<PAGE> 1
NOTICE OF THE ANNUAL MEETING OF
THE SHAREHOLDERS OF
ENGINEERED SUPPORT SYSTEMS, INC.
St. Louis, Missouri
February 11, 1996
TO: THE SHAREHOLDERS OF ENGINEERED SUPPORT SYSTEMS, INC.
The Annual Meeting of Shareholders of Engineered Support Systems, Inc. will
be held at the offices of Engineered Support Systems, Inc., ("Company")
1270 North Price Road, St. Louis, Missouri 63132, on Wednesday, March 6,
1996 at 10:00 a.m. for the purpose of considering and voting upon the
following matters:
1. The election of three (3) directors to hold office for three (3) years;
and,
2. To transact such other business, if any, as lawfully may be brought
before the meeting, or any adjournment thereof.
A proxy statement, proxy, and a copy of the Company's Annual Report for the
year ended October 31, 1995, accompany this Notice of the Annual Meeting of
the Shareholders.
We encourage all shareholders to attend the 1996 Annual Meeting of
Shareholders at the offices of the Company. If you plan to attend, for
security purposes, you must notify the Corporate Secretary of your intent
to do so by Friday, March 1, 1996.
Engineered Support Systems, Inc.
/s/ Michael F. Shanahan, Sr.
By Michael F. Shanahan, Sr.
Chairman and Chief Executive Officer
/s/ Gary C. Gerhardt
Gary C. Gerhardt
Secretary
Even though you may plan to attend the meeting in person, please execute
the enclosed proxy and mail it promptly. A return envelope which does not
require postage, if mailed in the United States, is enclosed for your
convenience.
<PAGE> 2
ENGINEERED SUPPORT SYSTEMS, INC.
1270 North Price Road
St. Louis, Missouri, 63132
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF THE SHAREHOLDERS
TO BE HELD ON MARCH 6, 1996
------------------------------------
This proxy statement, which is being mailed to Shareholders on, or about,
February 11, 1996, is provided in conjunction with the solicitation of
proxies by the Board of Directors of Engineered Support Systems, Inc.
("ESSI" or "Company") for use at the 1996 Annual Meeting of the
Shareholders of the Company to be held on March 6, 1996, at 10:00 a.m., at
the offices of the Company, 1270 North Price Road, St. Louis, Missouri,
63132. The Notice of Meeting, the proxy, and the Annual Report are
enclosed in this package. The proxy should be returned by March 5, 1996,
in the self-addressed, postage prepaid, envelope that is also enclosed.
PROXY
-----
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company to be used at the 1996 Annual Meeting of the
Shareholders.
The shares represented by each executed proxy enclosed will be voted at the
meeting in accordance with the instructions contained in the proxy subject
to the conditions hereinafter set forth. In the event the Company receives
an executed proxy that contains no instructions, the proxy shall be voted
in accordance with the Board of Directors' recommendations as follows:
1. "FOR" the election of three (3) directors to hold office for three (3)
years; and,
2. At the discretion of those individuals named in the enclosed proxy, on
any other matter that may lawfully be brought before the meeting or any
adjournment thereof.
The Company will pay the reasonable expenses associated with its
solicitation of the proxies for the meeting. These expenses include the
cost of preparing, assembling, and mailing the notice of the Annual Meeting
of the Shareholders, the proxy, the proxy statement, the return envelopes,
the cost of handling and tabulating the number of proxies received, and,
the reasonable fees that brokerage houses, other institutions, nominees, or
fiduciaries customarily charge to forward the aforementioned material to
the beneficial owners.
<PAGE> 3
RIGHT OF REVOCATION
-------------------
Any Shareholder executing a proxy for the meeting may revoke the proxy by
written notice of revocation delivered or mailed to the Secretary of the
Company at 1270 North Price Road, St. Louis, Missouri, 63132, prior to the
time the proxy is voted.
VOTING RIGHTS
-------------
The Shareholders of record at the close of business on January 31, 1996,
are entitled to vote at the 1996 Annual Meeting of the Shareholders.
Proxies properly executed by the Company's Shareholders of record on
January 31, 1996 will be voted as specified on the proxy and will be voted
on all business to be voted upon at the Annual Meeting of the Shareholders
and any adjournment thereof. Generally, each share is entitled to one vote.
However, with the election of directors, each Shareholder has the right to
cast as many total cumulative votes that equals the number of shares held
by that Shareholder multiplied by the number of directors to be elected.
Each shareholder may also cast the whole number of votes for each nominee
or distribute them among some or all nominees. If authority is withheld to
vote for an individual nominee on the proxy, the total cumulative votes
will be allocated equally among the remaining nominees. As of January 31,
1996, there were 2,986,126 shares of common stock outstanding and entitled
to vote.
BENEFICIAL OWNERSHIP OF COMMON STOCK OF THE COMPANY
---------------------------------------------------
The table below sets forth the number of shares of common stock (the only
class of outstanding securities of the Company) known by the Company to be
beneficially owned by the officers and directors of the Company as a group,
and each five percent (5%) Shareholder as of January 31, 1996. Except as
otherwise indicated in the footnotes to the table, the individuals listed
in the table possess sole voting and investment power with respect to the
shares opposite their name.
<TABLE>
<CAPTION>
Name of Beneficial Owner Shares of Common Stock Percentage of Shares
or Identity of Group Beneficially Owned Outstanding(1)
- ------------------------ ---------------------- --------------------
<S> <C> <C>
Michael F. Shanahan Sr. (2) 954,046 28.5%
1270 N. Price Road
St. Louis, Mo. 63132
(Business Address)
All officers and directors as a 1,322,408 39.5%
group (14 individuals including
Mr. Shanahan, Sr.) (3)
- --------------------------------
</TABLE>
<PAGE> 4
(1) For purposes of this table, the calculation of the Percentage of Shares
Outstanding is based on the number of shares of common stock outstanding as
of January 31, 1996 as increased by the assumed exercise of all of the
360,312 outstanding options.
(2) Mr. Shanahan holds substantially all of these shares as nominee of the
Michael F. Shanahan, Sr. First Amended and Restated Revocable Living Trust
dated August 10, 1990. This Trust may be revoked by Mr. Shanahan at any
time prior to his death and Mr. Shanahan has all rights to vote, sell, and
otherwise dispose of the stock.
(3) Includes options granted to certain key employees and directors of the
Company as well as those shares allocated to the officers and directors
under the Engineered Air Systems, Inc. Employee Stock Ownership Plan.
PROPOSAL ONE
ELECTION OF DIRECTORS
---------------------
The By-laws of the Company provide for staggered terms for the directors.
The election of the directors for staggered terms maintains management
continuity, discourages undesirable mergers, unwanted tender offers,
unwelcome proxy contests, and the ill-favored exertion of control by a
large block of common stock.
The nominees, W. Raymond Barrett, Thomas J. Guilfoil, and Alexander M.
Cornwell, are each proposed to be elected at the Annual Meeting of the
Shareholders on March 6, 1996, for a three (3) year term that will expire
in March of 1999. The shares of common stock represented by properly
executed proxies will be voted for the nominees. All nominees have
consented to be named and serve, if elected. If any nominee is unable to
serve (which management has no reason to expect) the individuals named in
the proxy intend to vote for the balance of those named and for a
substitute nominee, if management recommends a vote for the substitute
nominee.
THE BOARD RECOMMENDS THE SHAREHOLDERS VOTE "FOR" THE THREE (3) NOMINEES
TO THE BOARD.
- -----------------------------------------------------------------------
The following table sets forth the principal occupation, the year in which
their current term ends, the year in which they were first elected a
director, the number of shares of common stock they beneficially owned as
of January 31, 1996, the percent of the total shares outstanding which
they own, and the age of each director and nominee.
<PAGE> 5
<TABLE>
<CAPTION>
Current Percentage
Name and Principal Term First Stock Beneficially of Shares(1)
Occupation or Employment Ends Term Owned as of 01/31/96 Outstanding Age
- -------------------------------- -------- -------- -------------------- ------------ ---
<S> <C> <C> <C> <C> <C>
Michael F. Shanahan, Sr. March December 954,046 28.5% 56
Chairman of the Board, President 1997 1983
and Chief Executive Officer
ESSI; Chairman, Engineered
Air Systems, Inc. ("EASI");
Chairman, Engineered Specialty
Plastics, Inc. ("ESP")
John J. Wichlenski March March 66,740 2.0% 52
President and Chief 1998 1992
Executive Officer
EASI
W. Raymond Barrett March December 12,125 (2) 63
President, 1996 1984
Bio-Medical Systems, Inc.
LTG Kenneth E. Lewi March March 12,300 (2) 65
U.S. Army, Retired 1998 1992
Earl W. Wims, Ph.D. March March 10,500 (2) 56
Chairman 1998 1992
Marketing Horizons, Inc.
Thomas J. Guilfoil March March 64,500 1.9% 76
Attorney at Law 1996 1993
Guilfoil, Petzall & Shoemake
Alexander M. Cornwell March March 4,500 (2) 69
President, Cornwell 1996 1993
Consulting
John J. Quinn March May 6,500 (2) 58
President, 1997 1993
St. Louis Blues Hockey
Club, L.P.
Michael F. Shanahan, Jr.(3) March December 44,015 1.3% 29
Producer 1997 1994
Lockton Companies
- ----------------------------
</TABLE>
(1) See footnote (1) to Beneficial Ownership of Common Stock of the Company
table.
<PAGE> 6
(2) The percentage of shares is less than one percent (1%).
(3) The board appointed Michael F. Shanahan, Jr. to serve the remaining
term of former director Jerome V. LaBarbera on December 15, 1994.
Michael F. Shanahan, Sr. has been a Director of both ESSI and Engineered
Air Systems, Inc. ("EASI") since their formation. Mr. Shanahan was elected
Chairman of the Board of ESSI and EASI in July of 1987. He has served as
Chief Executive Officer of ESSI since 1985. Mr. Shanahan is also the
Chairman of ESSI's commercial subsidiary, Engineered Specialty Plastics,
Inc. ("ESP").
John J. Wichlenski has been President and Chief Executive Officer of EASI
since July, 1992. He served as EASI's Executive Vice President from March,
1990 to July, 1992 and as Group Vice President of Operations from March,
1988 to March, 1990. Mr. Wichlenski joined EASI as the Vice President of
Engineering in August, 1986.
W. Raymond Barrett has been the President and principal shareholder of
Bio-Medical Systems, Inc., a manufacturer of medical monitoring equipment,
since January, 1975. W. Raymond Barrett is the brother-in-law of Mr.
Shanahan.
Alexander M. Cornwell, Jr. is a licensed professional engineer. Mr.
Cornwell was the Chairman and Chief Executive Officer of Street Industries,
Inc. of St. Louis, from 1985 through 1988. Mr. Cornwell has extensive
experience with respect to the overall operation and management of
manufacturing concerns dating back to 1950. Mr. Cornwell has provided
consulting services to ESSI and EASI since 1988.
Thomas J. Guilfoil is the Senior and Founding Partner of the St. Louis law
firm, Guilfoil, Petzall & Shoemake. Mr. Guilfoil's distinguished legal
career of over 50 years began in St. Louis in 1941.
LTG Kenneth E. Lewi (U.S. Army, Retired) served in the United States Army
for more than 34 years until his retirement in August of 1989. General
Lewi performs consulting services for various individuals and entities
including ESSI and its subsidiaries.
Earl W. Wims, Ph.D., has been Chairman of Marketing Horizons, Inc., a
marketing research and consulting firm, since 1986.
John J. Quinn has served as President of the St. Louis Blues Hockey Club,
L.P. since 1983. Mr. Quinn has over 30 years experience in the successful
marketing, management, and operation of professional sports teams.
Michael F. Shanahan, Jr. has been a producer for Lockton Companies, an
Insurance concern, since October, 1994. Prior thereto, he served as
Assistant to the Chairman of the Board of ESSI since 1991. Mr. Shanahan,
Jr. joined EASI in January, 1990, as a Marketing Representative.
<PAGE> 7
DIRECTOR MEETINGS AND COMMITTEES
--------------------------------
During the fiscal year ended October 31, 1995, the Board of Directors of
the Company met five (5) times. The Board presently has three committees,
the Executive Committee, the Compensation Committee, and the Audit
Committee.
The Executive Committee for fiscal year 1995 was Michael F. Shanahan, Sr.,
W. Raymond Barrett, John J. Wichlenski, and Michael F. Shanahan, Jr. The
principal function of the Executive Committee is to execute all the
authority and power of the full Board of Directors in the management and
operation of the Company and to act on behalf of the Board between regular
meetings of the Board of Directors. The Executive Committee met on several
occasions, as needed, throughout the course of fiscal year 1995.
The Audit Committee for fiscal year 1995 was LTG Kenneth E. Lewi, W.
Raymond Barrett, and Earl W. Wims, Ph.D. The Audit Committee met twice
during fiscal year 1995 with representatives of the Company and
representatives of the Company's independent accountants. The function of
the Audit Committee is to: review, from time to time, the financial
statements of the Company; meet, together and separately, with management
of the Company and its independent accountants to discuss the financial
statements and general accounting policies of the Company; and, review the
management letter issued by the independent accountants and the Company's
responses thereto.
The Compensation Committee for fiscal year 1995 was Thomas, J. Guilfoil,
John J. Quinn, Alexander M. Cornwell, and Michael F. Shanahan, Jr. The
purpose of the Compensation Committee is to review and approve the
Company's and its subsidiaries' compensation policies and arrangements as
well as to administrate the Company's stock option plans. Members of the
Compensation Committee are restricted from voting on matters which affect
them. The Compensation Committee met twice during fiscal year 1995.
DIRECTORS FEES
--------------
Directors who are not full-time employees of the Company are paid $500 for
each meeting of the Board of Directors or of committees for which they
attend, and $250 per month during their term. The outside directors are
also reimbursed for expenses incurred in attending such meetings.
AFFILIATION OF DIRECTORS
------------------------
The Company has a consulting agreement with LTG Kenneth E. Lewi (U.S. Army,
Retired) that may be terminated upon thirty (30) days written notice by
either party. LTG Lewi received $12,000 pursuant to this agreement during
the year ended October 31, 1995.
The Company has a consulting agreement with Michael F. Shanahan, Jr. that
may be terminated upon ninety (90) days written notice. This agreement
provides for payments of $2,000 per month and expires in March, 1997.
<PAGE> 8
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
------------------------------------
The following report is provided by the Compensation Committee of the Board
of Directors. The Committee supervises the Company's Executive
Compensation Program ("Program") and is directly responsible for
compensation actions affecting the Chairman and Chief Executive Officer,
and other executive officers of the Company. The Committee, which consists
entirely of non-employee directors, met twice in fiscal year 1995.
Executive Compensation Philosophy
- ---------------------------------
The Program is designed and administered to relate executive compensation
to the four basic objectives of competitive position, Company performance,
Shareholder return, and individual performance. With respect to competitive
position, the Program is designed to pay competitive compensation so the
Company can attract and retain highly qualified executives. To assist in
determining competitive compensation practices, the Committee frequently
utilizes information about other companies' compensation levels, including
information provided by qualified independent consultants.
The Program is designed to reflect overall Company performance in
determining compensation levels and compensation changes. The Committee
considers the Company's overall performance in meeting both short-term and
long-term objectives. The Committee considers achievement of operating
objectives in areas such as contract backlog, earnings, and cash management
as well as progress towards long term strategic objectives. With respect
to Shareholder return, the Program is designed to establish a direct link
between the interests of the Company's executives and its Shareholders.
This is accomplished by allocating a portion of executive compensation to
performance based equity compensation. The Committee also considers the
executive's performance and contribution to the Company's results in
determining appropriate compensation levels.
The Executive Compensation Program
- ----------------------------------
To achieve its objectives, the Program consists of three basic elements,
base salary, incentive cash compensation, and performance equity
compensation. Base salaries are reviewed annually. Salary changes reflect
overall Company performance, pay competitiveness, and the individual's
performance.
A substantial portion of each executive's annual cash compensation is tied
to Company performance through the Company's Executive Incentive Plan
("Plan"), an annual incentive cash compensation plan which was amended by
the Board of Directors, effective November 1, 1993. The aims of the Plan
are: focusing attention of personnel on profits and the continuing growth
of the Company; increasing efficiency, lowering costs, and enhancing
profits; encouraging teamwork throughout the organization in the
achievement of a common task; encouraging continuity of management thinking
and action over the years; and, improving the Company's ability to attract
and retain competent personnel.
<PAGE> 9
Under the Plan, a yearly Incentive Plan Pool is created and distributed in
accordance with a Bonus Plan. The Bonus Plan is based on successful
financial performance by the Company and its subsidiaries, Engineered Air
Systems, Incorporated ("EASI") and Engineered Specialty Plastics,
Incorporated ("ESP"). The Bonus Plan is based on a combination of Company's
and the earnings of the business in which the individual employee is
employed. Bonuses will only be paid if minimum earnings for both the
Company and the participant's subsidiary are achieved.
The Incentive Plan Pool is allocated among the Participants of the Plan
according to a formula which splits aggregate incentive compensation into
two components: fixed and discretionary. The fixed portion is allocated to
the Plan Participant's Incentive Account according to the achievement of
designated earnings per share benchmarks. The discretionary portion is
allotted to the Compensation Committee of Board of Directors for allocation
to individual Participants as merited by their performance.
Consistent with the Plan, the Committee determines the annual Incentive
Compensation payment for each executive at the end of each fiscal year on
the basis of the Company's performance in key areas such as earnings,
contract backlog, and cash management. The Committee also considers the
executive's individual contribution to the Company's performance and the
executive's contribution to the Company's progress towards the Company's
long term strategic objectives. Even though based on objective measures,
a proportion of the Incentive Compensation payment is subjective in that a
proportion of the amount is left to the discretion of the Compensation
Committee.
To ensure that management's interests are directly tied to Shareholder
return, a substantial portion of executive total compensation is provided
by equity compensation. To place emphasis on Shareholder return, the
Company, pursuant to Shareholder approval, adopted the 1985, 1987, 1990,
1991, 1992, and 1993 Stock Option Plans ("Option Plans"). As of October
31, 1995, there were 540,637 options reserved for issuance under the Option
Plans. All options granted, to date, have been awarded or reissued at an
exercise price equal to the fair market value of the stock on either the
date of the award or reissue. The Option Plans are administered by the
Compensation Committee and option awards are either made subjectively based
upon the evaluations of the Company's performance in key areas such as
earnings, contract backlog, and cash management, or as an incentive to
promote Shareholder return by raising stock price from a specified level.
The Committee also considers the executive's contribution to the Company's
progress towards long term strategic objectives in the award of stock
options.
Fiscal Year 1995 Executive Officer Compensation
- ------------------------------------------------
In determining the fiscal year compensation for the executive officers, the
Committee considered information in an executive compensation survey from a
nationally recognized independent consulting firm. The comparison
<PAGE> 10
companies in the compensation survey were selected on the basis of their
size, products, and markets served. With respect to base salary, bonus,
and total compensation, the Chairman and Chief Executive Officer's and the
other executives officers' compensation was significantly below the median
levels for the chairman and chief executive officers and other executive
officers in the comparable group of companies.
In determining the fiscal year 1995 Performance Compensation payments for
the Chief Executive Officer and the other executive officers, the Committee
considered the Company's operating performance and return to Shareholders.
On a per share basis, fiscal year 1995 net income, net revenues, and book
value increased 257%, 24%, and 21%, respectively, over fiscal year 1994.
Share price also increased sixty-two and one half perent (62.5%) from
$4.00 per share on October 31, 1994 to $6.50 per share on October 31, 1995.
In addition to financing $0.9 million of capital expenditures, the Company
was also able to reduce long term debt by $1.1 million and was able to
purchase $1.0 million of treasury shares with internally generated funds.
Engineered Air System's funded backlog of defense orders increased to $90
million as of October 31, 1995 compared with $78 million on October 31,
1994. Moreover, new orders for Engineered Air Systems in fiscal year 1995
totaled $55 million, a 40% increase over average annual bookings for the
preceding 5 year period. The Company's gross margin for fiscal year 1995
improved to 16.4% from 14.4% in fiscal year 1994 and general and
administrative expense, as a percentage of net revenues, also decreased by
2% from fiscal year 1994.
Based on the subjective evaluation of the above factors, the Committee
approved the base annual salary of $212,100 and an Executive Incentive
Plan payment of $250,000 for the Chairman and Chief Executive Officer of
the Company which resulted in fiscal year 1995 total cash compensation at
a level comparable to the median levels for the chairman and chief
executive officers of the comparable companies in 1995. Based on the
subjective evaluation of the above factors, the Committee approved the
base annual salary of $133,100 and an Executive Incentive Plan payment of
$50,000 for the President and Chief Executive Officer of Engineered Air
Systems, Inc. which resulted in fiscal year 1995 total cash compensation
at a level that was comparable to median levels for the president and
chief executive officers of the comparable companies in 1995.
Based on the subjective evaluation of the above factors, the Committee
approved the base annual salary of $102,800 and an Executive Incentive Plan
payment of $3,000 for the President and Chief Executive Officer of
Engineered Specialty Plastics, Inc. which resulted in fiscal year 1995
total cash compensation at a level that was comparable to median levels for
the president and chief executive officers of the comparable companies in
1995. Based on the subjective evaluation of the above factors, the
Committee approved the base annual salary of $83,533 and an Executive
Incentive Plan payment of $27,500 for the Executive Vice President and
Chief Financial Officer of Engineered Support Systems, Inc. which resulted
in fiscal year 1995 total cash compensation at a level that was comparable
<PAGE> 11
to median levels for the executive vice presidents and chief financial
officers of the comparable companies in 1995. The Committee also awarded
10,000, 5,000, 5,000, and 5,000 executive options under Option Plans to Mr.
Shanahan, Mr. Wichlenski, Mr. Bright and Mr. Gerhardt, respectively.
The Company does have employment agreements with its Chairman and Chief
Executive Officer and its President and Chief Executive Officer of EASI,
its President and Chief Executive Officer of ESP and the Executive Vice
President and Chief Financial Officer. These Employment Agreements are
discussed in detail in the next section of this proxy statement.
Summary
- -------
Through the design and management of the Executive Compensation Program, as
described above, the Committee believes total compensation of the Company's
executives is linked directly to Company performance, individual
performance, and Shareholder return. The Committee will continue to
emphasize performance based and stock based compensation that is consistent
with individual performance and that links management and Shareholder
interests. We conclude that the Company's performance, Mr. Shanahan's
performance, and the competitive market warrant the compensation package
approved for Mr. Shanahan and the other executive officers.
The Compensation Committee
Thomas, J. Guilfoil, Chairman
John J. Quinn
Alexander M. Cornwell, Jr.
Michael F. Shanahan, Jr.
<PAGE> 12
EMPLOYMENT AGREEMENTS
---------------------
ESSI and its subsidiaries, EASI and ESP, have entered into employment
agreements with certain of its executive officers. The following represents
a summary of the terms and conditions of those agreements with the Chairman
and Chief Executive Officer of ESSI, the President and Chief Executive
Officer of EASI, the President and Chief Executive Officer of ESP, and the
Executive Vice President and Chief Financial Officer of ESSI.
Chairman of the Board and Chief Executive Officer The employment agreement
with Michael F. Shanahan, Sr. was executed on November 1, 1989 and is for a
term of five (5) years. Unless terminated by either party upon thirty (30)
days prior written notice or for cause upon seven days notice, this
employment agreement continues on a year-to-year basis. On November 1,
1995 the employment agreement was continued for three (3) years. The
current base salary under this agreement is $356,600.
If the agreement is terminated by ESSI for other than cause, Mr. Shanahan
is entitled to termination pay equal to twice his total annual compensation
for the fiscal year of the Company ending immediately prior to the date of
termination, payable in 24 equal monthly payments. The employment agreement
prohibits Mr. Shanahan from competing with the Company for a period of one
year after termination of his employment. The employment agreement further
provides that he shall be entitled to a bonus in accordance with the terms
and conditions of a bonus plan which is based on the net income per share
of ESSI.
The Company entered into a split dollar life insurance agreement with the
Michael F. Shanahan, Sr. Irrevocable Life Insurance Trust. Under this
arrangement, the Company will continue to make annual premium payments for
Mr. Shanahan, but the Company will be reimbursed for premiums paid out of
the cash surrender value in the event such policies are surrendered or out
of the proceeds at death. As provided for by the insurance policy, the
Company can and has borrowed funds against the cash surrender value. The
life insurance trust is the owner and beneficiary of the policy, subject to
the assignment of proceeds and the cash surrender value to the Company to
reimburse the Company for the premiums paid by it. The Company has agreed
to keep such policies in existence during the tenure of the employment
agreement which provides that a life insurance policy must be maintained in
full force and effect during the term of the agreement.
The employment agreement provides that ESSI will pay Mr. Shanahan the cost
of membership in clubs and reimbursement for other expenses on behalf of
the ESSI and its subsidiaries.
The employment agreement also provides for deferred compensation to be paid
in the event of the retirement, disability, or death of Mr. Shanahan. For
disability, the benefit is $12,000 per month for a maximum of sixty (60)
consecutive months. For retirement or death, the benefit is $12,000 per
month for twenty-four (24) months. Although Mr. Shanahan may vote on such
employment agreement upon the recommendation of the Compensation Committee,
he has abstained from voting on such matters.
<PAGE> 13
President and Chief Executive Officer of EASI Under the terms of John J.
Wichlenski's employment agreement with EASI, effective November 1, 1995,
Mr. Wichlenski is paid a base annual salary of $131,600. Under the terms of
the ESSI Amended and Restated Executive Incentive Plan, Mr. Wichlenski also
receives a bonus that is based upon ESSI's and EASI's profitability. Mr.
Wichlenski has also been granted a club membership and he is reimbursed for
expenses associated with performing his duties on behalf of the Company and
EASI.
President and Chief Executive Officer of ESP Under the terms of Harvey W.
Bright's employment agreement with ESP, effective August 1, 1995, Mr. Bright
is paid a base annual salary of $100,000. Under the terms of the ESSI
Amended and Restated Executive Incentive Plan, Mr. Bright also receives a
bonus that is based upon ESSI's and ESP's profitability. Mr. Bright has
also been granted a club membership and he is reimbursed for expenses
associated with performing his duties on behalf of the Company and ESP.
Executive Vice President and Chief Financial Officer of ESSI Under the
terms of Gary C. Gerhardt's employment agreement with ESSI, effective
August 1, 1995, Mr. Gerhardt is paid a base annual salary of $85,400.
Under the terms of the ESSI Amended and Restated Executive Incentive Plan,
Mr. Gerhardt also receives a bonus that is based upon ESSI's and EASI's
profitability. Mr. Gerhardt is reimbursed for expenses associated with
performing his duties on behalf of the Company.
<PAGE> 14
PERFORMANCE GRAPH
-----------------
The following graph compares the annual percentage change in the Company's
cumulative total Shareholder return on its common stock with (i) the
cumulative total return on the S&P 500 composite index and with (ii) the
cumulative total return of the S&P Manufacturing (Diversified Industry)
index for the period October 31, 1990 through October 31, 1995.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE
RETURN AMONG ENGINEERED SUPPORT SYSTEMS, INC.,
S&P 500 INDEX AND S&P MANUFACTURING
(DIVERSIFIED INDUSTRY) INDEX
-----------------------------------------------
<CAPTION>
S&P
Manufacturing
Engineered (Diversified
Measurement Period Support S&P Industry)
(Fiscal Year Covered) Systems, Inc. 500 Index Index
- --------------------- ------------- --------- -------------
<S> <C> <C> <C>
Measurement Pt 10/31/90 $100 $100 $100
FYE 10/31/91 $40 $133 $141
FYE 10/31/92 $35 $147 $154
FYE 10/31/93 $85 $169 $186
FYE 10/31/94 $94 $175 $205
FYE 10/31/95 $153 $222 $259
</TABLE>
<PAGE> 15
EXECUTIVE COMPENSATION
----------------------
<TABLE>
The following table sets forth the compensation for the Company's Chief
Executive Officer and all other Executives whose compensation in 1995
exceeded $100,000:
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------
Annual Compensation Long-term Compensation
----------------------------- -----------------------------
Awards Payouts
--------------------- -------
LTIP
Salary Other annual Restricted Number of payouts All other
Name and principal Position Year (1) Bonus Compensation Stock Award options (2) Compensation
- --------------------------- ---- -------- -------- ------------ ----------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael F. Shanahan, Sr. 1995 $212,100 $250,000 $0 $0 10,000 $0 $25,100(3)
Chairman of the Board, 1994 $186,400 $0 $0 $0 0 $0 $24,200
President, and Chief 1993 $180,000 $35,000 $0 $0 27,000 $0 $25,900
Executive Officer (ESSI)
John J. Wichlenski 1995 $133,100 $50,000 $0 $0 5,000 $0 $ 5,000(4)
President and Chief 1994 $118,000 $12,000 $0 $0 0 $0 $ 2,800
Executive Officer (EASI) 1993 $118,000 $25,000 $0 $0 20,000 $0 $ 4,200
Harvey W. Bright 1995 $102,800 $3,000 $0 $0 5,000 $0 $ 1,800(5)
President and Chief 1994 -- -- -- -- -- -- --
Executive Officer (ESP)(7) 1993 -- -- -- -- -- -- --
Gary C. Gerhardt 1995 $83,533 $27,500 $0 $0 5,000 $0 $ 2,200(6)
Executive Vice President 1994 -- -- -- -- -- -- --
and Chief Financial 1993 -- -- -- -- -- -- --
Officer (ESSI)(7)
</TABLE>
(1) This amount includes base salary, expenses, and automobile
reimbursement allowances. Mr. Shanahan's expenses for fiscal year 1995
were $19,200. Mr. Wichlenski's expenses for fiscal year 1995 were $8,600.
Mr. Bright's and Mr. Gerhardt's expenses for fiscal year 1995 were $3,600
each.
(2) There were no long-term incentive plan awards granted during the three
year period ending October 31, 1995.
(3) This amount includes $14,000 accrued pursuant to Mr. Shanahan's
employment agreement which provides for deferred compensation to be paid
in the event of retirement, disability, or death; $8,200 pursuant to the
<PAGE> 16
benefit of life insurance premiums paid by the Company; and, $2,900
pursuant to the Engineered Support Systems, Inc. Employee Stock Ownership
Plan.
(4) This amount includes $1,100 pursuant to the benefit of life insurance
premiums paid by the Company and $3,900 pursuant to the Engineered Support
Systems, Inc. Employee Stock Ownership Plan.
(5) This amount includes $700 pursuant to the benefit of life insurance
premiums paid by the Company and $1,100 pursuant to the Engineered Support
Systems, Inc. Employee Stock Ownership Plan.
(6) This amount includes $700 pursuant to the benefit of life insurance
premiums paid by the Company and $1,500 pursuant to the Engineered Support
Systems, Inc. Employee Stock Ownership Plan.
(7) Compensation for Mr. Bright and Mr. Gerhardt are not presented for 1994
and 1993 because the SEC's criteria for inclusion were not met.
<PAGE> 17
EMPLOYEE EQUITY PLANS
---------------------
The Company has reserved 540,637 shares of common stock for issuance under
six (6) stock option plans adopted in 1985, 1987, 1990, 1991, 1992, and
1993, respectively ("option plans"). The option plans provide for the
award of stock options and stock bonuses to employees and non-employee
directors of the Company. The option plans are administered by the
Compensation Committee of the Board of Directors. The Compensation
Committee has the authority, subject to the terms of the option plans, to
determine optionees and the number of shares subject to each option granted.
Subject to continuation of employment, options granted under the option
plans must be exercised by the optionee within five (5) years from the date
of grant. The exercise price for options granted on, or after, August 21,
1985 is equal to the fair market value of the common stock at the date of
grant. As of October 31, 1995, fifty-five (55) employees and directors
held options under these plans.
The following tables show, as to executive officers previously listed, the
options granted, aggregate options exercised, and option values during the
fiscal year ended October 31, 1995.
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
- --------------------------------------
Individual Grants
--------------------------------------------
Percent of Potential Realizable value at
total assumed annual rates of
options stock price appreciation
granted to for option term
employees Exercise -----------------------------
Options in fiscal price per Expiration 5% assumed 10% assumed
granted year share date rate rate
------- ---------- --------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Shanahan, Sr. 10,000 19.8% $4.25 3/8/00 $11,700 $25,900
John J. Wichlenski 5,000 9.9% $4.25 3/8/00 $5,800 $12,900
Harvey W. Bright 5,000 9.9% $4.25 3/8/00 $5,800 $12,900
Gary C. Gerhardt 5,000 9.9% $4.25 3/8/00 $5,800 $12,900
</TABLE>
Note: No stock appreciation rights have ever been granted by the Company.
<PAGE> 18
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR
END OPTIONS/SAR VALUES
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Value of
Number of unexercised
Number options options
of shares at 10/31/95 at 10/31/95
acquired on Value exercisable/ exercisable/
Name exercise realized unexercisable unexercisable
- ------------------------ ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Michael F. Shanahan, Sr. 0 $0 44,500/0 $160,400/$0
John J. Wichlenski 10,000 $49,400 47,000/0 $198,900/$0
Harvey W. Bright 0 $0 14,500/0 $ 51,900/$0
Gary C. Gerhardt 0 $0 23,000/0 $ 91,700/$0
</TABLE>
Note: No stock appreciation rights have ever been granted by the Company.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------------
Price Waterhouse LLP, independent certified public accountants, have been
the auditors of the accounts of the Company since 1991, including the
fiscal year ended October 31, 1995. ESSI anticipates that representatives
of Price Waterhouse LLP will be present at the 1996 Annual Meeting of the
Shareholders and Price Waterhouse LLP will have the opportunity to make a
statement if they so desire at that time. Price Waterhouse LLP will also
be available to respond to appropriate questions raised at the 1996 Annual
Shareholders Meeting.
Price Waterhouse LLP has informed the Company that it does not have any
direct financial interest in the Company and that it has not had any direct
connection with the Company as either a promoter, an underwriter, a
director, an officer, or an employee.
As is customary, accountants for the current fiscal year will, upon the
recommendation of the Audit Committee, be appointed by the Board of
Directors at their meeting immediately following the Annual Meeting of the
Shareholders.
<PAGE> 19
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
---------------------------------------------
Shareholder proposals intended to be presented at the 1997 Annual Meeting
of the Shareholders must be received by the Company no later that October
31, 1996 for inclusion in the Company's proxy statement and proxy for that
meeting. The proposals should be submitted to the Company at 1270 North
Price Road, St. Louis, MO, 63132, Attention: Corporate Secretary.
OTHER MATTERS
-------------
Other than the foregoing, the Board of Directors does not intend to bring
any other matter before the meeting and does not know of any matter which
anyone else proposes to present for action at the meeting. However, if any
other matters properly come before such meeting, the individuals named in
the accompanying proxy, or their duly qualified substitutes acting at the
meeting, will be deemed authorized to vote or otherwise act in accordance
with their judgment on such matters.
By Order of the Board of Directors
/s/ Gary C. Gerhardt
Gary C. Gerhardt, Secretary
Dated: February 11, 1996
Notice: Upon written request from any Shareholder of record on January 31,
1996 (or any beneficial owner representing that they are or were entitled
to vote at the 1996 Annual Meeting), the Company will furnish to such
Shareholder, without charge, its Annual Report on Form 10-K for the year
ended October 31, 1995 as filed with the Securities and Exchange Commission,
including financial statements. The Company may impose a reasonable fee
for its expense in connection with providing exhibits referred to in such
form 10-K, if the full text of such exhibits that are specifically
requested. Requests should be directed to: Investor Relations, Engineered
Support Systems, Inc., 1270 North Price Road, St. Louis, MO, 63132.
<PAGE> 1
(Detach Proxy Form Here)
- ------------------------------------------------------------------------------
PROXY ENGINEERED SUPPORT SYSTEMS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING OF SHAREHOLDERS MARCH 6, 1996
The undersigned hereby appoints Michael F. Shanahan, Sr. proxy, with full power
of substitution, to represent the undersigned at the annual meeting of
shareholders of Engineered Support Systems, Inc. to be held at the offices of
the Company, 1270 North Price Road, St. Louis, Missouri 63132 on Wednesday,
March 6, 1996, and at any adjournments thereof, on all matters coming before
said meeting.
You are encouraged to specify your choices by marking the appropriate boxes on
the REVERSE SIDE. The Proxy cannot vote your shares unless you sign and return
this card.
/ / Change of Address
/ / Attend meeting
DATE
--------------------------------------------------
SIGNATURE(S)
------------------------------------------
------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such.
See Reverse Side
<PAGE> 2
(Detach Proxy Form Here)
- ------------------------------------------------------------------------------
/X/ PLEASE MARK YOUR VOTES
AS IN THIS EXAMPLE.
1. Election of Directors for a term of three years. Nominees: W. Raymond
Barrett, Alexander M. Cornwell, Thomas J. Guilfoil.
FOR WITHHELD
/ / / / To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided. Your
total cumulative votes will be allocated equally among
the remaining nominees.
For, except vote withheld from the following nominee(s):
- ------------------------------------------------------------
(change of address)
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
(If you have written in the above space, please
mark the corresponding box on the reverse side
of this card.)
