<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material under Rule 14a-12.
ESCO TECHNOLOGIES INC.
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(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[ESCO TECHNOLOGIES LOGO]
NOTICE OF THE ANNUAL MEETING OF
THE STOCKHOLDERS OF
ESCO TECHNOLOGIES INC.
St. Louis, Missouri
December 11, 2000
TO THE STOCKHOLDERS OF
ESCO TECHNOLOGIES INC.:
The Annual Meeting of the Stockholders of ESCO Technologies Inc. will be
held at the Hilton St. Louis Frontenac Hotel, 1335 South Lindbergh Blvd., St.
Louis County, Missouri 63131 on Thursday, February 8, 2001, commencing at 10:00
A.M., at which meeting only holders of record of the Company's common stock at
the close of business on December 4, 2000 will be entitled to vote, for the
following purposes:
1. To elect two directors;
2. To vote on a proposal to approve the 2001 Stock Incentive Plan; and
3. To transact such other and further business, if any, as lawfully may be
brought before the meeting.
ESCO TECHNOLOGIES INC.
BY /s/ D J Moore
Chairman, President and
Chief Executive Officer
/s/ Alyson S. Barclay
Secretary
EVEN THOUGH YOU MAY PLAN TO ATTEND THE MEETING IN PERSON, PLEASE EXECUTE
THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY. A RETURN ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED FOR YOUR
CONVENIENCE.
<PAGE> 3
ESCO TECHNOLOGIES INC.
8888 LADUE ROAD, ST. LOUIS, MISSOURI 63124
PROXY STATEMENT
FOR THE ANNUAL MEETING OF THE STOCKHOLDERS TO BE HELD FEBRUARY 8, 2001
This proxy statement is furnished to the holders of all of the issued and
outstanding shares of common stock (the "Common Shares") of ESCO Technologies
Inc. (the "Company") in connection with the solicitation of proxies for use in
connection with the Annual Meeting of the Stockholders to be held February 8,
2001, and all adjournments thereof, for the purposes set forth in the
accompanying Notice of the Annual Meeting of the Stockholders. Such holders are
hereinafter referred to as the "Stockholders". The Company is first mailing this
proxy statement and the enclosed form of proxy to Stockholders on or about
December 11, 2000.
Whether or not you expect to be present in person at the meeting, you are
requested to fill in, sign, date and return the enclosed form of proxy. If you
attend the meeting, you may of course vote by ballot. If you do not attend the
meeting, the Common Shares can be voted only when represented by a properly
executed proxy. In this case you have several choices:
- You may vote on each proposal when returning the enclosed proxy form, in
which case the Common Shares will be voted in accordance with your
choices.
- You may, when appropriate, indicate a preference to abstain on any
proposal, which will have the effect described in "VOTING" on page 23.
- You may return a properly executed proxy form without indicating your
preferences, in which case the proxies will vote the Common Shares FOR
election of the directors nominated by the Board of Directors and FOR
approval of the 2001 Stock Incentive Plan, and in their discretion on
such other business as may properly come before the meeting.
Any person giving such proxy has the right to revoke it at any time before
it is voted by giving written notice of revocation to the Secretary of the
Company, by duly executing and delivering a proxy bearing a later date, or by
attending the Annual Meeting and casting a contrary vote in person.
The close of business on December 4, 2000 has been fixed as the record date
for the determination of the Stockholders entitled to vote at the Annual Meeting
of the Stockholders. As of the record date, 12,312,246 Common Shares were
outstanding and entitled to be voted at such meeting. The Stockholders will be
entitled to cast one vote for each Common Share held of record on the record
date.
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended September 30, 2000 accompanies this proxy statement.
The solicitation of this proxy is made by the Board of Directors of the
Company. The solicitation will be by mail, and the expense thereof will be paid
by the Company. Proxies may also be solicited by telephone or telefax by
directors, officers or regular employees of the Company. In addition, the
Company has retained Corporate Investors Communications, Inc. to assist with the
solicitation of proxies, the estimated cost of which is $6,000 plus expenses.
2
<PAGE> 4
I. ELECTION OF DIRECTORS
NOMINEES AND CONTINUING DIRECTORS
The Company's Bylaws provide that the number of directors shall not be less
than three nor greater than ten, and shall be determined from time to time by
majority vote of the Board of Directors. In accordance with the Bylaws, the
Board of Directors has fixed the number of directors at seven. The Board is
divided into three classes, with the terms of office of each class ending in
successive years. Two directors of the Company are to be elected for terms
expiring at the Annual Meeting in 2004, or until their respective successors
have been elected and have qualified. Having reached retirement age under the
Bylaws, Mr. J.J. Carey, a director whose term will expire at the 2001 Annual
Meeting, will not stand for election. Pursuant to the Company's Articles of
Incorporation, a majority of the directors in office may fill any vacancy on the
Board of Directors. As of the date of mailing of this Proxy Statement, the
Company has not determined whether to propose, or whom to propose as, an
additional director. Certain information with respect to the nominees for
election as directors proposed by the Company and the other directors whose
terms of office as directors will continue after the Annual Meeting is set forth
below. Should any one or more of the nominees be unable or unwilling to serve
(which is not expected), the proxies (except proxies marked to the contrary)
will be voted for such other person or persons as the Board of Directors of the
Company may recommend. Proxies cannot be voted for more than two nominees.
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION OR SERVED AS
POSITION, OTHER DIRECTORSHIPS DIRECTOR SINCE
---------------------------------- --------------
<S> <C>
TO BE ELECTED FOR TERMS ENDING IN 2004
D.J. Moore, 62.............................................. 1990
Chairman, President and Chief Executive Officer of the
Company
J.M. Stolze, 57............................................. 1999
Executive Vice President and Chief Financial Officer, MEMC
Electronic Materials, Inc., manufacturer of silicon
wafers
TO CONTINUE IN OFFICE UNTIL 2003
J.M. McConnell, 59.......................................... 1996
President and Chief Executive Officer, Instron
Corporation, manufacturer of scientific instruments
D.C. Trauscht, 67........................................... 1991
Chairman, BW Capital Corporation, private investment
company, Director of Cordant Technologies Inc., Wynn's
International Corp., Global Motorsports Inc., OMI
Corporation
TO CONTINUE IN OFFICE UNTIL 2002
W.S. Antle III, 56.......................................... 1994
Former Chairman, President and Chief Executive Officer of
Oak Industries, Inc., manufacturer of components and
controls, Director of GenRad, Inc., John H. Harland
Company
L.W. Solley, 58............................................. 1999
Chairman and Chief Executive Officer, Fisher Controls
International, Inc., manufacturer of valves and
regulators Executive Vice President, Emerson Electric
Co., manufacturer of electrical and other products
</TABLE>
Each of the nominees and continuing directors has had the same position
with the same employer as stated in the preceding table during the past five
years, except as follows:
From October 1995 to December 1995, Mr. Trauscht was Chairman of
Borg-Warner Security Corporation. Since January 1996, he has been Chairman of BW
Capital Corporation.
From May 1995 until January 2000, Mr. Antle was Chairman, President and
Chief Executive Officer of Oak Industries Inc.
3
<PAGE> 5
BOARD OF DIRECTORS AND COMMITTEES
There were four meetings of the Board of Directors during fiscal year 2000.
All of the incumbent directors attended at least 75% of the meetings of the
Board and committees on which they served. Directors who are employees of the
Company do not receive any compensation for service as directors. Each
non-employee director is currently paid an annual retainer of $20,000 and fees
of $700 plus expenses for attendance at each Board meeting. In addition, each
non-employee director receives a fee of 325 Common Shares per fiscal quarter.
Each committee chairman is currently paid an annual retainer of $1,200, and each
committee member is paid $600 plus expenses for attendance at each Board
committee meeting. Under the Company's extended compensation plan for
non-employee directors, each such director who has served as a non-employee
director for at least five years or whose tenure as a director expires pursuant
to the Company's Bylaws restriction regarding maximum age for election will,
after the later of termination of services as a director or reaching age 65,
receive for life a percentage of the annual cash retainer for directors in
effect at the time of termination of service. Such percentage is a minimum of
50% and increases to 60% for six years' service, 70% for seven years' service,
80% for eight years' service, 90% for nine years' service and 100% for ten or
more years' service. In the event of death of a retired director who is eligible
under this plan, 50% of the benefit will be paid to the surviving spouse for
life.
The members of the Board of Directors are appointed to various committees.
The standing committees of the Board are: the Executive Committee, the Audit and
Finance Committee, and the Human Resources and Ethics Committee. The Board does
not have a standing nominating committee.
The Executive Committee's function is to exercise the full authority of the
Board of Directors between Board meetings, except that the Executive Committee
may not take certain specified actions which the Board of Directors has reserved
for action by the whole Board. The Committee held no meetings in fiscal year
2000. Mr. Moore (Chairman), Mr. Antle and Mr. Trauscht are the members of the
Committee.
The Audit and Finance Committee's functions generally are to oversee the
Company's financial reporting process; review the Company's reports to
Stockholders with management and the independent auditors and receive certain
assurances from management; appoint the firm of independent auditors to perform
the annual audit; annually evaluate the qualifications and prior performance of
the independent auditors; review the scope of the auditors' work and approve
their fees; review the Company's internal controls with the independent and the
internal auditors; and review financing requirements and strategy for the
Company. The Committee met four times in fiscal year 2000. Mr. Antle (Chairman),
Mr. Carey, Mr. McConnell and Mr. Stolze are the members of the Committee.
The Human Resources and Ethics Committee's functions generally are to
review and approve various compensation and benefit plans; oversee the Company's
Code of Business Ethics and Conduct and the Ethics Program; administer the
long-term incentive compensation plans; determine when service by an officer or
director is eligible for indemnification; and implement and oversee the
Charitable Contributions Program. The Committee met four times in fiscal year
2000. Mr. Trauscht (Chairman), Mr. Carey and Mr. Solley are the members of the
Committee.
REPORT OF THE AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee of the Board of Directors (the "Committee")
is composed of four independent directors (as defined by the New York Stock
Exchange's listing standards) and operates under a written charter adopted by
the Board of Directors (Exhibit A to this Proxy Statement). The Committee has
prepared the following report on its activities with respect to the Company's
audited financial statements for the fiscal year ended September 30, 2000 (the
"audited financial statements").
- The Committee has reviewed and discussed the audited financial statements
with management;
- The Committee has discussed with KPMG LLP, the Company's independent
auditors, the matters required to be discussed by Statements on Auditing
Standards No. 61;
4
<PAGE> 6
- The Committee has received the written disclosures and the letter from
KPMG required by Independence Standards Board Standard No. 1, and has
discussed with KPMG its independence from the Company; and
- Based on the review and discussions referred to above and relying
thereon, the Committee has recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 2000, for filing
with the U.S. Securities and Exchange Commission.
The Audit and Finance Committee
W.S. Antle III, Chairman
J.J. Carey
J.M. McConnell
J.M. Stolze
5
<PAGE> 7
EXECUTIVE COMPENSATION
REPORT OF THE HUMAN RESOURCES AND ETHICS COMMITTEE
ON EXECUTIVE COMPENSATION
INTRODUCTION
The following report is provided by the Human Resources and Ethics
Committee of the Board of Directors. The Committee supervises the Company's
Executive Compensation Program (the "Program") and is directly responsible for
compensation actions affecting the Chairman, President and Chief Executive
Officer (the "Chief Executive Officer"), other executive officers and other
senior executives of the Company. The Committee consists entirely of
non-employee directors.
EXECUTIVE COMPENSATION PHILOSOPHY
The Program is designed and administered to relate executive compensation
to four basic objectives:
- Competitive Position: The Program is designed to pay competitive
compensation so the Company can attract and retain highly qualified
executives. To assist it in determining competitive compensation
practices, the Committee frequently utilizes information about
compensation levels of peer companies and other manufacturing companies
of similar size, including information provided by qualified independent
consultants. When compensation significantly varies from competitive
levels, the Committee makes appropriate adjustments over time through the
annual compensation planning process.
- Company Performance: The Program is designed to reflect overall Company
performance, with appropriate consideration of conditions that exist in
the industries in which it engages. In determining compensation levels
and compensation changes, the Committee considers the Company's overall
performance in meeting both short-term and long-term objectives, and
considers achievement of operating objectives in areas such as sales,
earnings, entered orders and cash management, as well as progress toward
long-term strategic objectives.
- Stockholder Return: The Program has been designed to establish a direct
link between the interests of the Company's executives and its
Stockholders. This is accomplished by allocating a substantial portion of
senior management compensation to stock-based programs tied directly to
Stockholder return.
- Individual Performance: In addition to the above factors, the Committee
considers the executive's individual performance and contributions to the
Company's results in determining appropriate compensation levels.
THE EXECUTIVE COMPENSATION PROGRAM
To achieve the above objectives, the Program consists of three basic
elements:
- Base Salary: The base salary of each executive is reviewed annually and
set by the Committee at the beginning of each fiscal year. Salary changes
reflect overall Company performance, pay competitiveness and the
individual's performance. The targeted percentage of cash compensation
represented by base salary varies based on the level of the position,
with a target of approximately 60% for the Chief Executive Officer and
approximately 70% for the other executive officers.
- Annual Incentive Cash Compensation: A substantial portion of each
executive's annual cash compensation is tied to Company performance
through the Company's Performance Compensation Plan, an annual incentive
cash compensation program. The Committee determines the annual
Performance Compensation payment for each executive after the end of each
fiscal year on the basis of a combination of objective targets and
subjective evaluations of Company performance, considering market
conditions and industry circumstances, in key areas such as earnings per
share, sales, earnings, entered orders and economic profit. The
demonstrated individual performance of the executive as
6
<PAGE> 8
measured against strategic management objectives is also considered in
the determination of the Performance Compensation payment. The types and
relative importance of specific financial and other business objectives
vary among the Company's executives depending upon their position and the
particular function(s) for which they are responsible.
- Long-Term Incentive Compensation: To align the interest of the Company's
management directly with those of Stockholders, a substantial portion of
senior executive total compensation is provided by stock-based, long-term
compensation plans. To place emphasis on Stockholder return, the Company
has implemented stock option, performance share and restricted stock
programs. Awards and payments to executive officers under these programs
are included in the accompanying tables. The Company's stock option plans
provide for the award of incentive stock options, non-qualified stock
options, and stock appreciation rights ("SARs"). No SARs have been
awarded to date. All options granted to date, when first issued, have
been awarded at an exercise price equal to the fair market value of the
stock on the date of the award. Accordingly, the executive is rewarded
only if the market price of the Company's stock appreciates. Since
options vest over time, the Company periodically grants new options to
provide continuing incentives for future performance. The size of
previous grants and the number of options held are considered by the
Committee, but are not entirely determinative of future grants. Like base
pay, the grants are set with regard to competitive considerations, and
each executive's actual grant is based upon individual performance and
the executive's potential for future contributions. The Company's
existing performance share plans provide for the earning of shares if the
Company achieves specified performance objectives established at the time
of the award, and vesting is contingent on continued employment for a
specified period. All performance share awards made to date have directly
encouraged Stockholder value creation by providing for earning of shares
if the Company achieves specific stock price targets. The restricted
stock awards, in which vesting is contingent on continued employment for
a specified period, also provide for Stockholder value creation as this
component of the compensation system is designed to retain senior
executives and motivate them to improve market value of the stock over a
number of years.
FISCAL YEAR 2000 EXECUTIVE OFFICER COMPENSATION
Fiscal year 2000 base salaries for the executive officers, which are shown
in the Summary Compensation Table on page 10, were set at the beginning of
fiscal year 2000. The salaries were set based on a subjective evaluation of
fiscal year 1999 performance and salary levels compared to similar companies,
consistent with the methodology described below.
In determining fiscal year 2000 Performance Compensation Plan payments for
the executive officers, the Committee considered the competitiveness of cash
compensation levels compared to similar companies. The Committee utilized
information in an executive compensation report from a nationally recognized,
independent compensation consulting firm. The report compared the Company's
compensation practices to publicly traded filtration/fluid flow companies
selected on the basis of their similarity to the Company. Total cash
compensation of the Company's Chief Executive Officer and other executive
officers, including both base salary and the annual incentive compensation
payment, was below the median level for the chief executive officer and other
executive officers of the comparison companies. Total compensation of the
Company's Chief Executive Officer and other executive officers, including base
salary, annual incentive cash compensation and long-term incentive compensation,
was also below the median total compensation for the comparable officers of the
comparison companies. The Committee also considered the Company's operating
performance and progress made on strategic initiatives. The overall strong
operating performance of the Company in fiscal 2000 resulted from growth in, and
focus on, the Company's expanded commercial business.
The Company disclosed its fiscal 2000 and fiscal 1999 financial results on
a "reported" basis and on an "adjusted" basis. The "reported" amounts are
prepared in accordance with Generally Accepted Accounting Principles (GAAP) and
are presented within the Company's Consolidated Statements of Operations. The
fiscal 2000 "adjusted" amounts exclude the positive impact to net earnings from
property sales in Riverhead, NY and Calabasas, CA worth $2.7 million, or $0.22
per share, and represent net earnings and earnings per share on an ongoing
operating basis. Fiscal 1999 "adjusted" amounts reflect what the Company
believed the
7
<PAGE> 9
1999 operating results may have been after removing the operating results of its
Systems & Electronics Inc. subsidiary, which was sold on September 30, 1999, and
certain nonrecurring items, and assuming that all of the actions taken in fiscal
1999 to reposition the Company were complete at the beginning of the year. The
Company believes presenting "adjusted" results provides a more meaningful
presentation for purposes of evaluating the Company's fiscal 2000 financial
performance compared with the prior year.
In fiscal 2000, the Company achieved sales of $300.2 million, an increase
of $56.9 million, or 23 percent, over fiscal 1999's "adjusted" sales of $243.3
million. Earnings from operations in fiscal 2000 were $14.1 million, or $1.11
per share, compared with "adjusted" earnings of $7.7 million, or $.61 per share,
in fiscal 1999. The Company made excellent progress towards achievement of its
strategic objectives in fiscal 2000. Of major significance were the completion
of three acquisitions, which contributed $13.7 million of sales in the fourth
quarter, and the divestiture of the microwave business of the Company's Rantec
subsidiary.
Based on the evaluation of the above factors, the Committee approved a
performance compensation plan payment of $421,173 for the Chief Executive
Officer. Fiscal year 2000 total cash compensation for the Chief Executive
Officer remained slightly below the market as determined by the 1999 median
compensation level of chief executive officers based on the aforementioned
compensation report. The total cash compensation levels established for the
Company's other executive officers are detailed in the Summary Compensation
Table on page 10. The fiscal 2000 total cash compensation levels for the other
executive officers as a group are lower than the median cash compensation levels
for the comparable executive officers of the comparison companies.
Consistent with the Committee's objective of aligning the interests of
senior management and Stockholders, in fiscal 2000 the Committee awarded the
executive officers (other than the Chief Executive Officer) as a group, options
for a total of 45,000 shares under the 1994 Stock Option Plan. The Chief
Executive Officer did not receive a stock option award in fiscal 2000. The
option exercise price of all such options awarded is the fair market value of
the shares on the date of the award.
The Company has employment agreements with the Chief Executive Officer and
the other executive officers as described on page 15. The Chief Executive
Officer and the other executive officers are covered by a Severance Plan which
is described on page 14.
Section 162(m) of the Internal Revenue Code denies a federal income tax
deduction for compensation in excess of $1 million paid to any of the Company's
highest paid executive officers unless the compensation qualifies for a
performance-based exception. The 1999 Stock Option Plan is designed to permit
awards that satisfy the performance-based exception of section 162(m). To date,
no other specific action has been taken with respect to section 162(m) because
the Company's compensation levels have not been expected to exceed the $1
million limit by a material amount. The Committee intends to review the
potential effect of section 162(m) periodically and may in the future take other
appropriate actions to qualify, to the extent reasonable, executive officer
compensation for deductibility under section 162(m).
8
<PAGE> 10
SUMMARY
The Committee believes the Company's compensation program has been designed
and managed by the Committee to directly link the compensation of the Company's
executives to Company performance, individual performance and Stockholder
return. The level of total direct compensation paid to the Company's Chief
Executive Officer over the last three year period is slightly below the median
competitive level for similar companies in the filtration/fluid flow comparison
group. The total direct compensation for the Company's other executives falls
within the first quartile as determined by the comparison group, and is
commensurate with their executive officer tenure. The Committee will continue to
address these compensation levels over time, consistent with Company and
individual performance, and will continue to emphasize performance-based and
stock-based compensation that links management and Stockholder interests.
The Human Resources and
Ethics Committee
D.C. Trauscht, Chairman
J. J. Carey
L.W. Solley
9
<PAGE> 11
SUMMARY COMPENSATION TABLE
The following table contains certain information concerning compensation
for each of the last three fiscal years to the Company's Chief Executive Officer
and its other three executive officers serving at September 30, 2000, for all
services rendered in all capacities to the Company and its subsidiaries.
<TABLE>
<CAPTION>
LONG TERM-COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------- ------------------------ -----------
($) (#) ($)
($) RESTRICTED SECURITIES ($) ALL OTHER
NAME AND FISCAL ($) ($) OTHER ANNUAL STOCK UNDERLYING LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS (1) SATION (2)
------------------ ------ ------ ----- ------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D.J. Moore.................. 2000 $440,000 $421,173 $28,706 $ 0 0 $662,298 $437
Chairman, President and 1999 425,000 246,500 18,927 0 54,000 0 390
Chief Executive Officer 1998 400,000 225,000 5,200 564,000(3) 0 641,672 341
C.J. Kretschmer............. 2000 140,000 86,700 12,609 0 15,000 168,595 0
Senior Vice President and 1999
Chief Financial Officer 1998
V.L. Richey, Jr............. 2000 120,000 74,418 34,939(4) 0 15,000 159,546 0
Senior Vice President and 1999 110,000 44,200 1,847 0 18,000 0 0
Group Executive 1998
A.S. Barclay................ 2000 105,000 65,475 46,234(4) 0 15,000 135,469 0
Vice President, Secretary
and 1999
General Counsel 1998
</TABLE>
-------------------------
(1) Pay-outs earned in fiscal years 2000 and 1998 were both earned pursuant to
the 1997 Performance Share Plan; however, no payout related to the amounts
earned in fiscal 2000 will vest and be distributed unless the recipient
continues in the employment of the Company through March 31, 2001. Valuation
is based on the closing market prices of the stock on the dates the award
increments were earned. Dividends, if any, will not be paid prior to the
vesting and distribution of the stock.
(2) Represents the dollar value of the benefit of premiums paid for split-dollar
life insurance policies.
(3) Represents fair market value of $17.625 per share at the time of award for
the 32,000 shares awarded. The value of these shares at September 30, 2000
was $556,000 based on fair market value of $17.375 per share. These shares
vested on September 30, 2000. As of that date, Mr. Moore held no other
restricted stock.
(4) Includes $16,500 interest payment on loan for purchase of Common Shares
under Executive Stock Purchase Plan.
The Company's stock option, restricted stock award and performance share
award agreements and Supplemental Executive Retirement Plan applicable to
certain of the named executive officers generally provide for acceleration of
vesting and, in certain cases, payout, of awards and retirement benefits under
such agreements and Plan in the event of a change in control of the Company, as
defined in such agreements and Plan, respectively.
10
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
(#) % OF TOTAL
NUMBER OPTIONS
OF GRANTED
SECURITIES TO ($)
UNDERLYING EMPLOYEES ($/SHARE) GRANT DATE
OPTIONS IN FISCAL EXERCISE EXPIRATION PRESENT
NAME GRANTED(1) YEAR PRICE DATE VALUE(2)
---- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
C.J. Kretschmer........................... 15,000 15.11 $11.6250 11/11/09 $71,197
V.L. Richey............................... 15,000 15.11 11.6250 11/11/09 71,197
A.S. Barclay.............................. 15,000 15.11 11.6250 11/11/09 71,197
</TABLE>
-------------------------
(1) All stock option grants are non-transferable, have a term of ten years from
the date of grant, and have an exercise price equal to 100% of the fair
market value on the date of grant. All options are exercisable as follows:
one-third of the options granted may be exercised on or after one year after
the date of grant, one-third on or after two years after the date of grant,
and one-third on or after three years after the date of grant. In the event
of a change in control of the Company, 100% of the options granted may be
immediately exercised.
(2) Estimated present values based on the Black-Scholes option pricing model, a
mathematical formula used to value options traded on stock exchanges. The
following assumptions were used in applying the model to calculate the
values: expected future stock price annual volatility rate of 0.2915;
risk-free rate of return of 5.791% for the option term; annual dividend
yield of 0%; and a ten-year option term. No adjustments have been made for
non-transferability or risk of forfeiture. The actual value of the options
will depend on the market price of the shares on the date the options are
exercised, and may vary significantly from the theoretical values estimated
by the Black-Scholes model.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table provides certain information concerning stock option
exercises during fiscal year 2000 by each of the named executive officers and
the value of their unexercised options at September 30, 2000.
<TABLE>
<CAPTION>
(#) ($)
SECURITIES VALUE OF
UNDERLYING UNEXERCISED,
UNEXERCISED IN-THE-MONEY
(#) OPTIONS AT OPTIONS AT
SHARES ($) 9/30/00 9/30/00 (2)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED (1) UNEXERCISABLE UNEXERCISABLE
---- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
D.J. Moore........................ 48,610 $661,577 51,936 / 54,000 $491,387 / $356,060
C.J. Kretschmer................... 0 0 20,648 / 27,000 214,799 / 165,374
V.L. Richey, Jr................... 0 0 13,225 / 35,000 78,539 / 204,937
A.S. Barclay...................... 0 0 6,918 / 22,000 68,677 / 132,406
</TABLE>
-------------------------
(1) Based on the difference between the average of the high and low market
prices on the date of exercise and the option price.
(2) Based on the difference between the average of the high and low market
prices on September 30, 2000 and the option price.
11
<PAGE> 13
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
The following table sets forth certain information regarding awards made to
the named executive officers during fiscal year 2000 under the Company's 1997
Performance Share Plan.
<TABLE>
<CAPTION>
NUMBER OF
SHARES, UNITS
OR PERFORMANCE OR
OTHER RIGHTS OTHER PERIOD UNTIL
NAME (1) MATURATION OR PAYOUT
---- ------------- --------------------
<S> <C> <C>
V.L. Richey, Jr............................................. 3,500 FY '00-'01
A.S. Barclay................................................ 4,500 FY '00-'01
</TABLE>
-------------------------
(1) Represents performance units awarded pursuant to the Plan. An equivalent
number of shares were earned in fiscal year 2000 due to the achievement of
the stock price target levels, which were based on the average stock price
over a period of thirty consecutive trading days. For the awards to vest and
be distributed, recipients must continue in the employment of the Company
through March 31, 2001. All awards made to date provide for acceleration of
vesting of awards in the event of a change in control of the Company, as
defined in the Plan.
RETIREMENT PLAN
At the time of the 1990 spin-off of the Company by Emerson Electric Co.
("Emerson"), the Company established a Retirement Plan (the "Retirement Plan")
in which the Company's executive officers as well as other covered employees
participate. Prior to the 1990 spin-off, the executive officers participated in
one of the pension plans of Emerson or its subsidiaries. The Retirement Plan is
substantially identical to the Emerson Retirement Plan at the time of the 1990
spin-off (the "Emerson Retirement Plan"). Under the Retirement Plan, a
participant will be credited with his service under the Emerson Retirement Plan,
but his benefit accrued under the Retirement Plan will be offset by his benefit
accrued under the Emerson Retirement Plan as of September 30, 1990. Benefits
under the Retirement Plan may be reduced under certain maximum provisions of the
Internal Revenue Code. In 1993, the Company adopted a Supplemental Executive
Retirement Plan (the "SERP") which provides that where any such reductions
occur, the Company will pay a retirement supplement (as an operating expense) to
certain executives, including certain executive officers. The SERP will maintain
total retirement benefits at the formula level of the Retirement Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL RETIREMENT BENEFIT AT AGE 65 AFTER
--------------------------------------------------------------------
AVERAGE 10 15 20 25 30 35
ANNUAL YEARS OF YEARS OF YEARS OF YEARS OF YEARS OF YEARS OF
COMPENSATION SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000........................ $ 20,745 $ 31,118 $ 41,490 $ 51,863 $ 62,235 $ 72,608
250,000........................ 35,745 53,618 71,490 89,363 107,235 125,108
350,000........................ 50,745 76,118 101,490 126,863 152,235 177,608
450,000........................ 65,745 98,618 131,490 164,363 197,235 230,108
550,000........................ 80,745 121,118 161,490 201,863 242,235 282,608
650,000........................ 95,745 143,618 191,490 239,363 287,235 335,108
750,000........................ 110,745 166,118 221,490 276,863 332,235 387,608
850,000........................ 125,745 188,618 251,490 314,363 377,235 440,108
950,000........................ 140,745 211,118 281,490 351,863 422,235 492,608
1,050,000....................... 155,745 233,618 311,490 389,363 467,235 545,108
1,150,000....................... 170,745 256,118 341,490 426,863 512,235 597,608
</TABLE>
12
<PAGE> 14
These plans provide for fixed retirement benefits based on the
participant's credited years of service, five-year average compensation (the
highest average annual cash compensation during any five consecutive years), and
applicable Social Security covered compensation. The dollar amounts listed for
salary and bonus in the Summary Compensation Table are substantially the same as
the compensation covered by these plans. The foregoing table shows the combined
annual benefits that will be payable from these plans on the basis of a single
life annuity with five years certain.
Under current law, the benefit amounts will not be subject to any deduction
for Social Security or other offset amounts. The credited years of service
covered by these plans for each of the persons named in the Summary Compensation
Table were as follows as of October 1, 2000: Mr. Moore, 16.5; Mr. Kretschmer,
23; Mr. Richey, 15; and Ms. Barclay, 12. Payment of the specified retirement
benefits is contingent upon continuation of the plans in their present form
until the employee retires.
13
<PAGE> 15
PERFORMANCE GRAPH
The following graph presents a comparison of the cumulative total
shareholder return on the Common Shares as measured against the Standard &
Poor's 500 Stock Index (the "Index") and a peer group (the "2000 Peer Group").
The Company is not a component of the Index or the 2000 Peer Group. The
measurement period begins on September 30, 1995 and measures at each September
30 thereafter. These figures assume that all dividends paid over the measurement
period were reinvested, and the starting value of each index and the investments
in the Common Shares were $100 at the close of trading on September 30, 1995.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
ESCO TECHNOLOGIES INC. 2000 PEER GROUP S&P 500
---------------------- --------------- -------
<S> <C> <C> <C>
9/95 100.00 100.00 100.00
9/96 139.44 120.34 112.25
9/97 262.14 169.01 118.01
9/98 152.45 184.30 85.04
9/99 165.46 235.54 107.49
9/00 189.63 266.83 108.44
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
9/95 9/96 9/97 9/98 9/99 9/00
<S> <C> <C> <C> <C> <C> <C> <C>
ESCO Technologies Inc. 100 139.44 262.14 152.45 165.46 189.63
S&P 500 100 120.34 169.01 184.30 235.54 266.83
2000 Peer Group 100 112.25 118.01 85.04 107.49 108.44
</TABLE>
The 2000 Peer Group is comprised of Calgon Carbon Corporation, Clacor Inc.,
Cuno Inc., Donaldson, Inc., Ionics Inc., Lydall Inc., Millipore Corp., Osmonics
Inc. and Pall Corporation. The companies composing the 2000 Peer Group are the
same companies which composed the "1999 Peer Group" used in the proxy statement
for the 2000 Annual Meeting of Stockholders, except that Farr Co. has since been
acquired by a foreign company, and has been excluded.
SEVERANCE PLAN
The Company has established a Severance Plan (the "Plan") covering the
executive officers. Under the Plan, following an occurrence of a Change of
Control (as defined), each executive officer will be entitled to be employed by
the Company for a three-year period with respect to Mr. Moore, and for a
two-year period with respect to Messrs. C.J. Kretschmer and V.L. Richey, Jr. and
Ms. A.S. Barclay, during which: (i) he or she will be paid a minimum base salary
equal to his or her base salary prior to the Change of Control, and a minimum
annual bonus based on the average of his or her bonuses during the last five
preceding fiscal years, disregarding the highest and lowest such years, and (ii)
he or she will continue to receive the employee benefits to which he or she was
entitled prior to the Change of Control. During this employment period, if the
executive officer's employment is terminated by the Company other than for cause
or disability, or the executive officer terminates his or her employment
following certain actions by the Company, he or she will be
14
<PAGE> 16
entitled to receive, among other things: (i) three times, in the case of Mr.
Moore, and two times in the case of Messrs. Kretschmer and Richey and Ms.
Barclay, his or her minimum annual base salary and minimum annual bonus, (ii) in
the case of Messrs. Moore, Kretschmer and Richey, the lump sum value of a
supplemental retirement benefit equal to the difference between (a) his benefits
under the Retirement Plan and SERP by the addition of three years in the case of
Mr. Moore, and two times in the case of Messrs. Kretschmer and Richey, of
credited service and (b) the amounts actually payable under such plans, and
(iii) the continuation of his or her employee benefits for three years in the
case of Mr. Moore, and two years in the case of Messrs. Kretschmer and Richey
and Ms. Barclay. The Company may amend the Plan, but no amendment adverse to the
rights of the executive officers will be effective unless notice thereof has
been given by the Company to the affected executive officers at least one year
prior to the occurrence of a Change of Control.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements effective on or about
November 1, 1999 with Messrs. Moore, Kretschmer and Richey and Ms. Barclay, the
current executive officers. The employment agreements have terms of four years
for Mr. Moore and three years for the other current executive officers. The
agreements provide for a base salary of not less than their fiscal year 1999
base salary, as increased in accordance with the Company's compensation policy,
and an annual bonus in accordance with the Performance Compensation Plan. These
executives are also entitled to participate in any stock options, restricted
stock awards, performance shares and other compensation as the Company's Human
Resources and Ethics Committee shall determine. They are also entitled to
participate in all employee benefit programs of the Company applicable to senior
executives, and the Company will continue to provide certain perquisites.
The Company has the right to terminate the employment of the current
executive officers at any time upon thirty days notice for cause or without
cause, and these executives have the right to resign at any time upon thirty
days notice. If an executive's employment is terminated by the Company other
than for cause, or if an executive terminates his employment following certain
actions by the Company, the executive will be entitled to receive certain
benefits. In the case of Mr. Moore, he will receive: (i) for three years, the
continuation of his then-current base salary and bonus (bonus calculated using
the average annual percentage of base salary under the Performance Compensation
Plan for the past five consecutive fiscal years, excluding the highest and
lowest percentage), (ii) the lump sum value of a supplemental retirement benefit
equal to the difference between (a) his benefits under the Retirement Plan and
SERP by the addition of three years of credited service and age and (b) the
amounts actually payable under such plans, (iii) immediate vesting of
outstanding stock options and restricted stock awards, and immediate vesting and
payout of awards outstanding under the performance share plan, and (iv)
continuation of certain employee benefits and perquisites for the period of base
salary continuation. In the case of the other current executive officers, they
will receive: (i) for one year, the continuation of his or her then-current base
salary and bonus (bonus calculated by using no less than the annual percentage
of base salary under the Performance Compensation Plan for the last fiscal
year), (ii) immediate vesting of outstanding stock options and immediate vesting
and payout of shares earned under the performance share plan, and (iii)
continuation of certain employee benefits and perquisites for the period of base
salary continuation. If an executive's employment is terminated in connection
with a Change of Control, or in the case of Mr. Moore, if he terminates his
employment based on a Change of Control, the executive will not receive the
foregoing benefits, and will receive instead the benefits payable under the
Company's Severance Plan.
All of the aforementioned agreements prohibit the executives from
disclosing confidential information or trade secrets concerning the Company, and
for a specific period from soliciting employees of the Company and from
soliciting customers or distributors of the Company.
15
<PAGE> 17
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
number of Common Shares beneficially owned by the directors and executive
officers of the Company as of November 1, 2000. Except as otherwise noted, each
person has sole voting and investment power as to his or her shares.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1)(2)
------------------------ -------------------------
<S> <C>
W.S. Antle III.......................................... 6,821
A.S. Barclay............................................ 28,942(3)
J.J. Carey.............................................. 8,075
C.J. Kretschmer......................................... 59,910(3)
J.M. McConnell.......................................... 5,077
D.J. Moore.............................................. 353,448(3)(4)
V.L. Richey, Jr......................................... 44,298(3)
L.W. Solley............................................. 1,700
J.M. Stolze............................................. 1,500
D.C. Trauscht........................................... 10,375
All directors and executive officers as a group (10
persons).............................................. 520,146
</TABLE>
-------------------------
(1) The percentage of total outstanding Common Shares beneficially owned by any
individual does not exceed 1%, except in the case of Mr. Moore who
beneficially owns 2.9%. The percentage beneficially owned by all directors
and executive officers as a group is 4.2%.
(2) Includes the following Common Shares covered by employee stock options
granted under the 1994 and 1997 Stock Option Plans which the individual has
the right to acquire within 60 days after November 1, 2000: Mr. Moore
69,936; Mr. Kretschmer 29,648; Mr. Richey 24,225; Ms. Barclay 14,251; and
all directors and executive officers as a group, 138,060.
(3) Includes 11,980 Common Shares for Ms. Barclay, 13,660 Common Shares for Mr.
Kretschmer, 20,480 Common Shares for Mr. Moore and 13,660 Common Shares for
Mr. Richey purchased on the open market during fiscal 2000 under the
Company's Executive Stock Purchase Plan, the purpose of which is to provide
incentives to executive officers and certain other senior executives to
encourage their ownership of Common Shares. Under the Plan, the Company
reimbursed the participants for the approximate costs of interest on
third-party loans for the purchase price of the shares, and paid the
participants a portion of income taxes owed on such reimbursement payments.
In connection with the Plan, the Company adopted stock ownership guidelines
for the participants.
(4) Includes 40,000 Common Shares which are non-transferable and subject to
certain vesting requirements.
16
<PAGE> 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to each
person known by the Company to beneficially own more than five percent of the
outstanding Common Shares:
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME AND ADDRESS OF COMMON SHARES OF OUTSTANDING
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON SHARES
------------------- ------------------ --------------
<S> <C> <C>
Merrill Lynch & Co., Inc.................................... 1,015,700(1) 8.2%
On behalf of Merrill Lynch Investment Managers
800 Scudders Mill Road
Plainsboro, NJ 08536
Dimensional Fund Advisors Inc............................... 909,400(2) 7.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Franklin Resources, Inc..................................... 651,700(3) 5.3%
and certain other parties
777 Mariners Island Boulevard
San Mateo, CA 94403-7777
</TABLE>
-------------------------
(1) Based on information provided by Merrill Lynch & Co., ("ML&Co.") indicating
beneficial ownership as of November 1, 2000 by ML&Co. on behalf of Merrill
Lynch Investment Managers. In aggregate, these shares are held by certain
private accounts as well as investment companies registered under the
Investment Company act of 1940 which are managed by Merrill Lynch Investment
Managers, L.P. ("MLIM L.P.") and Fund Asset Management, L.P. ("FAM L.P.").
MLIM L.P. and FAM L.P. are investment advisers registered under Section 203
of the Investment Advisors Act of 1940 and are wholly-owned subsidiaries of
ML&Co. As such, ML&Co. may be deemed to share with MLIM L.P. and FAM L.P.
dispositive power and voting authority. As of November 1, 2000, one such
investment company managed by FAM L.P., the Merrill Lynch SmallCap Value
Fund, Inc., held 683,800 shares, which represented 5.5% of the outstanding
Common Shares on that date.
(2) Based on information contained in Schedule 13G under the Securities Exchange
Act of 1934, dated February 11, 2000, filed by Dimensional Fund Advisors
Inc. ("Dimensional"), a registered investment advisor, which furnishes
investment advice to four investment companies registered under the
Investment Company Act of 1940, and serves as investment manager to certain
other commingled group trusts and separate accounts. These investment
companies, trusts and accounts are the "Funds". In its role as investment
adviser or manager, Dimensional possesses voting and/or investment power
over all such 909,400 shares, which are owned by the Funds. Dimensional
disclaims beneficial ownership of all such shares.
(3) Based on information provided by Franklin Resources, Inc. ("FRI") indicating
beneficial ownership as of September 30, 2000 by the mutual funds in the
Franklin/Templeton Group of Funds (a tradename for U.S. based separate,
unaffiliated investment companies whose investment advisers are direct or
indirect wholly-owned subsidiaries of FRI) and other managed accounts
advised by direct or indirect wholly-owned subsidiaries of FRI. Charles B.
Johnson and Rupert H. Johnson, Jr. each owns in excess of 10% of the
outstanding common stock of FRI, and may each be deemed to be the beneficial
owners of the 651,700 shares. Franklin Advisory, LLC ("FAS") is the
investment advisor for such shares. FAS has sole voting power as to 628,600
shares and sole investment power as to 651,700 shares. Each of the foregoing
persons and entities disclaims any economic interest in or beneficial
ownership of the 651,700 shares. The address of FAS is One Parker Plaza,
Sixteenth Floor, Fort Lee, NJ 07024.
TRANSACTIONS WITH MANAGEMENT
On December 5, 2000, the Company purchased 14,400 Common Shares from Mr.
Moore for a total price of $258,336, which was based on $17.94 per share, the
average of the high and low prices of the Common Shares on the New York Stock
Exchange on the date of the transaction. These shares represented a portion of
the 32,000 shares of restricted stock awarded to Mr. Moore on October 16, 1997
and which vested on
17
<PAGE> 19
September 30, 2000. The Company withheld the purchase price and applied it to
the income taxes owed by Mr. Moore in connection with the award.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own beneficially more than ten
percent of any class of equity security of the Company to file with the
Securities and Exchange Commission initial reports of such ownership and reports
of changes in such ownership. Officers, directors and such beneficial owners are
required by Securities and Exchange Commission regulation to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
based solely on review of the copies of such reports furnished to the Company
and written representations that no other reports were required, during the
fiscal year ended September 30, 2000, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
TWO NOMINEES FOR DIRECTORS.
II. PROPOSAL TO APPROVE 2001 STOCK INCENTIVE PLAN
As part of a continuing program of executive incentive compensation, the
Board of Directors, on August 10, 2000, adopted the 2001 Stock Incentive Plan
(the "2001 Plan") subject to approval of the Stockholders. The major purpose of
this action was to create an incentive for executive, managerial and other
salaried employees to remain with the Company and to work for the achievement of
the Company's strategic objectives.
The Plan permits the granting of a variety of stock-based awards to
facilitate formulation of effective incentive arrangements, subject to the
limits on the number of shares specified for certain types of awards. To
accomplish this purpose, the Human Resources and Ethics Committee of the Board
of Directors (the "Committee") may grant awards under the 2001 Plan in the form
of Stock Options, Stock Appreciation Rights ("SARs") and Performance Shares, as
well as other stock-based awards which may be earned by achieving performance
objectives, service requirements and/or other criteria as determined by the
Committee. The Committee shall be constituted to comply with Rule 16b-3 under
the Securities Exchange Act of 1934, or any successor to such Rule.
The aggregate number of Performance Shares which may be issued under the
2001 Plan may not exceed 482,814, except as provided in the following paragraph
(which number shall be adjusted to reflect any subsequent stock dividends, stock
splits and similar matters affecting the number of outstanding Common Shares).
This number comprises 430,000 new shares and 52,814 shares carried over from the
1997 Performance Share Plan (the "1997 Plan") which were not awarded or were
canceled under the 1997 Plan. In the event an award of shares is canceled due to
termination of a participant's employment, failure to meet performance
objectives, or any other reason, the Committee may again use such shares for the
granting of subsequent awards.
In addition, beginning February 8, 2001 and on each October 1 thereafter
through October 1, 2004, there shall be added to the authorized shares allocated
to the Plan the lesser of (i) one percent (1%) of the total outstanding shares
as of each such date, or (ii) one hundred twenty-five thousand (125,000) shares,
which may be used for the grant of Stock Options, SARs, Performance Share
awards, or other stock-based awards; provided, however, that not more than two
hundred thousand (200,000) of such additional shares may be used for Performance
Share awards.
The number of shares with respect to which stock options and SARs may be
granted to any individual during any calendar year may not exceed one hundred
twenty-five thousand (125,000) shares. If any stock option expires or terminates
without having been exercised in full, the unpurchased shares subject to such
option will again be available for awards under the 2001 Plan. Any shares
tendered in exercise of a stock option will be available for awards under the
2001 Plan.
18
<PAGE> 20
As of September 30, 2000, there were 405,566 Common Shares reserved under
the 1994 and 1999 Stock Option Plans for future stock option grants at fair
market value, with ten year terms. The 1990 Stock Option Plan expired during
fiscal year 2000, and all unexercised shares were canceled.
Participants in the 2001 Plan are executive, managerial and other salaried
employees who are determined by the Committee to be eligible for awards
thereunder.
The complete text of the 2001 Plan is set forth in Exhibit B to this proxy
statement. The following summary of certain provisions of the 2001 Plan is
qualified by reference to the text of the 2001 Plan.
PERFORMANCE SHARE AWARDS
Approximately 18 senior executives, including the four executive officers,
are currently eligible to participate in the Performance Share awards as defined
in Section 9 of the 2001 Plan.
An award of Performance Shares represents the right of the participant to
receive Common Shares (or equivalent value) if specified performance objectives
and/or service requirements are achieved. The performance objectives may be
established and adjusted from time to time by the Committee and need not be the
same for all participants. The performance objectives may include achievement of
specified price levels for the Common Shares, earnings, cash flow, sales,
profitability, or any other measure the Committee may adopt.
The earnout of Performance Share awards will be contingent upon the
achievement of performance objectives and/or service requirements established by
the Committee. Each program will have one or more specified objectives and
performance periods over which the objectives are targeted for achievement.
Participation in a specific program and the terms of the corresponding
Performance Share award will be specified in a Notice of Award delivered to the
participant at the time of the award. The Committee may require participants to
own Common Shares representing such percentage of the Performance Shares awarded
as the Committee may determine to be appropriate, and may require the
participant to provide proof of such ownership and to report any changes in that
ownership during the performance period. The Committee may also establish
additional service requirements in order for payment of an earned portion of the
award to be made.
The amount which a participant will be entitled to receive during the
performance period will be the applicable percentage of the award with respect
to which the targeted performance objectives were met, as determined by the
Committee. In the event of a "change of control" of the Company (as defined in
Section 11(v) of the 2001 Plan attached hereto), the Committee may change or
eliminate any performance objective or service requirement. Distribution may be
made in Common Shares, in cash or in any combination thereof as determined by
the Committee, but the aggregate number of Common Shares issued under the 2001
Plan may not exceed the number specified above. The Company is authorized to
withhold from any such distribution an amount (including Common Shares)
necessary to satisfy income tax withholding requirements in respect of such
distribution. Participants may irrevocably elect, at the time of their award, to
defer distribution, in which event during the deferral period the participant's
account will be credited with an amount equal to the dividends, if any, paid on
the Common Shares for the number of shares credited to the account.
Unless otherwise determined by the Committee, in order to receive
distribution of Performance Share awards, a participant must have been
continuously employed by the Company or a subsidiary for such period as the
Committee may determine, subject to the proration of distribution at the
discretion of the Committee in the event of retirement or termination of
employment due to death, disability or otherwise.
19
<PAGE> 21
Subject to the approval of the 2001 Plan by the Stockholders, the Committee
established the initial performance programs under the 2001 Plan and made the
Performance Share awards set forth below. If Stockholder approval of the 2001
Plan is not obtained, the 2001 Plan awards will be void and of no effect.
PERFORMANCE SHARE AWARDS
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE ($)(1) NUMBER OF SHARES
----------------- ------------------- ----------------
<S> <C> <C>
D.J. Moore.................................................. $1,174,003 64,000
Chairman, President and Chief Executive Officer
C.J. Kretschmer............................................. $ 366,876 20,000
Senior Vice President and Chief Financial Officer
V.L. Richey, Jr. ........................................... $ 366,876 20,000
Senior Vice President and Group Executive
A.S. Barclay................................................ $ 311,845 17,000
Vice President, Secretary and General Counsel
Executive Officers as a Group............................... $2,219,600 121,000
Non-Executive Director Group................................ 0 0
Senior Executive Group (excluding Executive Officers)....... $2,292,975 125,000
</TABLE>
-------------------------
(1) Calculated based on the average of the high and low prices of the Common
Shares on the New York Stock Exchange on August 10, 2000, the date of the
awards. The dollar values listed in the table assume that the targeted
performance objectives, the continuous employment requirement and the other
requirements of the awards are met and that the total number of shares
awarded are actually earned and paid. The actual dollar value of the awards
would be the market value of the shares on the dates the shares are paid to
the participants.
STOCK OPTIONS AND SARS
Stock options and SARs may be granted only to key officers, managers and
professional employees. Currently, approximately 90 employees, including the
four executive officers, are eligible to participate in the stock option awards.
The Committee will have plenary authority to determine the terms and
provisions of each stock option and SAR agreement (which need not be identical).
Under the Internal Revenue Code of 1986, as amended, to the extent the aggregate
fair market value, determined at the time of grant, of Common Shares with
respect to which incentive stock options are exercisable for the first time
during any calendar year exceeds $100,000, such options are treated as
non-statutory stock options. The purchase price under each stock option may not
be less than 100% of the fair market value of the Common Shares at the time of
the grant. Such fair market value shall generally be considered to be the mean
between the high and low price of the Common Shares as traded on the New York
Stock Exchange on the day the option is granted; provided, that the Committee
may adopt any other criterion for the determination of such fair market value as
it may determine to be appropriate.
The purchase price is to be paid in full upon the exercise of the stock
option, either (i) in cash, (ii) by the tender to the Company of Common Shares
owned by the optionee for at least six (6) months and registered in his name,
having a fair market value equal to the cash exercise price of the stock option
being exercised, with the fair market value of such stock to be determined in
such appropriate manner as may be provided for by the Committee or as may be
required in order to comply with, or to conform to the requirements of, any
applicable laws or regulations, (iii) by any combination of the payment methods
specified in clauses (i) and (ii) hereof, or (iv) such other methods determined
by the Committee; provided, that no Common Shares may be tendered in exercise of
an incentive stock option if such shares were acquired by the optionee through
the exercise of an incentive stock option unless (i) such shares have been held
by the optionee for at least one year and (ii) at least two years have elapsed
since such prior incentive stock option was granted. In addition, the
20
<PAGE> 22
optionee may effect a "cashless exercise" of a stock option in lieu of paying
the stock option price in cash or Common Shares owned by the optionee by means
of a "same day sale" in which the option shares are sold through a broker
selected by the optionee and a portion of the proceeds to cover the exercise
price is paid to the Company, or otherwise in accordance with the rules and
procedures adopted by the Committee.
Under the 2001 Plan, at the time an option is granted or at any time
thereafter, the Committee, in its discretion, may grant to an optionee an
alternative SAR with respect to all or any part of the number of shares covered
by his unexercised option. The optionee who also holds a SAR may, in lieu of
exercising the option, exercise the SAR. Upon exercise of the SAR, the optionee
will be paid in cash or Common Shares an amount equal to the excess of the fair
market value of one share on the date of exercise over the per share exercise
price for the option in respect of which the SAR was granted, multiplied by the
number of shares as to which the SAR is exercised. The Committee will determine
the form of payment of the SAR. Each SAR will be exercisable for such period as
the Committee determines, which time period may not exceed the time period
during which the corresponding option may be exercised.
The term of each option will be not more than ten years from the date of
grant. Subject to limitations set out in the next paragraph, options will be
exercisable at such time or times as the Committee in each instance approves,
which need not be uniform for all options.
Incentive stock options and SARs will not be transferable except by will or
the laws of descent and distribution, and may be exercised during the lifetime
of the optionee only by the optionee. An option or SAR must be exercised prior
to the termination of employment, except as follows: if employment is terminated
with the approval of the Company, the Committee in its discretion may permit the
option or SAR to be exercised, to the extent it was exercisable at the date of
termination, within three months after such termination (one year in the case of
termination on account of retirement on or after age 60 ("Retirement")); if
employment is terminated on account of disability, the option or SAR may be
exercised, to the extent it was exercisable at the date of termination, within
one year after such termination; in the event of death of the optionee while
employed by the Company or (if the Committee has permitted an extension as
provided above in this paragraph) within three months after termination of
employment (or one year in the case of termination due to disability or
Retirement), the option or SAR may be exercised, to the extent it was
exercisable at the date of death, within one year after the date of death; but
in no case may an option or SAR be exercised after 10 years from the date of
grant of the option.
OTHER STOCK-BASED AWARDS
The Committee may from time to time grant other stock-based awards
including without limitation those awards pursuant to which shares may be
acquired in the future, such as awards denominated in Common Shares, stock
units, securities convertible into Common Shares and phantom securities. The
Committee, in its sole discretion, shall determine, and provide in the
applicable agreement for, the terms and conditions of such other stock-based
awards. The Committee may, in its sole discretion, direct the Company to issue
Common Shares in respect of other stock-based awards subject to restrictive
legends, stop transfer instructions or other restrictions as it may deem
appropriate.
AMENDMENT AND TERMINATION OF 2001 PLAN
The 2001 Plan may be amended by the Committee; provided that no amendment
shall be made without the approval of the Stockholders if such amendment would
increase the benefits accruing to participants, increase the number of Common
Shares which may be granted under the 2001 Plan, or modify the requirements as
to eligibility for participation in the 2001 Plan.
The 2001 Plan will terminate on August 9, 2010, but stock options, SARs,
Performance Share awards or other stock-based awards outstanding at the
termination of the 2001 Plan shall continue in accordance with their terms and
shall not be affected by such termination.
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FEDERAL INCOME TAX CONSEQUENCES
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Incentive Stock Options. An optionee does not realize income on the grant
of an incentive stock option. If an optionee exercises an incentive stock option
in accordance with the terms of the option and does not dispose of the shares
acquired within two years from the date of the grant of the option or within one
year from the date of exercise, the optionee will not realize any ordinary
income by reason of the exercise, and the employer will be allowed no deduction
by reason of the grant or exercise. The optionee's basis in the shares acquired
upon exercise will be the amount of cash paid upon exercise. Provided the
optionee holds the shares as a capital asset at the time of sale or other
disposition of the shares, his gain or loss, if any, recognized on the sale or
other disposition will be capital gain or loss. The amount of his gain or loss
will be the difference between the amount realized on the disposition of the
shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will realize ordinary income at the time of
disposition which will equal the excess, if any, of the lesser of (a) the amount
realized on the disposition or (b) the fair market value of the shares on the
date of exercise, over the optionee's basis in the shares. The Company will be
entitled to a deduction in an amount equal to such income. The excess, if any,
of the amount realized on disposition of such shares over the fair market value
of the shares on the date of exercise will be long- or short-term capital gain,
depending upon the holding period of the shares, provided the optionee holds the
shares as a capital asset at the time of disposition.
The excess of the fair market value of the shares at the time the incentive
stock option is exercised over the exercise price for the shares is tax
preference income taken into account in computing the alternative minimum tax
applicable to individuals.
Non-Statutory Stock Options. Non-statutory stock options do not qualify for
the special tax treatment accorded to incentive stock options under the Code.
Although an optionee does not recognize income at the time of the grant of the
option, he recognizes ordinary income upon the exercise of a non-statutory
option in an amount equal to the excess of the fair market value of the stock on
the date of exercise of the option over the amount of cash paid for the stock.
As a result of the optionee's exercise of a non-statutory stock option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. If the optionee pays all or part of the
option price of a non-statutory stock option by surrendering shares already
owned by him, certain additional tax rules apply.
The excess of the fair market value of the stock on the date of exercise of
a non-statutory stock option over the exercise price is not a tax preference
item.
Stock Appreciation Rights. Although the recipient of a SAR does not
recognize income at the time the right is granted, he will recognize income when
the right is exercised in an amount equal to the cash and the fair market value
of the property he receives. The Company will be entitled to deduct as
compensation an amount equal to the income recognized by the recipient.
However, so long as sale of the stock (if any) received would subject him
to suit under Section 16(b) of the Securities Exchange Act of 1934, the
recipient does not recognize income and no tax deduction is allowed to the
Company until the earlier of the expiration of six months from the date of
exercise and the date on which the Section 16(b) restriction lapses. At such
time, the recipient will recognize income equal to the fair market value of the
stock at the time the Section 16(b) restriction lapses and the Company will be
entitled to a tax deduction of a like amount. The recipient may elect to
recognize income upon receipt of the stock and not at the later time, in which
case the tax consequences to the recipient and the Company are the same as if he
were not subject to the Section 16(b) restriction.
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<PAGE> 24
If a SAR is paid in stock, the recipient's basis will be equal to the
amount of ordinary income recognized by the recipient in respect of such stock,
and his holding period will commence on the day such income is recognized.
The foregoing is a summary of the federal income tax consequences to the
participants in the 2001 Stock Incentive Plan and to the Company, based upon
current income tax laws, regulations and rulings.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
2001 STOCK INCENTIVE PLAN.
III. VOTING
The affirmative vote of the holders of a majority of the shares entitled to
vote which are present in person or represented by proxy at the 2001 Annual
Meeting is required to elect directors, to approve the 2001 Stock Incentive Plan
and to act on any other matters properly brought before the meeting. Shares
represented by proxies which are marked "withhold authority" with respect to the
election of any one or more nominees for election as directors, proxies which
are marked "Abstain" on the proposal to approve the 2001 Stock Incentive Plan,
and proxies which are marked to deny discretionary authority on other matters
will be counted for the purpose of determining the number of shares represented
by proxy at the meeting. Such proxies will thus have the same effect as if the
shares represented thereby were voted against such nominee or nominees, against
such proposal to approve the 2001 Stock Incentive Plan, and against such other
matters, respectively. Shares not voted on one or more but less than all such
matters on proxies returned by brokers will be treated as not represented at the
meeting as to such matter or matters.
The Company knows of no other matters to come before the meeting. If any
other matters properly come before the meeting, the proxies solicited hereby
will be voted on such matters in accordance with the judgment of the persons
voting such proxies.
IV. INDEPENDENT AUDITORS
KPMG LLP was the Company's auditors for the fiscal year ended September 30,
2000, and the Audit and Finance Committee has selected it as auditors for the
year ending September 30, 2001. A representative of KPMG LLP is expected to be
present at the meeting with the opportunity to make a statement and/or respond
to appropriate questions from Stockholders.
V. STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the 2002 Annual
Meeting must be received by the Company by August 11, 2001 for inclusion in the
Company's proxy statement and form of proxy relating to that meeting. Upon
receipt of any such proposal, the Company will determine whether or not to
include such proposal in the proxy statement and form of proxy in accordance
with regulations governing the solicitation of proxies.
In order for a Stockholder to nominate a candidate for director, under the
Company's Articles of Incorporation, timely notice of the nomination must be
given to the Company in advance of the meeting. Ordinarily, such notice must be
given not less than 60 nor more than 90 days before the meeting (but if the
Company gives less than 50 days notice or prior public disclosure of the date of
the meeting, then the Stockholder must give such notice within ten days after
notice of the meeting is mailed or other public disclosure of the meeting is
made, whichever occurs first). The Stockholder filing the notice of nomination
must describe various matters regarding the nominee, including such information
as name, address, occupation and shares held.
In order for a Stockholder to bring other business before a Stockholder
meeting, timely notice must be given to the Company within the time limits
described above. Such notice must include a description of the proposed
business, the reasons therefore and other specified matters. The Board may
reject any such proposals
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<PAGE> 25
that are not made in accordance with these procedures or that are not a proper
subject for Stockholder action in accordance with the provisions of applicable
law. These requirements are separate from and in addition to the requirements a
Stockholder must meet to have a proposal included in the Company's proxy
statement. The foregoing time limits also apply in determining whether notice is
timely for purposes of rules adopted by the Securities and Exchange Commission
relating to the exercise of discretionary voting authority.
In each case, the notice must be given to the Secretary of the Company,
whose address is 8888 Ladue Road, Suite 200, St. Louis, Missouri 63124-2056. Any
Stockholder desiring a copy of the Company's Articles of Incorporation or Bylaws
will be furnished one without charge upon written request to the Secretary.
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<PAGE> 26
EXHIBIT A
ESCO TECHNOLOGIES INC.
AUDIT COMMITTEE CHARTER
The Board of Directors of ESCO Technologies Inc. (the "Company") hereby
adopts this charter to govern the composition of its Audit Committee (the
"Committee") and the scope of the Committee's duties and responsibilities, and
to set forth specific actions the Board of Directors expects the Committee to
undertake to fulfill those duties and responsibilities.
I. STATEMENT OF PURPOSE
The Committee will assist the Board of Directors in overseeing and
monitoring the Company's financial reporting process. The duties of the
Committee are ones of oversight and supervision. It is not the duty of the
Committee to plan or conduct audits or to determine that the Company's financial
statements are complete and accurate and are in accordance with generally
accepted accounting principles. Similarly, it is not the duty of the Committee
to conduct investigations or to assure compliance with laws and regulations or
the Company's compliance programs. The Board of Directors recognizes that the
Committee will rely on the advice and information it receives from the Company's
management and its internal and outside auditors. The Board does, however,
expect the Committee to exercise independent judgment in assessing the quality
of the Company's financial reporting process and its internal controls. In doing
so, the Board expects that the Committee will maintain free and open
communication with the other directors, the Company's independent and internal
auditors and the financial management of the Company.
II. COMPOSITION OF THE AUDIT COMMITTEE
The Committee shall be comprised of at least three members of the Board of
Directors, with the number of members to be determined from time to time by the
Board. The members shall be designated by the Board of Directors, and each of
them shall be independent of management, as that term is defined by
sec.303.01(B)(3) of the New York Stock Exchange Rules, and free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of independent judgment.
Each member of the Committee shall have experience or education in business
or financial matters sufficient to provide him or her with a working familiarity
with basic finance and accounting matters. In addition, the Audit Committee
shall include at least one person with financial management or accounting
expertise.
Unless the Board has previously designated the Chair, the members of the
Committee may designate a Chair by majority vote.
III. MEETINGS.
The Committee shall meet at least 4 times annually, or more frequently if
circumstances dictate. One of these meetings shall include separate executive
sessions with the Company's independent auditors and the Director of Internal
Audit. Unless circumstances dictate otherwise, the meetings should occur
quarterly in conjunction with a review of the Company's quarterly financial
results.
IV. DUTIES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE.
The duties and responsibilities of the Committee shall include the
following:
1. Receive the written disclosures and letter from the Company's
independent auditors required by Independence Standards Board Standard No.
1, Independence Discussions with Audit Committees, and discuss with the
auditors any issues required to be discussed regarding their independence.
2. Annually evaluate the qualifications and prior performance of the
Company's current independent auditors. Based on the representations
regarding independence and the results of such evaluation,
<PAGE> 27
determine whether the independent auditors should be reappointed or
replaced. If a determination is made that the current independent auditors
should be replaced, recommend to the Board of Directors that the current
auditors should be replaced and the selection of any replacement.
3. Meet with the independent auditors and financial management of the
Company in advance of the annual audit to review its proposed scope, the
proposed scope of the quarterly reviews, and the procedures to be followed
in conducting the audit and the reviews.
4. Approve the compensation of the independent auditors.
5. Review with the independent auditors any problems or difficulties
the auditors may have encountered during the annual audit, including any
restrictions placed on the scope of the audit, difficulties obtaining
required information, significant areas of disagreement with management,
areas where the planned scope of the audit was changed because of concerns
or difficulties, significant audit adjustments, and any other matters
required to be discussed by Statement of Auditing Standards No. 61.
6. Review the Company's Annual Report on Form 10-K and the financial
statements contained therein with the Company's financial management and
independent auditors. Discuss any significant financial judgments made in
connection with the preparation of the Company's financial statements.
Receive assurances from financial management that the financial statements
proposed to be included in the Company's Annual Report contain no material
misstatements, and receive assurances from the independent auditors that,
in the course of their audit, they learned of no material misstatement. If
deemed appropriate, after consideration of the reviews and assurances,
recommend to the Board of Directors that they be included in the Annual
Report on Form 10-K.
7. Review the Company's Quarterly Reports on Form 10-Q and the
financial statements contained therein with the Company's financial
management. Receive assurances from the Company's financial management that
the financial statements included in the Company's reports do not contain
any material misstatements, and receive assurances that the auditors
learned of no material misstatements in the course of their review of such
financial statements.
8. Discuss at least annually with the Company's independent auditors
the adequacy and effectiveness of the Company's internal controls. Review
the management letter issued by the independent auditor and management's
response thereto. Periodically assess action management has taken or
progress it has made in addressing issues raised by the independent
auditors.
9. Approve the annual plan and associated resource allocation of the
Internal Audit Department.
10. Discuss at least annually with the internal audit executive the
effectiveness of the Company's internal accounting controls, as well as any
significant letters or reports to management issued by the internal
auditors, and management's responses thereto.
11. Discuss at least annually with the Company's General Counsel the
effectiveness of the Company's legal compliance programs, any legal matters
that may have a material impact on the Company's financial statements and
any material reports or inquiries received from regulators or government
agencies.
12. Recommend to the Board of Directors that the Committee be
authorized to commence and oversee any investigation deemed appropriate
into any matters within the Committee's scope of responsibility, with the
power to retain independent counsel, accountants and other advisors and
experts to assist the Committee if deemed appropriate.
13. Prepare the disclosure required by the Rules of the Securities and
Exchange Commission to be included in the Company's annual proxy statement.
14. Review this charter on an annual basis and make recommendations to
the Board of Directors concerning any changes deemed appropriate.
15. Report actions of the Committee to the Board of Directors with
such recommendations as the Committee deems appropriate.
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<PAGE> 28
EXHIBIT B
ESCO TECHNOLOGIES INC.
2001 STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The ESCO TECHNOLOGIES INC. 2001 STOCK INCENTIVE PLAN (the "Plan") has been
established by ESCO Technologies Inc., a Missouri corporation (the "Company"),
to:
(a) attract and retain executive, managerial and other salaried
employees;
(b) motivate participants, by means of appropriate incentives, to
achieve long-range goals;
(c) provide incentive compensation opportunities that are competitive
with those of other similar businesses; and
(d) further align a participant's interests with those of the
Company's stockholders through compensation that is based on the Company's
stock; and thereby promote the long-term financial interests of the
Company, including the growth in value of the Company's equity and
enhancement of long-term stockholder returns.
2. AWARDS UNDER THE PLAN.
Awards granted under the Plan shall be stock options as described in
Section 7 ("Stock Options"), stock appreciation rights as described in Section 8
("SARs"), performance share awards described in Section 9 ("Performance Share
Awards") and awards based in stock other than Stock Options, SARs or Performance
Share Awards as described in Section 10 ("Other Stock-Based Awards"). It is
intended that certain Stock Options granted under the Plan will qualify as
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
that other Stock Options granted hereunder will not qualify as Incentive Stock
Options.
3. STOCK SUBJECT TO THE PLAN.
Four hundred thirty thousand (430,000) shares of the authorized but
unissued Common Stock, par value of $0.01 per share, of the Company have been
allocated to the Plan and will be reserved for Performance Share Awards and
Other Stock-Based Awards under the Plan, plus the number of Shares which were
authorized but not awarded under the ESCO Electronics Corporation 1997
Performance Share Plan (the "1997 Plan"), and which were awarded but become
cancelled under the 1997 Plan. (This number shall be adjusted to reflect
subsequent stock dividends, stock splits, reverse stock splits and similar
matters affecting the number of outstanding shares of the Company's Common
Stock). In the event any award of shares related to Performance Share Awards or
Other Stock-Based Awards is cancelled on account of termination of a
participant's employment, failure to meet performance objectives, or for any
other reason, the Committee may again award the shares cancelled as additional
Performance Share Awards or Other Stock-Based Awards. The Company may, in its
discretion, use shares held in the Treasury in lieu of authorized but unissued
shares. In addition, on February 8, 2001 and on each October 1 thereafter
through October 1, 2004 there shall be added to the authorized shares allocated
to the Plan the lesser of (i) one percent (1%) of the total outstanding shares
as of each such date, or (ii) one hundred twenty-five thousand (125,000) shares
which may be used for the grant of Stock Options, SARs, Performance Share Awards
or Other Stock-Based Awards; provided, however, that not more than two hundred
thousand (200,000) of such additional shares may be used for Performance Share
Awards or Other Stock-Based Awards which consist of restricted stock. If any
Stock Option shall expire or terminate for any reason without having been
exercised in full, the unpurchased shares subject thereto shall again be
available for the purposes of the Plan. Any shares of Common Stock which are
used by an optionee as full or partial payment to the Company of the purchase
price of shares of Common Stock upon exercise of a Stock Option shall again be
available for the purposes of the Plan. The number of shares with
<PAGE> 29
respect to which Stock Options and SARs may be granted to any individual during
any calendar year may not exceed one hundred twenty-five thousand (125,000)
shares.
4. ADMINISTRATION.
The Plan shall be administered by the Committee referred to in Section 5
(the "Committee"). Subject to the express provisions of the Plan, the Committee
shall have plenary authority, in its discretion, to determine the individuals to
whom, and the time or times at which, Stock Options, SARs, Performance Share
Awards and Other Stock-Based Awards shall be granted and the number of shares to
be subject to each award. In making such determinations the Committee may take
into account the nature of the services rendered by the respective individuals,
their present and potential contributions to the Company's success and such
other factors as the Committee, in its discretion, shall deem relevant. Subject
to the express provisions of the Plan, the Committee shall also have plenary
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of the
respective Stock Option, SAR, Performance Share Award and Other Stock-Based
Award agreements (which need not be identical) and to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee's determinations on the matters referred to in this Section 4 shall be
conclusive.
5. THE COMMITTEE.
The Committee shall be the Human Resources and Ethics Committee of the
Board of Directors and shall at all times be constituted to comply with Rule
16b-3 under the Securities Exchange Act of 1934, or any successor to such Rule.
In addition, such Committee shall consist solely of two or more Outside
Directors. For this purpose, an Outside Director shall mean a director of the
Company who:
(1) is not an employee of the Company or any subsidiary while he is a
member of the Committee;
(2) is not a former employee of the Company or a subsidiary who
receives compensation for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year;
(3) has not been an Officer of the Company or a subsidiary; and
(4) shall not receive Remuneration from the Company or a subsidiary
either directly or indirectly in any capacity other than as a director.
"Remuneration" and "Officer" as used herein shall be determined in accordance
with Treas. Reg. Sec.1.162-27(e)(3) or any successor thereto.
The Committee shall be appointed by the Board of Directors, which may from
time to time appoint members of the Committee in substitution for members
previously appointed and may fill vacancies, however caused, in the Committee.
The Board of Directors shall select one member of the Committee as the
Committee's Chairman, and the Committee shall hold its meetings at such times
and places as it may determine. A majority of its members shall constitute a
quorum. All determinations of the Committee shall be made by a majority of its
members present at any meeting at which there is a quorum. Any decision or
determination reduced to writing and signed by all of the members shall be fully
as effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary, shall keep minutes of its
meetings and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
6. ELIGIBILITY.
Stock Options and SARs may be granted only to key officers, managers and
professional employees of the Company or its subsidiaries. The term "key
officers, managers and professional employees" is not limited to, but includes,
officers, whether or not they are directors, but does not include directors who
are not also executive employees of the Company, or a subsidiary thereof. The
term "subsidiary" shall mean any corporation or wholly-owned partnership (other
than the Company) in an unbroken chain of corporations beginning with the
Company if, at the time of the granting of the Stock Option or SAR, each of the
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<PAGE> 30
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain, or such other meaning as
may be hereafter ascribed to it in Section 424 of the Code. Performance Share
Awards and Other Stock-Based Awards may be granted only to full time employees
of the Company, its subsidiaries or any subsidiary of its subsidiaries, who may,
but need not be, officers of the Company, or of its subsidiaries or divisions,
who are determined by the Committee in its discretion, to be senior management
personnel important to the future success of the Company, and to whom the
Committee shall make a Performance Share Award or Other Stock-Based Award under
the Plan.
7. STOCK OPTIONS.
(a) Option Prices. The purchase price of the Common Stock under each Stock
Option shall not be less than 100% of the fair market value of the stock at the
time of the granting of the Stock Option. Such fair market value shall generally
be considered to be the mean between the high and low prices of the Company's
Common Stock as traded on the New York Stock Exchange on the day the Stock
Option is granted; provided, however, that the Committee may adopt any other
criterion for the determination of such fair market value as it may determine to
be appropriate.
(b) Exercise of Stock Options. The purchase price is to be paid in full
upon the exercise of the Stock Option, either (i) in cash, (ii) by the tender to
the Company of shares of the Common Stock of the Company, owned by the optionee
for at least six (6) months and registered in his name, having a fair market
value equal to the cash exercise price of the Stock Option being exercised, with
the fair market value of such stock to be determined in such appropriate manner
as may be provided for by the Committee or as may be required in order to comply
with, or to conform to the requirements of, any applicable laws or regulations,
(iii) by any combination of the payment methods specified in clauses (i) and
(ii) hereof, or (iv) such other methods determined by the Committee; provided
that, no shares of Common Stock may be tendered in exercise of an Incentive
Stock Option if such shares were acquired by the optionee through the exercise
of an Incentive Stock Option unless (i) such shares have been held by the
optionee for at least one year and (ii) at least two years have elapsed since
such prior Incentive Stock Option was granted. In addition, the optionee may
effect a "cashless exercise" of a Stock Option in lieu of paying the exercise
price in cash or shares of Common Stock of the Company owned by the optionee by
means of a "same day sale" in which the option shares are sold through a broker
selected by the optionee and a portion of the proceeds to cover the exercise
price is paid to the Company, or otherwise in accordance with the rules and
procedures adopted by the Committee.
(c) Sale Proceeds. The proceeds from the sale of the stock subject to
option are to be added to the general funds of the Company or to the shares of
the Common Stock of the Company held in its Treasury, and used for its corporate
purposes as the Board of Directors shall determine.
(d) Incentive Stock Option Amounts. The maximum aggregate fair market value
(determined at the time an Incentive Stock Option is granted) of the Common
Stock of the Company with respect to which Incentive Stock Options are
exercisable for the first time by any optionee during any calendar year (under
all plans of the Company and its subsidiaries) shall not exceed $100,000.
(e) Term of Stock Options. The term of each Stock Option shall be not more
than ten (10) years from the date of granting thereof or such shorter period as
is prescribed in subsection (f) following. Within such limit, Stock Options will
be exercisable at such time or times, and subject to such restrictions and
conditions, as the Committee shall, in each circumstance, approve, which need
not be uniform for all optionees; provided, however, that except as provided in
subsections (f) and (g) following, no Stock Option may be exercised at any time
unless the optionee is then an employee of the Company or a subsidiary and has
been so employed continuously since the granting of the Stock Option. The holder
of a Stock Option shall have none of the rights of a shareholder with respect to
the shares subject to option until such shares shall be issued to him upon the
exercise of his Stock Option.
(f) Termination of Employment. 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
3
<PAGE> 31
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 (one (1) year in the case of termination
of employment on account of retirement on or after age 60 ("Retirement")), but
not after ten (10) years from the date of the granting thereof. If the optionee
terminates employment on account of disability he may exercise such Stock Option
to the extent he was entitled to exercise it at the date of such termination at
any time within one (1) year of the termination of his employment but not after
ten (10) years from the date of the granting thereof. For this purpose a person
shall be deemed to be disabled if he is permanently and totally disabled within
the meaning of Section 422(c)(6) of the Code, which, as of the date hereof,
shall mean that he is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. A person shall be considered
disabled only if he furnishes such proof of disability as the Committee may
require. Stock Options granted under the Plan shall not be affected by any
change of employment so long as the holder continues to be an employee of the
Company or a subsidiary thereof. The Stock Option agreements may contain such
provisions as the Committee shall approve with reference to the effect of
approved leaves of absence. Nothing in the Plan or in any Stock Option granted
pursuant to the Plan shall confer on any individual any right to continue in the
employ of the Company or any subsidiary or interfere in any way with the right
of the Company or any subsidiary thereof to terminate his employment at any
time.
(g) Death of Holder of Stock Option. In the event of the death of an
individual to whom a Stock Option has been granted under the Plan, while he is
employed by the Company (or a subsidiary) or (if the Committee has approved an
extension under (f), above) within three (3) months after the termination of his
employment (or one (1) year in the case of the termination of employment of a
Stock Option holder on account of Retirement or who is disabled as above
provided) the Stock Option theretofore granted to him may be exercised, to the
extent that he was entitled to exercise it at the date of such death, by a
legatee or legatees of the Stock Option holder under his last will, or by his
personal representatives or distributees, at any time within a period of one (1)
year after his death, but not after ten (10) years from the date of granting
thereof, and only if and to the extent that he was entitled to exercise the
Stock Option at the date of his death.
(h) Non-Transferability of Incentive Stock Options. Each Incentive Stock
Option granted under the Plan shall, by its terms, be non-transferable otherwise
than by will or the laws of descent and distribution and an Incentive Stock
Option may be exercised, during the lifetime of the holder thereof, only by him.
(i) Successive Stock Option Grants. Successive Stock Option grants may be
made to any holder of Stock Options under the Plan.
(j) Investment Purpose. Each Stock Option under the Plan shall be granted
only on the condition that all purchases of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution, except that
the Committee may make such provision with respect to Stock Options granted
under this Plan as it deems necessary or advisable for the release of such
condition upon the registration with the Securities and Exchange Commission of
stock subject to the Stock Option, or upon the happening of any other
contingency warranting the release of such condition.
8. STOCK APPRECIATION RIGHTS.
(a) Grant. At the time of grant of a Stock Option, the Committee, in its
discretion, may grant to the optionee under the Plan an alternative SAR for all
or any part of the number of shares covered by his Stock Option. The SAR
agreement shall specify the Stock Options in respect of which the alternative
SAR is granted. Any subsequent exercise of a Stock Option by the holder thereof
who also holds an alternative SAR shall reduce his alternative SAR by the same
number of shares as to which his Stock Option is exercised. Any exercise of his
alternative SAR shall reduce his Stock Option by the same number of shares as to
which his SAR is exercised. An alternative SAR granted to a Stock Option holder
shall specify a time period for exercise of such SAR, which time period may not
extend beyond, but may be less than, the time period during which the
corresponding Stock Option may be exercised. The failure of the holder of the
alternative SAR to exercise such SAR within the time period specified shall not
reduce his Stock Option rights. If an alternative
4
<PAGE> 32
SAR is granted for a number of shares less than the total number of shares
covered by the corresponding Stock Option the Committee may later grant to the
Stock Option holder an additional alternative SAR covering additional shares,
provided, however, that the aggregate amount of all alternative SARs held by a
Stock Option holder shall at no time exceed the total number of shares covered
by his unexercised Stock Options.
(b) Exercise. The holder of any Stock Option which by its terms is
exercisable who also holds an alternative SAR may, in lieu of exercising his
Stock Option, elect to exercise his alternative SAR; subject, however, to the
limitations on time of exercise hereinafter set forth. Such SAR shall be
exercised by the delivery to the Company of a written notice which shall state
that the optionee elects to exercise his SAR as to the number of shares
specified in the notice and which shall further state what portion, if any, of
the SAR exercise amount (hereinafter defined) the holder thereof requests be
paid to him in cash and what portion, if any, he requests be paid to him in
Common Stock of the Company. The Committee promptly shall cause to be paid to
such holder the SAR exercise amount either in cash, in Common Stock of the
Company, or any combination of cash and stock as it may determine. Such
determination may be either in accordance with the request made by the holder of
the SAR or otherwise, in the sole discretion of the Committee. The SAR exercise
amount is the excess of the fair market value of one share of the Company's
Common Stock on the date of exercise over the per Stock Option price for the
Stock Option in respect of which the alternative SAR was granted multiplied by
the number of shares as to which the SAR is exercised. For the purposes hereof
fair market value of one share of the Company's Common Stock on the date of
exercise shall be determined as described under Section 7 (a).
(c) Other Provisions of Plan Applicable. All provisions of this Plan
applicable to Stock Options granted hereunder shall apply with equal effect to
alternative SARs.
9. PERFORMANCE SHARE AWARDS.
(a) Performance Shares; Performance Objectives. Performance Shares shall
not be issued at the time of award, but the Performance Share Award shall
represent the right to receive such Shares (or equivalent value) if specified
performance objectives are achieved. The performance objectives may be
established from time to time by the Committee. Performance objectives need not
be the same in respect of all participants and may be established separately, at
the time of each Performance Share Award, for the Company as a whole or for its
various groups, divisions and subsidiaries, all as the Committee may determine,
in its discretion. The performance objectives may include achievement of
specified earnings, cash flow, sales, profitability of the Company or of a
division or subsidiary, stock price levels for the Company, completion of
specified employment periods or any other measure the Committee may adopt.
(b) Performance Share Awards. Performance Share Awards shall be made
pursuant to performance programs as follows:
(i) Performance Programs; Initial Awards. The Committee shall
establish one or more performance programs each with one or more specified
objectives and specified performance periods over which the specified
objectives are targeted for achievement. Participants may be awarded Shares
in any one or more of the performance programs. Initial awards in any
program shall be made to such number of participants as then determined by
the Committee. In making its determination of who shall be participants in
any performance program, the Committee shall take into account such factors
as the participant's level of responsibility, job performance, level and
types of compensation, number of shares of Common Stock owned, and such
other factors as the Committee deems relevant. The Committee may require
the participant to own shares of Common Stock representing such percentage
of the Performance Shares awarded as it may determine to be appropriate.
The Committee may also require the participant to provide proof of
ownership of such shares and to report any sales or other disposition of
shares during the performance period.
(ii) Subsequent Awards. During the term of the Plan additional
Performance Share Awards may be made (subject to the maximum number
provided for above) in the discretion of the Committee, either (i) to new
participants in the Plan or (ii) to any one or more of the initial
participants in the Plan. In
5
<PAGE> 33
respect of such additional Performance Share Awards the Committee may make
such adjustments therein as it may deem reasonable on account of any lesser
period of participation in the program by the holder of any subsequent
Performance Share Award, competitive compensation practices, or any other
reason the Committee may deem appropriate.
(iii) Notice of Performance Share Awards. Upon the granting of any
Performance Share Award by the Committee, the participant shall be advised
of the number of Performance Shares awarded to him and of the terms of the
Performance Share Award in a written Notice of Award given to the
participant.
(c) Performance Share Distribution. The amount which a holder of
Performance Share Awards shall be entitled to receive if the applicable
performance objective is met shall be the percentage of the Performance Share
Award set forth in the individual Notice of Award. The Committee may, but is not
obligated to, authorize a distribution of a portion of the Performance Share
Award based upon its discretionary evaluation of the Company's financial
performance during the period of the Performance Share Award even if the
performance 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. Distributions shall be made in shares of the Company's Common
Stock (which may include stock with certain restrictions attached); provided,
however, that in no event shall the value of the total distributions under this
Plan exceed the value of the Shares reserved under Section 3 of the Plan (or as
said number may be adjusted as provided in Section 12 below).
(d) Optional Deferred Payments. Subject to the provisions of the following
paragraphs of this Section, distribution of amounts to which a participant is
entitled in respect of Performance Share Awards shall be made as soon as
practicable after the holder of such Performance Share Awards becomes entitled
thereto. At the time the Notice of Award is given to a participant, such
participant may make an election to have distribution of any amount such
participant may be entitled to receive deferred until such year as such
participant may elect, after the year in which the amount would otherwise be
paid, not extending beyond the time approved by the Company. If a participant
elects any such deferral the following rules shall apply to the deferred
payment:
(i) Such election shall be irrevocable;
(ii) The right to such deferred distribution shall be fully vested and
nonforfeitable but shall be nonassignable, and any attempted transfer or
assignment, or any pledge or other hypothecation of such right, shall be
void and of no effect;
(iii) In the event of the death during the deferral period of a
participant who has elected a deferred distribution the amount owing to
such participant at the time of death shall be distributed to the
participant's estate within six months of the date of death, irrespective
of whether or not the deferral period elected has expired.
(iv) Notwithstanding any election of any participant to receive
payment under the Plan on a deferred basis as above provided, the
Committee, in its sole discretion, may, at any time, in respect to all or
any one or more participants who have made such election, terminate such
election and make immediate distribution of the amount to which the
participant is entitled; and the Committee, in its discretion, may amend
the foregoing provisions hereof relating to the election of deferred
payments and the rules applicable thereto if, in its judgment, the tax
benefits intended by such provisions and rules will not be adversely
affected.
(e) Conditions to Payments. Except as otherwise herein provided or
determined by the Committee, a participant, in order to be entitled to receive
any payment in respect of Performance Share Awards, must be in the employ of the
Company or a subsidiary of the Company on the expiration of the relevant
performance and/or service period and must have been continuously in the employ
of the Company or a subsidiary from the time of the Performance Share Award
except for leaves of absence which may be approved by the Committee. No vested
interest in any shares under the Performance Share Awards shall accrue during
the term of the performance or service period and no payment in respect of the
Performance Share Awards shall be required to be made to any participant whose
employment with the Company or a subsidiary is terminated, with or
6
<PAGE> 34
without cause, prior to the time he is entitled to receive a distribution
hereunder; provided, however, that the Committee, in its absolute discretion,
may make such pro-rata share distribution (or no share distribution), as it may
determine, to a participant whose employment terminates on account of death,
disability, retirement or otherwise prior to the time the participant is
entitled to receive distribution in respect of Performance Share Awards. If
termination is on account of death the Committee may make any distribution it
authorizes to the participant's surviving spouse, heirs or estate, as the
Committee may determine.
(f) Payments in Common Stock; Source of Stock. Shares of the Company's
Common Stock delivered pursuant to the terms of the Plan will either be Treasury
shares of the Common Stock of the Company acquired prior to or during the term
of the Plan, or authorized but unissued shares of the Common Stock of the
Company as determined by the Committee. Subject to the approval of this Plan by
the stockholders of the Company, the Directors and officers of the Company are
authorized to take such action as may be necessary to provide for the issuance
of any and all of the shares which may be necessary to satisfy the Company's
obligations hereunder and to cause said shares to be listed on the New York and
any other stock exchanges on which the Company's Common Stock may at such time
be listed. Shares of Common Stock delivered to participants hereunder in
satisfaction of Performance Shares or Other Stock-Based Awards may be restricted
stock under the Securities Act of 1933, as presently amended, and the
certificates for such Shares may have a legend imprinted thereon restricting the
resale of said shares except in a registered offering or pursuant to an
available exemption from registration.
(g) Determination of Achievement of Objectives. Not in limitation of its
authority as provided for in the preceding section, the Committee, in regard to
any performance program adopted by it, may thereafter change or modify the terms
of the program, so long as the amount of the Performance Share Award to the
participant is not reduced, and the Committee may determine reasonably whether
any performance objective of any program has been met. In the event of a Change
of Control (as hereinafter defined) or in the event of a public tender for all
or any part of the Common Stock of the Company or any proposal to merge or
consolidate the Company with another company to liquidate or sell substantially
all of the assets of the Company, the Committee may, in its discretion, reduce
or eliminate any performance objective and/or service requirement.
10. OTHER STOCK-BASED AWARDS.
The Committee may from time to time grant Other Stock-Based Awards
including without limitation those awards pursuant to which Shares may be
acquired in the future, such as awards denominated in Common Stock, stock units,
securities convertible into Common Stock and phantom securities. The Committee,
in its sole discretion, shall determine, and provide in the applicable Agreement
for, the terms and conditions of such Other Stock-Based Awards. The Committee
may, in its sole discretion, direct the Company to issue shares of Common Stock
in respect of Other Stock-Based Awards subject to restrictive legends, stop
transfer instructions or other restrictions as it may deem appropriate.
11. ADDITIONAL PROVISIONS.
The following additional terms and provisions apply to the Plan:
(i) The grant of Stock Options, SARs, Performance Share Awards or
Other Stock-Based Awards to a participant in the Plan shall create no
rights in such participant as a shareholder of the Company until such time
and to the extent that the participant is delivered shares of the Company's
Common Stock in satisfaction of such participant's Stock Options, SARs,
Performance Share Awards or Other Stock-Based Awards;
(ii) No adjustment shall be made in the shares awarded on account of
cash dividends which may be paid, or other rights which may be issued to,
the holders of the Company's Common Stock during the term of the Plan
except as stated in Section 12 below;
(iii) No participant in the Plan shall have any right because of being
a participant in the Plan to continue in the employ of the Company or of
any of its subsidiaries for any period of time, or any right to a
continuation of the participant's present or any other level of
compensation; and such rights and powers
7
<PAGE> 35
as the Company now has or which it may have in the future to dismiss or
discharge any participant from employment or to change the assignments of
any participant are expressly reserved to the Company;
(iv) The Company, at the time any distribution is made under the Plan,
shall withhold from such distribution any amount necessary to satisfy tax
withholding requirements in respect of such distribution. Alternatively, if
the participant shall pay to the Company such cash amount as may be
necessary to satisfy withholding requirements such participant shall be
entitled to receive delivery of all shares due hereunder.
(v) "Change of Control" as used in this Plan shall mean:
(aa) The purchase or other acquisition (other than from the
Company) by any persons, 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 the 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
(bb) Individuals who, as of the date hereof, constitute the Board
(as 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
(cc) 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 elections of
directors of the reorganized, merged or consolidated corporations'
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.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR CORPORATE ACQUISITIONS.
Notwithstanding any other provisions of the Plan, the Stock Option and SAR
agreements may contain such provisions as the Committee shall determine to be
appropriate for the adjustment of the number and class of shares subject to each
outstanding Stock Option or SAR and the Stock Option prices and SAR exercise
amounts in the event of changes in the outstanding Common Stock by reason of
stock dividends, stock splits, reverse stock splits, recapitalization, mergers,
consolidations, split-ups, combinations or exchanges of shares and the like,
and, in the event of any such change in the outstanding Common Stock, the
aggregate number and class of shares available under the Plan and the maximum
number of shares and respective exercise prices as to which Stock Options and
SARs which have been granted or may be granted to any individual shall be
appropriately adjusted by the Committee, whose determination shall be
conclusive. In the event the Company or a subsidiary enters into a transaction
described in Section 424(a) of the Code with any other corporation, the
Committee may grant Stock Options or SARs to employees or former employees of
such corporation in substitution of Stock Options or SARs previously granted to
them upon such terms and conditions as shall be necessary to qualify such grant
as a substitution described in Section 424(a) of the Code. In the event of stock
dividends, stock splits or reverse stock splits, affecting the number of shares
of the Company's Common Stock during the term of the Plan, appropriate revision
shall be made (i) in the targeted growth objectives of Performance Share Awards,
and (ii) in the shares awarded to reflect the effect of such
8
<PAGE> 36
stock dividend, stock split or reverse stock split on the interests of the
recipients of Performance Share Awards or Other Stock-Based Awards under the
Plan. In the event of a special, non-recurring distribution with respect to the
Company's Common Stock, the Committee may (i) adjust the number of shares
subject to each Stock Option and SAR, and the Stock Option price, per share in
such manner as the Committee deems just and equitable to reflect such
distribution, but in no event shall the total number of shares used under the
Plan exceed the number authorized under Section 3, and (ii) pay such special
bonus or take such other action with respect to Performance Share Awards or
Other Stock-Based Awards as it deems just and equitable to reflect such
distribution, but in no event shall the total number of shares used under the
Plan exceed the number authorized under Section 3.
13. AMENDMENT AND TERMINATION.
Either the Board of Directors or the Committee may at any time terminate
the Plan, or make such modifications of the Plan as it shall deem advisable;
provided, however, that neither the Board of Directors nor the Committee may,
without further approval by the holders of Common Stock, increase the maximum
numbers of shares as to which Stock Options or SARs may be granted under the
Plan (except under the anti-dilution provisions hereof), or change the class of
employees to whom Stock Options, SARs, Performance Share Awards or Other
Stock-Based Awards may be granted, or withdraw the authority to administer the
Plan from a committee whose members satisfy the requirements of Section 4. No
termination or amendment of the Plan may, without the consent of the optionee to
whom any Stock Option or SAR shall theretofore have been granted or a
participant to whom Performance Shares Awards or Other Stock-Based Awards have
been made, adversely affect the rights of such optionee under such Stock Option
or SAR or participant under such Performance Share Award or Other Stock-Based
Award.
14. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective upon adoption by the Board of Directors or
the Committee subject, however, to its further approval by the shareholders of
the Company given within twelve (12) months of the date the Plan is adopted by
the Board of Directors or the Committee at a regular meeting of the shareholders
or at a special meeting duly called and held for such purpose. Grants of Stock
Options, SARs, Performance Share Awards and Other Stock-Based Awards may be made
prior to such shareholder approval but all Stock Options, SARs, Performance
Share Awards and Other Stock-Based Awards made prior to shareholder approval
shall be subject to the obtaining of such approval and if such approval is not
obtained, such Stock Options, SARs, Performance Share Awards and Other
Stock-Based Awards shall not be effective for any purpose.
15. TIME OF GRANTING OF STOCK OPTIONS, SARS, PERFORMANCE SHARE AWARDS AND OTHER
STOCK-BASED AWARDS.
A Stock Option, SAR, Performance Share Award or Other Stock-Based Award
under the Plan shall be deemed to be made on the date the Committee, by formal
action of its members duly recorded in the records thereof, makes an award of a
Stock Option, SAR, Performance Share Award or Other Stock-Based Award to an
eligible employee of the Company or its subsidiaries (but in no event prior to
the adoption of the Plan by the Board of Directors or the Committee), provided
that such Stock Option, SAR, Performance Share Award or Other Stock-Based Award
is evidenced by a written Stock Option or SAR agreement or notice of award of
the Performance Share Award or Other Stock-Based Award duly executed on behalf
of the Company and on behalf of the recipient within a reasonable time after the
date of the Committee action.
16. TERM OF PLAN.
This Plan shall terminate ten (10) years after the date on which it is
approved and adopted by the Board of Directors or the Committee, and no Stock
Option, SAR, Performance Share Award or Other Stock-Based Award shall be granted
hereunder after the expiration of such ten-year period. Stock Options, SARs,
Performance Share Awards or Other Stock-Based Awards outstanding at the
termination of the Plan shall continue in accordance with their terms and shall
not be affected by such termination.
9
<PAGE> 37
[ESCO TECHNOLOGIES LOGO]
<PAGE> 38
<TABLE>
<S><C>
PLEASE MARK
YOUR VOTES AS
INDICATED IN [ X ]
THIS EXAMPLE
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. ELECTION OF DIRECTORS (INSTRUCTION: To withhold authority to vote
for any individual nominee, strike a line
FOR all nominees WITHHOLD through the nominee's name on the list below.)
listed to the right AUTHORITY
(except as marked to vote for nominees Nominees: D.J. Moore, J.M. Stolze
to the contrary) listed to the right
The undersigned hereby acknowledges
[ ] [ ] receipt of the Notice of the Annual
Meeting and accompanying Proxy
Statement dated December 11, 2000.
2. APPROVAL OF 2001 STOCK INCENTIVE PLAN. The proxies will vote your Common
Shares in the manner directed herein
FOR AGAINST ABSTAIN by the Undersigned Stockholder.
[ ] [ ] [ ] IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1 AND FOR
PROPOSAL 2.
Please sign exactly as your name
appears to the left. When signing as
_____ an attorney, executor, administrator,
| trustee or guardian, please give full
| title as such. If signing on behalf
| of a corporation, please sign in full
| corporate name by President or other
| authorized officer. If signing on
| behalf of a partnership, please sign
| in partnership name by authorized
| person.
|
| Dated:
--------------------------------
--------------------------------------
(Signature)
--------------------------------------
(Signature -- If held jointly, both
holders must sign.)
IF ADDRESS APPEARING TO THE LEFT IS
INCORRECT, KINDLY MAKE CORRECTION.
</TABLE>
/\ PLEASE DETACH PROXY HERE, SIGN AND MAIL /\
[ESCO TECHNOLOGIES LOGO]
December 11, 2000
Dear Stockholder:
The annual meeting of stockholders of ESCO Technologies Inc. will
be held at the Hilton St. Louis Frontenac Hotel, 1335 S. Lindbergh Blvd., St.
Louis County, Missouri 63131 at 10:00 A.M. on Thursday, February 8, 2001.
It is important that your shares are represented at this meeting.
Whether or not you plan to attend the meeting, please review the enclosed
proxy materials, complete the attached proxy form above, and return it
promptly in the envelope provided.
Thank you.
<PAGE> 39
ESCO TECHNOLOGIES INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, as holder of record of the Common Stock of ESCO
TECHNOLOGIES INC. (the "Company"), does hereby appoint D.J. Moore, C.J.
Kretschmer and A.S. Barclay, or any of them, the true and lawful attorneys in
fact, agents and proxies of the undersigned to represent the undersigned at the
Annual Meeting of Stockholders of the Company, to be held on February 8,
2001, commencing at 10:00 A.M., St. Louis time, at the Hilton St. Louis
Frontenac Hotel, 1335 S. Lindbergh Blvd., St. Louis County, Missouri 63131 and
at any and all adjournments of such meeting, and to vote all the shares of
Common Stock of the Company standing on the register of the Company's stock
transfer agent in the name of the undersigned as follows, and in their
discretion on such other business as may properly come before the meeting:
(Continued, and to be signed, on the other side)
/\ PLEASE DETACH PROXY HERE, SIGN AND MAIL /\
