<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ESCO ELECTRONICS CORPORATION
- - -------------------------------------------------------------------------------
(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(ii)(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.:
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(3) Filing Party:
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(4) Date Filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
ESCO LOGO
NOTICE OF THE ANNUAL MEETING OF
THE STOCKHOLDERS OF
ESCO ELECTRONICS CORPORATION
St. Louis, Missouri
December 9, 1997
TO THE STOCKHOLDERS OF
ESCO ELECTRONICS CORPORATION:
The Annual Meeting of the Stockholders of ESCO Electronics Corporation will
be held at the offices of Systems & Electronics Inc., 201 Evans Lane, St. Louis
County, Missouri 63121 on Thursday, February 12, 1998, commencing at 10:00 a.m.,
at which meeting only holders of record of common stock trust receipts
representing the Company's common stock at the close of business on December 4,
1997 will be entitled to direct The Chase Manhattan Bank, as trustee under the
Company's Deposit and Trust Agreement, to vote, for the following purposes:
1. To elect two directors; and
2. To transact such other and further business, if any, as lawfully may be
brought before the meeting.
ESCO ELECTRONICS CORPORATION
BY DJ MOORE
Chairman, President and
Chief Executive Officer
WALTER STARK
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 REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 3
ESCO ELECTRONICS CORPORATION
8888 LADUE ROAD, ST. LOUIS, MISSOURI 63124
PROXY STATEMENT
FOR THE ANNUAL MEETING OF THE STOCKHOLDERS TO BE HELD FEBRUARY 12, 1998
This proxy statement is furnished to the holders of common stock trust
receipts ("Receipts") which represent all of the issued and outstanding shares
of common stock of ESCO Electronics Corporation (the "Company") in connection
with the solicitation of proxies for use in connection with the Annual Meeting
of the Stockholders to be held February 12, 1998, and all adjournments thereof,
for the purposes set forth in the accompanying Notice of the Annual Meeting of
the Stockholders. Such holders are hereinafter referred to as the
"Stockholders". The Receipts are issued pursuant to a Deposit and Trust
Agreement (the "Trust Agreement") by and among the Company, Emerson Electric Co.
("Emerson"), The Chase Manhattan Bank (the "Trustee"), and the holders of
Receipts from time to time. The Trust Agreement was executed in connection with
the distribution on October 19, 1990 (the "1990 Stock Distribution") to Emerson
shareholders of record as of the close of business on October 5, 1990 of one
share of the Company's common stock for every 20 shares of Emerson common stock
owned on such date. The Receipts represent shares of the Company's common stock
(the "Common Shares") held by the Trustee on behalf of each holder of a Receipt
pursuant to the Trust Agreement. Pursuant to the Trust Agreement, each holder,
except in certain circumstances, is generally entitled to direct the Trustee as
to how the Common Shares represented by such Receipts are to be voted, and these
voting instructions may include granting a discretionary proxy to persons
designated by the Company. The Company is first mailing this proxy statement and
the enclosed form of proxy to Stockholders on or about December 9, 1997.
Whether or not you expect to be present in person at the meeting, you are
requested to fill in, sign, date and return the enclosed form of proxy. If you
attend the meeting, you may of course direct the Trustee to vote by ballot. If
you do not attend the meeting, the Common Shares represented by your Receipts
can be voted only when represented by a properly executed proxy. In this case
you have several choices:
- You may vote on each proposal when returning the enclosed proxy form, in
which case the Common Shares represented by your Receipts will be voted
in accordance with your choices.
- You may, when appropriate, indicate a preference to abstain on any
proposal, which will have the effect described in "VOTING" on page 15.
- You may return a properly executed proxy form without indicating your
preferences, in which case the proxies will instruct the Trustee to vote
the Common Shares represented by your Receipts FOR election of the
directors nominated by the Board of Directors.
Any person giving such proxy has the right to revoke it at any time before
it is voted by giving written notice of revocation to the Secretary of the
Company, by duly executing and delivering a proxy bearing a later date, or by
attending the Annual Meeting and directing the Trustee to cast a contrary vote
in person.
The close of business on December 4, 1997 has been fixed as the record date
for the determination of the Stockholders entitled to instruct the Trustee how
to vote at the Annual Meeting of the Stockholders. As of the record date,
Receipts representing 11,834,229 Common Shares were outstanding and entitled to
be voted at such meeting. The holders of the Receipts will be entitled to direct
the Trustee to cast one vote for each Common Share represented by a Receipt held
of record on the record date.
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended September 30, 1997 accompanies this proxy statement.
The solicitation of this proxy is made by the Board of Directors of the
Company. The solicitation will be by mail, and the expense thereof will be paid
by the Company. Proxies may also be solicited by telephone or telefax by
directors, officers or regular employees of the Company.
2
<PAGE> 4
I. ELECTION OF DIRECTORS
NOMINEES AND CONTINUING DIRECTORS
The Company's Bylaws provide that the number of directors shall not be less
than three nor greater than ten, and shall be determined from time to time by
majority vote of the Board of Directors. In accordance with the Bylaws, the
Board of Directors has fixed the number of directors at six. The Board is
divided into three classes, with the terms of office of each class ending in
successive years. Two directors of the Company are to be elected for terms
expiring at the Annual Meeting in 2001, or until their respective successors
have been elected and have qualified. Certain information with respect to the
nominees for election as directors proposed by the Company and the other
directors whose terms of office as directors will continue after the Annual
Meeting is set forth below. Should any one or more of the nominees be unable or
unwilling to serve (which is not expected), the proxies (except proxies marked
to the contrary) will be voted for such other person or persons as the Board of
Directors of the Company may recommend. Proxies cannot be voted for more than
two nominees.
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION OR SERVED AS
POSITION, OTHER DIRECTORSHIPS DIRECTOR SINCE
---------------------------------- --------------
<S> <C>
To Be Elected for Terms Ending in 2001
J. J. Carey, 69............................................. 1990
Retired Chairman of the Board, Allendale Mutual Insurance
Co.,
industrial property insurer
Director of Allendale Mutual Insurance Co.
D. J. Moore, 59............................................. 1990
Chairman, President and Chief Executive Officer of the
Company
Director of Instron Corporation
To Continue in Office Until 2000
J. M. McConnell, 56......................................... 1996
President and Chief Executive Officer, Instron
Corporation,
manufacturer of scientific instruments
Director of Instron Corporation
D. C. Trauscht, 64.......................................... 1991
Chairman, BW Capital Corporation, private investment
company
Director of Borg-Warner Security Corporation, Baker
Hughes, Inc., Thiokol Corporation, Blue Bird
Corporation, Imo Industries Inc.
To Continue in Office Until 1999
J. J. Adorjan, 58........................................... 1990
Chairman, President and Chief Executive Officer,
Borg-Warner Security Corporation, supplier of security
services
Director of Borg-Warner Security Corporation, The
Earthgrains Company, Goss Graphic Systems, Inc.,
Illinova Corporation
W. S. Antle III, 53......................................... 1994
Chairman and Chief Executive Officer, Oak Industries,
Inc.,
manufacturer of components and controls
Director of Oak Industries, Inc., GenRad, Inc., New
England Investment Company
</TABLE>
Each of the nominees and continuing directors has had the same position
with the same employer as stated in the preceding table during the past five
years, except as follows:
From October 16, 1992 until April 1995, Mr. Adorjan was President of
Emerson Electric Co. From April 1995 until October 1995, he served as President
and Chief Operating Officer of Borg-Warner Security Corporation, and since the
latter date he has been Chairman, President and Chief Executive Officer.
3
<PAGE> 5
From December 1989 until May 1995, Mr. Antle was President and Chief
Executive Officer of Oak Industries, Inc. Since the latter date, he has been
Chairman and Chief Executive Officer.
From March 1988 until June 1993, Mr. Carey was Chief Executive Officer of
Allendale Mutual Insurance Co., and during that period he was also either
Chairman or President or both. From June 1993 until his retirement in March
1995, he served as Chairman of the Board.
From December 1991 to January 1993, Mr. Trauscht was Chairman, President
and Chief Executive Officer of Borg-Warner Corporation. From the latter date
until April 1995, he was Chairman, President and Chief Executive Officer of
Borg-Warner Security Corporation. From April to October 1995, Mr. Trauscht was
Chairman and Chief Executive Officer, and from October 1995 to December 1995, he
was Chairman. Since January 1996, he has been Chairman of BW Capital
Corporation.
BOARD OF DIRECTORS AND COMMITTEES
There were five meetings of the Board of Directors during fiscal year 1997.
All of the incumbent directors attended at least 75% of the meetings of the
Board and committees on which they served. Directors who are employees of the
Company do not receive any compensation for service as directors. Each
non-employee director is currently paid an annual retainer of $15,000 and fees
of $700 plus expenses for attendance at each Board meeting. In addition, each
non-employee director receives a fee of 300 Receipts per fiscal quarter. Each
committee chairman is currently paid an annual retainer of $1,200, and each
committee member is paid $600 plus expenses for attendance at each Board
committee meeting. Under the Company's extended compensation plan for
non-employee directors, each such director who has served as a non-employee
director for at least five years or whose tenure as a director expires pursuant
to the Company's Bylaws restriction regarding maximum age for election will,
after the later of termination of services as a director or reaching age 65,
receive for life a percentage of the annual cash retainer for directors in
effect at the time of termination of service. Such percentage is a minimum of
50% and increases to 60% for six years' service, 70% for seven years' service,
80% for eight years' service, 90% for nine years' service and 100% for ten or
more years' service. In the event of death of a retired director who is eligible
under this plan, 50% of the benefit will be paid to the surviving spouse for
life.
The members of the Board of Directors are appointed to various committees.
The standing committees of the Board are: the Executive Committee, the Audit and
Finance Committee, and the Human Resources and Ethics Committee. The Board does
not have a standing nominating committee.
The Executive Committee's function is to exercise the full authority of the
Board of Directors between Board meetings, except that the Executive Committee
may not take certain specified actions which the Board of Directors reserved for
action by the whole Board. The Committee held no meetings in fiscal year 1997.
Mr. Moore (Chairman), Mr. Adorjan and Mr. Antle are the members of the
Committee.
The Audit and Finance Committee's functions generally are to review the
Company's reports to Stockholders with management and the independent auditors;
appoint the firm of independent auditors to perform the annual audit, review the
scope of the auditors' work and review and approve their fees; review the
Company's internal controls; review financing requirements and strategy for the
Company; and certain other matters. The Committee met four times in fiscal year
1997. Mr. Adorjan (Chairman), Mr. Carey and Mr. McConnell are the members of the
Committee.
The Human Resources and Ethics Committee's functions generally are to review and
approve various compensation and benefit plans; implement and oversee the
Charitable Contributions Program; oversee the Company's Code of Business Ethics
and Conduct and the Ethics Program; determine when service by an officer or
director is eligible for indemnification; and administer the Performance Share
Plans and the Stock Option Plans. The Committee met four times in fiscal year
1997. Mr. Trauscht (Chairman), Mr. Antle and Mr. Carey are the members of the
Committee.
4
<PAGE> 6
EXECUTIVE COMPENSATION
REPORT OF THE HUMAN RESOURCES AND ETHICS COMMITTEE
ON EXECUTIVE COMPENSATION
INTRODUCTION
The following report is provided by the Human Resources and Ethics
Committee of the Board of Directors. The Committee supervises the Company's
Executive Compensation Program (the "Program") and is directly responsible for
compensation actions affecting the Chairman, President and Chief Executive
Officer (the "Chief Executive Officer"), other executive officers and other
senior executives of the Company. The Committee, which consists entirely of
non-employee directors, met four times in fiscal year 1997.
EXECUTIVE COMPENSATION PHILOSOPHY
The Program is designed and administered to relate executive compensation
to four basic objectives:
- Competitive Position: The Program is designed to pay competitive
compensation so the Company can attract and retain highly qualified
executives. To assist it in determining competitive compensation
practices, the Committee frequently utilizes information about
compensation levels of other companies, including information provided by
qualified independent consultants. When compensation significantly varies
from competitive levels, the Committee makes appropriate adjustments over
time through the annual compensation planning process.
- Company Performance: The Program is designed to reflect overall Company
performance, with appropriate consideration of conditions that exist in
the industry. 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 sales, earnings, entered orders
and cash management, as well as progress toward long-term strategic
objectives.
- Stockholder Return: The Program has been designed to establish a direct
link between the interests of the Company's executives and its
Stockholders. This is accomplished by allocating a substantial portion of
senior management compensation to stock-based programs tied directly to
Stockholder return.
- Individual Performance: In addition to the above factors, the Committee
considers the executive's individual performance and contributions to the
Company's results in determining appropriate compensation levels.
THE EXECUTIVE COMPENSATION PROGRAM
To achieve the above objectives, the Program consists of three basic
elements:
- Base Salary: The base salary of each executive is reviewed annually and
set by the Committee at the beginning of each fiscal year. Salary changes
reflect overall Company performance, pay competitiveness and the
individual's performance. The targeted percentage of cash compensation
represented by base salary varies based on the level of the position, with
a target of approximately 60% for the Chief Executive Officer and
approximately 70% for the other executive officers.
- Annual Incentive Cash Compensation: A substantial portion of each
executive's annual cash compensation is tied to Company performance
through the Company's Performance Compensation Plan, an annual incentive
cash compensation program. The Committee determines the annual Performance
Compensation payment for each executive at the end of each fiscal year on
the basis of subjective evaluations of Company performance, considering
market conditions and industry circumstances, in key areas such as sales,
earnings, entered orders and cash management. The executive's performance
and the relative competitiveness of the executive's compensation level are
also considered in the determination of the Performance Compensation
payment.
5
<PAGE> 7
- Long-Term Incentive Compensation: To ensure that management's interests
are directly tied to Stockholder return, a substantial portion of senior
executive total compensation is provided by stock-based, long-term
compensation plans. To place emphasis on Stockholder return, the Company
has implemented stock option and performance share programs. Awards and
payments to executive officers under these programs are included in the
accompanying tables. The Company's stock option plans provide for the
award of incentive stock options, non-qualified stock options, and stock
appreciation rights ("SARs"). No SARs have been awarded to date. All
options granted to date have been awarded at an exercise price equal to
the fair market value of the stock on the date of the award. The Company's
performance share plans provide for the earning of shares if the Company
achieves specified performance objectives established at the time of the
award. All performance share awards made to date have directly encouraged
Stockholder value creation by providing for earning of shares if the
Company achieves specific stock price targets.
FISCAL YEAR 1997 EXECUTIVE OFFICER COMPENSATION
Fiscal year 1997 base salaries for the executive officers, which are shown
in the Summary Compensation Table on page 8, were set at the beginning of fiscal
year 1997. The salaries were set based on a subjective evaluation of fiscal year
1996 performance and salary levels compared to similar companies, consistent
with the methodology described below.
In determining fiscal year 1997 performance compensation plan payments for
the executive officers, the Committee considered the competitiveness of cash
compensation levels compared to similar companies. The Committee considered
information in an executive compensation report from a nationally recognized,
independent compensation consulting firm. That report compared the Company's
compensation practices to eleven defense-related companies and eleven filtration
industry companies. The comparison companies were selected on the basis of their
similarity to the Company in terms of company size, products and markets served.
Total cash compensation of the Company's Chief Executive Officer and other
executive officers, including both base salary and the annual incentive
compensation payment, was below the median levels for the chief executive
officer and other executive officers of the comparison companies. Total
compensation of the Company's Chief Executive Officer and other executive
officers, including base salary, annual incentive cash compensation and
long-term incentive compensation, was also lower than the median levels of total
compensation for the comparable officers of the comparison companies. The
Committee also considered the Company's operating performance and progress made
on strategic initiatives. In fiscal year 1997, the Company achieved sales of
$378.5 million, compared to $438.5 million in fiscal year 1996. However, fiscal
year 1996 included sales of Hazeltine Corporation, a subsidiary which was
divested in the fourth quarter of fiscal year 1996. Excluding Hazeltine
Corporation, fiscal year 1996 sales were $345.0 million. Net Earnings in fiscal
year 1997 were $11.8 million, or $.95 per share fully diluted, compared to Net
Earnings of $26.1 million, or $2.25 per share, in fiscal year 1996. Net Earnings
in fiscal year 1996 were positively impacted by the sale of Hazeltine
Corporation and were negatively impacted by the unexpected cost growth on the
60K Aircraft Cargo Loader Program and other charges related to cost of sales.
All of the Company's operating subsidiaries generated positive cash flow in
fiscal year 1997. Overall performance of the Company was positive in fiscal year
1997, with strong growth in the Company's commercial business and improved
profit margins in the defense business. The Company continued to make progress
in achieving its strategic objectives in fiscal year 1997. The Company acquired
Filtertek Inc., a designer and manufacturer of filtration and fluid flow devices
for the medical, automotive and industrial markets. With the addition of
Filtertek Inc., the Company has significantly strengthened its position in the
filtration industry and has increased the commercial portion of the business
from less than 10% of sales at the inception of ESCO in fiscal year 1990 to more
than 50% of sales on an annualized basis in fiscal year 1997.
Based on a subjective evaluation of the above factors, the Committee
approved for fiscal year 1997 a base annual salary of $370,000 and a performance
compensation plan payment of $235,000 for the Chief Executive Officer. Fiscal
year 1997 total cash compensation for the Chief Executive Officer remained below
the market level as determined by 1996 compensation for chief executive officers
of the twenty-two similar companies listed in the aforementioned compensation
report. The total cash compensation levels established for the
6
<PAGE> 8
Company's other executive officers are detailed in the Summary Compensation
Table on page 8. The 1997 total cash compensation levels for the other executive
officers as a group are lower than the median cash compensation levels for the
comparable executive officers of the comparison companies.
Consistent with the Committee's objective of aligning the interests of
senior management and Stockholders, in fiscal year 1997 the Committee awarded
the Chief Executive Officer options for 30,000 shares under the 1994 Stock
Option Plan. The other executive officers as a group were awarded options for a
total of 22,500 shares under the Plan. The option exercise price of all such
options awarded is the fair market value on the date of the award. In fiscal
year 1997, the Chief Executive Officer and the other executive officers were
awarded performance shares pursuant to the 1997 Performance Share Plan. Those
awards are shown in the table on page 10 titled "Long-Term Incentive Plans --
Awards in Last Fiscal Year". As a result of the achievement in fiscal year 1997
of share price targets established with the performance share awards, the Chief
Executive Officer and the other executive officers earned 33.33% of their awards
in fiscal year 1997, with actual vesting and payment of the earned awards
contingent upon continued employment through March 31, 1998.
The Company does not have an employment agreement with the Chief Executive
Officer or any of its other executive officers. The Chief Executive Officer and
the other executive officers are covered by a Severance Plan which is described
on page 13.
No specific actions have been taken with respect to the $1 million
compensation deduction limit under section 162(m) of the Internal Revenue Code
because the Company's compensation levels are not expected to exceed the limit
by a material amount over the next several years. However, the 1994 Stock Option
Plan is designed to permit awards that satisfy the requirements of section
162(m).
SUMMARY
The Committee believes the Company's compensation program has been designed
and managed by the Committee to directly link the compensation of the Company's
executives to Company performance, individual performance and Stockholder
return. The current levels of compensation for the Company's senior executives
are generally below market levels for similar companies in the defense and
filtration industries. The Committee will continue to address these compensation
levels over time, consistent with Company and individual performance, and will
continue to emphasize performance-based and stock-based compensation that links
management and Stockholder interests.
The Human Resources and
Ethics Committee
D.C. Trauscht, Chairman
W. S. Antle III
J. J. Carey
7
<PAGE> 9
SUMMARY COMPENSATION TABLE
The following table contains certain information concerning compensation
for each of the last three fiscal years relating to the Company's Chief
Executive Officer and its other three executive officers serving at September
30, 1997, for all services rendered in all capacities to the Company and its
subsidiaries.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- ----------
------------------------------------------- (#)
($) SECURITIES ($) ($)
FISCAL ($) ($) OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(1) PAYOUTS(2) COMPENSATION(3)
- - --------------------------- ------ ------ ----- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
D. J. Moore................. 1997 $370,000 $235,000 $ 6,035 30,000 $445,496 $ 310
Chairman, President and 1996 350,000 150,000 6,036 96,674 269,915 277
Chief Executive Officer 1995 325,000 160,000 4,284 0 0 252
P. M. Ford.................. 1997 145,000 65,000 3,211 7,500 121,499 1,052
Senior Vice President and 1996 133,000 51,000 2,595 30,047 68,706 1,181
Chief Financial Officer 1995 123,000 56,000 2,771 0 0 1,203
W. Stark.................... 1997 148,000 60,000 1,052 7,500 121,499 1,466
Senior Vice President, 1996 140,000 54,000 1,083 30,047 68,706 1,599
Secretary and General 1995 131,000 43,000 4,115 0 0 1,605
Counsel
P. A. Hutchison............. 1997 139,000 58,000 2,959 7,500 121,499 303
Senior Vice President, 1996 127,000 50,000 2,735 30,047 68,706 279
Human Resources and 1995 117,000 55,000 1,415 0 0 259
Administration
</TABLE>
- - -------------------------
(1) The awards listed for fiscal year 1996 were originally granted on October 9,
1995 and October 11, 1993, and were repriced under the amended anti-dilution
provisions of the 1990 and 1994 Stock Option Plans to reflect the effect on
share price of the special cash distribution of $3.00 per share paid to
Stockholders on September 27, 1996. These stock options were repriced so
that the ratio of the exercise price per share to the fair market value per
share immediately before the date of payment of the distribution was equal
to such ratio immediately after the date of payment of the distribution, as
provided by the Financial Accounting Standards Board Emerging Issues Task
Force Issue No. 90-9 (November 8, 1990) for adjustment of stock options in
the event of a special, non-recurring distribution.
(2) Payouts earned in fiscal year 1997 were earned pursuant to the 1997
Performance Share Plan; however, no payout will vest and be distributed
unless the recipient continues in the employment of the Company through
March 31, 1998. Payouts earned in fiscal year 1996 were earned pursuant to
the 1993 Performance Share Plan, and were adjusted in that year to include
the $3.00 per share special cash distribution referred to in footnote (1)
above, plus interest from the distribution date; however, no payout will
vest and be distributed unless the recipient continues in the employment of
the Company through September 30, 1998. Valuation is based on the closing
market prices of the Receipts on the dates the award increments were earned.
Dividends, if any, will not be paid prior to the vesting and distribution of
the Receipts.
(3) Represents the dollar value of the benefit of premiums paid for split-dollar
life insurance policies.
The Company's stock option and performance share award agreements and
Supplemental Executive Retirement Plan applicable to the named executive
officers generally provide for acceleration of vesting and, in certain cases,
payout, of awards and retirement benefits under such agreements and Plan in the
event of a change in control of the Company, as defined in such agreements and
Plan, respectively.
8
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents certain information on stock options granted
to the named executive officers in fiscal year 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------
(#)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED ($)
UNDERLYING OPTIONS TO EMPLOYEES ($/SHARE) EXPIRATION GRANT DATE
NAME GRANTED(1) IN FISCAL YEAR EXERCISE PRICE DATE PRESENT VALUE(2)
---- ------------------ --------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
D.J. Moore............... 30,000 13.19% $9.1875 10/08/06 $76,230
P.M. Ford................ 7,500 3.30 9.1875 10/08/06 19,058
W. Stark................. 7,500 3.30 9.1875 10/08/06 19,058
P.A. Hutchison........... 7,500 3.30 9.1875 10/08/06 19,058
</TABLE>
- - -------------------------
(1) All stock option grants are non-transferrable, have a term of ten years from
the date of grant, and have an exercise price equal to 100% of the fair
market value on the date of grant. All options are exercisable six months
after the date of grant. In the event of a change in control of the Company,
100% of the options granted may be immediately exercised.
(2) Estimated present values based on the Black-Scholes option pricing model, a
mathematical formula used to value options traded on stock exchanges. The
following assumptions were used in applying the model to calculate the
values: expected future stock price annual volatility rate of 0.3554;
risk-free rate of return of 5.9% for the option term; annual dividend yield
of 0%; and a 2.45 year option term. No adjustments have been made for
non-transferability or risk of forfeiture. The actual value of the options
will depend on the market price of the shares on the date the options are
exercised, and may vary significantly from the theoretical values estimated
by the Black-Scholes model.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table provides certain information concerning stock option
exercises during fiscal year 1997 by each of the named executive officers and
the value of their unexercised options at September 30, 1997.
<TABLE>
<CAPTION>
(#) ($)
NUMBER OF VALUE OF
SECURITIES UNEXERCISED,
UNDERLYING IN-THE-
UNEXERCISED MONEY
OPTIONS AT OPTIONS AT
(#) 9/30/97(2) 9/30/97(3)
SHARES ($) ------------- -------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
D.J. Moore...................................... 0 $ 0 56,128/ $522,892/
70,546 810,214
P.M. Ford....................................... 0 0 14,032/ 130,723/
23,515 270,067
W. Stark........................................ 0 0 14,032/ 130,723/
23,515 270,067
P.A. Hutchison.................................. 4,532 46,063 9,500/ 84,094/
23,515 270,067
</TABLE>
- - -------------------------
(1) Based on the difference between the average of the high and low market
prices on the date of exercise and the option price.
9
<PAGE> 11
(2) Includes stock options granted prior to October 1, 1996 which were adjusted
in fiscal year 1996 to reflect the repricing of unexercised stock options,
as described in footnote (1) to the Summary Compensation Table on page 8.
(3) Based on the difference between the average of the high and low market
prices on September 30, 1997 and the option price.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
The following table sets forth certain information regarding awards made to
the named executive officers during fiscal year 1997 under the Company's 1997
Performance Share Plan.
<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF SHARES, OTHER PERIOD
UNITS OR OTHER UNTIL MATURATION
NAME RIGHTS(1) OR PAYOUT
---- ----------------- ----------------
<S> <C> <C>
D.J. Moore....................................... 110,000 FY'97-'01
P.M. Ford........................................ 30,000 FY'97-'01
W. Stark......................................... 30,000 FY'97-'01
P.A. Hutchison................................... 30,000 FY'97-'01
</TABLE>
- - -------------------------
(1) Represents performance units awarded pursuant to the Plan. An equivalent
number of Receipts will be earned in increments subject to the achievement
of specified corresponding stock price target levels during the period
ending September 30, 2001. Each target level is based on the average stock
price over a period of thirty consecutive trading days. For the award
increment to vest and be distributed, the recipient must continue in the
employment of the Company through March 31 following the end of the fiscal
year during which the award increment is earned. If stock price target
levels are not fully achieved, the Company's Human Resources and Ethics
Committee has the authority to pay a portion of the total award on the basis
of achievement by the Company of other financial performance criteria. All
awards made to date provide for acceleration of vesting of awards in the
event of a change in control of the Company, as defined in the Plan.
RETIREMENT PLAN
At the time of the 1990 Stock Distribution, the Company established a
Retirement Plan (the "Retirement Plan") in which the Company's executive
officers as well as other salaried employees participate. Prior to the 1990
Stock Distribution, the executive officers participated in one of the pension
plans of Emerson or its subsidiaries. The Retirement Plan is substantially
identical to the Emerson Retirement Plan at the time of the 1990 Stock
Distribution (the "Emerson Retirement Plan"). Under the Retirement Plan, a
participant will be credited with his service under the Emerson Retirement Plan,
but his benefit accrued under the Retirement Plan will be offset by his benefit
accrued under the Emerson Retirement Plan as of September 30, 1990. Benefits
under the Retirement Plan may be reduced under certain maximum provisions of the
Internal Revenue Code. In 1993, the Company adopted a Supplemental Executive
Retirement Plan (the "SERP") which provides that where any such reductions
occur, the Company will pay a retirement supplement (as an operating expense) to
certain executives, including the executive officers. The SERP will maintain
total retirement benefits at the formula level of the Retirement Plan.
These plans provide for fixed retirement benefits based on the
participant's credited years of service, five-year average compensation (the
highest average annual cash compensation during any five consecutive years), and
applicable Social Security covered compensation. The dollar amounts listed for
salary and bonus in the Summary Compensation Table are substantially the same as
the compensation covered by these plans. The following table shows the combined
annual benefits that will be payable from these plans on the basis of a single
life annuity with five years certain.
10
<PAGE> 12
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL RETIREMENT BENEFIT AT AGE 65 AFTER
---------------------------------------------------------------
10 15 20 25 30 35
AVERAGE ANNUAL YEARS OF YEARS OF YEARS OF YEARS OF YEARS OF YEARS OF
COMPENSATION SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
-------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000...... $ 21,035 $ 31,552 $ 42,070 $ 52,587 $ 63,104 $ 73,622
$250,000...... $ 36,035 $ 54,052 $ 72,070 $ 90,087 $108,104 $126,122
$350,000...... $ 51,035 $ 76,552 $102,070 $127,587 $153,104 $178,622
$450,000...... $ 66,035 $ 99,052 $132,070 $165,087 $198,104 $231,122
$550,000...... $ 81,035 $121,552 $162,070 $202,587 $243,104 $283,622
$650,000...... $ 96,035 $144,052 $192,070 $240,087 $288,104 $336,122
$750,000...... $111,035 $166,552 $222,070 $277,587 $333,104 $388,622
</TABLE>
Under current law, the benefit amounts will not be subject to any deduction
for Social Security or other offset amounts. The credited years of service
covered by these plans for each of the persons named in the Summary Compensation
Table were as follows as of October 1, 1997: Mr. Moore, 13.5; Mr. Ford, 19; Mr.
Hutchison, 32; and Mr. Stark, 8. The Company agreed to assume a supplemental
retirement benefit granted to Mr. Ford by Emerson designed to provide him credit
for an additional 9 years of service. Payment of the specified retirement
benefits is contingent upon continuation of the plans in their present form
until the employee retires.
11
<PAGE> 13
PERFORMANCE GRAPH
The following graph presents a comparison of the cumulative total
shareholder return on the Receipts as measured against the Standard & Poor's 500
Stock Index and a peer group (the "1997 Peer Group"). The Company is not a
component of either the Index or the 1997 Peer Group. The measurement period
begins on September 30, 1992 and measures at each September 30 thereafter. These
figures assume that all dividends paid over the measurement period were
reinvested, and the starting value of each index and the investments in the
Receipts was $100 at the close of trading on September 30, 1992.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ESCO ELECTRONICS
(FISCAL YEAR COVERED) CORPORATION PEER GROUP S&P 500
<S> <C> <C> <C>
9/92 100 100 100
9/93 151 141 113
9/94 151 150 117
9/95 139 206 152
9/96 194 280 183
9/97 365 335 257
</TABLE>
In the proxy statement for its 1997 Annual Meeting of Stockholders, the
Company used as a performance graph comparison index those companies composing
the Value Line Aerospace/Defense Industry Group as listed in the Value Line
Industry Review dated October 31, 1996 (the "1996 Peer Group"). The companies
composing the 1997 Peer Group are the same companies which composed the 1996
Peer Group except for three companies in the 1996 Peer Group which have since
merged with or been acquired by other companies, namely McDonnell Douglas Corp.,
Logicon Inc. and UNC Inc. The 1997 Peer Group consists of: AAR Corp., Boeing
Co., CAE Inc., Gencorp Inc., General Dynamics Corp., General Motors Corp. (GMH),
Moog Inc. Class A, Nichols Research Corp., Northrop Grumman Corp., OEA Inc.,
Raytheon Co., Rockwell International Corp., Rohr Inc., Sundstrand Corp., Thiokol
Corp., Transtechnology Corp., United Industrial Corp., Wyman-Gordon Co.
12
<PAGE> 14
SEVERANCE PLAN
The Company has established a Severance Plan (the "Plan") covering the
executive officers. Under the Plan, following the occurrence of a Change of
Control (as defined), each executive officer will be entitled to be employed by
the Company for a three-year period during which: (i) he will be paid a minimum
base salary equal to his base salary prior to the Change of Control, and a
minimum annual bonus based on the average of his bonuses during three of the
five preceding fiscal years, disregarding the highest and lowest such years, and
(ii) he will continue to receive the employee benefits to which he was entitled
prior to the Change of Control. During this employment period, if the executive
officer's employment is terminated by the Company other than for cause or
disability or the executive officer terminates his employment following certain
actions by the Company, he will be entitled to receive, among other things: (i)
three times his minimum annual base salary and minimum annual bonus, (ii) an
amount approximating the additional retirement benefit he would have received if
he had remained employed for an additional three years, and (iii) the
continuation of his employee benefits for three years. The Company may amend the
Plan, but no amendment adverse to the rights of the executive officers will be
effective unless notice thereof has been given by the Company to the affected
executive officers at least one year prior to the occurrence of a Change of
Control.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
number of Receipts beneficially owned by the directors and executive officers of
the Company as of November 24, 1997. Except as otherwise noted, each person has
sole voting and investment power as to his shares.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES
NAME OF REPRESENTED BY RECEIPTS
BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2)
---------------- ------------------------
<S> <C>
J. J. Adorjan........................................ 68,008
W. S. Antle III...................................... 3,221
J. J. Carey.......................................... 4,775
P. M. Ford........................................... 68,155
P. A. Hutchison...................................... 58,044
J.M. McConnell....................................... 1,477
D. J. Moore.......................................... 237,804(3)
W. Stark............................................. 56,850
D. C. Trauscht....................................... 4,775
All directors and executive officers
as a group (9 persons)............................. 503,109
</TABLE>
- - -------------------------
(1) The percentage of total outstanding Receipts beneficially owned by any
individual does not exceed 1% except in the case of Mr. Moore, 2.0%. The
percentage beneficially owned by all directors and executive officers as a
group is 4.2%.
(2) Includes the following Receipts covered by employee stock options granted
under the 1990 and 1994 Stock Option Plans which the individual has the
right to acquire within 60 days after November 24, 1997: Mr. Ford, 21,870;
Mr. Hutchison, 17,338; Mr. Moore, 79,643; Mr. Stark, 21,870; and all
directors and executive officers as a group, 140,721.
(3) Includes 32,000 Receipts which are non-transferable and do not vest until
Mr. Moore remains employed by the Company through September 30, 2000 or
until his earlier termination on account of death or disability, or until a
change of control of the Company.
13
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to each
person known by the Company to own beneficially Receipts representing more than
five percent of the outstanding Common Shares:
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES PERCENT
NAME AND ADDRESS OF REPRESENTED BY RECEIPTS OF OUTSTANDING
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON SHARES
------------------- ----------------------- --------------
<S> <C> <C>
Franklin Resources, Inc.......................... 1,213,900(1) 10.3%
and certain other parties
777 Mariners Island Boulevard
San Mateo, CA 94404
David L. Babson and Company, Inc................. 1,020,100(2) 8.6%
One Memorial Drive
Cambridge, MA 02142-1300
Dimensional Fund Advisors, Inc................... 878,400(3) 7.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Donald Smith & Co., Inc.......................... 787,600(4) 6.7%
East 80 Route 4 Suite 360
Paramus, NJ 07652
</TABLE>
- - -------------------------
(1) Based on information presented as of October 10, 1997 in an amended Schedule
13G filed jointly by Franklin Resources, Inc. ("FRI"), Charles B. Johnson
("CBJ"), Rupert H. Johnson, Jr. ("RHJ") and Franklin Advisory Services, Inc.
("FAS") indicating that FRI, a parent holding company, and CBJ and RHJ, its
principal shareholders, may each be deemed to beneficially own 1,213,900
shares, or 10.3% of the total outstanding shares, and FAS, an investment
adviser and subsidiary of FRI, may be deemed to beneficially own 1,208,900
shares, or 10.2% of the total outstanding shares. All such shares are
beneficially owned by one or more open or closed-end investment companies or
other managed accounts which are advised by direct and indirect investment
advisory subsidiaries of FRI. The address of FAS is One Parker Plaza, 16th
Floor, Fort Lee, NJ 07024. FAS and Franklin Mutual Advisers, Inc. have sole
power to vote or direct the vote of 883,000 and 5,000 shares, respectively,
and have sole investment power of 1,208,900 and 5,000 shares, respectively.
Balance Sheet Investment Fund, a series of Franklin Value Investors Trust
and client of FAS, has an interest in more than 5% of the total outstanding
shares. FRI, CBJ, RHJ and FAS disclaim beneficial ownership of all 1,213,900
shares.
(2) Based on information provided by David L. Babson and Company, Inc.
indicating beneficial ownership as of November 1, 1997 (having sole voting
and investment power as to all such shares).
(3) Based on information provided by Dimensional Fund Advisors, Inc.
("Dimensional"), a registered investment adviser, indicating beneficial
ownership as of September 30, 1997 (having sole voting power for 572,924
shares and sole investment power as to all 878,400 shares). All such shares
are held in portfolios of DFA Investment Dimensions Group Inc. (the "Fund"),
a registered open-end investment company, or in series of The DFA Investment
Trust Company (the "Trust"), a Delaware business trust, or the DFA Group
Trust and the DFA Participating Group Trust, investment vehicles for
qualified employee benefit plans, as to all of which Dimensional serves as
investment manager. Officers of Dimensional also serve as officers of the
Fund and the Trust, each an open-end management investment company
registered under the Investment Company Act of 1940. In their capacity as
officers of the Fund and the Trust, these persons have voting power as to
101,976 shares which are owned by the Fund and 203,500 shares which are
owned by the Trust. Dimensional disclaims beneficial ownership of all
878,400 shares.
(4) Based on information provided by Donald Smith & Co., Inc. indicating
beneficial ownership as of October 27, 1997 (having sole voting and
investment power as to all such shares).
14
<PAGE> 16
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own beneficially more than ten
percent of any class of equity security of the Company to file with the
Securities and Exchange Commission initial reports of such ownership and reports
of changes in such ownership. Officers, directors and such beneficial owners are
required by Securities and Exchange Commission regulation to furnish the Company
with copies of all Section 16(a) forms they file. An executive officer, P.A.
Hutchison, was late in filing one Form 4, involving one transaction, in fiscal
year 1997. With that exception, to the Company's knowledge, based solely on
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended September 30, 1997, all Section 16(a) filing requirements applicable to
its officers, directors and greater than ten percent beneficial owners were
complied with.
II. VOTING
The affirmative vote of the holders of a majority of the shares entitled to
vote which are present in person or represented by proxy at the 1998 Annual
Meeting is required to elect directors and to act on any other matters properly
brought before the meeting. Shares represented by proxies which are marked
"withhold authority" with respect to the election of any one or more nominees
for election as directors and proxies which are marked to deny discretionary
authority on other matters will be counted for the purpose of determining the
number of shares represented by proxy at the meeting. Such proxies will thus
have the same effect as if the shares represented thereby were voted against
such nominee or nominees and against such other matters, respectively. Shares
not voted on one or more but less than all such matters on proxies returned by
brokers will be treated as not represented at the meeting as to such matter or
matters.
The Company knows of no other matters to come before the meeting. If any
other matters properly come before the meeting, the proxies solicited hereby
will be voted on such matters in accordance with the judgment of the persons
voting such proxies.
III. INDEPENDENT AUDITORS
KPMG Peat Marwick LLP were the auditors for the fiscal year ended September
30, 1997 and the Audit and Finance Committee has selected them as auditors for
the year ending September 30, 1998. A representative of KPMG Peat Marwick LLP is
expected to be present at the meeting with the opportunity to make a statement
and/or respond to appropriate questions from Stockholders.
IV. STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the 1999 Annual
Meeting must be received by the Company by August 8, 1998 for inclusion in the
Company's proxy statement and proxy relating to that meeting. Upon receipt of
any such proposal, the Company will determine whether or not to include such
proposal in the proxy statement and proxy in accordance with regulations
governing the solicitation of proxies.
In order for a Stockholder to nominate a candidate for director, under the
Company's Articles of Incorporation timely notice of the nomination must be
given to the Company in advance of the meeting. Ordinarily, such notice must be
given not less than 60 nor more than 90 days before the meeting (but if the
Company gives less than 50 days' notice or prior public disclosure of the date
of the meeting, then the Stockholder must give such notice within 10 days after
notice of the meeting is mailed or other public disclosure of the meeting is
made, whichever occurs first). The Stockholder filing the notice of nomination
must describe various matters regarding the nominee, including such information
as name, address, occupation and shares held.
In order for a Stockholder to bring other business before a Stockholder
meeting, timely notice must be given to the Company within the time limits
described above. Such notice must include a description of the proposed
business, the reasons therefor and other specified matters. The Board may reject
any such proposals
15
<PAGE> 17
that are not made in accordance with these procedures or that are not a proper
subject for Stockholder action in accordance with the provisions of applicable
law. These requirements are separate from and in addition to the requirements a
Stockholder must meet to have a proposal included in the Company's proxy
statement.
In each case, the notice must be given to the Secretary of the Company,
whose address is 8888 Ladue Road, Suite 200, St. Louis, Missouri 63124-2090. Any
Stockholder desiring a copy of the Company's Articles of Incorporation or Bylaws
or the Trust Agreement will be furnished one without charge upon written request
to the Secretary.
16
<PAGE> 18
ESCO ELECTRONICS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, as holder of record of the common stock trust receipts
(the "Receipts") representing Common Stock of ESCO ELECTRONICS CORPORATION (the
"Company"), does hereby appoint D.J. Moore, P.M. Ford and W. Stark, or any of
them, the true and lawful attorneys in fact, agents and proxies of the
undersigned to represent the undersigned at the Annual Meeting of Stockholders
of the Company, to be held on February 12, 1998, commencing at 10:00 A.M., St.
Louis time, at the offices of Systems & Electronics Inc., 201 Evans Lane, St.
Louis County, Missouri, 63121 and at any and all adjournments of such meeting,
and to instruct The Chase Manhattan Bank, as trustee under the Company's
Deposit and Trust Agreement (the "Trustee"), to vote all the shares of Common
Stock of the Company represented by the Receipts standing on the register of
the Company's stock transfer agent in the name of the undersigned as follows,
and in their discretion on such other business as may properly come before the
meeting:
(Continued, and to be signed, on the other side)
- PLEASE DETACH PROXY HERE, SIGN AND MAIL -
<PAGE> 19
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
<TABLE>
<S><C>
ELECTION OF DIRECTORS (INSTRUCTION: To withheld authority to vote
FOR all nominees WITHHOLD for any individual nominee, strike a line
listed to the right AUTHORITY through the nominee's name on the list below.)
(except as marked to vote for all nominees Nominees: J.J Caray. D.J. Moore
to the contrary) listed to the right
/ / / /
The undersigned hereby
acknowledges receipt of the Notice
of the Annual Meeting and
accompanying Proxy Statement dated
December 9, 1997.
The proxies will instruct the
Trustee to vote the Common Shares
represented by your Receipts in the
manner directed herein by the
undersigned Receiptholder.
If no direction is made, this proxy
will be voted FOR Proposal 1.
Please sign exactly as your name
appears to the left. When signing
as an attorney, executor,
administrator, trustee or guardian,
please give full title as such.
If signing on behalf of a
corporation, please sign in full
corporate name by President or other
authorized officer. If signing on
behalf of a partnership, please
sign in partnership name by
authorized person.
Dated: 199
---------------, -
---------------------------------
(Signature)
----------------------------------
(Signature - if held jointly,
both holders must sign.)
If address appearing to the left is
incorrect, kindly make correction.
</TABLE>
PLEASE DETACH PROXY HERE, SIGN AND MAIL
[ESCO LOGO]
December 9, 1997
Dear Stockholder:
The annual meeting of stockholders of ESCO Electronics Corporation will
be held at the offices of Systems & Electronics Inc., 201 Evans Lane, St. Louis
County, Missouri 63121 at 10:00 a.m. on Thursday, February 12, 1998.
It is important that your shares are represented at this meeting.
Whether or not you plan to attend the meeting, please review the enclosed proxy
materials, complete the attached proxy form above, and return it promptly in
the envelope provided.
Thank You.
