<PAGE>
<PAGE>
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
/X/ Definitive Proxy Statement Commission Only (as permitted
/ / Definitive Additional Materials by Rule 14a-6(e)(2))
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
ENGINEERED SUPPORT SYSTEMS, INC.
(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:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
NOTICE OF THE ANNUAL MEETING OF
THE SHAREHOLDERS OF
ENGINEERED SUPPORT SYSTEMS, INC.
St. Louis, Missouri
February 1, 1999
TO: THE SHAREHOLDERS OF
ENGINEERED SUPPORT SYSTEMS, INC.
The Annual Meeting of the Shareholders of Engineered Support
Systems, Inc. will be held at the Ritz-Carlton, 100 Carondelet Plaza,
Clayton, Missouri 63105 on Monday, March 8, 1999 at 10:00 a.m., local
time, for the purpose of considering and voting upon the following
matters:
1. The election of two (2) 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, 1998, accompany this Notice of the Annual
Meeting of the Shareholders.
We encourage all Shareholders to attend the 1999 Annual Meeting at
the Ritz-Carlton, 100 Carondelet Plaza, Clayton, Missouri. For security
purposes, if you plan to attend, you must notify the Corporate Secretary
of your intent to do so by Friday, March 5, 1998.
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 IF YOU PLAN TO ATTEND THE MEETING, 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>
<PAGE>
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 8, 1999
--------------------------
THIS PROXY STATEMENT, WHICH IS BEING MAILED TO SHAREHOLDERS ON, OR ABOUT,
FEBRUARY 1, 1999, 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 1999 ANNUAL MEETING OF THE SHAREHOLDERS OF THE COMPANY TO BE HELD
ON MARCH 8, 1999, AT 10:00 A.M., LOCAL TIME, AT THE RITZ-CARLTON, 100 CARONDELET
PLAZA, CLAYTON, MISSOURI. THE NOTICE OF MEETING, THE PROXY, AND THE ANNUAL
REPORT ARE ENCLOSED IN THIS PACKAGE. THE PROXY SHOULD BE RETURNED BY MARCH 5,
1999, IN THE ENCLOSED SELF-ADDRESSED, POSTAGE PREPAID, ENVELOPE.
PROXY
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company to be used at the 1999 Annual Meeting of the
Shareholders.
The shares represented by each executed proxy 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 two (2) 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
which brokerage houses, other institutions, nominees, or fiduciaries customarily
charge to forward the aforementioned material to the beneficial owners.
RIGHT OF REVOCATION
Any Shareholder executing a proxy for the meeting may revoke the proxy by
written notice of revocation delivered or mailed to, and received by, 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 18, 1999, are
entitled to vote at the 1999 Annual Meeting of the Shareholders. Proxies
properly executed by the Company's Shareholders of record on January 18, 1999,
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 18, 1999, there were 4,847,602 shares of common stock
outstanding and entitled to vote.
2
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<PAGE>
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 18, 1999. 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<F1>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael F. Shanahan, Sr. 1,387,857<F2> 26.2%
1270 N. Price Road
St. Louis, MO 63132
(Business Address)
Fidelity Management & Research Company 305,750<F4> 5.8%
82 Devonshire Street
Boston, MA 02109
PIMCO Advisors L.P. 287,050<F5> 5.4%
800 Newport Center Drive
Newport Beach, CA 92660
All officers and directors as a 1,950,573<F3> 36.8%
Group (15 individuals including
Mr. Shanahan, Sr.)
<FN>
- ------------------
<F1> 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 18, 1999, as increased by the assumed exercise of all of the
459,300 outstanding options.
<F2> Mr. Shanahan holds 943,203 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. 74,654 shares are held by Mr. Shanahan in
the Engineered Support Systems, Inc. Employee Stock Ownership Plan over
which he has sole voting and dispositive power. 175,000 shares are held in
The Shanahan Family Voting Trust, dated December 11, 1998, over which Mary
Ann Shanahan, wife of Mr. Shanahan, has sole voting power. The remaining
195,000 shares relate to unexercised stock options held by Mr. Shanahan.
<F3> 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 Support Systems, Inc. Employee Stock Ownership Plan.
<F4> This amount, as reflected on Schedule 13F effective September 30, 1998,
consists of no sole or shared voting power, dispositive power with respect
to 305,750 shares and no shared dispositive power. Sole voting power for
305,750 resides with the Board of Trustees of the Fidelity Low Priced
Stock Fund.
<F5> This amount, as reflected on Schedule 13F effective September 30, 1998,
consists entirely of sole voting and dispositive power, with no shared
voting or dispositive power.
</TABLE>
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, MG George E. Friel and Thomas J. Guilfoil, are each proposed
to be elected at the Annual Meeting of the Shareholders on March 8, 1999, for a
three (3) year term that will expire in March, 2002. The shares of common stock
represented by properly executed proxies will be voted for the nominees. All
nominees have consented to be named and to 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 TWO (2) NOMINEES TO THE
BOARD.
3
<PAGE>
<PAGE>
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 18,
1999, the percent of the total shares outstanding which they own and the age of
each director and nominee.
<TABLE>
<CAPTION>
PERCENTAGE
CURRENT OF
NAME AND PRINCIPAL TERM FIRST STOCK BENEFICIALLY SHARES<F1>
OCCUPATION OR EMPLOYMENT ENDS ELECTED OWNED AS OF 1/18/99 OUTSTANDING AGE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael F. Shanahan, Sr. March December 1,387,857 26.2% 59
Chairman, President & Chief 2000 1983
Executive Officer, ESSI;
Chairman, EASI, KECO, MC and ESP
Gary C. Gerhardt March March 94,544 1.8% 53
Executive Vice President 2001 1998<F3>
and Chief Financial Officer,
ESSI, EASI, KECO, MC and ESP
R. Bruce Earls March March 15,000 <F2> 52
President and Chief 2001 1998<F3>
Executive Officer MC
John J. Wichlenski March March 118,106 2.2% 55
President and Chief 2001 1992
Executive Officer EASI
Alexander M. Cornwell March March 12,750 <F2> 72
President 1999 1993
Cornwell Consulting
MG George E. Friel March September 0 <F2> 56
U.S. Army, Retired 1999 1998<F4>
Thomas J. Guilfoil March March 84,000 1.6% 79
Attorney at Law 1999 1993
Guilfoil, Petzall & Shoemake
LTG Kenneth E. Lewi March March 23,250 <F2> 68
U.S. Army, Retired 2001 1992
Michael F. Shanahan, Jr. March December 78,852 1.5% 32
Producer 2000 1994
Lockton Companies
Earl E. Walker March March 8,250 <F2> 78
President 2000 1996
Carr Lane Manufacturing Company
Earl W. Wims, Ph.D. March March 21,750 <F2> 59
Chairman 2001 1992
Marketing Horizons, Inc.
<FN>
- ------------------
<F1> See footnote <F1> to Beneficial Ownership of Common Stock of the Company
table.
<F2> The percentage of shares is less than one percent (1%).
<F3> The board was expanded to eleven (11) members with the appointment of Gary
C. Gerhardt and R. Bruce Earls effective March 10, 1998.
<F4> The board appointed George E. Friel (U.S. Army, Retired) to serve the
remaining term of former director W. Raymond Barrett on September 17,
1998.
</TABLE>
4
<PAGE>
<PAGE>
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 in July 1987. He has served as Chief Executive Officer of
ESSI since 1985. Mr. Shanahan is also the Chairman of each of ESSI's
subsidiaries, EASI, Keco Industries, Inc. ("KECO"), Engineered Coil Company,
d/b/a Marlo Coil ("MC"), and Engineered Specialty Plastics, Inc. ("ESP").
Gary C. Gerhardt was named Executive Vice President of ESSI in December
1994. He has been Chief Financial Officer of the Company since October 1993.
Prior thereto, he was Vice President-Contract Administration of EASI since 1985.
Mr. Gerhardt joined EASI in 1982 as Manager of Contract Administration.
R. Bruce Earls has been President and Chief Executive Officer of MC since
September 1994. Prior thereto, he was Managing Partner of a KPMG Peat Marwick
Business Unit.
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.
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 provided consulting services to
ESSI and EASI since 1988.
MG George E. Friel (U.S. Army, Retired) served in the United States Army for
38 years until his retirement in July 1998. In the six years preceding his
retirement, Major General Friel headed the U.S. Army Chemical and Biological
Defense Command (CBDCOM). He performs consulting services for various entities
including ESSI and its subsidiaries.
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 34 years until his retirement in August 1989. His career in the U.S. Army
centered primarily on providing logistical support to U.S. armed forces. General
Lewi performs consulting services for various individuals and entities including
ESSI and its subsidiaries
Michael F. Shanahan, Jr. has been a producer for Lockton Companies, an
insurance concern, since October 1994. Prior thereto, he served as Assistant to
ESSI's Chairman since 1991. Mr. Shanahan, Jr. joined EASI in January 1990, as a
Marketing Representative.
Earl E. Walker has been President and principal shareholder of Carr Lane
Manufacturing Company since he founded the company in 1952. Carr Lane is a
worldwide manufacturer of tooling, jig, and fixture components.
Earl W. Wims, Ph.D., has been Chairman of Marketing Horizons, Inc., a
marketing research and consulting firm, since 1986. Dr. Wims is nationally
recognized for his work in market strategy and focus.
5
<PAGE>
<PAGE>
DIRECTOR MEETINGS AND COMMITTEES
During the fiscal year ended October 31, 1998, the Board of Directors of the
Company met five (5) times. The Board has three committees, Executive,
Compensation and Audit.
The Executive Committee for fiscal year 1998 was Michael F. Shanahan, Sr.,
Earl W. Wims, 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 1998.
The Audit Committee for fiscal year 1998 was Kenneth E. Lewi, George E.
Friel, Michael F. Shanahan, Jr., and Earl W. Wims. The Audit Committee met twice
during fiscal year 1998 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 1998 was Thomas J. Guilfoil, Earl
E. Walker, 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 that affect them. The Compensation Committee
met twice during fiscal year 1998.
DIRECTORS FEES
Directors who are not full-time employees of the Company are paid $500 for
each meeting of the Board or meeting of the committee on which they serve. They
are also paid $250 per month during their term. Outside directors are reimbursed
for expenses incurred in attending 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. This agreement provides for payments of $2,200 per month.
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 $2,200 per month.
The Company has a consulting agreement with MG George E. Friel (U.S. Army,
Retired) that may be terminated upon thirty (30) days written notice by either
party. This agreement provides for payments of $2,000 per month.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The following report is provided by the Compensation Committee. The
Committee supervises the Company's Executive Compensation Program ("Program")
and is directly responsible for compensation actions affecting the Chairman,
Chief Executive Officer, President, and other executive officers of the Company
and its subsidiaries. The Committee, which consists entirely of non-employee
directors, met twice in fiscal year 1998.
THE EXECUTIVE COMPENSATION PHILOSOPHY
The Program is designed and managed to link executive compensation to four
basic objectives: Company performance; Shareholder return; individual
performance; and, competitive position. With respect to competitive position,
the Program is designed to pay competitive compensation so the Company is able
to attract and retain highly qualified executives. In determining competitive
compensation practices, the Committee frequently utilizes
6
<PAGE>
<PAGE>
information about other companies' compensation levels, as well as information
from qualified compensation consultants.
The Program uses 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 the Company's operating achievements in typical performance measures
such as earnings, cash management, and contract backlog. The Committee also
considers the Company's progress towards long-term strategic objectives that
cannot be easily quantified.
The Program also links the interests of the Company's executives with the
interests of its Shareholders. This is accomplished by allocating a portion of
executive compensation to performance based equity compensation.
THE EXECUTIVE COMPENSATION PROGRAM
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 the Company's performance through the Company's Executive Incentive Plan
("Plan"). The Plan is an annual incentive cash compensation plan which was
implemented November 1, 1993. In fiscal year 1998, the Plan evolved with the
acquisitions of MC and KECO. While the Plan's magnitude and structure changed,
the aims of the Plan remained the same. Those aims are: focusing the attention
of personnel on profits; continuing Company growth; increasing efficiency;
lowering costs; enhancing profits; encouraging teamwork; encouraging the
continuity of management thinking; and, improving the Company's ability to
attract and retain competent personnel.
Consistent with the Plan, the Committee determines the annual Incentive
payment for each executive at the end of each fiscal year based on the Company's
performance in important 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 contributions to the Company's
progress towards long term strategic objectives. Certain executives do have
minimum payments under the Plan.
To ensure that management's interests are directly tied to Shareholder
return, a substantial portion of an executive's total compensation is equity
compensation. To place emphasis on Shareholder return, the Company, pursuant to
Shareholder approval, adopted various Stock Option Plans ("Option Plans"). As of
October 31, 1998, there were 869,038 options reserved for issuance under the
Option Plans. All options granted to date have been awarded 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 1998 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 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 executive officers'
compensation was at a level comparable to the 1998 median levels for those
similarly situated in the comparison companies.
In determining the fiscal year 1998 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
post-split per share basis, fiscal year 1998 net income, net revenues, and book
value increased 23%, 9%, and 9%, respectively, over fiscal year 1997. Share
price also increased twenty-one percent (21%) on a post-split basis from $12.25
per share on December 31, 1997 to $14.88 per share on December 31, 1998. The
Committee also considered the Company's successful acquisition activity in 1998
as well as each executive's contribution to the Company's performance.
7
<PAGE>
<PAGE>
Based on the subjective evaluation of the above factors, the Committee
approved the base annual salary of $388,800 and an Executive Incentive Plan
payment of $373,400 for ESSI's Chairman and Chief Executive Officer. Based on
the subjective evaluation of the above factors, the Committee also approved: the
base annual salary of $200,000 and an Executive Incentive Plan payment of
$100,000 for the President and Chief Executive Officer of EASI; the base annual
salary of $200,000 and an Executive Incentive Plan payment of $100,000 for the
Executive Vice President and Chief Financial Officer of ESSI; the base annual
salary (beginning February 1, 1998) of $200,000 and an Executive Incentive Plan
payment of $100,000 for the President and Chief Executive Officer of MC; and,
the base annual salary of $90,000 and an Executive Incentive Plan payment of
$45,000 for the Vice President and General Manager of ESP. The Committee also
awarded 150,000, 15,000, 15,000, 15,000, and 5,000 executive options under stock
option plans to Mr. Shanahan, Mr. Wichlenski, Mr. Gerhardt, Mr. Earls, and Mr.
Capeless, respectively.
The Company does have employment agreements with its Chairman and Chief
Executive Officer, the President and Chief Executive Officer of EASI, the
Executive Vice President and Chief Financial Officer of ESSI, the President and
Chief Executive Officer of MC and the Vice President and General Manager of ESP.
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 and the competitive market warrant the
compensation package approved for Mr. Shanahan, Sr. and the other executive
officers.
The Compensation Committee:
Thomas J. Guilfoil, Chairman
Alexander M. Cornwell, Jr.
Earl E. Walker
Michael F. Shanahan, Jr.
8
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENTS
ESSI and its subsidiaries have employment agreements with certain 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 Executive Vice President and
Chief Financial Officer of ESSI, the President and Chief Executive Officer of MC
and the Vice President and General Manager of ESP.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF ESSI. The employment
agreement with Michael F. Shanahan, Sr. was executed on September 1, 1998 for a
term of three (3) years. Unless terminated by either party upon thirty (30) days
prior written notice, or for cause upon seven (7) days notice, the employment
agreement continues on a year-to-year basis. The current base salary under this
agreement is $550,000.
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
(payable in 24 equal monthly payments) for the fiscal year of the Company ending
immediately prior to the date of termination. Mr. Shanahan is prohibited from
competing with the Company for a period of one year after termination. 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
ESSI's net income per share. The employment agreement also provides that ESSI
will pay Mr. Shanahan's club membership costs and reimburse his expenses
associated with performing his duties on behalf of ESSI and its subsidiaries.
The Company is also a party to a split dollar life insurance agreement with
the Michael F. Shanahan, Sr. Irrevocable Life Insurance Trust. Under this
arrangement, the Company will make annual life insurance premium payments for
Mr. Shanahan. In return, the Company will be reimbursed for premiums it has
paid. As provided for by the insurance policy, the Company can borrow funds
against the cash surrender value. Although the life insurance trust is the owner
and beneficiary of the policy, its ownership rights are subordinate to the
Company's rights to be reimbursed for the premiums it has paid. Mr. Shanahan's
employment agreement requires the Company to maintain life insurance on Mr.
Shanahan during the term of the agreement.
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 $27,500 per month for a maximum of sixty (60)
consecutive months. For retirement or death, the benefit is $27,500 per month
for twenty-four (24) months. Although Mr. Shanahan has the right to vote on the
authorization of his employment agreement that was recommended by the
Compensation Committee, he abstained from voting on it as he did on all other
matters pertaining to his compensation.
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF EASI. Under the terms of John J.
Wichlenski's employment agreement with EASI, effective November 1, 1997, Mr.
Wichlenski is paid a base annual salary of $200,000. Under the terms of the
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. The Company has a split dollar life
insurance arrangement similar to its agreement with Mr. Shanahan.
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF ESSI. Under the
terms of Gary C. Gerhardt's employment agreement with ESSI, effective November
1, 1997, Mr. Gerhardt is paid a base annual salary of $200,000. Under the terms
of the Executive Incentive Plan, Mr. Gerhardt also receives a bonus that is
based upon ESSI's profitability. Mr. Gerhardt is reimbursed for expenses
associated with performing his duties on behalf of the Company, and its
subsidiaries. The Company has a split dollar life insurance arrangement with Mr.
Gerhardt similar to its agreement with Mr. Shanahan.
PRESIDENT AND CHIEF EXECUTIVE OF MC. Under the terms of R. Bruce Earls'
employment agreement with MC, effective February 1, 1998, Mr. Earls is paid a
base annual salary of $200,000. Under the terms of the Executive Incentive Plan,
Mr. Earls also receives a bonus that is based upon ESSI's and MC's
profitability. Mr. Earls has also been granted a club membership and he is
reimbursed for expenses associated with performing his duties on behalf of the
Company and MC. During the year, the Company borrowed funds from Mr. Earls at
market rates of interest. Interest earned by Mr. Earls under this arrangement
totaled $11,100. All such borrowings were paid off as of October 31, 1998.
VICE PRESIDENT AND GENERAL MANAGER OF ESP. Under the terms of John E.
Capeless' employment agreement with ESP, effective November 1, 1998, Mr.
Capeless is paid a base annual salary of $150,000. Under the terms of the
Executive Incentive Plan, Mr. Capeless also receives a bonus that is based upon
ESSI's and ESP's profitability. Mr. Capeless has also been granted a club
membership and he is reimbursed for expenses associated with performing his
duties on behalf of ESP.
9
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the Company's Chief
Executive Officer and all other executives whose compensation in 1998 exceeded
$100,000:
<TABLE>
SUMMARY COMPENSATION TABLE
- --------------------------
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- ------------------------------------
AWARDS PAYOUTS
--------------------------- -------
LTIP
NAME AND PRINCIPAL SALARY OTHER ANNUAL RESTRICTED NUMBER OF PAYOUTS ALL OTHER
POSITION YEAR <F1> BONUS COMPENSATION STOCK AWARDS OPTIONS<F10> <F2> COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael F. Shanahan, Sr. 1998 $388,833 $373,433 $0 $0 150,000 $0 $30,000<F3>
Chairman, President & 1997 $356,600 $350,000 $0 $0 45,000 $0 $29,300
Chief Executive 1996 $357,400 $350,000 $0 $0 22,500 $0 $24,500
Officer (ESSI)
John J. Wichlenski 1998 $203,600 $100,000 $0 $0 15,000 $0 $10,400<F4>
President & Chief 1997 $134,700 $128,400 $0 $0 15,000 $0 $ 9,500
Executive Officer 1996 $131,700 $ 88,400 $0 $0 15,000 $0 $ 6,200
(EASI)
Gary C. Gerhardt 1998 $200,000 $100,000 $0 $0 15,000 $0 $ 9,400<F5>
Executive Vice 1997 $110,000 $ 96,400 $0 $0 11,250 $0 $ 7,500
President & Chief 1996 $ 85,400 $ 48,900 $0 $0 11,250 $0 $ 4,300
Financial Officer
(ESSI)
R. Bruce Earls 1998 $152,300 $ 75,000 $0 $0 15,000 $0 $ 5,800<F6>
President and
Chief Executive
Officer (MC)<F8>
John E. Capeless 1998 $ 92,300 $ 45,000 $0 $0 5,000 $0 $ 4,300<F7>
Vice President & 1997 $ 92,300 $ 22,500 $0 $0 4,500 $0 $ 1,500
General Manager
(ESP)<F9>
<FN>
- --------------------
<F1> This amount includes base salary and expense reimbursement allowances.
Mr. Wichlenski's expenses for fiscal year 1998 were $3,600. Mr. Capeless'
expenses for fiscal year 1998 were $2,300. Mr. Earls' expenses for fiscal
year 1998 were $2,300.
<F2> There were no long-term incentive plan awards granted during the three
year period ending October 31, 1998.
<F3> 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; $7,000 pursuant to the
benefit of life insurance premiums paid by the Company; and, $9,000
pursuant to the Engineered Support Systems, Inc. Employee Stock Ownership
Plan.
<F4> This amount includes $2,400 pursuant to the benefit of life insurance
premiums paid by the Company and $8,000 pursuant to the Engineered
Support Systems, Inc. Employee Stock Ownership Plan.
<F5> This amount includes $2,300 pursuant to the benefit of life insurance
premiums paid by the Company and $7,100 pursuant to the Engineered
Support Systems, Inc. Employee Stock Ownership Plan.
<F6> This amount includes $100 pursuant to the benefit of life insurance
premiums paid by the company and $5,700 pursuant to the MC Employee
Retirement Plan.
<F7> This amount includes $700 pursuant to the benefit of life insurance
premiums paid by the Company and $3,600 pursuant to the Engineered
Support Systems, Inc. Employee Stock Ownership Plan.
<F8> Mr. Earls joined the Company on February 1, 1998, concurrent with the
Company's acquisition of MC. Accordingly, compensation information for
1998 relates only to the period Mr. Earls was employed by the Company.
<F9> Compensation for Mr. Capeless is not presented for 1996 because the SEC's
criteria for inclusion were not met.
<F10> All option amounts have been restated to reflect a 3-for-2 stock split
effected in the form of a 50% stock dividend on June 26, 1998.
</TABLE>
10
<PAGE>
<PAGE>
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, 1993 through October 31, 1998.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN<F*>
AMONG ENGINEERED SUPPORT SYSTEMS, INC., THE S & P 500 INDEX
AND THE S & P MANUFACTURING (DIVERSIFIED) INDEX
[GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------------------------------------
10/93 10/94 10/95 10/96 10/97 10/98
<S> <C> <C> <C> <C> <C> <C>
ENGINEERED SUPPORT SYSTEMS, INC. 100.00 110.34 179.61 266.78 617.67 594.41
S & P MANUFACTURING (DIVERSIFIED) 100.00 110.30 139.24 192.37 240.28 264.84
S & P 500 100.00 103.87 131.33 162.98 215.32 262.66
<FN>
<F*> $100 INVESTED ON 10/31/93 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING OCTOBER 31.
</TABLE>
11
<PAGE>
<PAGE>
EMPLOYEE EQUITY PLANS
The Company has reserved 869,038 shares of common stock for issuance under
four (4) stock option plans adopted in 1992, 1993, 1997 and 1998 ("option
plans"). The option plans provide for the award of stock options to employees
and non-employee directors of the Company. Option plans for the employees 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. The option plans for the non-employee directors are administered by the
Chairman of the Board. 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 an option granted is equal to the
fair market value of the common stock at the date of grant. As of October 31,
1998, twenty-seven (27) 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, 1998.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -------------------------------------
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
PERCENT OF FOR OPTION TERM
TOTAL OPTIONS ---------------------------
OPTIONS GRANTED IN EXERCISE PRICE EXPIRATION 5% ASSUMED 10% ASSUMED
NAME GRANTED FISCAL YEAR PER SHARE DATE RATE RATE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Shanahan, Sr. 150,000 56.0% $13.5000 9/3/03 $559,500 $1,236,000
John J. Wichlenski 7,500 2.8% $10.4583 1/31/03 $ 21,675 $ 47,850
7,500 2.8% $15.0000 3/9/03 $ 31,050 $ 68,700
Gary C. Gerhardt 7,500 2.8% $10.4583 1/31/03 $ 21,675 $ 47,850
7,500 2.8% $15.0000 3/9/03 $ 31,050 $ 68,700
R. Bruce Earls 7,500 2.8% $10.4583 1/31/03 $ 21,675 $ 47,850
7,500 2.8% $15.0000 3/9/03 $ 31,050 $ 68,700
John E. Capeless 5,000 1.9% $13.5000 9/3/03 $ 18,650 $ 41,200
<FN>
Note: Options granted, percent of total options granted in fiscal year and the
exercise price per share have been restated to reflect a 3-for-2 stock split
effected in the form of a 50% stock dividend on June 26, 1998. No stock
appreciation rights have ever been granted by the Company.
</TABLE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
- -------------------------------------------------------
FISCAL YEAR END OPTION/SAR VALUES
- ---------------------------------
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
NUMBER OPTIONS OPTIONS
OF SHARES AT 10/31/98 AT 10/31/98
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael F. Shanahan, Sr. 0 $ 0 195,000/0 $461,300/$0
John J. Wichlenski 15,000 $247,500 52,500/0 $382,800/$0
Gary C. Gerhardt 19,500 $218,200 37,500/0 $230,000/$0
R. Bruce Earls 15,000 $ 70,300 0/0 $0/$0
John E. Capeless 4,500 $ 47,600 12,500/0 $67,600/$0
<FN>
Number of shares acquired on exercise have been restated to reflect a 3-for-2
stock split effected in the form of a 50% stock dividend on June 26, 1998. No
stock appreciation rights have ever been granted by the Company.
</TABLE>
12
<PAGE>
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP, independent certified public accountants, have
been the auditors of the accounts of the Company since 1991, including the
fiscal year ended October 31, 1998. ESSI anticipates that representatives of
PricewaterhouseCoopers LLP will be present at the 1999 Annual Meeting of the
Shareholders and PricewaterhouseCoopers LLP will have the opportunity to make a
statement if they so desire at that time. PricewaterhouseCoopers LLP will also
be available to respond to appropriate questions raised at the 1999 Annual
Meeting of the Shareholders.
PricewaterhouseCoopers 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.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholder proposals for the 2000 Annual Meeting of the Shareholders must
be received by the Company no later than October 31, 1999, 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 that 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 1, 1999
NOTICE: Upon written request from any Shareholder of record as of January
18, 1999 (or any beneficial owner representing they are or were entitled to vote
at the 1999 Annual Meeting), the Company will furnish to such Shareholder,
without charge, its Annual Report on Form 10-K for the year ended October 31,
1998, 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 are specifically requested. Requests should be directed
to: Investor Relations, Engineered Support Systems, Inc., 1270 North Price Road,
St. Louis, MO 63132
13
<PAGE>
<PAGE>
PROXY ENGINEERED SUPPORT SYSTEMS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING OF SHAREHOLDERS MARCH 8, 1999
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 Ritz-Carlton, 100 Carondelet Plaza, Clayton, Missouri 63105 on
Monday, March 8, 1999, and at any adjournments thereof, on all matters
coming before said meeting.
You are encouraged to specify your choices by making the appropriate
boxes on the REVERSE SIDE. The Proxy cannot vote your shares unless you
sign and return this card.
FOLD AND DETACH HERE
1. Election of Directors for a term of
three years. Nominees: MG George E.
Friel and 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. Attend meeting / /
For, except vote withheld from the
following nominee(s): (change of address)
- ------------------------------------------ ----------------------------------
----------------------------------
----------------------------------
DATE:
-----------------------------
----------------------------------
SIGNATURE(S)
----------------------------------
NOTE: Please sign exactly as name
appears hereon. Joint members
should each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such.
FOLD AND DETACH HERE
<PAGE>
<PAGE>
APPENDIX
Page 11 of the printed Proxy contains a Performance Graph. The
information contained in the graph has been presented in a tabular
format that may be processed by the EDGAR system
