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 JUNE 30, 2002
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 63124-2090
ST. LOUIS, MISSOURI (Zip Code)
(Address of principal executive offices)
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
The number of shares of the registrant's stock outstanding at July 31, 2002 was
12,599,233.
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
__________________
June 30,
________
2002 2001
____ ____
Net sales $94,701 87,862
______ ______
Costs and expenses:
Cost of sales 63,609 59,847
Selling, general and administrative
expenses 21,173 18,329
Interest expense 111 51
Other, net 622 2,273
______ ______
Total costs and expenses 85,515 80,500
______ ______
Earnings before income taxes 9,186 7,362
Income tax expense 3,448 2,805
______ ______
Net earnings $ 5,738 4,557
====== ======
Earnings per share:
Net earnings - Basic $ .46 .37
-Diluted .44 .35
=== ===
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Nine Months Ended
_________________
June 30,
________
2002 2001
____ ____
Net sales $ 267,261 257,639
_______ _______
Costs and expenses:
Cost of sales 180,165 177,149
Selling, general and administrative
expenses 60,078 52,688
Interest expense 221 136
Other, net 1,550 6,828
_______ _______
Total costs and expenses 242,014 236,801
_______ _______
Earnings before income taxes 25,247 20,838
Income tax expense 9,544 8,016
_______ _______
Net earnings $ 15,703 12,822
======= =======
Earnings per share:
Net earnings - Basic $ 1.26 1.04
-Diluted 1.21 1.00
==== ====
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, September 30,
2002 2001
________ _____________
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 13,703 14,506
Accounts receivable, less allowance for
doubtful accounts of $720 and $1,122,
respectively 67,271 61,351
Costs and estimated earnings on long-term
contracts, less progress billings of
$5,813 and $21,913, respectively 5,605 6,637
Inventories 56,438 48,167
Current portion of deferred tax assets 14,502 15,278
Other current assets 7,448 5,491
_______ _______
Total current assets 164,967 151,430
________ _______
Property, plant and equipment, at cost 117,954 107,940
Less accumulated depreciation and amortization 50,835 42,902
_______ _______
Net property, plant and equipment 67,119 65,038
Goodwill, less accumulated amortization
of $12,674 102,834 102,163
Deferred tax assets 35,996 38,573
Other assets 27,179 18,373
_______ _______
$398,095 375,577
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $ 22 122
Accounts payable 35,876 35,180
Advance payments on long-term contracts, less
costs incurred of $1,718 and $809,
respectively 1,942 1,534
Accrued expenses and other current liabilities 30,211 27,233
_______ _______
Total current liabilities 68,051 64,069
_______ _______
Other liabilities 17,350 15,890
Long-term debt 8,088 8,338
Total liabilities 93,489 88,297
======= =======
Commitments and contingencies -- --
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
13,599,013 and 13,409,934 shares,
respectively 136 134
Additional paid-in capital 207,641 206,282
Retained earnings since elimination of
deficit at September 30, 1993 115,352 99,649
Accumulated other comprehensive loss (5,848) (6,518)
_______ _______
317,281 299,547
Less treasury stock, at cost: 1,001,246
and 985,469 common shares, respectively (12,675) (12,267)
_______ _______
Total shareholders' equity 304,606 287,280
_______ _______
$398,095 375,577
======= =======
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
June 30,
_________________
2002 2001
____ ____
Cash flows from operating activities:
Net earnings $15,703 12,822
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 9,553 11,489
Changes in operating working capital (11,257) (7,180)
Change in long-term portion of deferred
tax assets 2,578 5,191
Other 1,712 (1,646)
_______ _______
Net cash provided by operating activities 18,289 20,676
_______ _______
Cash flows from investing activities:
Capital expenditures (9,217) (7,558)
Acquisition of technology rights/business (9,546) (13,517)
_______ _______
Net cash used by investing activities (18,763) (21,075)
_______ _______
Cash flows from financing activities:
Net (decrease) increase in short-term borrowings (12) 143
Proceeds from long-term debt 144 5,154
Principal payments on long-term debt (483) (159)
Purchases of common stock into treasury (456) (266)
Other 478 222
______ ______
Net cash (used) provided by financing activities (329) 5,094
______ ______
Net(decrease)increase in cash and cash equivalents (803) 4,695
Cash and cash equivalents, beginning of period 14,506 5,620
______ ______
Cash and cash equivalents, end of period $13,703 10,315
====== ======
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 notes thereto included
in the Company's Annual Report on Form 10-K for the year ended September
30, 2001. Certain prior year amounts have been reclassified to conform to
the fiscal 2002 presentation.
The results for the three and nine month periods ended June 30, 2002 are
not necessarily indicative of the results for the entire 2002 fiscal year.
2. GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF SFAS NO. 142
Management adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 142 Goodwill and Other Intangible Assets effective
October 1, 2001, the beginning of the Company's fiscal year. SFAS No. 142
requires that goodwill and intangible assets with indefinite useful lives
no longer be amortized, but instead tested for impairment at least annually
in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company is required to
test the intangible asset for impairment in accordance with the provisions
of SFAS No. 142. Any impairment loss will be measured as of the date of
adoption and recognized as the cumulative effect of a change in accounting
principle. No impairment loss was recorded upon the adoption of SFAS No.
142.
The following table presents a reconciliation of net earnings for the three
and nine month periods ended June 30, 2001, as restated, to reflect the
removal of goodwill amortization in accordance with SFAS No. 142, to be
used for comparison purposes with the three and nine month periods ended
June 30, 2002. (Dollars in thousands, except per share amounts). Earnings
per share of $1.15 for the nine months ended June 30, 2001 includes a
cumulative $.02 per share tax impact of goodwill amortization.
Three Months Nine Months
Ended June 30, Ended June 30,
2001 2001
____ ____
Reported net earnings $4,557 $12,822
Add back: Goodwill amortization, net of tax 637 1,896
_____ ______
Adjusted net earnings $5,194 $14,718
===== ======
Earnings per share - Basic:
As Reported $ .37 $ 1.04
Goodwill amortization .05 .15
___ ____
Adjusted $ .42 $ 1.19
=== ====
Earnings per share - Diluted:
As Reported $ .35 $ 1.00
Goodwill amortization .05 .15
___ ____
Adjusted $ .40 $ 1.15
=== ====
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
performance 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 Nine Months Ended
June 30, June 30,
__________________ _________________
2002 2001 2002 2001
____ ____ ____ ____
Weighted Average Shares
Outstanding - Basic 12,581 12,432 12,492 12,352
Dilutive Options and
Performance Shares 513 473 537 420
______ ______ ______ ______
Adjusted Shares-Diluted 13,094 12,905 13,029 12,772
====== ====== ====== ======
Options to purchase approximately 34,500 shares of common stock at a price
of $35.93 and options to purchase 4,500 shares of common stock at a price
of $25.18 per share were outstanding during the nine month periods ended
June 30, 2002 and 2001, 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. These options
expire in various periods through 2012. Approximately 93,000 and 157,000
Performance Shares were outstanding but unvested at June 30, 2002 and 2001,
respectively, and therefore, were not included in the respective
computation of diluted EPS.
4. INVENTORIES
Inventories consist of the following (in thousands):
June 30, September 30,
2002 2001
________ _____________
Finished goods $ 12,250 12,065
Work in process, including long- term contracts 17,968 17,089
Raw materials 26,220 19,013
______ ______
Total inventories $ 56,438 48,167
====== ======
The increase in raw materials inventories at June 30, 2002 of approximately
$7.2 million is mainly due to the increase in the Company's Communications
segment inventories which is primarily safety stock in conjunction with the
start-up of the PPL Electric Utilities Corporation (PPL) contract.
5. COMPREHENSIVE INCOME
Comprehensive income for the three-month periods ended June 30, 2002 and
2001 was $7.4 million and $4.2 million, respectively. Comprehensive income
for the nine-month periods ended June 30, 2002 and 2001 was $16.4 million
and $11.7 million, respectively. For the nine months ended June 30, 2002,
the Company's comprehensive income was positively impacted by foreign
currency translation adjustments of approximately $0.7 million, which was
partially offset by an decrease in fair value of the Company's interest
rate swaps designated as a cash flow hedge of $0.1 million, discussed below
in Item 3, Quantitative and Qualitative Disclosures About Market Risk.
6. ACQUISITIONS
In March 2002, the Company acquired the exclusive rights to the patent
portfolio and related intellectual property of North Carolina SRT Inc. and
its affiliate (NC SRT), a manufacturer of cross-flow filtration and
separation modules and equipment. The Company paid approximately $9.5
million for these filtration technology rights, including certain
production assets and inventory of NC SRT. The Company will pay future
consideration of $1 million in March 2003 and $1 million in March 2004.
Additionally, the Company will be obligated to pay consideration, primarily
in the form of royalties, based on certain future product sales and the
grant of sublicenses generated as a result of the acquired rights in the
patent portfolio of NC SRT. NC SRT sales of products utilizing the
technologies acquired were approximately $3 million in calendar 2001. The
intellectual property rights and related assets of NC SRT are included
within the Company's Filtration/Fluid Flow segment. The intellectual
property is being amortized over a period of fifteen years consistent with
the duration of the licensed technology.
7. BUSINESS SEGMENT INFORMATION
The Company is organized based on the products and services that it offers.
Under this organizational structure, the Company operates in four segments:
Filtration/Fluid Flow, Test, Communications and Other.
Management evaluates and measures the performance of its operating segments
based on "Net Sales and EBIT", which are detailed in the table below. EBIT
is defined as Earnings Before Interest and Taxes.
($ in millions) Three Months ended Nine Months ended
June 30, June 30,
__________________ _________________
NET SALES 2002 2001 2002 2001
_________ ____ ____ ____ ____
Filtration/Fluid Flow $ 50.4 $ 47.5 142.8 138.6
Test 16.8 22.1 51.3 66.1
Communications 25.0 15.8 64.8 44.8
Other 2.5 2.5 8.4 8.1
____ ____ _____ _____
Consolidated totals $ 94.7 $ 87.9 267.3 257.6
==== ==== ===== =====
EBIT
____
Filtration/Fluid Flow $ 4.3 $ 3.6 9.7 8.0
Test 0.9 1.8 3.2 5.5
Communications 5.1 3.1 14.3 10.0
Other (1.0) (1.1) (1.7)(4) (2.5)(5)
___ ___ ____ ____
Consolidated totals $ 9.3 (1) $ 7.4 (2) 25.5 (1) 21.0 (3)
=== === ==== ====
(1) The three and nine-month periods ended June 30, 2002 exclude goodwill
amortization in accordance with the adoption of SFAS No. 142.
(2) The three month period ended June 30, 2001 included $0.9 million of
goodwill amortization.
(3) The nine month period ended June 30, 2001 included $2.6 million of goodwill
amortization.
(4) The amount for the nine month period ended June 30, 2002 consisted of $0.6
million related to Rantec and ($2.3) million related to unallocated
corporate operating charges, which includes $0.3 million of exit costs
related to the Company's joint venture in India, which was recorded in the
first quarter of fiscal 2002, related to the Filtration/Fluid Flow segment.
(5) The amount for the nine month period ended June 30, 2001 consisted of $0.9
million related to Rantec and ($3.4) million related to unallocated
corporate operating charges, which includes $0.3 million of charges related
to personnel termination costs in Brazil (Filtration/Fluid Flow segment);
$0.4 million of corporate litigation costs related to the Filtration/Fluid
Flow segment; and $0.3 million of residual costs to consolidate PTI's
filtration business into new facilities in Oxnard, CA.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET SALES
Net sales increased $6.8 million, or 7.8%, to $94.7 million for the third
quarter of fiscal 2002 from $87.9 million for the third quarter of fiscal 2001.
Net sales increased $9.7 million, or 3.7%, to $267.3 million for the first nine
months of fiscal 2002 from $257.6 million for the first nine months of fiscal
2001. The largest increase was in the Company's Communications segment,
resulting from significantly higher shipments of Automatic Meter Reading (AMR)
equipment. The majority of this increase was related to PPL and various electric
utility cooperatives (Co-ops).
FILTRATION/FLUID FLOW
Net sales were $50.4 million and $47.5 million for the third quarter of fiscal
2002 and 2001, respectively. Net sales were $142.8 million and $138.6 million
for the first nine months of fiscal 2002 and 2001, respectively. Net sales
during the first nine months of fiscal 2002 increased primarily as a result of
the contribution from Bea Filtri S.p.A. (Bea), acquired in June 2001, which
accounted for approximately $7.8 million of the increase in net sales.
TEST
Net sales were $16.8 million and $22.1 million for the third quarter of fiscal
2002 and 2001, respectively. For the first nine months of fiscal 2002, net sales
were $51.3 million compared to $66.1 million in the prior year period. The net
sales decrease in the first nine months of fiscal 2002 as compared to the prior
year period is primarily due to the continued softness in the overall
electronics and telecommunications markets and the prior year completion of the
General Motors test chamber complex, which accounted for approximately $4
million of the decrease to net sales.
COMMUNICATIONS
For the third quarter of fiscal 2002, net sales of $25.0 million were $9.2
million, or 58.2%, higher than the $15.8 million of net sales recorded in the
third quarter of fiscal 2001. Net sales of $64.8 million in the first nine
months of fiscal 2002 were $20.0 million, or 44.6%, higher than the $44.8
million recorded in the first nine months of fiscal 2001. The increases are the
result of significantly higher shipments of AMR equipment to PPL and various
Co-ops.
OTHER
Net sales were $2.5 million in both the third quarter of fiscal 2002 and fiscal
2001. In the first nine months of fiscal 2002, net sales were $8.4 million
compared to $8.1 million in the prior year period. The Other segment represents
the net sales of Rantec Power Systems (Rantec).
ORDERS AND BACKLOG
Firm order backlog was $304.7 million at June 30, 2002, compared with $180.1
million at September 30, 2001. Orders totaling $391.8 million were received in
the first nine months of fiscal 2002, which includes a backlog adjustment of
$3.9 million related to the Filtration/Fluid Flow segment. Approximately $153.2
million of new orders in the first nine months of fiscal 2002 related to
Filtration/Fluid Flow products, $49.7 million related to Test products, and
$181.2 million related to Communications products. In February 2002, the Company
received a $112 million contract from PPL Electric Utilities Corporation, a
subsidiary of PPL Corporation, for an AMR system in Pennsylvania. The project is
currently scheduled for completion in November 2004.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the third quarter of
fiscal 2002 were $21.2 million, or 22.4% of net sales, compared with $18.3
million, or 20.9% of net sales for the prior year period. For the first nine
months of fiscal 2002, SG&A expenses were $60.1 million, or 22.5% of net sales,
compared with $52.7 million, or 20.5% of net sales for the prior year period.
The increase in SG&A spending in the first nine months of fiscal 2002 is due to
the Bea acquisition, which added approximately $2.6 million of SG&A expenses in
the first nine months of fiscal 2002. In addition, the Company is making
significant investments in research and development, engineering, and marketing
within the Communications and Filtration/Fluid Flow segments related to new
product development and market expansion initiatives.
OTHER COSTS AND EXPENSES, NET
Other costs and expenses, net, were $0.6 million for the quarter ended June 30,
2002 compared to $2.3 million for the prior year quarter. The third quarter of
fiscal 2002 excludes goodwill amortization in accordance with the adoption of
SFAS No. 142, while the third quarter of fiscal 2001 included goodwill
amortization of $0.9 million. Other costs and expenses, net, were $1.6 million
for the first nine months of fiscal 2002 compared to $6.8 million for the prior
year period. The first nine months of fiscal 2002 excludes goodwill
amortization, and the first nine months of fiscal 2001 included goodwill
amortization of $2.6 million.
Principal components of other costs and expenses, net, for the first nine months
of fiscal 2002 include $1.1 million of amortization of identifiable intangible
assets, primarily patents and licenses, and $0.3 million of exit costs related
to the Company's joint venture in India (Filtration/Fluid Flow segment) which
was terminated in the first quarter of fiscal 2002, offset by a $0.4 million
gain from insurance proceeds related to a former subsidiary. Principal
components of other costs and expenses, net, for the first nine months of fiscal
2001 include $2.6 million of goodwill amortization, $1.1 million of amortization
of identifiable intangible assets, $0.3 million of charges related to personnel
termination costs in Brazil (Filtration/Fluid Flow segment), $0.4 million of
corporate litigation costs related to the Filtration/Fluid Flow segment, $0.6
million of costs related to the consolidation of the Stockton, CA facility into
the Huntley, IL facility (Filtration/Fluid Flow segment), and $0.5 million of
residual costs to consolidate PTI's filtration business into new facilities in
Oxnard, CA.
EBIT
Management evaluates the performance of its operating segments based on EBIT,
which the Company defines as Earnings Before Interest and Taxes. EBIT increased
$1.9 million to $9.3 million (9.8% of net sales) for the third quarter of fiscal
2002 from $7.4 million (8.4% of net sales) for the third quarter of fiscal 2001.
The prior year quarter included goodwill amortization of approximately $0.9
million. Excluding the amortization of goodwill from the third quarter of fiscal
2001's results, EBIT would have been $8.3 million (9.4% of net sales).
For the first nine months of fiscal 2002, EBIT increased $4.5 million to $25.5
million (9.5% of net sales) from $21.0 million (8.1% of net sales) for the first
nine months of fiscal 2001. The prior year period included goodwill amortization
of approximately $2.6 million. Excluding the amortization of goodwill from the
first nine months of fiscal 2001's results, EBIT would have been $23.6 million
(9.1% of net sales).
FILTRATION/FLUID FLOW
EBIT was $4.3 million and $3.6 million in the third quarter of fiscal 2002 and
2001, respectively, and $9.7 million and $8.0 million in the first nine months
of fiscal 2002 and 2001, respectively. The prior year third quarter and first
nine months ended June 30, 2001 included goodwill amortization of $0.5 million
and $1.5 million, respectively. Excluding the goodwill amortization, EBIT for
the third quarter and the first nine months of fiscal 2001 would have been $4.1
million and $9.5 million, respectively. The first nine months of the current
year was impacted by softness in the commercial aerospace and semiconductor
markets, and investments in new product development and market expansion
initiatives, primarily in microfiltration.
TEST
EBIT was $0.9 million and $1.8 million in the third quarter of fiscal 2002 and
2001, respectively, and $3.2 million and $5.5 million in the first nine months
of fiscal 2002 and 2001, respectively. The prior year third quarter and nine
months ended June 30, 2001 included goodwill amortization of $0.4 million and
$1.1 million, respectively. Excluding the goodwill amortization, EBIT for the
third quarter and first nine months of fiscal 2001 would have been $2.2 million
and $6.6 million, respectively. The decline in EBIT in the first nine months of
fiscal 2002 as compared to the prior year period is mainly due to lower sales as
a result of the continued softness in the electronics and telecommunications
markets and the completion of the General Motors test chamber complex in fiscal
2001.
COMMUNICATIONS
Third quarter EBIT of $5.1 million in fiscal 2002 was $2.0 million, or 64.5%,
higher than the $3.1 million of EBIT in the third quarter of fiscal 2001. For
the first nine months of fiscal 2002, EBIT increased $4.3 million, or 43.2%, to
$14.3 million from $10.0 million in fiscal 2001. The increase in EBIT is the
result of significantly higher shipments of AMR equipment.
In May 2002, in cooperation with the Public Service Commission of Wisconsin and
the Wisconsin Department of Agriculture, Trade and Consumer Protection, the
Wisconsin Public Service Corporation (WPSC) began voluntarily conducting tests
involving the Company's AMR equipment (the Two-Way Automatic Communications
System) (TWACS and the system's impact on stray voltage on dairy farms. The
final test results are currently expected in October 2002.
The Company's subsidiary, Comtrak Technologies, L.L.C.'s (Comtrak) one-year
development funding agreement with ADT Security Services, Inc. (ADT) for its
Securvision product expired at the end of the second quarter of fiscal 2002.
Under the terms of this agreement, ADT had been providing Comtrak with $0.3
million per quarter. The Company does not anticipate that this agreement will be
renewed.
OTHER
EBIT was ($1.0) million and ($1.7) million for the three and nine-month periods
ended June 30, 2002, respectively, compared to ($1.1) million and ($2.5) million
for the respective prior year periods. The amount for the third quarter ended
June 30, 2002 consisted of $0.1 million related to Rantec and ($1.1) million
related to unallocated corporate operating charges. EBIT for the first nine
months of fiscal 2002 consisted of $0.6 million related to Rantec and ($2.3)
million related to unallocated corporate operating charges, which includes $0.3
million of exit costs related to the Company's joint venture in India
(Filtration/Fluid Flow segment) which was terminated in the first quarter of
fiscal 2002. The amount for the first nine months of fiscal 2001 consisted of
$0.9 million related to Rantec and ($3.4) million related to unallocated
corporate operating charges, which includes $0.3 million of charges related to
personnel termination costs in Brazil (Filtration/Fluid Flow segment), $0.4
million of corporate litigation costs related to the Filtration/Fluid Flow
segment, and $0.3 million of residual costs to consolidate PTI's filtration
business into new facilities in Oxnard, CA.
INTEREST EXPENSE (INCOME)
Interest expense, net, was approximately $0.1 million and $0.2 million for the
three and nine-month periods ended June 30, 2002, respectively, compared with
the prior year three and nine-months periods ended June 30, 2001 of $0.1 million
each.
INCOME TAX EXPENSE
The third quarter fiscal 2002 effective income tax rate was 37.5% compared to
38.1% in the third quarter of fiscal 2001. The decrease in the effective income
tax rate in the third quarter of fiscal 2002 compared to the prior year period
is primarily due to the favorable earnings impact of the foreign operations. The
effective income tax rate in the first nine months of fiscal 2002 was 37.8%
compared to 38.5% in the prior year period. Management estimates the annual
effective tax rate for fiscal 2002 to be approximately 38.0%.
FINANCIAL CONDITION
Working capital increased to $96.9 million at June 30, 2002 from $87.4 million
at September 30, 2001. During the first nine months of fiscal 2002, accounts
receivable increased by $5.9 million due to the increase in sales, mainly within
the Company's Communications segment; inventories increased by $8.3 million to
support near term demand; partially offset by a decrease in costs and estimated
earnings on long-term contracts of $1.0 million due to the completion of the
General Motors test chamber complex. In addition, accounts payable and accrued
expenses increased by $3.7 million primarily due to the purchases of inventories
and the timing of payments. Net cash provided by operating activities was $18.3
million in the first nine months of fiscal 2002 compared to net cash provided by
operating activities of $20.7 million in the same period of fiscal 2001. The
decrease in net cash provided by operating activities in the first nine months
of fiscal 2002 as compared to prior year was the result of increased working
capital requirements mentioned above.
Capital expenditures were $9.2 million in the first nine months of fiscal 2002
compared with $7.6 million in the comparable period of fiscal 2001. Major
expenditures in the current period included manufacturing automation equipment
used in the Filtration / Fluid Flow businesses.
At June 30, 2002, accounts receivable includes approximately $0.9 million of
costs incurred to replace certain filtration elements resulting from the receipt
of nonconforming material obtained from a supplier. The supplier has
acknowledged responsibility for this matter and these costs are to be reimbursed
by the supplier. Other current assets include approximately $0.7 million of
capitalized legal costs that have been incurred in the defense of certain
revenue generating patents used in the Company's Filtration/Fluid Flow business.
The recovery of the legal costs in the above-mentioned matter, while probable,
may be subject to litigation or further negotiations. Other current assets also
include approximately $1.1 million of legal costs incurred to defend a customer
claim related to the Company's Test business. The costs associated with the Test
business matter are covered by and will be reimbursed through insurance.
Effective April 5, 2002, the Company amended its existing $75 million revolving
credit facility changing the scheduled reductions and extending the $25 million
increase option through April 11, 2004. The amendment calls for $5 million
reductions to the credit facility on each April 11th beginning in 2002 through
2004 with the balance due upon maturity and expiration, April 11, 2005. Cash
flow from operations and borrowings under the Company's bank credit facility are
expected to provide adequate resources to meet the Company's capital
requirements and operational needs for the foreseeable future.
In March 2002, the Company paid cash of approximately $9.5 million to acquire
the exclusive rights to the patent portfolio and related intellectual property
of North Carolina SRT Inc. and its affiliate (NC SRT), including certain
production assets and inventory.
The Company has a $31.5 million obligation under a synthetic lease facility
arranged by Bank of America. For GAAP purposes, this is accounted for as an
operating lease. This obligation is secured by leases of three manufacturing
locations, two of which are located in Oxnard, CA and the other in Cedar Park,
TX, as well as a $10.6 million letter of credit issued under the Company's $75
million credit facility. The leases expire on December 29, 2005 at which time
the Company will be required to extend the leases on terms to be negotiated,
purchase the properties for $31.5 million, or refinance the obligation. The
Financial Accounting Standards Board (FASB) has issued an exposure draft on the
accounting treatment related to synthetic lease arrangements. If this exposure
draft is adopted as written, the Company would record the net assets and
obligations under the synthetic lease facility as property, plant and equipment
and long-term obligations.
On February 8, 2001, the Company approved a stock repurchase program. Under this
program, the Company is authorized to purchase up to 1.3 million shares of its
common stock in the open market, subject to market conditions and other factors,
through September 30, 2003. The Company repurchased 20,000 shares during the
first nine months of fiscal 2002.
The Company continues to explore consolidation opportunities within its existing
businesses that could improve future operating earnings and enhance the
Company's competitive position. The Company will also continue to look for
acquisitions that offer complementary products and/or new technologies.
RECENT DEVELOPMENT
On August 5, 2002, the Company entered into a Management Transition Agreement
with Dennis J. Moore, the Company's Chairman and Chief Executive Officer, which
provided for Mr. Moore to receive certain compensation in conjunction with his
planned retirement which will occur during April of 2003. The significant costs
associated with Mr. Moore's announced retirement as described in the Management
Transition Agreement are quantified below. The Management Transition Agreement
and certain of the related agreements are included as Exhibits to this quarterly
report on Form 10-Q.
(in millions)
New Restricted Shares $ 1.2 (1)
Previously Awarded Restricted
Shares and Performance Shares for
which vesting will be accelerated $1.0 (1) (2)
Consulting Agreement $0.3 (3)
_____
Total $ 2.5
====
(1) The costs of these arrangements will be recognized over the eight month
transition period, from August 2002 through March 2003.
(2) These items were subject to remeasurement based on FASB Interpretation
(FIN) No. 44, "Accounting for Certain Transactions Involving Stock
Compensation (an Interpretation of APB Opinion No. 25)". The remeasurement
was based on the closing stock price on August 5, 2002, the date the
vesting of the shares were accelerated.
(3) The cost of the consulting agreement will be recognized over the twelve
month period from April 2003 through April 2004, consistent with the period
of service.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires Company management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying consolidated financial statements. In preparing these
financial statements, management has made their best estimates and judgments of
certain amounts included in the financial statements, giving due consideration
to materiality. The Company does not believe there is a great likelihood that
materially different amounts would be reported under different conditions or
using different assumptions related to the accounting policies described below.
However, application of these accounting policies involves the exercise of
judgment and use of assumptions as to future uncertainties and, as a result,
actual results could differ from these estimates. The Company's senior
management discusses the accounting policies described below with the audit
committee of the Company's board of directors on an annual basis.
The following discussion of critical accounting policies is intended to bring to
the attention of readers those accounting policies which management believes are
critical to the Consolidated Financial Statements and other financial
disclosure. It is not intended to be a comprehensive list of all significant
accounting policies that are more fully described in Note 1 of the Notes to the
Consolidated Financial Statements included in our 2001 Annual Report on Form
10-K.
The Company has identified the following areas as critical accounting policies.
Revenue Recognition
The majority of the Company's revenues are recognized when products are shipped
to or when services are performed for unaffiliated customers. Other revenue
recognition methods the Company uses include the following: Revenue on
production contracts is recorded when specific contract terms are fulfilled,
usually by delivery or acceptance (the units of production or delivery methods).
Revenues from cost reimbursement contracts are recorded as costs are incurred,
plus fees earned. Revenue under long-term contracts for which units of
production or delivery are inappropriate measures of performance is recognized
on the percentage-of-completion method based upon incurred costs compared to
total estimated costs under the contract. Revenue under engineering contracts is
generally recognized as milestones are attained. The SEC's Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition" provides guidance on the
application of generally accepted accounting principles to selected revenue
recognition issues. Management believes the Company's revenue recognition policy
is in accordance with generally accepted accounting principles and SAB No. 101.
Accounts Receivable
Accounts receivable have been reduced by an allowance for amounts that may
become uncollectible in the future. This estimated allowance is based primarily
on management' evaluation of the financial condition of the customer and
historical bad debt experience.
Inventory
Inventories are valued at the lower of cost or market value and have been
reduced by an allowance for excess and obsolete inventories. The estimated
allowance is based on management's review of inventories on hand compared to
estimated future usage and sales. Inventories under long-term contracts reflect
accumulated production costs, factory overhead, initial tooling and other
related costs less the portion of such costs charged to cost of sales and any
unliquidated progress payments. In accordance with industry practice, costs
incurred on contracts in progress include amounts relating to programs having
production cycles longer than one year, and a portion thereof may not be
realized within one year.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Deferred tax assets may be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company regularly reviews its deferred tax
assets for recoverability and establishes a valuation allowance when management
believes it is more likely than not such assets will not be recovered, taking
into consideration historical operating results, expectations of future
earnings, and the expected timing of the reversals of existing temporary
differences.
Goodwill and Other Long-Lived Assets
The Company adopted the provisions of SFAS No. 142 effective October 1, 2001.
Goodwill and other long-lived assets with indefinite useful lives are reviewed
by management for impairment annually or whenever events or changes in
circumstances indicate the carrying amount may not be recoverable. If indicators
of impairment are present, the determination of the amount of impairment is
based on management's judgment as to the future operating cash flows to be
generated from these assets throughout their estimated useful lives. SFAS No.
142 also requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121 and
subsequently, SFAS No. 144 after its adoption.
Pension Plans and Other Postretirement Benefit Plans
The measurement of liabilities related to pension plans and other
post-retirement benefit plans is based on management's assumptions related to
future events including interest rates, return on pension plan assets, rate of
compensation increases, and health care cost trend rates. Actual pension plan
asset performance will either decrease or increase unamortized pension losses
which will affect net earnings in future years.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities", that supersedes Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit An Activity (including Certain Costs Incurred in a
Restructuring)." The provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", effective for fiscal years beginning after June 15, 2002. SFAS No.
143 addresses financial accounting requirements for retirement obligations
associated with tangible long-lived assets.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", that replaces SFAS No. 121,"Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
The provisions of SFAS No. 144 are effective for fiscal years beginning after
December 15, 2001 and, generally, are to be applied prospectively.
Management does not believe the implementation of Statements No. 143 and 144
will have a material effect on the Company's 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 made in connection with the Company's accounting policies and the
Company's 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: further weakening of economic
conditions in served markets; changes in customer demands or customer
insolvencies; electricity shortages; competition; intellectual property rights;
consolidation of internal operations; integration of recently acquired
businesses; delivery delays or defaults by customers; performance issues with
key suppliers and subcontractors; collective bargaining labor disputes; 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. The Company
has interest rate exposure relating to floating rate lease obligations and,
accordingly, the Company has entered into interest rate swaps covering
approximately $32 million to mitigate this exposure. These interest rate swaps
relate to operating lease obligations under its synthetic lease facility, and
have been arranged by Bank of America. The interest rate swaps effectively fix
the interest rates on the underlying lease obligations at a weighted average
rate of 6.47%. These lease obligations and their related interest rate swaps
expire on December 29, 2005. In addition, the Company has interest rate exposure
of approximately $4 million relating to floating rate obligations denominated in
EURO dollars. Therefore, the Company has entered into an interest rate swap of
approximately $4 million to mitigate this exposure which effectively fixed the
interest rate on these floating rate obligations at 4.89%. These EURO dollar
obligations consist of borrowings under the Company's $75 million credit
facility and mature on April 11, 2005 along with the related interest rate swap.
These swaps are accounted for as cash flow hedges under the provisions of SFAS
133, "Accounting for Derivative Instruments and Hedging Activities, as amended
by SFAS 138". For the nine months ended June 30, 2002, accumulated other
comprehensive loss included an after tax decrease in fair value of approximately
$0.1 million related to the interest rate swaps. The Company is subject to
foreign currency exchange rate risk inherent in its sales commitments,
anticipated sales, anticipated purchases and assets and liabilities denominated
in currencies other than the U.S. dollar. The currency most significant to the
Company's operations is the Euro. The Company hedges certain foreign currency
commitments by purchasing foreign currency forward contracts.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibit
Number
3(a) Restated Articles of Incorporated by reference to
Incorporation Form 10-K for the fiscal year
ended September 30, 1999 at
Exhibit 3(a)
3(b) Amended Certificate of Incorporated by reference to
Designation Preferences Form 10-Q for the fiscal
and Rights of Series A quarter ended March 31, 2000
Participating Cumulative at Exhibit 4(e)
Preferred Stock of the
Registrant
3(c) Articles of Merger effective Incorporated by reference to
July 10, 2000 Form 10-Q for the fiscal
quarter ended June 30, 2000
at Exhibit 3(c)
3(d) Bylaws, as amended Incorporated by reference to
Form 10-Q for the fiscal
quarter ended June 30, 2000
at Exhibit 3(d)
4(a) Specimen Common Stock Incorporated by reference to
Certificate Form 10-Q for the fiscal
quarter ended June 30, 2000
at Exhibit 4(a)
4(b) Specimen Rights Certificate Incorporated by reference to
Exhibit B to Exhibit 4.1 to
the Registrant's Current
Report on Form 8-K dated
February 3, 2000
4(c) Rights Agreement dated as of Incorporated by reference to
September 24, 1990 (as amended Current Report on Form 8-K
and Restated as of February 3, dated February 3, 2000, at
2000) between the Registrant Exhibit 4.1
and Registrar and Transfer
Company, as successor Rights
Agent
4(d) Amended and Restated Credit Incorporated by reference to
Agreement dated as of February Form 10-Q for the fiscal
28, 2001 among the Registrant, quarter ended March 31, 2001
Bank of America, N.A., as at Exhibit 4(d)
agent, and the lenders listed
therein
4(e) Amendment No. 1 dated as of
April 5, 2002 to Credit
Agreement listed as
Exhibit 4(d) above.
10(a) Management Transition Agreement
dated August 5, 2002 between
the Registrant and
Dennis J. Moore
10(b) Amendment to 1994 Stock Option
Plan effective July 18, 2002
10(c) Nonqualified Stock Option
Agreement dated July 18, 2002
between Registrant and
Dennis J. Moore
10(d) Notice of Award - Stock Award
to Dennis J. Moore dated July 18,
2002
b) Reports on Form 8-K.
During the quarter ended June 30, 2002, the Company filed the following
Current Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated June 5, 2002, which
reported in "Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits" and "Item 9. Regulation FD Disclosure" that the Company would
post on its website certain materials for a Company presentation including
a summary statement of strategy, five-year financial objectives and
overview of the Company's three primary segments, and would issue a related
press release.
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
Corporate Controller
(As duly authorized officer
and principal accounting
officer of the registrant)
Dated: August 7, 2002
Exhibit 4(e)
AMENDMENT NO. 1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No.1 to Amended and Restated Credit Agreement (this
"Amendment") is entered into as of April 5, 2002, by and among ESCO Technologies
Inc., a Missouri corporation ("Company"), each financial institution signatory
hereto as a Lender (collectively the "Lenders" and individually each a
"Lender"), and BANK OF AMERICA, N.A., as Administrative Agent, Swing Line
Lender, Offshore Currency Fronting Lender and Issuing Lender ("Bank of
America").
RECITALS
A. Company, Bank of America and the Lenders are party to that certain
Amended and Restated Credit Agreement dated as of February 28, 2001 (the "Credit
Agreement"). Unless otherwise specified herein, capitalized terms used in this
Amendment shall have the meanings ascribed thereto in the Credit Agreement.
B. Company, Bank of America and the undersigned Lenders wish to amend the
Credit Agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual execution hereof and other
good and valuable consideration, the parties hereto agree as follows:
1. Amendments to Credit Agreement.
(a) The definition of "Letter of Credit Sublimit" appearing in Section
1.01 of the Credit Agreement is hereby amended by inserting the amount
"$25,000,000" in replacement for the amount "$15,000,000" appearing
therein.
(b) Section 2.08(a) of the Credit Agreement is hereby amended by
deleting the following sentence appearing therein:
"Any such reduction or termination shall be accompanied by payment of
all accrued and unpaid participation fees under Section 2.10(d) with
respect to the portion of the Fronted Offshore Currency Commitment
being reduced or terminated."
(c) Section 2.08(c) of the Credit Agreement is hereby amended and
restated in its entirety as follows:
" (c) Scheduled Commitment Reductions. In addition to any reductions
pursuant to Section 2.08(b), the combined Commitments will be permanently
reduced by $5,000,000 (as such amount may be reduced by any reduction in
the applicable year pursuant to Section 2.08(a)) on each of April 11, 2002,
April 11, 2003 and April 11, 2004. To the extent applicable, Company shall
make the prepayments required by Section 2.07(c) on such dates."
(d) Section 2.14(a) of the Credit Agreement is hereby amended by
inserting the date "April 11, 2004" in replacement for the date "April 11,
2002" appearing therein.
2. Representations and Warranties of Company. Company represents and
warrants that:
(a) The execution, delivery and performance by Company of this
Amendment have been duly authorized by all necessary corporate action and
this Amendment is a legal, valid and binding obligation of Company
enforceable against Company in accordance with its terms, except as the
enforcement hereof may be subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally;
(b) Each of the representations and warranties contained in Section 5
of the Credit Agreement is true and correct in all material respects on and
as of the date hereof as if made on the date hereof; and
(c) After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
3. Effective Date. This Amendment shall become effective upon:
(a) The execution and delivery hereof by Company, Bank of America and
the Lenders; and
(b) Company's payment to Administrative Agent, for the respective
accounts of the Lenders pro rata according to their respective Pro Rata
Shares, an amendment fee in an amount equal to four (4) Basis Points on the
combined Commitments. Such amendment fee is for the Lenders amending the
Credit Agreement as contemplated hereby, and is fully earned on the date
paid. The amendment fee paid to the Lenders is solely for their own account
and is nonrefundable.
4. Reference to and Effect Upon the Credit Agreement.
(a) Except as specifically amended hereby, the Credit Agreement and
the other Loan Documents shall remain in full force and effect and are
hereby ratified and confirmed; and
(b) The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the Administrative
Agent or any Lender under the Credit Agreement or any Loan Document, nor
constitute a waiver of any provision of the Credit Agreement or any Loan
Document. Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of similar import shall mean and be a reference to the Credit
Agreement as amended hereby.
5. Costs and Expenses. Company hereby affirms its obligation under
Section 10.03 of the Credit Agreement to reimburse the Administrative Agent
for all costs and expenses paid or incurred by the Administrative Agent in
connection with the preparation, negotiation, execution and delivery of
this Amendment, including but not limited to the attorneys' fees and time
charges of attorneys for the Administrative Agent with respect thereto.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF MISSOURI (WITHOUT REGARD
TO CONFLICTS OF LAW PROVISIONS THEREOF); PROVIDED THAT COMPANY, THE
ADMINISTRATIVE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.
7. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
8. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original
but all such counterparts shall constitute one and the same instrument.
[signature pages follow]
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first above written.
ESCO TECHNOLOGIES INC.
By: Name: Title:
BANK OF AMERICA, N.A., as Administrative Agent
By: Name: Title:
BANK OF AMERICA, N.A., as Lender, Issuing Lender, Swing Line
Lender and Offshore Currency Fronting Lender
By: Name: Title:
BANK ONE, NA (Main Office Chicago), as a Lender
By: Name: Title:
THE NORTHERN TRUST COMPANY, as a Lender
By: Name: Title:
LASALLE BANK NATIONAL ASSOCIATION, as a Lender
By: Name: Title:
COMMERCE BANK, N.A., as a Lender
By: Name: Title:
Exhibit 10 (a)
MANAGEMENT TRANSITION AGREEMENT
THIS MANAGEMENT TRANSITION AGREEMENT (this "Agreement"), is made as of
the 5th day of August, 2002, between ESCO Technologies Inc., a Missouri
corporation (the "Company" or "ESCO"), and Dennis J. Moore (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Executive, who will reach 65 years of age in 2003, has
informed the Company that he desires to retire from the positions of
Chairman and Chief Executive of the Company prior to the end of the
Company's 2003 fiscal year;
WHEREAS, the Company desires to recognize the Executive's long service
on behalf of the Company and the important contributions that the Executive
has made to the Company, during his employment with the Company;
WHEREAS, the Company desires to retain the goodwill and management
experience of the Executive following Executive's retirement, in order to
ensure the smooth and successful transition of the Company's leadership to
a new Chief Executive Officer;
WHEREAS, the Company has on July 18, 2002 awarded the Executive 60,000
stock options and 40,000 restricted shares; and
WHEREAS, in order to retain Executive's goodwill and recognize the
Executive's contributions to the Company, the Company and the Executive
desire to enter into this Management Transition Agreement, in order to
memorialize the agreement of the Company and the Executive relating to the
Executive's retirement and the transition of the Company's management
authority to a new Chief Executive Officer.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment Agreement. The terms of that certain Employment
Agreement dated as of November 1, 1999 between the Company and the
Executive (the "Employment Agreement"), shall remain in full force and
effect until September 30, 2002; provided that the Company and the
Executive hereby agree that the Company shall not be in breach of the terms
of the Employment Agreement nor shall the Executive have "Good Reason" to
terminate such Employment Agreement should the Company reduce, change or in
any way modify the duties to be performed by the Executive pursuant to the
terms of the Employment Agreement. The Executive and the Company hereby
agree that the Employment Agreement shall terminate on September 30, 2002,
shall be considered null and void without liability to either party and
that Executive shall not be entitled to any benefits, owed any additional
compensation or severance or have any rights or obligations under the
Employment Agreement upon said termination; provided, that this does not
supersede the Executive's right to receive any benefit earned prior to the
Executive's retirement, or any provision of this Agreement expressly
providing a benefit to the Executive.
2. Transition Period.
2.1 Retirement. The Executive shall retire from the Company as an
employee and resign as a Director on a date to be determined by the
Human Resources and Ethics Committee of the Board of Directors (the
"Committee"), provided that the Committee shall not select a date for
the Exeuctive's retirement before February 5, 2003 or after April 30,
2003 (the date of the Executive's retirement shall be referred to
herein as the "Retirement Date" and the period between October 1, 2002
until the Retirement Date shall be referred to as the "Transition
Period").
2.2 Duties. As of October 1, 2002 Executive shall resign as Chief
Executive Officer and during the Transition Period, the Executive
shall serve as the Company's Chairman, or in such other capacities as
may be determined from time to time in the sole discretion of the
Human Resources and Ethics Committee of the Board of Directors (the
"Committee").
2.3. Compensation. During the Transition Period, the Executive
shall be entitled to receive a pro rata salary at an annual rate of
Four Hundred Eighty Five Thousand Dollars ($485,000.00), payable
pursuant to the terms of the Company's normal payroll practices.
2.4 Bonus. On the Retirement Date, Executive shall receive from
the Company an annual bonus at the Executive's current centerpoint of
$325,000.00 (at the 1.0 level) multiplied by the number of calendar
days comprising the Transition Period divided by 365.
2.5 Long Term Incentive Compensation. All performance shares,
stock options or restricted stock awards previously granted to the
Executive pursuant to the Company's incentive compensation plans shall
fully vest and be distributed in accordance with the terms of such
applicable plans, except that any performance share and restricted
stock awards which have a vesting date following the Retirement Date
shall fully vest and be distributed, and any stock options which have
a vesting date following the Retirement Date shall be eligible for
exercise in accordance with applicable plan terms, as of April 1,
2003. All such performance share, stock option and restricted stock
awards shall be deemed amended by the Committee and the Executive by
this Agreement.
2.6 Directors and Officers Liability Coverage. The Company agrees
to provide the Executive with Directors and Officers liability
coverage during the Transition Period, and for at least five years
thereafter, for covered actions through the date of the end of the
Transition Period, subject to the insurance carrier's approval and the
terms of such coverage.
3. Consulting Agreement. On or before the Retirement Date, the
Executive and the Company will enter into a Consulting Agreement,
providing for the service of the Executive as an independent
contractor to the Company for a one year term following the Retirement
Date for a fee of $300,000 payable bi-weekly pursuant to the Company's
payroll practices (the "Consulting Fee"). The Consulting Agreement
shall contain such reasonable and customary provisions deemed
acceptable by the Company in its discretion, including without
limitation, a non-disclosure and confidentiality covenant, a
non-disparagement covenant, a release of the Company and its
affiliates, including the specified terms contained in Section 4, and
a worldwide covenant restricting the Executive, for a period of three
(3) years following the end of the term of the Consulting Agreement,
from competing with the Company, soliciting the business of the
Company, or soliciting the employees of the Company.
4. Release of Company.
4.1 General Release for Additional Consideration. In
consideration of the mutual promises and covenants contained herein
(which Executive specifically acknowledges include consideration to
which he would not have been entitled in the absence of this
Agreement), the Executive agrees to and does hereby release, acquit,
and forever discharge the Company its subsidiaries and affiliates and
their past, present, and future shareholders, officers, directors,
agents, employees, representatives, attorneys, successors and assigns,
from any and all liabilities, claims, grievances, demands, charges,
actions, causes of action and damages of every nature and description,
known or unknown, accrued or not yet fully in being, which may have
arisen on account of anything occurring, in whole or in part, prior to
the date of this Agreement. This release is specifically understood to
apply to, but is not limited to, any and all claims made, to be made,
or which might have been made as a consequence of Executive's
employment with ESCO or his relationship with any executive officer of
ESCO, or arising out of his retirement, and the termination of his
employment relationship with ESCO. This release also specifically
includes, but is not limited to, any and all claims for salary,
vacation pay, bonuses, commissions, stock options, compensation,
benefits and damages (actual, compensatory, emotional and punitive) of
any kind, sex discrimination, sexual harassment, retaliation,
discriminatory treatment, alleged violations of any employee policy,
employee manual or alleged contract of employment, defamation, fraud,
assault, conspiracy, age discrimination and any and all other claims
arising under any federal, state (Missouri, or any other), or local
law, whether such claims arise at common law (whether sounding in tort
or contract) or by constitution, statute or ordinance, including, by
way of illustration only, Title VII of the Civil Rights Act of 1964,
as amended, 42 U.S.C. 2000e-2000e-17; the Age Discrimination in
Employment Act of 1967, as amended, 29 U.S.C. 621-634; the Americans
with Disabilities Act, as amended 42 U.S.C. 12101 et seq.; the Equal
Pay Act of 1963, as amended, 29 U.S.C. 206 et seq.; the Employee
Retirement Income Security Act of 1974, as amended, 29 U.S.C.
1001-1461; the Missouri Human Rights Act, Mo. Rev. Stat.
213.010-213.137, R.S.Mo. (Supp. 1995) and the Missouri Service
Letter Statute, as amended, 290.140, R.S.Mo. (1986). Executive also
agrees not to institute any claim for damages of any kind, by charge
or otherwise, or to authorize any other party, governmental or
otherwise, to institute any claim through administrative or legal
proceedings against ESCO for any such damages. The liabilities,
claims, grievances, demands, charges, actions, causes of action and
damages released and discharged by this Section include all those,
known or unknown, accrued or not yet fully in being, which exist in
whole or in part as of the date this Agreement is signed.
Nothing in this Section or this Agreement shall release
Executive's right to any benefit he may be or become entitled to by
virtue of his employment by ESCO prior to his retirement as provided
herein or any compensation or benefit expressly provided in this
Agreement; or to obtain any COBRA or retiree health benefits he may
timely elect to receive after his retirement
4.2 Knowing and Voluntary. Executive specifically acknowledges
that the waiver of all of his claims is knowing and voluntary and that
this waiver is a part of this Agreement which has been written in a
manner calculated to be, and which is, understood by him and he
intends to be bound by this entire Agreement. He specifically
acknowledges waiving and releasing any claims under the Age
Discrimination in Employment Act of 1967, as amended, 29 U.S.C.
621-634, in addition to all other claims as provided in this Section
of this Agreement.
4.3 Time to Consider. Executive agrees that in deciding to
execute this Agreement: (a) that he relied entirely on his own
judgment and that of any legal counsel or advisor he may have employed
(and not on ESCO) in assessing the extent and merit of any claims, the
likelihood, if any, of prevailing on those claims, the amount of
damages, if any, which he would receive in the event any such claims
were successfully established and the tax treatment of the amount paid
hereunder; (b) that no facts, evidence, event or transaction currently
unknown to him, but which may hereinafter become known to him, shall
affect in any way or manner the final unconditional nature of this
Agreement; (c) that his execution of this Agreement is a completely
voluntary act on his part; (d) that he understands the terms of this
Agreement; (e) that he has been advised by ESCO to consult with his
legal counsel and has been provided with adequate time to do so, at
his own expense, prior to executing this Agreement; (f) that he has
been advised that this offer remains open for a period of twenty-one
(21) days from the date he receives a copy of this Agreement so that
he may fully consider this Agreement prior to executing it; and (g)
that if he does not execute and return this Agreement to ESCO within
such period, ESCO will consider his non-action a refusal to agree to
the terms of this Agreement, and the offer and terms extended by this
Agreement are revoked effective as of that date and time.
4.4 Revocation and Effective Date. The parties agree that this
Agreement shall not become effective or enforceable until the 8th day
after two (2) copies of this Agreement, signed by Executive, are
delivered to ESCO's Vice President Human Resources at 8888 Ladue
Road, Suite 200, St. Louis, Missouri, 63124 ("Effective Date"). During
any time prior to the delivery of these copies to ESCO's Vice
President Human Resources and during the seven (7) day period prior
to the Effective Date, Executive may revoke, in writing, this
Agreement by delivering a copy of a notice of his intention to revoke
it to ESCO's Vice President Human Resources at the address indicated
above. If Executive does not deliver to ESCO's Vice President--Human
Resources notice of his intention to revoke this Agreement in writing
within such seven (7) day period prior to the Effective Date as set
forth in this Section, the Agreement will become effective, binding,
enforceable and irrevocable.
5. Miscellaneous.
5.1 Death or Disability. The Company shall not be obligated to
pay Executive any salary or bonus after his death or continuous
absence from work due to disability for a period of ninety (90) days.
All long-term compensation will be governed in accordance with the
terms of the applicable plan(s).
5.2 Incidental Benefits. Incidental benefits customarily paid to
or on behalf of senior executives of the Company or appropriate for a
departing Chairman and Chief Executive Officer with many years of
successful service to the Company may be paid during the Transition
Period and on the Retirement Date in the discretion of the Committee
or the new Chief Executive Officer of the Company, such incidental
benefits not to exceed in the aggregate Seventy-Five Thousand Dollars
($75,000.00).
5.3 Successors and Assigns. This Agreement shall inure to the
benefit of the parties hereto and their respective successors,
assigns, heirs, and legal representatives, including any entity with
which the Company may merge or consolidate or to which all or
substantially all of its assets may be transferred. The duties and
covenants of the Executive under this Agreement, being personal, may
not be delegated or assigned.
5.4 Amendment. This Agreement may not be amended except by a
written agreement executed by the Executive and another executive
officer of the Company.
5.5 Entire Agreement. This Agreement is a complete and total
integration of the understanding of the parties and supersedes all
prior or contemporaneous negotiations, commitments, agreements,
writings and discussions with respect to the Executive's transition
from employment with the Company, retirement, or engagement as a
consultant, and Executive expressly acknowledges the termination of
the Employment Agreement pursuant to the terms of this Agreement. This
Agreement does not terminate or supersede any agreement between the
Executive and the Company relating to the Executive's conduct,
behavior, incentive compensation or fringe benefits, except as
expressly modified by the provisions contained herein.
5.6 Governing Law. This Agreement shall be construed and
interpreted in accordance with the internal substantive laws of the
State of Missouri, without regard to conflicts of law provisions, and
except to the extent governed by federal law.
5.7 Arbitration. Any controversy or claim arising out of or
relating to this Agreement or any other agreement contemplated
hereunder, or the interpretation or breach hereof or thereof, shall be
submitted to binding arbitration conducted in the City or County of
St.Louis, Missouri, in accordance with the then current Employment
Dispute Resolution Rules of the American Arbitration Association,
unless otherwise agreed. The parties shall select one arbitrator
familiar with a background in arbitrating employment disputes. If the
parties are unable to agree on the selection of an arbitrator to
resolve the dispute within fifteen (15) days of either party giving
the other party notice of its intent to invoke this Section, then
either party may make a request of the American Arbitration
Association for a list of qualified potential arbitrators from which
the parties shall select an arbitrator in accordance with the
Employment Dispute Resolution Rules of the American Arbitration
Association. If no arbitrator is thus selected within fifteen (15)
days after such list is submitted to the parties, either party may
request the American Arbitration Association to select an arbitrator.
Subject to the following sentence, all expenses and fees of the
arbitrator and any other expenses of the arbitration will be borne
equally by parties unless the arbitrator in the award assesses such
expenses against one of the parties or allocates such expenses other
than equally between the parties. Each party will bear its own
attorneys' fees and expenses, unless the arbitrator finds that the
claim or defense of any party was frivolous or lacked a reasonable
basis in fact or law, in which case the arbitrator may assess against
such party all or any part of the attorneys' fees and expenses of the
other party. The determination of such arbitrator shall be final and
binding upon the parties and judgment may be entered thereupon in any
court having jurisdiction thereof. The provisions of this Section 5.7
shall not apply to the enforcement of any covenants relating to
non-competition, non-solicitation, confidentiality or disparagement
contained in this Agreement or any related agreement. Further, the
provisions of this Section 5.7 shall not limit the rights of the
Company to obtain injunctive relief enjoining the Executive from
taking actions or threatening to take an action in violation of the
terms of this Agreement or any related agreement.
IN WITNESS WHEREOF, the foregoing Agreement has been executed
effective as of August 5, 2002.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
ESCO TECHNOLOGIES, INC.
Dennis J. Moore By: Deborah J. Hanlon
Date: 8/5/02 Title: VP Human Resources
Date: August 5, 2002
Exhibit 10(b)
AMENDMENT TO THE ESCO ELECTRONICS CORPORATION 1994
STOCK OPTION PLAN
WHEREAS, ESCO Technologies Inc. (formerly ESCO Electronics
Corporation)("Company") adopted the ESCO Electronics Corporation 1994 Stock
Option Plan ("Plan"); and
WHEREAS, the Company retained the right to amend the Plan pursuant to
Section 16 thereof; and
WHEREAS, the Company desires to amend the Plan:
NOW, THEREFORE, effective as of July 18, 2002 the Plan is amended as
follows:
1. The first sentence of Section 9 is deleted and replaced with the
following:
The holder of any Stock Option issued hereunder must exercise the
Stock Option prior to his termination of employment, except that if the
employment of an optionee terminates with the consent and approval of his
employer, the Committee may, in its absolute discretion, permit the
optionee to exercise his Stock Option, to the extent that he was entitled
to exercise it at the date of such termination of employment, at any time
within three (3) months after such termination, but not after ten (10)
years from the date of the granting thereof. Provided, that the Committee
may, in its absolute discretion, direct that the option agreement
specifically permit the holder of any Stock Option who terminates
employment on account of retirement on or after age 60, to exercise his
Stock Option, to the extent that he was entitled to exercise it at the date
of such retirement, at any time within five (5) years after such
retirement, but not after ten (10) years from the date of the granting
thereof.
2. The last sentence of Paragraph 8 is deleted and replaced with the
following:
Upon exercise of an option the Committee shall withhold a sufficient
number of shares to satisfy the Company's withholding obligations for any
taxes incurred as a result of such exercise; provided, that in lieu of all
or part of such withholding, the optionee may pay an equivalent amount of
cash to the Company.
IN WITNESS WHEREOF, the foregoing amendment was adopted on the 18th
day of July, 2002.
Exhibit 10(c)
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER
ESCO ELECTRONICS CORPORATION
1994 STOCK OPTION PLAN
THIS AGREEMENT, made this 18th day of July, 2002, by and between ESCO
Technologies Inc. (formerly ESCO Electronics Corporation), a Missouri
corporation (hereinafter called the "Company"), and Dennis J. Moore
(hereinafter called "Optionee"),
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Company ("Board of Directors")
has adopted the ESCO Electronics Corporation 1994 Stock Option Plan (the
"Plan") pursuant to which options to purchase shares of the Common Stock of
the Company may be granted to certain key management employees of the
Company and its subsidiaries; and
WHEREAS, Optionee is now a key management employee 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
Paragraph 4 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 July 18, 2002 ("Date of Grant"), the Company
grants to Optionee the option to purchase all or any part of sixty thousand
(60,000) shares of the Common Stock of the Company, of the par value of
$0.01 per share ("Common Stock"), for a period of ten (10) years from the
Date of Grant, at the purchase price of $31.3350 per share; provided,
however, that the right to exercise such option shall be, and is hereby,
restricted so that no shares may be purchased prior to February 1, 2003;
that at any time during the term of this option on or after February 1,
2003, Optionee may purchase 100% of the number of shares to which this
option relates. Notwithstanding the foregoing, 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 effective as of the later of
(i) the date of the Change of Control, or (ii) six (6) months after the
Date of Grant. In no event may this option or any part thereof be exercised
after the expiration of ten (10) years from the Date of Grant. 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), all in accordance with Paragraph 6 of the Plan. For the purposes of
this Agreement, 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.
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, as
the Committee, in its sole discretion, shall determine.
4. Investment Purpose. Optionee represents that, in the event of the
exercise by him of the option hereby granted, or any part thereof, he
intends to purchase the shares acquired on such exercise for investment and
not with a view to resale or other distribution; except that the Company,
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 Company 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 paragraph 9 of the
Plan. Provided, that if Optionee's employment is terminated on account of
retirement on or after age 60, Optionee may exercise this option, to the
extent that he was entitled to exercise it at the date of such retirement,
at any time within five (5) years after such retirement, but not after ten
(10) years from the Date of the Grant. Provided, further, that if
Optionee's employment is terminated for cause (as hereinafter defined) this
option shall terminate and be of no further force or effect. For purposes
of this Agreement, the term "cause" shall mean:
(i) Optionee's willful and continued failure to substantially perform
his 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 him by the Board of
Directors of the Company which specifically identifies the manner in which
such Board believes that he has not substantially performed his duties; or
(ii) Optionee's willful engaging in (A) illegal conduct (other than
minor traffic offenses), or (B) conduct which is in breach of his 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
Optionee's part shall be considered "willful" unless it is done, or omitted
to be done, by him in bad faith or without reasonable belief that his
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 Optionee in
good faith and in the best interests of the Company or one of its
subsidiaries;
The cessation of Optionee's employment shall not be deemed to be for
"cause" unless and until there shall have been delivered to him a copy of a
resolution duly adopted by the affirmative vote of not less than
three-fourths of the entire membership of such Board of Directors of the
Company (but excluding Optionee so long as he is a member of such Board) at
a meeting of such Board called and held for such purpose (after reasonable
notice is provided to Optionee and he is given an opportunity, together
with counsel, to be heard before such Board), finding that, in the
good-faith opinion of such Board, Optionee is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
7. Death of Optionee. In the event of the death of Optionee during the
term of this Agreement and while he is employed by the Company (or a
subsidiary), or within three (3) months after the termination of his
employment (or one (l) year in the case of the termination of employment of
an Optionee who is disabled as provided in the Plan), this option may be
exercised, to the extent that he was entitled to exercise it at the date of
his death, by a legatee or legatees of Optionee under his last will, or by
his personal representatives or distributes, at any time within a period of
one (1) year after his death, but not after ten (10) years from the date
hereof, and only if and to the extent that he was entitled to exercise the
option at the date of his death.
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. Governing Law. This Agreement shall be construed and administered
in accordance wit the laws of the State of Missouri, without regard to the
principles of conflicts of law which might otherwise apply.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its Vice President and to be attested by its
Secretary under the seal of the Company, pursuant to due authorization, and
Optionee has signed this Agreement to evidence his acceptance of the option
herein granted and of the terms hereof, all as of the date hereof.
ESCO TECHNOLOGIES INC.
By
Vice President
ATTEST:
Secretary
Dennis J. Moore, Optionee
Exhibit 10(d)
NOTICE OF AWARD
To: Dennis J. Moore
From: Human Resources and Ethics Committee of the Board of
Directors of ESCO Technologies Inc. ("Committee")
Subject: Award of Restricted Shares
1. Award. The Committee has awarded to you 40,000 Shares of Company
Stock (as hereinafter defined) under the ESCO Technologies Inc. 2001 Stock
Incentive Plan ("Plan"), subject to the terms hereinafter set forth. For
the purposes of this Award, "Company Stock" means common stock of the
Company held in its Treasury.
2. Terms. The following are the terms of the Award:
(a) During the period commencing on July 18, 2002 and ending on
April 1, 2003 (the "Restriction Period") you must remain employed by
the Company. If during the Restriction Period you terminate employment
for any reason other than retirement, death or disability, you will
forfeit the shares of Company Stock awarded hereunder. If, during the
Restriction Period, you terminate employment on account of death or
disability (as determined by the Board), you (or your estate) shall
become fully vested in the shares of Company Stock awarded hereunder
and the employment requirement of this subparagraph (a) shall cease to
apply.
(b) During the Restriction Period, the certificates representing
the shares of Company Stock awarded hereunder shall be held by an
escrow agent selected by the Company. At the end of the Restriction
Period (or upon your earlier termination of employment on account of
death or disability as determined under subparagraph (a), above, or
upon a Change of Control under the circumstances described in
subparagraph (c), below) the escrow agent shall deliver such
certificates to you (or to your estate). During the Restriction Period
you will be entitled to all dividends paid on the shares of Company
Stock awarded hereunder and you will be entitled to instruct the
escrow agent how to vote such shares.
(c) 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,
you will become fully vested in the shares of Company Stock awarded
hereunder and the employment requirement of subparagraph (b) shall
cease to apply.
3. Amendment. This Award may be amended by written consent between the
Company and you.
Executed this day of , 2002
ESCO TECHNOLOGIES INC.
By:
ATTEST:
Secretary
AGREED TO AND ACCEPTED:
Dennis J. Moore