EXHIBIT 10.5
NOTICE OF AWARD
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To:
From:Human Resources and Compensation Committee of the Board of Directors
("Committee")
Subject: ESCO Technologies Inc. 2001 Stock Incentive Plan ("Plan") - October,
2004 Award
1. Award. The Committee has awarded to you -------- shares of
Performance-Accelerated Restricted Stock under the terms of the Plan ("Award").
The Award is subject to all of the terms of the Plan, a copy of which has been
delivered to you.
2. Terms. The following are the terms of the Award:
Notwithstanding (b), below if, during the Period of the Award, the Average
Value Per Share of Company Stock reaches the amount set forth in column (A), a
percentage of the Award will be accelerated equal to the amount set forth under
column (B) subject to the limitations set forth in (c) and provided you comply
with the terms of the remainder of this Notice of Award.
A B
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If the Average Value The Cumulative
Per Share of Company Percent of Award
Stock reaches: Accelerated shall be:
-------------- ---------------------
$75.00 or more 100%
$65.00 50%
$55.00 0%
(b) If you are still employed on September 30, 2009 you will earn 100%
of the portion of the Award not yet accelerated provided you comply with
the requirements of paragraph 3.
(c) The following additional terms will apply to the Award:
(i) No portion of this Award may be accelerated prior to October
1, 2006. One hundred percent (100%) of the total Award may be
accelerated by the end of the Fiscal Year ending September 30, 2009.
(ii) Once a portion of the Award is accelerated under
subparagraph (a), you must remain employed with the Company or a
subsidiary of the Company until the March 31stfollowing the end of the
Fiscal Year in which that portion of the Award is accelerated. If you
terminate employment (voluntarily or involuntarily) prior to such
time, you will forfeit that portion of the Award. Provided, however,
that if your employment is terminated on account of death, or total
and permanent disability the foregoing employment requirement shall
not apply.
(iii) If there is a Change of Control (as defined in the Plan)
and you are employed by the Company on the date of the Change of
Control, the employment requirement of subparagraph (ii) shall cease
to apply to the portion of the Award which is accelerated or earned
and the number of shares representing that portion of the Award which
is accelerated or earned as of the date of the Change of Control shall
be distributed to you. In addition, the portion of the Award which is
not yet accelerated or earned shall be determined and distributed to
you at the end of the Fiscal Year in which the Change of Control
occurred provided you are still employed on such date, in lieu of all
other provisions of this Award. If you are not employed by the Company
as of the end of the foregoing Fiscal Year, no such distribution will
be made; provided, however, that if you are involuntarily terminated
for reasons other than Cause or if you terminate for Good Reason the
remaining shares not yet accelerated or earned shall be distributed in
full upon such termination of employment.
(a) Notwithstanding the foregoing provisions of this
subparagraph (iii), in the event a certified public accounting
firm designated by the Committee (the "Accounting Firm")
determines that any payment (whether paid or payable pursuant to
the terms of this Award or otherwise and each such payment
hereinafter defined as a "Payment" and all Payments in the
aggregate hereinafter defined as the "Aggregate Payment"), would
subject you to tax under Section 4999 of the Internal Revenue
Code of 1986 ("Code") then such Accounting Firm shall determine
whether some amount of payments would meet the definition of a
"Reduced Amount". If the Accounting Firm determines that there is
a Reduced Amount, payments shall be reduced so that the Aggregate
Payments shall equal such Reduced Amount. For purposes of this
subparagraph, the "Reduced Amount" shall be the largest Aggregate
Payment which (a) is less than the sum of all Payments and (b)
results in aggregate Net After Tax Receipts which are equal to or
greater than the Net After Tax Receipts which would result if
Payments were made without regard to this subsection (e). "Net
After Tax Receipt" means the Present Value (defined under Section
280G(d)(4) of the Code) of a Payment net of all taxes imposed on
you under Section 1 and 4999 of the Code by applying the highest
marginal rate under Section 1 of the Code.
(b) As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination
of the Accounting Firm hereunder, it is possible that Payments
will be made by the Company which should not have been made (the
"Overpayments") or that additional Payments which the Company has
not made could have been made (the "Underpayments"), in each case
consistent with the calculations of the Accounting Firm. In the
event that the Accounting Firm, based either upon (A) the
assertion of a deficiency by the Internal Revenue Service against
the Company or you which the Accounting Firm believes has a high
probability of success or (B) controlling precedent or other
substantial authority, determines that an Overpayment has been
made, any such Overpayment shall be treated for all purposes as a
loan to you which you shall repay to the Company together with
interest at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code; provided, however, that no amount
shall be payable by you to the Company if and to the extent such
payment would not reduce the amount which is subject to taxation
under Section 1 and Section 4999 of the Code or if the period of
limitations for assessment of tax has expired. In the event that
the Accounting Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the
Company to you together with interest at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Code.
3. Share Ownership Requirements. You must own directly or beneficially Company
Stock in the amount of 50 % of the number of shares covered by the Award
(hereinafter referred to as "Minimum Required Shares") and provide proof of
ownership satisfactory to the Committee of that number of shares as of September
30, 2005. You must also notify the Company at any time during the Period of the
Award on or after September 30, 2005 if you sell or otherwise transfer such
shares and your total share ownership is less than the Minimum Required Shares.
If, at any time during the Period of the Award on or after September 30, 2005,
you own zero shares, 100% of the Award not yet accelerated will be forfeited.
If, at any time during the Period of the Award on or after September 30, 2005,
you own some shares but less than the Minimum Required Shares, you will forfeit
a pro rata portion of the Award not yet accelerated based upon the ratio of the
number of shares you own to the Minimum Required Shares.
4. Definitions. For purposes of the Award, the following terms shall have the
following meanings:
(a) "Average Value Per Share" shall mean the average for any consecutive 30
day trading period in which Company Stock is traded of the daily closing prices
of Company Stock on the New York Stock Exchange.
(b) "Cause" shall mean:
(i) The willful and continued failure to substantially perform
your duties with the Company or one of its subsidiaries (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for such performance is delivered to
you by ESCO's CEO or his delegate which specifically identifies the
manner in which such ESCO's CEO or his delegate believes that you have
not substantially performed your duties; or
(ii) The willful engaging in (A) illegal conduct (other than
minor traffic offenses), or (B) conduct which is in breach of your
fiduciary duty to the Company or one of its subsidiaries and which is
demonstrably injurious to the Company or one of its subsidiaries, any
of their reputations, or any of their business prospects. For purposes
of this subparagraph (ii) and subparagraph (i) above, no act or
failure to act on your part shall be considered "willful" unless it is
done, or omitted to be done, by you in bad faith or without reasonable
belief that your action or omission was in the best interests of the
Company or one of its subsidiaries. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by the
Board of Directors of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted
to be done, by you in good faith and in the best interests of the
Company or one of its subsidiaries;
The cessation of your employment shall not be deemed to be for "Cause" unless
and until there shall have been delivered to you a written notice that in the
CEO's or his delegate's opinion you are guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) "Company Stock" shall mean common stock of the Company.
(d) "Fiscal Year" shall mean the fiscal year of the Company which, as
of the date hereof, is the twelve month period commencing October 1 and
ending September 30.
(e) "Good Reason" shall mean:
(i) Requiring you to be based at any office or location more than
50 miles from your office or location as of the date of the Change of
Control;
(ii) The assignment to you of any duties inconsistent in any
respect with your position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as of
the date of the Change of Control or in conjunction with a Change in
Control any action by the Company or any of its subsidiaries which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an action taken by the
Company or one of its subsidiaries, to which you object in writing by
notice to the Company within 10 business days after you receive actual
notice of such action, which is remedied by the Company or one of its
subsidiaries promptly but in any event no later than 5 business days
after you provided such notice, or
(iii) The reduction in your total compensation and benefits below
the level in effect as of the date of the Change of Control.
(f) "Period of the Award" means the period commencing October 1, 2006
and ending on September 30, 2009.
5. Parallel Incentive The Committee may, but is not obligated to, authorize a
payment of a portion of the Award based upon its discretionary evaluation of the
Company's financial performance during the Period of the Award even if the
foregoing objectives are not fully met. Examples of performance measures the
Committee may consider include, but are not limited to, cash flow, earnings,
sales and margins.
6. Medium of Payment. The Committee shall direct that any distribution shall be
made in accordance with the terms of the Plan.
7. Restrictions. You agree that for the period ending two (2) years after the
expiration of the Period of the Award, you will not, as an individual or as a
partner, employee, agent, advisor, consultant or in any other capacity of or to
any person, firm, corporation or other entity, directly or indirectly, other
than as a 2% or less shareholder of a publicly traded corporation, do any of the
following:
(a) carry on any business or become involved in any business activity,
which is (i) competitive with the business of the Company (or a subsidiary
or joint venture of the Company), as presently conducted and as said
business may evolve in the ordinary course, and (ii) a business or business
activity in which you were engaged in the course of your employment with
the Company (or a subsidiary or joint venture of the Company);
(b) hire, or assist anyone else to hire, any employee of the Company
(or any subsidiary or joint venture of the Company), or seek to persuade,
or assist anyone else to seek to persuade, any employee of the Company (or
any subsidiary or joint venture of the Company), to discontinue employment
with the Company (or any subsidiary or joint venture of the Company);
(c) induce or attempt to induce, or assist anyone else to induce or
attempt to induce, any customer of the Company (or any subsidiary or joint
venture of the Company), to discontinue its business with the Company (or
with any subsidiary or joint venture of the Company), or disclose to anyone
else any confidential information relating to the identities, preferences,
and/or requirements of any such customer; or
(d) engage in any other conduct inimical, contrary or harmful to the
interests of the Company (or any subsidiary or joint venture of the
Company), including, but not limited to, conduct related to your
employment, or violation of any Company policy.
In the event of a breach or threatened breach of this Paragraph 7 the Company
shall be entitled, in addition to any other legal or equitable remedies it may
have, to temporary, preliminary and permanent injunctive relief restraining such
breach or threatened breach. You hereby expressly acknowledge that the harm
which might result as a result of any noncompliance by you would be largely
irreparable, and you agree that if there is a question as to the enforceability
of any of the provisions of this Agreement, you will abide by the Agreement
until after the question has been resolved by a final judgment of a court of
competent jurisdiction.
8. Choice of Law. This Agreement shall be construed and administered in
accordance with the laws of the State of Missouri without regard to the
principles of conflicts of law which might otherwise apply. Any litigation
concerning any aspect of this Agreement shall be conducted in the State or
Federal Courts in the State of Missouri.
9. Amendment. The Award may be amended by written consent between the Company
and you.
Executed this ------- day of----------, 20----.
ESCO TECHNOLOGIES INC. AGREED TO AND ACCEPTED:
By: --------------- --------------
Vice President Participant
Attest: -------------
Secretary