
In December 2004, the FASB issued FASB Staff Position FAS 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004 (FSP 109-2)." The
American Jobs Creation Act of 2004, (the "Act") provides for a special
one-time deduction of 85 percent of certain foreign earnings repatriated
into the U.S. from non-U.S. subsidiaries through September 30, 2006. The
Company is currently evaluating the merits of repatriating funds under the
Act. The range of reasonably possible amounts of unremitted earnings that
are being considered for repatriation is between zero and $27.6 million,
which would require the Company to pay income taxes in the range of zero to
$2.0 million. Federal income taxes on the repatriated amounts would be
based on the 5.25% effective statutory rate as provided in the Act, plus
applicable withholding taxes. To date, the Company has not provided for
income taxes on unremitted earnings generated by non-U.S. subsidiaries
given the Company's historical intent to permanently invest these earnings
abroad. As a result, additional taxes will be required to be recorded for
any funds repatriated under the Act. The Company expects to complete its
evaluation of the repatriation provision of the Act by September 30, 2006.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion refers to the Company's results from continuing
operations, except where noted. The Microfiltration and Separations businesses
(MicroSep), which were sold in the third quarter of fiscal 2004, are accounted
for as discontinued operations in accordance with SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." Accordingly, the MicroSep
businesses are reflected as discontinued operations in the financial statements
and related notes for fiscal 2004.
NET SALES
Net sales increased $8.0 million (8.3%) to $104.4 million for the
first quarter of fiscal 2005 from $96.4 million for the first quarter of fiscal
2004, primarily due to increases across all three operating segments including a
favorable foreign currency impact which contributed $1.5 million to the increase
in sales. On a segment basis, for the first quarter of fiscal 2005,
Filtration/Fluid Flow sales increased 10%, Communications sales increased 7%,
and Test sales increased 7% from the prior year period.
- -Filtration/Fluid Flow
Net sales increased $4.1 million (10.3%) to $44.0 million for the first quarter
of fiscal 2005 from $39.9 million for the first quarter of fiscal 2004. The
sales increase during the fiscal quarter ended December 31, 2004 as compared to
the prior year quarter is mainly due to the following: higher commercial and
military aerospace shipments at PTI Technologies Inc. (PTI) of $2.3 million, a
net sales increase at Filtertek of $1.1 million driven by favorable foreign
currency rates related to its European operations, and higher defense shipments
at VACCO of $0.7 million.
- -Communications
For the first quarter of fiscal 2005, net sales of $33.5 million were $2.1
million, or 6.7%, higher than the $31.4 million of net sales recorded in the
first quarter of fiscal 2004. The sales increase in the first quarter of fiscal
2005 as compared to the prior year period is the result of higher shipments of
Comtrak's SecurVision video security products, which generated $7.1 million in
sales during the first quarter of fiscal 2005 compared to $0.5 million in the
prior year period. This increase in Comtrak's shipments was the result of
additional deliveries which had been previously delayed by the customer who had
required a modification of the products to provide enhanced "virus" protection.
DCSI's sales of automatic meter reading (AMR) equipment to electric utility
customers were $26.4 million in the first quarter of fiscal 2005 compared to
$31.0 million in the prior year period. Sales to PPL Electric Utilities
Corporation (PPL) decreased approximately $11.5 million in the first quarter of
fiscal 2005 compared to the prior year period due to the wind-down of the PPL
contract. Sales to PPL were $1.0 million and $12.5 million in the fiscal
quarters ended December 31, 2004 and 2003, respectively. The decrease in sales
to PPL was partially offset by higher AMR product sales to the electric utility
cooperative (COOP) market and other customers. DCSI's sales to COOP's and other
customers were $25.4 million and $18.5 million in the fiscal quarters ended
December 31, 2004 and 2003, respectively.
- -Test
Net sales increased $1.7 million (6.8%) to $26.8 million for the first quarter
of fiscal 2005 from $25.1 million for the first quarter of fiscal 2004. The
sales increase during the fiscal quarter ended December 31, 2004 as compared to
the prior year quarter is primarily due to the completion of several test
chamber installations, higher antenna and other component sales, and the
completion of additional government shielding projects.
ORDERS AND BACKLOG
Backlog was $246.4 million at December 31, 2004 compared with $249.1 million at
September 30, 2004. The Company received new orders totaling approximately $102
million in the first quarter of fiscal 2005. New orders of $39.2 million were
received in the first quarter of fiscal 2005 related to Filtration/Fluid Flow
products, $35.3 million related to Communications products (includes $30.7
million of new orders related to AMR products), and $27.1 million related to
Test products.
GROSS PROFIT
The Company computes gross profit as net sales less cost of sales. The gross
profit margin is the gross profit divided by net sales, expressed as a
percentage. The gross profit margin was 34.4% and 31.3% in the first quarter of
fiscal 2005 and 2004, respectively. This increase of 3.1% was mainly due to
higher margins on shipments of AMR equipment and SecurVision products in the
Communications segment. In addition, the prior year first quarter gross profit
margin in the Filtration/Fluid Flow segment was negatively impacted by the exit
and move costs incurred and the inefficiencies being absorbed at Filtertek as a
result of operating in both the Puerto Rico and Juarez, Mexico facilities. The
closure and relocation of the Filtertek Puerto Rico facility was completed in
March 2004.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the first quarter of
fiscal 2005 were $19.8 million (19.0% of net sales), compared with $18.8 million
(19.5% of net sales) for the prior year period. The increase in SG&A spending in
the fiscal quarter ended December 31, 2004 as compared to the prior year period
is mainly due to the costs associated with marketing, project management and new
product development within the Communications segment to further penetrate the
investor owned utility market.
OTHER (INCOME) EXPENSES, NET
Other (income) expenses, net, were $(0.5) million for the quarter ended December
31, 2004 compared to $0.6 million for the prior year quarter. Principal
components of other (income) expenses, net, for the first quarter of fiscal 2005
included $(0.6) million of royalty income and $0.2 million of amortization
expense of identifiable intangible assets (primarily patents, licenses and
software). Principal components of other (income) expenses, net, for the first
quarter of fiscal 2004 included the following: $0.4 million of exit costs
related to the Filtertek Puerto Rico facility and $0.2 million of amortization
of identifiable intangible assets (primarily patents and licenses).
EBIT
The Company evaluates the performance of its operating segments based on EBIT,
defined below. EBIT was $16.5 million (15.8% of net sales) for the first quarter
of fiscal 2005 and $10.7 million (11.1% of net sales) for the first quarter of
fiscal 2004. EBIT for the first quarter of fiscal 2004 was negatively impacted
by $0.7 million of severance and exit costs related to the Filtertek Puerto Rico
facility (Filtration/Fluid Flow segment).
This Form 10-Q contains the financial measure "EBIT", which is not calculated in
accordance with generally accepted accounting principles in the United States of
America (GAAP). EBIT provides investors and Management with an alternative
method for assessing the Company's operating results. The Company defines "EBIT"
as earnings from continuing operations before interest and taxes. Management
evaluates the performance of its operating segments based on EBIT, and believes
that EBIT is useful to investors to demonstrate the operational profitability of
the Company's business segments by excluding interest and taxes, which are
generally accounted for across the entire Company on a consolidated basis. EBIT
is also one of the measures Management uses to determine resource allocations
within the Company and incentive compensation. The following table represents a
reconciliation of EBIT to net earnings from continuing operations.
Three Months ended
($ in thousands) December 31,
------------
2004 2003
---- ----
EBIT $16,506 10,743
Interest income 481 36
Less: Income taxes 6,464 4,191
----- -----
Net earnings from continuing
operations $10,523 6,588
======= =====
- -Filtration/Fluid Flow
EBIT was $7.1 million (16.0% of net sales) and $3.5 million (8.8% of net sales)
in the first quarters of fiscal 2005 and 2004, respectively. This increase of
$3.6 million was due to the following: a $1.8 million increase at Filtertek,
which included $0.6 million of cost reimbursement from a medical device customer
related to a shortfall between their actual purchases versus the minimum
contractually guaranteed amount (the first quarter of fiscal 2004 included $0.7
million of exit costs related to the Puerto Rico facility); a $1.1 million
increase at PTI due to higher commercial and military aerospace shipments; and a
$0.7 million increase at VACCO due to higher defense shipments.
- -Communications
EBIT in the first quarter of fiscal 2005 was $9.6 million (28.7% of net sales)
as compared to $7.4 million (23.5% of net sales) in the prior year period. The
increase in EBIT margin in the first quarter of fiscal 2005 as compared to the
prior year period is mainly due to the additional shipments of Comtrak's
SecurVision products, as well as the favorable sales mix of AMR products
resulting from additional sales to the COOP market, and cost reductions realized
on certain AMR components. The Company will continue to increase its engineering
and new product development expenditures in the Communications segment in order
to continue its growth in the AMR markets, and to further differentiate its
technology from the competition.
- -Test
EBIT in the first quarter of fiscal 2005 was $2.1 million (7.8% of net sales) as
compared to $2.2 million (8.8% of net sales) in the prior year period. This
decrease in EBIT is mainly the result of approximately $0.3 million in
installation cost overruns incurred on certain government shielding projects
being installed in challenging areas throughout the world, as well as increased
costs of steel and copper.
- -Corporate
Corporate costs included in EBIT were ($2.3) million for the three month period
ended December 31, 2004 compared to ($2.4) million for the prior year period.
INTEREST INCOME, NET
Interest income, net was $0.5 million for the three month period ended December
31, 2004 compared to interest income of $0.1 million for the prior year period.
This increase in interest income is mainly due to a tax refund of lookback
interest and higher average cash balances on hand in fiscal 2005.
INCOME TAX EXPENSE
The first quarter fiscal 2005 effective income tax rate was 38.1% compared to
38.9% in the first quarter of fiscal 2004. The decrease in the effective income
tax rate in the first quarter of fiscal 2005 is primarily due to the timing and
volume of profit contributions of the Company's foreign operations. The Company
estimates the annual effective tax rate for fiscal 2005 to be approximately 38%.
CAPITAL RESOURCES AND LIQUIDITY
Working capital decreased to $154.6 million at December 31, 2004 from $165.2
million at September 30, 2004. During the first three months of fiscal 2005,
cash decreased $11.9 million due to the $24.9 million share repurchase,
partially offset by cash generated from operations. Accounts receivable
decreased by $8.5 million due to timing of sales and collections. Inventories
increased by $3.9 million in the first three months of fiscal 2005, of which
$2.0 million related to the Test segment due to the timing of sales and $1.1
million was to build safety stock within the Communications segment. In
addition, accounts payable and accrued expenses decreased by $10.4 million in
the first three months of fiscal 2005, primarily due to the timing of vendor
payments and payroll periods.
Net cash provided by operating activities from continuing operations increased
to $14.3 million in the first three months of fiscal 2005, compared to $13.4
million in the same period of fiscal 2004.
Capital expenditures from continuing operations were $2.0 million and $2.5
million in the first quarter of fiscal 2005 and 2004, respectively. Major
expenditures in the current period included manufacturing equipment and facility
modifications used in the Filtration/Fluid Flow businesses.
The Company has approximately $1.5 million in commitments outstanding in the
Communications segment to further differentiate its products and to further
penetrate the investor owned utility market. This amount is expected to be spent
during fiscal 2005.
The closure and relocation of the Filtertek Puerto Rico facility was completed
in March 2004. The Puerto Rico facility is included in other current assets with
a carrying value of $3.6 million at December 31, 2004. The facility continues to
be actively marketed for sale.
In October 2004, the Company entered into a new $100 million five-year revolving
bank credit facility with a $50 million increase option, which replaced its
then-existing credit facility. At December 31, 2004, the Company had
approximately $98.6 million available to borrow under the credit facility in
addition to $60.4 million cash on hand. Against the $100 million available under
the revolving credit facility at December 31, 2004, the Company had outstanding
letters of credit of $1.4 million. Cash flow from operations and borrowings
under the Company's bank credit facility are expected to meet the Company's
capital requirements and operational needs for the foreseeable future.
STOCK REPURCHASE PROGRAM
In August 2004, the Company's Board of Directors approved the extension of the
previously authorized (February 2001) open market repurchase program of up to
1.1 million shares, which is subject to market conditions and other factors and
covers the period ending September 30, 2006. During the first quarter of fiscal
2005, the Company repurchased 335,036 shares under this program for a total of
$24.9 million and has approximately 575,000 shares remaining under this program
at December 31, 2004.
CRITICAL ACCOUNTING POLICIES
Management has evaluated the accounting policies used in the preparation of the
Company's financial statements and related notes and believes those policies to
be reasonable and appropriate. Certain of these accounting policies require the
application of significant judgment by management in selecting appropriate
assumptions for calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty. These judgments are
based on historical experience, trends in the industry, information provided by
customers and information available from other outside sources, as appropriate.
The most significant areas involving management judgments and estimates may be
found in the Critical Accounting Policies Section of Management's Discussion and
Analysis and in Note 1 to the Consolidated Financial Statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2004, at Exhibit 13.
OTHER MATTERS
Contingencies
As a normal incident of the businesses in which the Company is engaged, various
claims, charges and litigation are asserted or commenced against the Company. In
the opinion of Management, final judgments, if any, which might be rendered
against the Company in current litigation are adequately reserved, covered by
insurance, or would not have a material adverse effect on its financial
statements.
FORWARD LOOKING STATEMENTS
Statements in this report that are not strictly historical are "forward looking"
statements within the meaning of the safe harbor provisions of the federal
securities laws. Forward looking statements include those relating to the
estimates or projections made in connection with the Company's accounting
policies, annual effective tax rate, timing of Communications segment
commitments and expenditures, outcome of current claims and litigation, future
cash flow, and capital requirements and operational needs for the foreseeable
future. Investors are cautioned that such statements are only predictions, and
speak only as of the date of this report. The Company's actual results in the
future may differ materially from those projected in the forward-looking
statements due to risks and uncertainties that exist in the Company's operations
and business environment including, but not limited to: weakening of economic
conditions in served markets; changes in customer demands or customer
insolvencies; competition; intellectual property rights; successful execution of
the planned sale of the Company's Puerto Rico facility; delivery delays or
defaults by customers; termination for convenience of customer contracts; timing
and magnitude of future contract awards; performance issues with key suppliers,
customers and subcontractors; collective bargaining and labor disputes; changes
in laws and regulations including changes in accounting standards and taxation
requirements; changes in foreign or U.S. business conditions affecting the
distribution of foreign earnings; costs relating to environmental matters;
litigation uncertainty; and the Company's successful execution of internal
operating plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from changes
in interest rates and changes in foreign currency exchange rates. There has been
no material change to the Company's risks since September 30, 2004. Refer to the
Company's 2004 Annual Report on Form 10-K for further discussion about market
risk.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of Management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective as of that date. Disclosure controls and
procedures are controls and procedures that are designed to ensure that
information required to be disclosed in Company reports filed or submitted under
the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. There has been no change in the Company's
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
c) Stock Repurchase Program
Total Number Maximum Number
of Shares of Shares that
Purchased as May Yet Be
Total Number Average Price Part of Publicly Purchased Under
of Shares Paid Announced Plans the Plans or
Period Purchased per Share or Programs Programs
- ------ ---------- ---------- -------- --------
Oct. 1-31, 2004 0 $0.00 0 911,519
Nov. 1-30, 2004 138,936 $72.03 138,936 772,583
Dec. 1-31, 2004 196,100 $76.09 196,100 576,483
------- ------ -------
Total 335,036 $74.40 335,036
ITEM 5. OTHER INFORMATION
a) On October 4 and November 10, 2004, the Human Resources and Compensation
Committee of the Company's Board of Directors took certain actions in respect of
director and executive compensation. These actions are being reported as a
result of recent SEC staff interpretations. See Exhibits 10.1 through 10.7 of
this Form 10-Q.
ITEM 6. EXHIBITS
a)Exhibits
Exhibit
Number
3.1 Restated Articles of Incorporated by reference to Form
Incorporation 10-K for the fiscal year ended
September 30, 1999, at Exhibit 3(a)
3.2 Amended Certificate of Incorporated by reference to Form
Designation, Preferences and 10-Q for the fiscal quarter ended
Rights of Series A March 31, 2000, at Exhibit 4(e)
Participating Cumulative
Preferred Stock of the
Registrant
3.3 Articles of Merger effective Incorporated by reference to Form
July 10, 2000 10-Q for the fiscal quarter ended
June 30, 2000, at Exhibit 3(c)
3.4 Bylaws, as amended and restated. Incorporated by reference to Form
10-K for the fiscal year ended
September 30, 2003, at Exhibit 3.4
4.1 Specimen Common Stock Incorporated by reference to Form10-Q
Certificate for the fiscal quarter ended June 30,
2000, at Exhibit 4(a)
4.2 Specimen Rights Certificate Incorporated by reference to Current
Report on Form 8-K dated February 3,
2000, at Exhibit B to Exhibit 4.1
4.3 Rights Agreement dated as of Incorporated by reference to Current
September 24, 1990 (as amended Report on Form 8-K dated February 3,
and Restated as of February 3, 2000, at Exhibit 4.1
2000) between the Registrant
and Registrar and Transfer
Company, as successor Rights
Agent
4.4 Credit Agreement dated as of Incorporated by reference to Form10-K
October 6, 2004, among the for the fiscal year ended September
Registrant, Wells Fargo Bank, 30, 2004, at Exhibit 4.4
N.A., as agent, and the lenders
listed therein
10.1 Summary of Non-Employee
Directors' Compensation
10.2 Performance Compensation Plan
Amended and Restated as of
November 25, 2002
10.3 2005 Performance Measures and
Evaluation Criteria under
Performance Compensation Plan
10.4 Awards to Executive Officers
Not Reported on Form 8-K,
October 4, 2004
10.5 Form of Notice of
Award-Performance-Accelerated
Restricted-Stock under 2001
Stock Incentive Plan
10.6 Form of Incentive Stock Option
Agreement under 2004 Incentive
Compensation Plan
10.7 Form of Nonqualified Stock
Option Agreement under 2004
Incentive Compensation Plan
10.8 Form of Incentive Stock Option
Agreement under 2001 Stock
Incentive Plan
10.9 Form of Nonqualified Stock
Option Agreement under 2001
Stock Incentive Plan
31.1 Certification of Chief
Executive Officer relating to
Form 10-Q for period ended
December 31, 2004
31.2 Certification of Chief
Financial Officer relating to
Form 10-Q for period ended
December 31, 2004
32 Certification of Chief
Executive Officer and Chief
Financial Officer relating to
Form 10-Q for period ended
December 31, 2004
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESCO TECHNOLOGIES INC.
/s/ Gary E. Muenster
Gary E. Muenster
Vice President and Chief Financial Officer
(As duly authorized officer and principal accounting
officer of the registrant)
Dated: February 8, 2005
Exhibit 31.1
CERTIFICATIONS
I, V.L. Richey, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of ESCO Technologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit and finance committee of the registrant's
board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: February 8, 2005
(s) V.L. Richey, Jr.
--------------------
V.L. Richey, Jr.
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, G.E. Muenster, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ESCO Technologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit and finance committee of the registrant's
board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: February 8, 2005
(s) G.E. Muenster
-----------------
G.E. Muenster
Chief Financial Officer
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of ESCO Technologies Inc. (the
"Company") on Form 10-Q for the period ended December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we, V. L.
Richey, Jr., Chief Executive Officer of the Company, and G. E. Muenster, Chief
Financial Officer of the Company, certify, to the best of our knowledge,
pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: February 8, 2005
/s/ V.L. Richey, Jr.
--------------------
V.L. Richey, Jr.
Chief Executive Officer
ESCO Technologies Inc.
/s/ G.E. Muenster
-----------------
G.E. Muenster
Chief Financial Officer
ESCO Technologies Inc.
Exhibit 10.1
ESCO Technologies Inc.
Summary Of Non-Employee Directors'
Compensation
(Effective January, 2005)
1. Board of Directors:
-------------------
- - - Annual Retainer -- $20,000
- - - Lead Director Additional Annual Retainer -- $15,000
- - - Total annual fees for meetings attended -- $4,800 (four meetings)
- - - 1,600 shares of ESCO common stock per annum -- payable quarterly
2. Committees of the Board:
- -- ------------------------
- - - Total annual fees for meetings attended of the Audit and Finance
("A&F") Committee, Governance ("NCG") Committee, the Human
Resources and Compensation ("HRC") Committee-$4,800 (four meetings)
3. Committee Chairmen -- Annual Retainers:
- - - A&F Committee -- $7,000
- - - HRC Committee -- $5,000
- - - NCG Committee -- $5,000
All of the above cash retainers and fees shall be paid in advance in January of
each year.
Exhibit 10.2
ESCO TECHNOLOGIES INC.
PERFORMANCE COMPENSATION PLAN
FOR CORPORATE, SUBSIDIARY AND
DIVISION OFFICERS AND KEY MANAGERS
----------------------------------
Adopted August 2, 1993
Amended and Restated Effective
As of October 1, 1995
Fifth Sentence of Section V Amended on November 9, 2000
Restated on November 28, 2000 to Reflect Name Change
Restated on November 25, 2002 to reflect changes to Sections VII,
IX and XI-E
I. PURPOSE
-------
The purpose of this ESCO Technologies Inc. Performance Compensation
Plan for Corporate, Subsidiary and Division Officers and Key Managers is to
provide an annual incentive plan for selected corporate, subsidiary and
division officers and key managers which is based upon their performance
and the performance of the Company and its Subsidiaries and Divisions
during a Fiscal Year. In particular, this plan is designed to (a) pay such
employees a portion of their total compensation on the basis of their
performance during a given Fiscal Year, (b) tie Subsidiary and Division
management into Corporate performance objectives for a given fiscal year,
and (c) stay competitive with general industry trends in executive
compensation.
II. DEFINITIONS
-----------
The following words shall have the following meanings unless the
context clearly requires otherwise:
A. "Board of Directors" means the Board of Directors of ESCO
Technologies Inc.
B. "Executive Compensation Executive" means the Executive
Compensation Executive of ESCO Technologies Inc. C. "Chief Executive
Officer" means the Chief Executive Officer of ESCO Technologies Inc.
D. "Committee" means the Human Resources and Ethics Committee of
the Board of Directors of ESCO Technologies Inc. which is comprised of
members who are not eligible to participate in the Plan.
E. "Company" means ESCO Technologies Inc., a Missouri
Corporation.
F. "Division" means a division of the Company or of a Subsidiary.
G. "Fiscal Year" means the fiscal year of the Company which is
currently the twelve-month period ending September 30.
H. "Participant" means an employee of the Company, a Subsidiary
or a Division eligible to receive a Performance Compensation Award.
I. "Performance Compensation Award" means the amount payable to a
Participant under the Plan.
J. "Plan" means this ESCO Technologies Inc. Performance
Compensation Plan for Corporate, Subsidiary and Division Officers and
Key Managers.
K. "Subsidiary" means any corporation or partnership more than
50% of which is owned directly or indirectly by the Company.
III. ELIGIBILITY
-----------
Participation in the Plan shall be limited to those employees of
the Company, Subsidiaries and Divisions as the Committee shall
determine upon recommendation by the Chief Executive Officer.
Additions or deletions to the Plan during a Fiscal Year shall be made
only in the event of an unusual circumstance, such as a promotion or
new hire.
IV. DETERMINATION OF MINIMUM AMOUNT PAYABLE
---------------------------------------
The Committee, after consultation with the Executive Compensation
Executive, shall make a recommendation to the Board of Directors of
the Company and to the Board of Directors of each Subsidiary of a
minimum aggregate payment under the Plan to be made by each such
employer for each Fiscal Year. The final determination of the minimum
aggregate payment under the Plan for each Fiscal Year to be made by
the Company and each Subsidiary shall be made by its respective Board
of Directors prior to the end of such Fiscal Year.
V. DETERMINATION OF PERFORMANCE COMPENSATION AWARDS
------------------------------------------------
As soon as practicable after the end of each Fiscal Year,
Performance Compensation Awards for each Participant for such Fiscal
Year shall be determined. The Chief Executive Officer shall submit
proposed Performance Compensation Awards for each Participant to the
Committee based upon that Participant's performance during the Fiscal
Year; provided, that the Committee may, following such submission,
consider the further recommendations of the Chief Executive Officer.
Final determination of the amount of each Participant's Performance
Compensation Award (if any) as well as the total payment under the
Plan for each Fiscal Year shall be the responsibility of the
Committee. Recommended Performance Compensation Awards to Participants
may be denied, or adjusted upward or downward by the Committee, as, in
the Committee's sole judgment, is prudent based upon its assessment of
the Participant's performance and Corporate, Subsidiary or Division
performance during the Fiscal Year. Performance Compensation Awards
for some Participants may be based upon predetermined Subsidiary,
Division or individual performance targets whereas Performance
Compensation Awards for other Participants may be totally
discretionary as determined by the Committee. However, total
Performance Compensation Awards under the Plan shall be no less than
the minimum determined by the Board of Directors of the Company and
each Subsidiary in accordance with Section IV.
Upon approval by the Committee, the Executive Compensation
Executive shall make arrangements to ensure that each Participant is
notified of the amount of his or her Performance Compensation Award.
VI. MANNER OF AND TIME FOR PAYMENTS.
--------------------------------
Performance Compensation Awards will normally be paid in cash by
November 30th following the end of each Fiscal Year. However, each
Participant shall have the right to elect to defer all or part of his
or her payment under the Award until the following January. Such
election must be made no later than the December 31st of the Fiscal
Year with respect to which the Performance Compensation Award is
granted by filing with the Executive Compensation Executive an
executed form supplied by the Company. Except in the case of hardship
described below, such election may only be revoked prior to the
December 31st of the Fiscal Year with respect to which the Performance
Compensation Award is granted. All elections (or revocations)
hereunder must be made by filing with the Executive Compensation
Executive an executed form supplied by the Company.
An election to defer a Performance Compensation Award may impact
the calculation of a Participant's pension benefit because the
calculation of such benefit is based on the average compensation
received during the period used to calculate pension benefits (e.g.,
highest five years of earnings).
The Committee may direct, upon a showing of an emergency beyond
the Participant's control which results in severe financial hardship,
that a Participant who has elected to defer payment until the
following January receive so much of his or her payment prior to such
time as will enable the Participant to meet such emergency.
VII. DESIGNATION OF BENEFICIARY
--------------------------
If a Participant dies prior to receiving the entire amounts due
under the Plan, the unpaid amounts will be paid in a lump sum to his
or her beneficiary within 90 days after the end of the Fiscal Year in
which his death occurs.
Each Participant shall have the right to designate a beneficiary,
and to change such beneficiary from time to time, by filing a request
in writing with the Executive Compensation Executive. In the event the
Participant shall not have so designated a beneficiary, or in the
event a beneficiary so designated shall predecease the Participant,
the amounts otherwise payable to such beneficiary shall be paid to the
person in, or divided equally among, the first of the following
classes of successive preference beneficiaries in which there shall be
any person surviving such Participant:
(a) the Participant's spouse
(b) the Participant's children
(c) the Participant's executors or administrators.
The share payable to any minor pursuant to the provisions hereof
may be paid to such adult or adults as, in the opinion of the
Executive Compensation Executive, have assumed the custody and
principal support of such minor.
VIII. ADMINISTRATION OF THE PLAN
--------------------------
The overall administration and control of the Plan, including
final determination of Performance Compensation Awards to each
Participant is the responsibility of the Committee. The Executive
Compensation Executive shall be responsible for implementing the
actions required under the Plan.
IX. VESTING
-------
A Participant must be in the employ of the Company, Subsidiary or
Division through the last day of the Fiscal Year with respect to which
a Performance Compensation Award is granted in order to be considered
for the grant of such an Award by the Committee. Such Participant must
also (subject to specific Committee action to the contrary as
hereinafter set forth in this Section IX) be an employee of the
Company, Subsidiary or Division on the date the award is payable
pursuant to Section VI hereof. The final determination as to Awards to
be granted, and if so, the amount of such Awards, shall be made by the
Committee. Notwithstanding any other provision hereof, and in
accordance with this Section IX, in the event a Participant terminates
or is terminated by the Company, Subsidiary or Division, before or
after the end of the Fiscal Year for any reason, including, but not
limited to, retirement, disability, or death, the Committee shall have
the sole discretion as to whether any such Award shall be granted,
and, if so, the amount of such Award and the time such Award shall be
paid.
X. AMENDMENT OR TERMINATION
------------------------
The Plan may be amended or terminated at any time by action of
the Committee.
XI. MISCELLANEOUS
-------------
A. All payments under the Plan shall be made from the general
assets of the Company, Subsidiary or Division. To the extent any
person acquires a right to receive payments under the Plan, such right
shall be no greater than that of an unsecured general creditor of the
Company, Subsidiary or Division.
B. Nothing contained in the Plan and no action taken pursuant
thereto shall create or be construed to create a trust of any kind, or
a fiduciary relationship between the Company, a Subsidiary or Division
and any other person.
C. No amount payable under the Plan shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, either voluntary or involuntary, and
any attempt to so alienate, anticipate, sell, transfer, assign,
pledge, encumber or charge the same shall be null and void. No such
amount shall be liable for or subject to the debts, contracts,
liabilities, engagements, or torts of any person to whom such benefits
or funds are or may be payable.
D. Nothing contained in the Plan shall be construed as conferring
upon any Participant the right to continue in the employ of the
Company, Subsidiary or Division nor to limit the right of his or her
employer to discharge the Participant at any time, with or without
cause.
E. The Plan shall be construed and administered in accordance
with the laws of the State of Missouri, without regard to the
principles of conflicts of law which might otherwise apply.
EXHIBIT 10.3
2005 Performance Measures and Evaluation Criteria
Under
Performance Compensation Plan
Under the Company's Performance Compensation Plan (the "Plan", an
annual cash incentive compensation program), the Human Resources and
Compensation Committee (the "Committee") of the Board of Directors of
the Company, on October 4 , 2004, approved the fiscal year 2005
targeted percentages of incentive-based compensation ("bonuses") for
the executive officers of the Company. On November 11, 2004, the
Committee approved the fiscal year 2005 performance measures and
evaluation criteria for establishing the Plan bonuses to be paid to
the executive officers at the end of the year. The Committee will
evaluate and measure the performance of the executive officers based
on the achievement of various Company and individual objectives,
weighted as follows: earnings per share-50%, other operating
results-10%; shareholder value-15%; economic profit improvement-5%;
growth-5%; and individual objectives-15%. The Committee also approved
a matrix to be applied to the above performance results in order to
calculate the actual bonuses to be paid. The actual bonuses will vary
from the bonus targets depending on the extent to which actual
performance meets, exceeds or falls short of the established
performance criteria approved by the Committee.
See the Plan document--Exhibit 10.2 of this Form 10-Q.
Exhibit 10.4
Awards to Executive Officers
Not Reported on Form 8-K
October 4, 2004
1. Performance-accelerated restricted stock awards granted October 4, 2004 under
the 2001 Stock Incentive Plan:
Victor L. Richey, Jr. - 7,800 shares
Charles J. Kretschmer - 5,000 shares
Gary E. Muenster - 3,200 shares
Alyson S. Barclay - 2,300 shares
See Exhibit 10.5 of this Form 10-Q.
2. Incentive stock option awards under the 2004 Incentive Compensation Plan:
Charles J. Kretschmer: number of shares granted - 450, date of grant
October 4, 2004, option price $70.36
Gary E. Muenster: number of shares granted - 1,247, date of grant,
October 4, 2004, option price $70.36
Alyson Barclay: number of shares granted - 1,528, date of grant,
October 4, 2004, option price $70,36
See Exhibit 10.6 of this Form 10-Q
3. Nonqualified stock option awards under the 2004 Incentive Compensation Plan:
Victor L. Richey, Jr.: number of shares granted - 7,800, date of grant
October 4, 2004, option price $70.36
Charles J. Kretschmer: number of shares granted - 4,550, date of grant
October 4, 2004, option price $70.36
Gary E. Muenster: number of shares granted - 1,950, date of grant
October 4, 2004, option price $70.36
Alyson Barclay: number of shares granted - 772, date of grant October
4, 2004, option price $70.36
See Exhibit 10.7 of this Form 10-Q
EXHIBIT 10.5
NOTICE OF AWARD
---------------
To:
From:Human Resources and Compensation Committee of the Board of Directors
("Committee")
Subject: ESCO Technologies Inc. 2001 Stock Incentive Plan ("Plan") - October,
2004 Award
1. Award. The Committee has awarded to you -------- shares of
Performance-Accelerated Restricted Stock under the terms of the Plan ("Award").
The Award is subject to all of the terms of the Plan, a copy of which has been
delivered to you.
2. Terms. The following are the terms of the Award:
Notwithstanding (b), below if, during the Period of the Award, the Average
Value Per Share of Company Stock reaches the amount set forth in column (A), a
percentage of the Award will be accelerated equal to the amount set forth under
column (B) subject to the limitations set forth in (c) and provided you comply
with the terms of the remainder of this Notice of Award.
A B
--- ---
If the Average Value The Cumulative
Per Share of Company Percent of Award
Stock reaches: Accelerated shall be:
-------------- ---------------------
$75.00 or more 100%
$65.00 50%
$55.00 0%
(b) If you are still employed on September 30, 2009 you will earn 100%
of the portion of the Award not yet accelerated provided you comply with
the requirements of paragraph 3.
(c) The following additional terms will apply to the Award:
(i) No portion of this Award may be accelerated prior to October
1, 2006. One hundred percent (100%) of the total Award may be
accelerated by the end of the Fiscal Year ending September 30, 2009.
(ii) Once a portion of the Award is accelerated under
subparagraph (a), you must remain employed with the Company or a
subsidiary of the Company until the March 31stfollowing the end of the
Fiscal Year in which that portion of the Award is accelerated. If you
terminate employment (voluntarily or involuntarily) prior to such
time, you will forfeit that portion of the Award. Provided, however,
that if your employment is terminated on account of death, or total
and permanent disability the foregoing employment requirement shall
not apply.
(iii) If there is a Change of Control (as defined in the Plan)
and you are employed by the Company on the date of the Change of
Control, the employment requirement of subparagraph (ii) shall cease
to apply to the portion of the Award which is accelerated or earned
and the number of shares representing that portion of the Award which
is accelerated or earned as of the date of the Change of Control shall
be distributed to you. In addition, the portion of the Award which is
not yet accelerated or earned shall be determined and distributed to
you at the end of the Fiscal Year in which the Change of Control
occurred provided you are still employed on such date, in lieu of all
other provisions of this Award. If you are not employed by the Company
as of the end of the foregoing Fiscal Year, no such distribution will
be made; provided, however, that if you are involuntarily terminated
for reasons other than Cause or if you terminate for Good Reason the
remaining shares not yet accelerated or earned shall be distributed in
full upon such termination of employment.
(a) Notwithstanding the foregoing provisions of this
subparagraph (iii), in the event a certified public accounting
firm designated by the Committee (the "Accounting Firm")
determines that any payment (whether paid or payable pursuant to
the terms of this Award or otherwise and each such payment
hereinafter defined as a "Payment" and all Payments in the
aggregate hereinafter defined as the "Aggregate Payment"), would
subject you to tax under Section 4999 of the Internal Revenue
Code of 1986 ("Code") then such Accounting Firm shall determine
whether some amount of payments would meet the definition of a
"Reduced Amount". If the Accounting Firm determines that there is
a Reduced Amount, payments shall be reduced so that the Aggregate
Payments shall equal such Reduced Amount. For purposes of this
subparagraph, the "Reduced Amount" shall be the largest Aggregate
Payment which (a) is less than the sum of all Payments and (b)
results in aggregate Net After Tax Receipts which are equal to or
greater than the Net After Tax Receipts which would result if
Payments were made without regard to this subsection (e). "Net
After Tax Receipt" means the Present Value (defined under Section
280G(d)(4) of the Code) of a Payment net of all taxes imposed on
you under Section 1 and 4999 of the Code by applying the highest
marginal rate under Section 1 of the Code.
(b) As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination
of the Accounting Firm hereunder, it is possible that Payments
will be made by the Company which should not have been made (the
"Overpayments") or that additional Payments which the Company has
not made could have been made (the "Underpayments"), in each case
consistent with the calculations of the Accounting Firm. In the
event that the Accounting Firm, based either upon (A) the
assertion of a deficiency by the Internal Revenue Service against
the Company or you which the Accounting Firm believes has a high
probability of success or (B) controlling precedent or other
substantial authority, determines that an Overpayment has been
made, any such Overpayment shall be treated for all purposes as a
loan to you which you shall repay to the Company together with
interest at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code; provided, however, that no amount
shall be payable by you to the Company if and to the extent such
payment would not reduce the amount which is subject to taxation
under Section 1 and Section 4999 of the Code or if the period of
limitations for assessment of tax has expired. In the event that
the Accounting Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the
Company to you together with interest at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Code.
3. Share Ownership Requirements. You must own directly or beneficially Company
Stock in the amount of 50 % of the number of shares covered by the Award
(hereinafter referred to as "Minimum Required Shares") and provide proof of
ownership satisfactory to the Committee of that number of shares as of September
30, 2005. You must also notify the Company at any time during the Period of the
Award on or after September 30, 2005 if you sell or otherwise transfer such
shares and your total share ownership is less than the Minimum Required Shares.
If, at any time during the Period of the Award on or after September 30, 2005,
you own zero shares, 100% of the Award not yet accelerated will be forfeited.
If, at any time during the Period of the Award on or after September 30, 2005,
you own some shares but less than the Minimum Required Shares, you will forfeit
a pro rata portion of the Award not yet accelerated based upon the ratio of the
number of shares you own to the Minimum Required Shares.
4. Definitions. For purposes of the Award, the following terms shall have the
following meanings:
(a) "Average Value Per Share" shall mean the average for any consecutive 30
day trading period in which Company Stock is traded of the daily closing prices
of Company Stock on the New York Stock Exchange.
(b) "Cause" shall mean:
(i) The willful and continued failure to substantially perform
your duties with the Company or one of its subsidiaries (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for such performance is delivered to
you by ESCO's CEO or his delegate which specifically identifies the
manner in which such ESCO's CEO or his delegate believes that you have
not substantially performed your duties; or
(ii) The willful engaging in (A) illegal conduct (other than
minor traffic offenses), or (B) conduct which is in breach of your
fiduciary duty to the Company or one of its subsidiaries and which is
demonstrably injurious to the Company or one of its subsidiaries, any
of their reputations, or any of their business prospects. For purposes
of this subparagraph (ii) and subparagraph (i) above, no act or
failure to act on your part shall be considered "willful" unless it is
done, or omitted to be done, by you in bad faith or without reasonable
belief that your action or omission was in the best interests of the
Company or one of its subsidiaries. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by the
Board of Directors of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted
to be done, by you in good faith and in the best interests of the
Company or one of its subsidiaries;
The cessation of your employment shall not be deemed to be for "Cause" unless
and until there shall have been delivered to you a written notice that in the
CEO's or his delegate's opinion you are guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) "Company Stock" shall mean common stock of the Company.
(d) "Fiscal Year" shall mean the fiscal year of the Company which, as
of the date hereof, is the twelve month period commencing October 1 and
ending September 30.
(e) "Good Reason" shall mean:
(i) Requiring you to be based at any office or location more than
50 miles from your office or location as of the date of the Change of
Control;
(ii) The assignment to you of any duties inconsistent in any
respect with your position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as of
the date of the Change of Control or in conjunction with a Change in
Control any action by the Company or any of its subsidiaries which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an action taken by the
Company or one of its subsidiaries, to which you object in writing by
notice to the Company within 10 business days after you receive actual
notice of such action, which is remedied by the Company or one of its
subsidiaries promptly but in any event no later than 5 business days
after you provided such notice, or
(iii) The reduction in your total compensation and benefits below
the level in effect as of the date of the Change of Control.
(f) "Period of the Award" means the period commencing October 1, 2006
and ending on September 30, 2009.
5. Parallel Incentive The Committee may, but is not obligated to, authorize a
payment of a portion of the Award based upon its discretionary evaluation of the
Company's financial performance during the Period of the Award even if the
foregoing objectives are not fully met. Examples of performance measures the
Committee may consider include, but are not limited to, cash flow, earnings,
sales and margins.
6. Medium of Payment. The Committee shall direct that any distribution shall be
made in accordance with the terms of the Plan.
7. Restrictions. You agree that for the period ending two (2) years after the
expiration of the Period of the Award, you will not, as an individual or as a
partner, employee, agent, advisor, consultant or in any other capacity of or to
any person, firm, corporation or other entity, directly or indirectly, other
than as a 2% or less shareholder of a publicly traded corporation, do any of the
following:
(a) carry on any business or become involved in any business activity,
which is (i) competitive with the business of the Company (or a subsidiary
or joint venture of the Company), as presently conducted and as said
business may evolve in the ordinary course, and (ii) a business or business
activity in which you were engaged in the course of your employment with
the Company (or a subsidiary or joint venture of the Company);
(b) hire, or assist anyone else to hire, any employee of the Company
(or any subsidiary or joint venture of the Company), or seek to persuade,
or assist anyone else to seek to persuade, any employee of the Company (or
any subsidiary or joint venture of the Company), to discontinue employment
with the Company (or any subsidiary or joint venture of the Company);
(c) induce or attempt to induce, or assist anyone else to induce or
attempt to induce, any customer of the Company (or any subsidiary or joint
venture of the Company), to discontinue its business with the Company (or
with any subsidiary or joint venture of the Company), or disclose to anyone
else any confidential information relating to the identities, preferences,
and/or requirements of any such customer; or
(d) engage in any other conduct inimical, contrary or harmful to the
interests of the Company (or any subsidiary or joint venture of the
Company), including, but not limited to, conduct related to your
employment, or violation of any Company policy.
In the event of a breach or threatened breach of this Paragraph 7 the Company
shall be entitled, in addition to any other legal or equitable remedies it may
have, to temporary, preliminary and permanent injunctive relief restraining such
breach or threatened breach. You hereby expressly acknowledge that the harm
which might result as a result of any noncompliance by you would be largely
irreparable, and you agree that if there is a question as to the enforceability
of any of the provisions of this Agreement, you will abide by the Agreement
until after the question has been resolved by a final judgment of a court of
competent jurisdiction.
8. Choice of Law. This Agreement shall be construed and administered in
accordance with the laws of the State of Missouri without regard to the
principles of conflicts of law which might otherwise apply. Any litigation
concerning any aspect of this Agreement shall be conducted in the State or
Federal Courts in the State of Missouri.
9. Amendment. The Award may be amended by written consent between the Company
and you.
Executed this ------- day of----------, 20----.
ESCO TECHNOLOGIES INC. AGREED TO AND ACCEPTED:
By: --------------- --------------
Vice President Participant
Attest: -------------
Secretary
EXHIBIT 10.6
INCENTIVE STOCK OPTION AGREEMENT
UNDER
ESCO TECHNOLOGIES INC.
2004 INCENTIVE COMPENSATION PLAN
THIS AGREEMENT, made this day of , 20 , by and between ESCO TECHNOLOGIES
INC., a Missouri corporation (hereinafter called the "Company"), and
________________________(hereinafter called "Optionee"),
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Company ("Board of Directors") has
adopted the ESCO Technologies Inc. 2004 Incentive Compensation Plan (the "Plan")
pursuant to which options may be granted to key officers, managers and
professional employees of the Company and its subsidiaries; and
WHEREAS, Optionee is now a key officer, manager or professional employee of
the Company or a subsidiary of the Company; and
WHEREAS, the Company desires to grant to Optionee the option to purchase
certain shares of its stock under the terms of the Plan;
NOW, THEREFORE, in consideration of the premises, and of the mutual
agreements hereinafter set forth, it is covenanted and agreed as follows:
1. Grant Subject to Plan. This option is granted under and is expressly
subject to, all the terms and provisions of the Plan, which terms are
incorporated herein by reference. The Committee referred to in Section 5 of the
Plan ("Committee") has been appointed by the Board of Directors, and designated
by it, as the Committee to make grants of options.
2. Grant and Terms of Option. Pursuant to action of the Committee, which
action was taken on _______________ ("Date of Grant"), the Company grants to
Optionee the option to purchase all or any part of ________________________
shares of the Common Stock of the Company, of the par value of $0.01 per share
("Common Stock"), for a period of five (5) years from the Date of Grant, at the
purchase price of $_________ per share; provided, however, that the right to
exercise such option shall be, and is hereby, restricted so that no shares may
be purchased during the first year of the term hereof. During the term of this
option, Optionee may purchase shares to which this option relates in accordance
with the Option Vesting Schedule (Schedule A) attached hereto. In no event may
this option or any part thereof be exercised after the expiration of five (5)
years from the Date of Grant. Without further action or approval by the
Committee, the purchase price of the shares subject to the option may be paid
for (i) in cash, (ii) by tender of shares of Common Stock already owned by
Optionee, or (iii) by a combination of methods of payment specified in clauses
(i) and (ii), but only if Optionee has owned any shares to be tendered for at
least six (6) months, all in accordance with Section 7(b) of the Plan. No shares
of Common Stock may be tendered in exercise of this option if such shares were
acquired by Optionee through the exercise of an Incentive Stock Option, unless
(i) such shares have been held by Optionee for at least one year, and (ii) at
least two years have elapsed since such Incentive Stock Option was granted.
3. Anti-Dilution Provisions. In the event that, during the term of this
Agreement, there is any change in the number of shares of outstanding Common
Stock of the Company by reason of stock dividends, recapitalizations, mergers,
consolidations, split-ups, combinations or exchanges of shares and the like, the
number of shares covered by this option agreement and the price thereof shall be
adjusted, to the same proportionate number of shares and price as in this
original agreement.
4. Investment Purpose. Optionee represents that, in the event of the
exercise by Optionee of the option hereby granted, or any part thereof, Optionee
intends to purchase the shares acquired on such exercise for investment and not
with a view to resale or other distribution; except that the Committee, at its
election, may waive or release this condition in the event the shares acquired
on exercise of the option are registered under the Securities Act of 1933, or
upon the happening of any other contingency which the Committee shall determine
warrants the waiver or release of this condition. Optionee agrees that the
certificates evidencing the shares acquired by him on exercise of all or any
part of this option, may bear a restrictive legend, if appropriate, indicating
that the shares have not been registered under said Act and are subject to
restrictions on the transfer thereof, which legend may be in the following form
(or such other form as the Company shall determine to be proper), to-wit:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, but have been issued or transferred
to the registered owner pursuant to the exemption afforded by Section
4(2) of said Act. No transfer or assignment of these shares by the
registered owner shall be valid or effective, and the issuer of these
shares shall not be required to give any effect to any transfer or
attempted transfer of these shares, including without limitation, a
transfer by operation of law, unless (a) the issuer shall have
received an opinion of its counsel that the shares may be transferred
without requirement of registration under said Act, or (b) there shall
have been delivered to the issuer a 'no-action' letter from the staff
of the Securities and Exchange Commission, or (c) the shares are
registered under said Act."
5. Non-Transferability. Neither the option hereby granted nor any rights
thereunder or under this Agreement may be assigned, transferred or in any manner
encumbered except by will or the laws of descent and distribution, and any
attempted assignment, transfer, mortgage, pledge or encumbrance except as herein
authorized, shall be void and of no effect. The option may be exercised during
Optionee's lifetime only by him.
6. Termination of Employment. In the event of the termination of employment
of Optionee other than by death, the option granted may be exercised at the
times and to the extent provided in Section 7(f) of the Plan.
7. Death of Optionee. In the event of the death of Optionee, the option
granted may be exercised at the times and to the extent provided in Section 7(g)
of the Plan.
8. Shares Issued on Exercise of Option. It is the intention of the Company
that on any exercise of this option it will transfer to Optionee shares of its
authorized but unissued stock or transfer Treasury shares, or utilize any
combination of Treasury shares and authorized but unissued shares, to satisfy
its obligations to deliver shares on any exercise hereof.
9. Committee Administration. This option has been granted pursuant to a
determination made by the Committee, and such Committee or any successor or
substitute committee authorized by the Board of Directors or the Board of
Directors itself, subject to the express terms of this option, shall have
plenary authority to interpret any provision of this option and to make any
determinations necessary or advisable for the administration of this option and
the exercise of the rights herein granted, and may waive or amend any provisions
hereof in any manner not adversely affecting the rights granted to Optionee by
the express terms hereof.
10. Option an Incentive Stock Option. This option is intended as, and shall
be treated as, an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended.
11. Choice of Law. This Agreement shall be construed and administered in
accordance with the laws of the State of Missouri without regard to the
principles of conflicts of law which might otherwise apply. Any litigation
concerning any aspect of this Agreement shall be conducted exclusively in the
State or Federal courts in the State of Missouri. Both Company and Optionee
expressly waive any right or claim either may have to litigate in any other
state or nation and/or under the law(s) of any other state or nation relating to
this Agreement.
12. Additional Provisions. This option shall be subject to any additional
provisions set forth in the following Exhibits (if any) attached hereto:
Non-Compete and Change of Control. If no Exhibits are attached, the foregoing
constitutes the entire Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its Vice President pursuant to due authorization, and Optionee has
signed this Agreement to evidence Optionee's acceptance of the option herein
granted and of the terms hereof, all as of the date hereof.
ESCO TECHNOLOGIES INC.
By ______________________
Vice President
_________________________
Optionee
EXHIBIT 10.7
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER
ESCO TECHNOLOGIES INC.
2004 INCENTIVE COMPENSATION PLAN
THIS AGREEMENT, made this day of , 20 by and between ESCO TECHNOLOGIES
INC., a Missouri corporation (hereinafter called the "Company"), and
__________________ (hereinafter called "Optionee"),
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Company ("Board of Directors") has
adopted the ESCO Technologies Inc. 2004 Incentive Compensation Plan (the "Plan")
pursuant to which options may be granted to key officers, managers and
professional employees of the Company and its subsidiaries; and
WHEREAS, Optionee is now a key officer, manager or professional employee of
the Company or a subsidiary of the Company; and
WHEREAS, the Company desires to grant to Optionee the option to purchase
certain shares of its stock under the terms of the Plan;
NOW, THEREFORE, in consideration of the premises, and of the mutual
agreements hereinafter set forth, it is covenanted and agreed as follows:
1. Grant Subject to Plan. This option is granted under and is expressly
subject to, all the terms and provisions of the Plan, which terms are
incorporated herein by reference. The Committee referred to in Section 5 of the
Plan ("Committee") has been appointed by the Board of Directors, and designated
by it, as the Committee to make grants of options.
2. Grant and Terms of Option. Pursuant to action of the Committee, which
action was taken on _______________ ("Date of Grant"), the Company grants to
Optionee the option to purchase all or any part of _________________________
shares of the Common Stock of the Company, of the par value of $0.01 per share
("Common Stock"), for a period of five (5) years from the Date of Grant, at the
purchase price of $__________ per share; provided, however, that the right to
exercise such option shall be, and is hereby, restricted so that no shares may
be purchased during the first year of the term hereof. During the term of this
option, Optionee may purchase shares to which this option relates in accordance
with the Option Vesting Schedule (Schedule A) attached hereto. In no event may
this option or any part thereof be exercised after the expiration of five (5)
years from the Date of Grant. Without further action or approval by the
Committee, the purchase price of the shares subject to the option may be paid
for (i) in cash, (ii) by tender of shares of Common Stock already owned by
Optionee, or (iii) by a combination of methods of payment specified in clauses
(i) and (ii), but only if Optionee has owned any shares to be tendered for at
least six (6) months, all in accordance with Section 7(b) of the Plan.
3. Anti-Dilution Provisions. In the event that, during the term of this
Agreement, there is any change in the number of shares of outstanding Common
Stock of the Company by reason of stock dividends, recapitalizations, mergers,
consolidations, split-ups, combinations or exchanges of shares and the like, the
number of shares covered by this option agreement and the price thereof shall be
adjusted, to the same proportionate number of shares and price as in this
original agreement.
4. Investment Purpose. Optionee represents that, in the event of the
exercise by Optionee of the option hereby granted, or any part thereof, Optionee
intends to purchase the shares acquired on such exercise for investment and not
with a view to resale or other distribution; except that the Committee, at its
election, may waive or release this condition in the event the shares acquired
on exercise of the option are registered under the Securities Act of 1933, or
upon the happening of any other contingency which the Committee shall determine
warrants the waiver or release of this condition. Optionee agrees that the
certificates evidencing the shares acquired by him on exercise of all or any
part of this option, may bear a restrictive legend, if appropriate, indicating
that the shares have not been registered under said Act and are subject to
restrictions on the transfer thereof, which legend may be in the following form
(or such other form as the Company shall determine to be proper), to-wit:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, but have been issued or transferred
to the registered owner pursuant to the exemption afforded by Section
4(2) of said Act. No transfer or assignment of these shares by the
registered owner shall be valid or effective, and the issuer of these
shares shall not be required to give any effect to any transfer or
attempted transfer of these shares, including without limitation, a
transfer by operation of law, unless (a) the issuer shall have
received an opinion of its counsel that the shares may be transferred
without requirement of registration under said Act, or (b) there shall
have been delivered to the issuer a 'no-action' letter from the staff
of the Securities and Exchange Commission, or (c) the shares are
registered under said Act."
5. Non-Transferability. Neither the option hereby granted nor any rights
thereunder or under this Agreement may be assigned, transferred or in any manner
encumbered except by will or the laws of descent and distribution, and any
attempted assignment, transfer, mortgage, pledge or encumbrance except as herein
authorized, shall be void and of no effect. The option may be exercised during
Optionee's lifetime only by him.
6. Termination of Employment. In the event of the termination of employment
of Optionee other than by death, the option granted may be exercised at the
times and to the extent provided in Section 7(f) of the Plan.
7. Death of Optionee. In the event of the death of Optionee, the option
granted may be exercised at the times and to the extent provided in Section 7(g)
of the Plan.
8. Shares Issued on Exercise of Option. It is the intention of the Company
that on any exercise of this option it will transfer to Optionee shares of its
authorized but unissued stock or transfer Treasury shares, or utilize any
combination of Treasury shares and authorized but unissued shares, to satisfy
its obligations to deliver shares on any exercise hereof.
9. Committee Administration. This option has been granted pursuant to a
determination made by the Committee, and such Committee or any successor or
substitute committee authorized by the Board of Directors or the Board of
Directors itself, subject to the express terms of this option, shall have
plenary authority to interpret any provision of this option and to make any
determinations necessary or advisable for the administration of this option and
the exercise of the rights herein granted, and may waive or amend any provisions
hereof in any manner not adversely affecting the rights granted to Optionee by
the express terms hereof.
10. Option Not an Incentive Stock Option. This option shall not be treated
as an incentive stock option under Section 422 of the Internal Revenue Code of
1986, as amended.
11. Choice of Law. This Agreement shall be construed and administered in
accordance with the laws of the State of Missouri without regard to the
principles of conflicts of law which might otherwise apply. Any litigation
concerning any aspect of this Agreement shall be conducted exclusively in the
State or Federal courts in the State of Missouri. Both Company and Optionee
expressly waive any right or claim either may have to litigate in any other
state or nation and/or under the law(s) of any other state or nation relating to
this Agreement.
12. Additional Provisions. This option shall be subject to any additional
provisions set forth in the following Exhibits (if any) attached hereto:
Non-Compete and Change of Control. If no Exhibits are attached, the foregoing
constitutes the entire Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its Vice President pursuant to due authorization, and Optionee has
signed this Agreement to evidence Optionee's acceptance of the option herein
granted and of the terms hereof, all as of the date hereof.
ESCO TECHNOLOGIES INC.
By _______________________
Vice President
_______________________
Optionee
EXHIBIT 10.8
INCENTIVE STOCK OPTION AGREEMENT
UNDER
ESCO TECHNOLOGIES INC.
2001 STOCK INCENTIVE PLAN
THIS AGREEMENT, made this _____ day of ____________, 200___, by and between
ESCO TECHNOLOGIES INC., a Missouri corporation (hereinafter called the
"Company"), and _______________________________________ (hereinafter called
"Optionee"),
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Company ("Board of Directors") has
adopted the ESCO Technologies Inc. 2001 Stock Incentive Plan (the "Plan")
pursuant to which options may be granted to key officers, managers and
professional employees of the Company and its subsidiaries; and
WHEREAS, Optionee is now a key officer, manager or professional employee of
the Company or a subsidiary of the Company; and
WHEREAS, the Company desires to grant to Optionee the option to purchase
certain shares of its stock under the terms of the Plan;
NOW, THEREFORE, in consideration of the premises, and of the mutual
agreements hereinafter set forth, it is covenanted and agreed as follows:
1. Grant Subject to Plan. This option is granted under and is expressly
subject to, all the terms and provisions of the Plan, which terms are
incorporated herein by reference. The Committee referred to in Section 5 of the
Plan ("Committee") has been appointed by the Board of Directors, and designated
by it, as the Committee to make grants of options.
2. Grant and Terms of Option. Pursuant to action of the Committee, which
action was taken on _________________ ("Date of Grant"), the Company grants to
Optionee the option to purchase all or any part of
______________________________ (________) shares of the Common Stock of the
Company, of the par value of $0.01 per share ("Common Stock"), for a period of
five (5) years from the Date of Grant, at the purchase price of $___________ per
share; provided, however, that the right to exercise such option shall be, and
is hereby, restricted so that no shares may be purchased during the first year
of the term hereof; that at any time during the term of this option after the
end of the first year from the Date of Grant, Optionee may purchase up to
33-1/3% of the total number of shares to which this option relates; that at any
time during the term of this option after the end of the second year from the
Date of Grant, Optionee may purchase up to an additional 33-1/3% of the total
number of shares to which this option relates; and that at any time after the
end of the third year from the Date of Grant, Optionee may purchase up to an
additional 33-1/3% of the total number of shares to which this option relates;
so that upon the expiration of the third year from the Date of Grant and
thereafter during the term hereof, Optionee will have become entitled to
purchase the entire number of shares to which this option relates. In no event
may this option or any part thereof be exercised after the expiration of five
(5) years from the Date of Grant. Without further action or approval by the
Committee, the purchase price of the shares subject to the option may be paid
for (i) in cash, (ii) by tender of shares of Common Stock already owned by
Optionee, or (iii) by a combination of methods of payment specified in clauses
(i) and (ii), but only if Optionee has owned any shares to be tendered for at
least six (6) months, all in accordance with Section 7(b) of the Plan. No shares
of Common Stock may be tendered in exercise of this option if such shares were
acquired by Optionee through the exercise of an Incentive Stock Option, unless
(i) such shares have been held by Optionee for at least one year, and (ii) at
least two years have elapsed since such Incentive Stock Option was granted.
3. Anti-Dilution Provisions. In the event that, during the term of this
Agreement, there is any change in the number of shares of outstanding Common
Stock of the Company by reason of stock dividends, recapitalizations, mergers,
consolidations, split-ups, combinations or exchanges of shares and the like, the
number of shares covered by this option agreement and the price thereof shall be
adjusted, to the same proportionate number of shares and price as in this
original agreement.
4. Investment Purpose. Optionee represents that, in the event of the
exercise by Optionee of the option hereby granted, or any part thereof, Optionee
intends to purchase the shares acquired on such exercise for investment and not
with a view to resale or other distribution; except that the Committee, at its
election, may waive or release this condition in the event the shares acquired
on exercise of the option are registered under the Securities Act of 1933, or
upon the happening of any other contingency which the Committee shall determine
warrants the waiver or release of this condition. Optionee agrees that the
certificates evidencing the shares acquired by him on exercise of all or any
part of this option, may bear a restrictive legend, if appropriate, indicating
that the shares have not been registered under said Act and are subject to
restrictions on the transfer thereof, which legend may be in the following form
(or such other form as the Company shall determine to be proper), to-wit:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, but have been issued or transferred
to the registered owner pursuant to the exemption afforded by Section
4(2) of said Act. No transfer or assignment of these shares by the
registered owner shall be valid or effective, and the issuer of these
shares shall not be required to give any effect to any transfer or
attempted transfer of these shares, including without limitation, a
transfer by operation of law, unless (a) the issuer shall have
received an opinion of its counsel that the shares may be transferred
without requirement of registration under said Act, or (b) there shall
have been delivered to the issuer a 'no-action' letter from the staff
of the Securities and Exchange Commission, or (c) the shares are
registered under said Act."
5. Non-Transferability. Neither the option hereby granted nor any rights
thereunder or under this Agreement may be assigned, transferred or in any manner
encumbered except by will or the laws of descent and distribution, and any
attempted assignment, transfer, mortgage, pledge or encumbrance except as herein
authorized, shall be void and of no effect. The option may be exercised during
Optionee's lifetime only by him.
6. Termination of Employment. In the event of the termination of employment
of Optionee other than by death, the option granted may be exercised at the
times and to the extent provided in Section 7(f) of the Plan.
7. Death of Optionee. In the event of the death of Optionee, the option
granted may be exercised at the times and to the extent provided in Section 7(g)
of the Plan.
8. Shares Issued on Exercise of Option. It is the intention of the Company
that on any exercise of this option it will transfer to Optionee shares of its
authorized but unissued stock or transfer Treasury shares, or utilize any
combination of Treasury shares and authorized but unissued shares, to satisfy
its obligations to deliver shares on any exercise hereof.
9. Committee Administration. This option has been granted pursuant to a
determination made by the Committee, and such Committee or any successor or
substitute committee authorized by the Board of Directors or the Board of
Directors itself, subject to the express terms of this option, shall have
plenary authority to interpret any provision of this option and to make any
determinations necessary or advisable for the administration of this option and
the exercise of the rights herein granted, and may waive or amend any provisions
hereof in any manner not adversely affecting the rights granted to Optionee by
the express terms hereof.
10. Option an Incentive Stock Option. This option is intended as, and shall
be treated as, an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended.
11. Choice of Law. This Agreement shall be construed and administered in
accordance with the laws of the State of Missouri without regard to the
principles of conflicts of law which might otherwise apply. Any litigation
concerning any aspect of this Agreement shall be conducted exclusively in the
State or Federal courts in the State of Missouri. Both Company and Optionee
expressly waive any right or claim either may have to litigate in any other
state or nation and/or under the law(s) of any other state or nation relating to
this Agreement.
12. Additional Provisions. This option shall be subject to any additional
provisions set forth in the following Exhibits (if any) attached hereto: Change
of Control and Non-Compete. If no Exhibits are attached, the foregoing
constitutes the entire Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its Vice President pursuant to due authorization, and Optionee has
signed this Agreement to evidence Optionee's acceptance of the option herein
granted and of the terms hereof, all as of the date hereof.
ESCO TECHNOLOGIES INC.
By ______________________
Vice President
_________________________
Optionee
EXHIBIT
(Change of Control)
Notwithstanding Paragraph 2 of this Option Agreement, in the event of a Change
of Control (as hereinafter defined) Optionee may purchase 100% of the total
number of shares to which this option relates. For the purposes of this Exhibit,
a Change of Control means:
a. The purchase or other acquisition (other than from the Company) by
any person, entity or group of persons, within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (excluding, for this purpose, the Company or its subsidiaries or any
employee benefit plan of the Company or its subsidiaries), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either the then-outstanding shares of common stock
of the Company or the combined voting power of the Company's
then-outstanding voting securities entitled to vote generally in the
election of directors; or
b. Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Board" and, as of the date hereof, the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board, provided that any person who becomes a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of this section,
considered as though such person were a member of the Incumbent Board; or
c. Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case with respect to which persons who
were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50% of, respectively, the common stock and the combined voting
power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated corporation's then-outstanding voting
securities, or of a liquidation or dissolution of the Company or of the
sale of all or substantially all of the assets of the Company.
EXHIBIT
(Non-Compete)
Optionee agrees that for the period beginning on the Date of Grant and ending
one (1) year after Optionee's termination of employment, Optionee will not, as
an individual or as a partner, employee, agent, advisor, consultant or in any
other capacity of or to any person, firm, corporation or other entity, directly
or indirectly, other than as a 2% or less shareholder of a publicly traded
corporation, do any of the following:
a. Carry on any business or become involved in any business activity, which
is (i) competitive with the business of the Company (or a subsidiary or joint
venture of the Company), as presently conducted and as said business may evolve
in the ordinary course, and (ii) a business or business activity in which
Optionee was engaged in the course of Optionee's employment with the Company (or
a subsidiary or joint venture of the Company);
b. Recruit, solicit or hire, or assist anyone else in recruiting,
soliciting or hiring, any employee of the Company (or any subsidiary or joint
venture of the Company), for employment with any competitor of the Company (or
of any subsidiary or joint venture of the Company);
c. Induce or attempt to induce, or assist anyone else to induce or attempt
to induce, any customer of the Company (or any subsidiary or joint venture of
the Company), with whom Optionee or anyone under Optionee's supervision has
dealt, or about whom Optionee has been provided any confidential information, to
discontinue, divert, reduce or not renew its business with the Company (or with
any subsidiary or joint venture of the Company), or disclose to anyone else any
confidential information relating to the identities, preferences, and/or
requirements of any such customer; or
d. Engage in any other conduct inimical, contrary or harmful to the
interests of the Company (or any subsidiary or joint venture of the Company),
including, but not limited to, conduct related to Optionee's employment, or
violation of any Company policy.
Remedies.
a. In the event of a breach or threatened breach of this Exhibit, the
Company shall be entitled, in addition to any other legal or equitable remedies
it may have, to temporary, preliminary and permanent injunctive relief
restraining such breach or threatened breach. Optionee hereby expressly
acknowledges that the harm which might result as a result of any noncompliance
by Optionee would be largely irreparable, and Optionee agrees that if there is a
question as to the enforceability of any of the provisions of this Exhibit,
Optionee will abide by the Exhibit until after the question has been resolved by
a final judgment of a court of competent jurisdiction.
b. The parties acknowledge and agree that the restrictions contained in
this Exhibit are reasonable in light of, among other things, the following: (i)
The parties' expectations regarding the Exhibit are based on the law of
Missouri, where the Company is headquartered and has its principal place of
business; (ii) The Company hereby agrees, as a result of Optionee's agreeing to
this Exhibit, that the Company shall provide Optionee with confidential,
competitively-sensitive and proprietary information; (iii) The Company competes
both throughout the United States and in international markets; and (iv) The
confidential and competitively-sensitive information which Optionee shall be
provided, the customer and other business relationships that Optionee shall be
allowed to develop, enhance and/or solidify, and the other benefits that
Optionee is receiving as the result of agreeing to this Exhibit, justify the
restrictions contained herein.
EXHIBIT 10.9
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER
ESCO TECHNOLOGIES INC.
2001 STOCK INCENTIVE PLAN
THIS AGREEMENT, made this ______ day of ___________, 200___, by and between
ESCO TECHNOLOGIES INC., a Missouri corporation (hereinafter called the
"Company"), and _______________________________________ (hereinafter called
"Optionee"),
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Company ("Board of Directors") has
adopted the ESCO Technologies Inc. 2001 Stock Incentive Plan (the "Plan")
pursuant to which options may be granted to key officers, managers and
professional employees of the Company and its subsidiaries; and
WHEREAS, Optionee is now a key officer, manager or professional employee of
the Company or a subsidiary of the Company; and
WHEREAS, the Company desires to grant to Optionee the option to purchase
certain shares of its
stock under the terms of the Plan;
NOW, THEREFORE, in consideration of the premises, and of the mutual
agreements hereinafter set forth, it is covenanted and agreed as follows:
1. Grant Subject to Plan. This option is granted under and is expressly
subject to, all the terms and provisions of the Plan, which terms are
incorporated herein by reference. The Committee referred to in Section 5 of the
Plan ("Committee") has been appointed by the Board of Directors, and designated
by it, as the Committee to make grants of options.
2. Grant and Terms of Option. Pursuant to action of the Committee, which
action was taken on _________________("Date of Grant"), the Company grants to
Optionee the option to purchase all or any part of
________________________________ (________) shares of the Common Stock of the
Company, of the par value of $0.01 per share ("Common Stock"), for a period of
five (5) years from the Date of Grant, at the purchase price of $___________ per
share; provided, however, that the right to exercise such option shall be, and
is hereby, restricted so that no shares may be purchased during the first year
of the term hereof; that at any time during the term of this option after the
end of the first year from the Date of Grant, Optionee may purchase up to
33-1/3% of the total number of shares to which this option relates; that at any
time during the term of this option after the end of the second year from the
Date of Grant, Optionee may purchase up to an additional 33-1/3% of the total
number of shares to which this option relates; and that at any time after the
end of the third year from the Date of Grant, Optionee may purchase up to an
additional 33-1/3% of the total number of shares to which this option relates;
so that upon the expiration of the third year from the Date of Grant and
thereafter during the term hereof, Optionee will have become entitled to
purchase the entire number of shares to which this option relates. In no event
may this option or any part thereof be exercised after the expiration of five
(5) years from the Date of Grant. Without further action or approval by the
Committee, the purchase price of the shares subject to the option may be paid
for (i) in cash, (ii) by tender of shares of Common Stock already owned by
Optionee, or (iii) by a combination of methods of payment specified in clauses
(i) and (ii), but only if Optionee has owned any shares to be tendered for at
least six (6) months, all in accordance with Section 7(b) of the Plan.
3. Anti-Dilution Provisions. In the event that, during the term of this
Agreement, there is any change in the number of shares of outstanding Common
Stock of the Company by reason of stock dividends, recapitalizations, mergers,
consolidations, split-ups, combinations or exchanges of shares and the like, the
number of shares covered by this option agreement and the price thereof shall be
adjusted, to the same proportionate number of shares and price as in this
original agreement.
4. Investment Purpose. Optionee represents that, in the event of the
exercise by Optionee of the option hereby granted, or any part thereof, Optionee
intends to purchase the shares acquired on such exercise for investment and not
with a view to resale or other distribution; except that the Committee, at its
election, may waive or release this condition in the event the shares acquired
on exercise of the option are registered under the Securities Act of 1933, or
upon the happening of any other contingency which the Committee shall determine
warrants the waiver or release of this condition. Optionee agrees that the
certificates evidencing the shares acquired by him on exercise of all or any
part of this option, may bear a restrictive legend, if appropriate, indicating
that the shares have not been registered under said Act and are subject to
restrictions on the transfer thereof, which legend may be in the following form
(or such other form as the Company shall determine to be proper), to-wit:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, but have been issued or transferred
to the registered owner pursuant to the exemption afforded by Section
4(2) of said Act. No transfer or assignment of these shares by the
registered owner shall be valid or effective, and the issuer of these
shares shall not be required to give any effect to any transfer or
attempted transfer of these shares, including without limitation, a
transfer by operation of law, unless (a) the issuer shall have
received an opinion of its counsel that the shares may be transferred
without requirement of registration under said Act, or (b) there shall
have been delivered to the issuer a 'no-action' letter from the staff
of the Securities and Exchange Commission, or (c) the shares are
registered under said Act."
5. Non-Transferability. Neither the option hereby granted nor any rights
thereunder or under this Agreement may be assigned, transferred or in any manner
encumbered except by will or the laws of descent and distribution, and any
attempted assignment, transfer, mortgage, pledge or encumbrance except as herein
authorized, shall be void and of no effect. The option may be exercised during
Optionee's lifetime only by him.
6. Termination of Employment. In the event of the termination of employment
of Optionee other than by death, the option granted may be exercised at the
times and to the extent provided in Section 7(f) of the Plan.
7. Death of Optionee. In the event of the death of Optionee, the option
granted may be exercised at the times and to the extent provided in Section 7(g)
of the Plan.
8. Shares Issued on Exercise of Option. It is the intention of the Company
that on any exercise of this option it will transfer to Optionee shares of its
authorized but unissued stock or transfer Treasury shares, or utilize any
combination of Treasury shares and authorized but unissued shares, to satisfy
its obligations to deliver shares on any exercise hereof.
9. Committee Administration. This option has been granted pursuant to a
determination made by the Committee, and such Committee or any successor or
substitute committee authorized by the Board of Directors or the Board of
Directors itself, subject to the express terms of this option, shall have
plenary authority to interpret any provision of this option and to make any
determinations necessary or advisable for the administration of this option and
the exercise of the rights herein granted, and may waive or amend any provisions
hereof in any manner not adversely affecting the rights granted to Optionee by
the express terms hereof.
10. Option Not an Incentive Stock Option. This option shall not be treated
as an incentive stock option under Section 422 of the Internal Revenue Code of
1986, as amended.
11. Choice of Law. This Agreement shall be construed and administered in
accordance with the laws of the State of Missouri without regard to the
principles of conflicts of law which might otherwise apply. Any litigation
concerning any aspect of this Agreement shall be conducted exclusively in the
State or Federal courts in the State of Missouri. Both Company and Optionee
expressly waive any right or claim either may have to litigate in any other
state or nation and/or under the law(s) of any other state or nation relating to
this Agreement.
12. Additional Provisions. This option shall be subject to any additional
provisions set forth in the following Exhibits (if any) attached hereto: Change
of Control and Non-Compete. If no Exhibits are attached, the foregoing
constitutes the entire Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its Vice President pursuant to due authorization, and Optionee has
signed this Agreement to evidence Optionee's acceptance of the option herein
granted and of the terms hereof, all as of the date hereof.
ESCO TECHNOLOGIES INC.
By _______________________
Vice President
_______________________
Optionee
EXHIBIT
(Change of Control)
Notwithstanding Paragraph 2 of this Option Agreement, in the event of a Change
of Control (as hereinafter defined) Optionee may purchase 100% of the total
number of shares to which this option relates. For the purposes of this Exhibit,
a Change of Control means:
a. The purchase or other acquisition (other than from the
Company) by any person, entity or group of persons, within the meaning
of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (excluding, for this purpose, the Company
or its subsidiaries or any employee benefit plan of the Company or its
subsidiaries), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either the then-outstanding shares of common stock of the Company or
the combined voting power of the Company's then-outstanding voting
securities entitled to vote generally in the election of directors; or
b. Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Board" and, as of the date hereof,
the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person who becomes a director
subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
(other than an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to
the election of directors of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this section, considered as though such
person were a member of the Incumbent Board; or
c. Approval by the stockholders of the Company of a
reorganization, merger or consolidation, in each case with respect to
which persons who were the stockholders of the Company immediately
prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50% of, respectively, the common
stock and the combined voting power entitled to vote generally in the
election of directors of the reorganized, merged or consolidated
corporation's then-outstanding voting securities, or of a liquidation
or dissolution of the Company or of the sale of all or substantially
all of the assets of the Company.
EXHIBIT
(Non-Compete)
Optionee agrees that for the period beginning on the Date of Grant and ending
one (1) year after Optionee's termination of employment, Optionee will not, as
an individual or as a partner, employee, agent, advisor, consultant or in any
other capacity of or to any person, firm, corporation or other entity, directly
or indirectly, other than as a 2% or less shareholder of a publicly traded
corporation, do any of the following:
a. Carry on any business or become involved in any business activity, which
is (i) competitive with the business of the Company (or a subsidiary or joint
venture of the Company), as presently conducted and as said business may evolve
in the ordinary course, and (ii) a business or business activity in which
Optionee was engaged in the course of Optionee's employment with the Company (or
a subsidiary or joint venture of the Company);
b. Recruit, solicit or hire, or assist anyone else in recruiting,
soliciting or hiring, any employee of the Company (or any subsidiary or joint
venture of the Company), for employment with any competitor of the Company (or
of any subsidiary or joint venture of the Company);
c. Induce or attempt to induce, or assist anyone else to induce or attempt
to induce, any customer of the Company (or any subsidiary or joint venture of
the Company), with whom Optionee or anyone under Optionee's supervision has
dealt, or about whom Optionee has been provided any confidential information, to
discontinue, divert, reduce or not renew its business with the Company (or with
any subsidiary or joint venture of the Company), or disclose to anyone else any
confidential information relating to the identities, preferences, and/or
requirements of any such customer; or
d. Engage in any other conduct inimical, contrary or harmful to the
interests of the Company (or any subsidiary or joint venture of the Company),
including, but not limited to, conduct related to Optionee's employment, or
violation of any Company policy.
Remedies.
a. In the event of a breach or threatened breach of this Exhibit, the
Company shall be entitled, in addition to any other legal or equitable remedies
it may have, to temporary, preliminary and permanent injunctive relief
restraining such breach or threatened breach. Optionee hereby expressly
acknowledges that the harm which might result as a result of any noncompliance
by Optionee would be largely irreparable, and Optionee agrees that if there is a
question as to the enforceability of any of the provisions of this Exhibit,
Optionee will abide by the Exhibit until after the question has been resolved by
a final judgment of a court of competent jurisdiction.
b. The parties acknowledge and agree that the restrictions contained in
this Exhibit are reasonable in light of, among other things, the following: (i)
The parties' expectations regarding the Exhibit are based on the law of
Missouri, where the Company is headquartered and has its principal place of
business; (ii) The Company hereby agrees, as a result of Optionee's agreeing to
this Exhibit, that the Company shall provide Optionee with confidential,
competitively-sensitive and proprietary information; (iii) The Company competes
both throughout the United States and in international markets; and (iv) The
confidential and competitively-sensitive information which Optionee shall be
provided, the customer and other business relationships that Optionee shall be
allowed to develop, enhance and/or solidify, and the other benefits that
Optionee is receiving as the result of agreeing to this Exhibit, justify the
restrictions contained herein.