<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:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
ESCO LOGO
NOTICE OF THE ANNUAL MEETING OF
THE STOCKHOLDERS OF
ESCO ELECTRONICS CORPORATION
St. Louis, Missouri
December 4, 1998
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 Tuesday, February 9, 1999, 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 1,
1998 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;
2. To vote on a proposal to approve the 1999 Stock Option Plan; and
3. To transact such other and further business, if any, as lawfully may be
brought before the meeting.
ESCO ELECTRONICS CORPORATION
BY /s/DJ MOORE
Chairman, President and
Chief Executive Officer
/s/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 9, 1999
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 9, 1999, 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 4, 1998.
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 17.
- 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 and FOR the proposal to
approve the 1999 Stock Option Plan.
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 1, 1998 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 12,267,164 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, 1998 accompanies this proxy statement.
The solicitation of this proxy is made by the Board of Directors of the
Company. The solicitation will be by mail, and the expense thereof will be paid
by the Company. Proxies may also be solicited by telephone or telefax by
directors, officers or regular employees of the Company. In addition, the
Company has retained Corporate Investors Communications, Inc. to assist with the
solicitation of proxies, the estimated cost of which is $5,500 plus expenses.
2
<PAGE> 4
I. ELECTION OF DIRECTORS
NOMINEES AND CONTINUING DIRECTORS
The Company's Bylaws provide that the number of directors shall not be less
than three nor greater than ten, and shall be determined from time to time by
majority vote of the Board of Directors. In accordance with the Bylaws, the
Board of Directors has fixed the number of directors at 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 2002, 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 2002
J. J. Adorjan, 59........................................... 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, Allendale Mutual Insurance
Company, Hussmann Corporation, Loomis Fargo & Co.
W. S. Antle III, 54......................................... 1994
Chairman, President and Chief Executive Officer, Oak
Industries, Inc.,
manufacturer of components and controls
Director of Oak Industries, Inc., GenRad, Inc., Nvest
Companies, L.P.
To Continue in Office Until 2001
J. J. Carey, 70............................................. 1990
Retired Chairman of the Board, Allendale Mutual Insurance
Co.,
industrial property insurer
Director of Allendale Mutual Insurance Co.
D. J. Moore, 60............................................. 1990
Chairman, President and Chief Executive Officer of the
Company
Director of Instron Corporation
To Continue in Office Until 2000
J.M. McConnell, 57.......................................... 1996
President and Chief Executive Officer, Instron
Corporation,
manufacturer of scientific instruments
Director of Instron Corporation
D. C. Trauscht, 65.......................................... 1991
Chairman, BW Capital Corporation,
private investment company
Director of Borg-Warner Security Corporation, Cordant
Technologies Inc., Blue Bird Corporation, Wynn's
International Inc., Hydac International Corp.
</TABLE>
3
<PAGE> 5
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.
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, President and Chief Executive Officer.
From June 1993 until his retirement in March 1995, Mr. Carey served as
Chairman of the Board of Allendale Mutual Insurance Co.
From January 1993 until April 1995, Mr. Trauscht 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 1998.
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 $18,000 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 1998.
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
1998. 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 five times in fiscal
year 1998. 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 five times in fiscal year 1998.
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 industries in which it engages. In determining compensation levels
and compensation changes, the Committee considers the Company's overall
performance in meeting both short-term and long-term objectives. 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, performance share and restricted stock
programs. Awards and payments to executive officers under these programs
are included in the accompanying tables. The Company's stock option plans
provide for the award of incentive stock options, non-qualified stock
options, and stock appreciation rights ("SARs"). No SARs have been
awarded to date. All options granted to date 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. The restricted stock awards, in which vesting is contingent on
continued employment for a specified period, also provide for Stockholder
value creation as this component of the compensation system is designed
to retain senior executives and motivate them to improve market value of
the stock over a number of years.
FISCAL YEAR 1998 EXECUTIVE OFFICER COMPENSATION
Fiscal year 1998 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 1998. The salaries were set based on a subjective evaluation of fiscal year
1997 performance and salary levels compared to similar companies, consistent
with the methodology described below.
In determining fiscal year 1998 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 overall median level for the chief executive
officer and other executive officers of the comparison companies. Total
compensation of the Company's Chief Executive Officer and other executive
officers, including base salary, annual incentive cash compensation and
long-term incentive compensation, was also lower than the overall median level
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. Overall performance of the Company was solid in
fiscal year 1998, with continued growth in the Company's commercial business.
Net of a one-time, non-recurring charge for settlement of a long-standing
contractual dispute relating to the M1000 tank transporter, operating profit
margin improved to 8% compared with 7.3% in the prior year. In fiscal year 1998,
the Company achieved sales of $365.1 million, compared with $378.5 million in
fiscal year 1997. The lower sales resulted primarily from the timing of the
receipt of orders at SEI. New orders increased 28%, totaling $432.7 million
compared with $338.7 million in fiscal year 1997. Net earnings in fiscal year
1998 were $11.3 million, or $.90 per share, compared with net earnings of $11.8
million, or $.96 per share in fiscal year 1997. All but one of the Company's
operating subsidiaries generated positive cash flow in fiscal year 1998. The
Company continued to make progress in achieving its strategic objectives in
fiscal year 1998. The Company acquired Euroshield OY, a manufacturer of
shielding products for the electromagnetic compatibility test market based in
Eura, Finland. Euroshield's products and markets are complementary to the
products of the Company's EMC Test Systems, L.P. (ETS) subsidiary. The Company
also acquired Advanced Membrane Technology, Inc. (AMT), a developer and
manufacturer of microfiltration membrane. AMT's products are used in filtration
applications for a variety of industries, many of which are common with the
Company's PTI subsidiary. With the addition of Euroshield and AMT, the Company
has strengthened its position in several markets and increased the commercial
portion of its business to 57% of sales in fiscal year 1998.
6
<PAGE> 8
Based on a subjective evaluation of the above factors, the Committee
approved for fiscal year 1998 a base annual salary of $400,000 and a performance
compensation plan payment of $225,000 for the Chief Executive Officer. Fiscal
year 1998 total cash compensation for the Chief Executive Officer remained
slightly below the market as determined by 1997 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
Company's other executive officers are detailed in the Summary Compensation
Table on page 8. The 1998 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 1998 the Committee awarded
the Chief Executive Officer 32,000 shares of restricted stock. Two other
executive officers were awarded a total of 18,000 shares of restricted stock.
These awards were made in recognition of these officers' value to the Company
and as a means to ensure their continued service by bringing their total direct
compensation (cash and long-term incentive) into a competitive position with the
total direct compensation of similar companies. The restricted stock award to
the Chief Executive Officer vests at the end of approximately three years of
continued service, while the restricted stock awards to the other executive
officers vest upon continued service through September 30, 2001. This approach
is designed to focus the executives on the creation of shareholder value over
the long term since the full benefit of the compensation package cannot be
realized unless stock appreciation occurs over a number of years. In fiscal year
1998, 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 9 titled "Long-Term Incentive Plans-Awards in Last
Fiscal Year". As a result of the achievement in fiscal year 1998 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 1998, with actual vesting and payment of the earned awards contingent upon
continued employment through March 31, 1999.
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 11.
No specific actions have been taken with respect to the $1 million
compensation deduction limit under section 162(m) of the Internal Revenue Code
because the Company's compensation levels are not expected to exceed the limit
by a material amount over the next several years. However, the 1994 Stock Option
Plan is designed to permit awards that satisfy the requirements of section
162(m).
SUMMARY
The Committee believes the Company's compensation program has been designed
and managed by the Committee to directly link the compensation of the Company's
executives to Company performance, individual performance and Stockholder
return. The current level of total direct compensation for the Company's Chief
Executive Officer is now slightly below the median competitive position. The
total direct compensation for the Company's other senior executives is slightly
below market levels for similar companies in the defense and filtration
industries. The Committee will continue to address these compensation levels
over time, consistent with Company and individual performance, and will continue
to emphasize performance-based and stock-based compensation that links
management and Stockholder interests.
The Human Resources and
Ethics Committee
D.C. Trauscht, Chairman
W.S. Antle III
J. J. Carey
7
<PAGE> 9
SUMMARY COMPENSATION TABLE
The following table contains certain information concerning compensation
for each of the last three fiscal years relating to the Company's Chief
Executive Officer and its other two executive officers serving at September 30,
1998, for all services rendered in all capacities to the Company and its
subsidiaries.
<TABLE>
<CAPTION>
LONG TERM-
COMPENSATION
-----------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- ----------
-------------------------------------------- ($) (#)
($) RESTRICTED SECURITIES ($) ($)
NAME AND FISCAL ($) ($) OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS(1) PAYOUTS(2) COMPENSATION(3)
------------------ ------ ------ ----- ------------ ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D.J. Moore................. 1998 $400,000 $225,000 $5,200 $564,000(4) 0 $641,672 $ 341
Chairman, President and 1997 370,000 235,000 6,035 0 30,000 445,496 310
Chief Executive Officer 1996 350,000 150,000 6,036 0 96,674 269,915 277
P.M. Ford.................. 1998 158,000 65,000 2,546 161,438(5) 0 175,000 879
Senior Vice President 1997 145,000 65,000 3,211 0 7,500 121,499 1,052
and Chief Financial Officer 1996 133,000 51,000 2,595 0 30,047 68,706 1,181
W. Stark................... 1998 160,000 62,000 1,079 161,438(5) 0 175,000 1,276
Senior Vice President, 1997 148,000 60,000 1,052 0 7,500 121,499 1,466
Secretary and General 1996 140,000 54,000 1,083 0 30,047 68,706 1,599
Counsel
</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 1998 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, 1999. 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. 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.
(4) Represents fair market value of $17.625 per share at the time of award for
the 32,000 shares awarded. The value of these shares at September 30, 1998
was $328,000 based on fair market value of $10.25 per share. As of that
date, Mr. Moore held no other restricted stock. These shares will vest if
the recipient continues in the employment of the Company through the vesting
date, September 30, 2000, or upon his earlier termination of employment on
account of death or disability. If any dividends are paid on the Receipts,
they would be paid on this restricted stock.
(5) Represents fair market value of $17.9375 per share at the time of award for
the 9,000 shares awarded. The value of these shares at September 30, 1998
was $92,250 based on fair market value of $10.25 per share. As of that date,
the executive officer held no other restricted stock. These shares will vest
if the recipient continues in the employment of the Company through the
vesting date, September 30, 2001, or upon his earlier termination of
employment on account of death or disability. If any dividends are paid on
the Receipts, they would be paid on this restricted stock.
The Company's stock option, restricted stock award and performance share
award agreements and Supplemental Executive Retirement Plan applicable to the
named executive officers generally provide for
8
<PAGE> 10
acceleration of vesting and, in certain cases, payout, of awards and retirement
benefits under such agreements and Plan in the event of a change in control of
the Company, as defined in such agreements and Plan, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the named executive officers in fiscal
year 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table provides certain information concerning stock option
exercises during fiscal year 1998 by each of the named executive officers and
the value of their unexercised options at September 30, 1998.
<TABLE>
<CAPTION>
(#) ($)
NUMBER OF VALUE OF
SECURITIES UNEXERCISED,
UNDERLYING IN-THE-
UNEXERCISED MONEY
OPTIONS AT OPTIONS AT
(#) 9/30/98(2) 9/30/98(3)
SHARES ($) ------------- -------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
D.J. Moore...................................... 26,128 $336,597 53,515/ $ 80,958/
47,031 150,669
P.M. Ford....................................... 0 0 21,870/ 39,630/
15,677 50,223
W. Stark........................................ 0 0 21,870/ 39,630/
15,677 50,223
</TABLE>
- -------------------------
(1) Based on the difference between the average of the high and low market
prices on the date of exercise and the option price.
(2) 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, 1998 and the option price.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
No awards were made to the named executive officers during fiscal year 1998
under the Company's Performance Share Plans.
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
9
<PAGE> 11
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.
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...... $ 20,944 $ 31,415 $ 41,887 $ 52,359 $ 62,831 $ 73,303
$250,000...... $ 35,944 $ 53,915 $ 71,887 $ 89,859 $107,831 $125,803
$350,000...... $ 50,944 $ 76,415 $101,887 $127,359 $152,831 $178,303
$450,000...... $ 65,944 $ 98,915 $131,887 $164,859 $197,831 $230,803
$550,000...... $ 80,944 $121,415 $161,887 $202,359 $242,831 $283,303
$650,000...... $ 95,944 $143,915 $191,887 $239,859 $287,831 $335,803
$750,000...... $110,944 $166,415 $221,887 $277,359 $332,831 $388,303
</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, 1998: Mr. Moore, 14.5; Mr. Ford, 20; and
Mr. Stark, 9. 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.
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<PAGE> 12
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 "1998 Peer Group"). The Company is not a
component of either the Index or the 1998 Peer Group. The measurement period
begins on September 30, 1993 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 were $100 at the close of trading on September 30, 1993.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
[LINE GRAPH]
<TABLE>
<CAPTION>
ESCO
ELECTRONICS
CORPORATION PEER GROUP S&P 500
<S> <C> <C> <C>
'9/93' 100 100 100
'9/94' 100 108 104
'9/95' 92 151 135
'9/96' 97 207 162
'9/97' 242 250 227
'9/98' 141 163 248
</TABLE>
--M-- ESCO Electronics Corporation --O-- Peer Group ------ S&P 500
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
9/93 9/94 9/95 9/96 9/97 9/98
<S> <C> <C> <C> <C> <C> <C> <C>
ESCO Electronics Corporation 100 100 92 97 242 141
Peer Group 100 108 151 207 250 163
S&P 500 100 104 135 162 227 248
</TABLE>
The companies composing the 1998 Peer Group are the same companies which
composed the peer group used in the proxy statement for the 1998 Annual Meeting
of Stockholders except that Rohr Inc. has since been acquired by another company
and has been excluded. The 1998 Peer Group is comprised of: AAR Corp., Boeing
Co., CAE Inc., Cordant Technologies Inc. (formerly named "Thiokol Corp."),
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., Sundstrand Corp., Transtechnology Corp., United
Industrial Corp., Wyman-Gordon Co.
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
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<PAGE> 13
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 15, 1998. 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........................................ 21,208
W. S. Antle III...................................... 4,421
J. J. Carey.......................................... 5,675
P. M. Ford........................................... 94,145(3)
J.M. McConnell....................................... 2,677
D. J. Moore.......................................... 268,652(4)
W. Stark............................................. 82,844(3)
D. C. Trauscht....................................... 5,975
All directors and executive officers as a group (8
persons)........................................... 485,597
</TABLE>
- -------------------------
(1) The percentage of total outstanding Receipts beneficially owned by any
individual does not exceed 1% except in the case of Mr. Moore, 2.2%. The
percentage beneficially owned by all directors and executive officers as a
group is 3.96%.
(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 15, 1998: Mr. Ford, 29,708;
Mr. Moore, 77,030; Mr. Stark, 29,708; and all directors and executive
officers as a group, 136,446.
(3) Includes 9,000 Receipts which are non-transferable and do not vest until the
beneficial owner remains employed by the Company through September 30, 2001
or until his earlier termination on account of death or disability, or until
a change of control of the Company.
(4) 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.
12
<PAGE> 14
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. ........................ 1,114,350(1) 9.1%
and certain other parties
777 Mariners Island Boulevard
San Mateo, CA 94403-7777
David L. Babson and Company, Inc. ............... 986,010(2) 8.0%
One Memorial Drive
Cambridge, MA 02142-1300
Dimensional Fund Advisors, Inc. ................. 864,700(3) 7.0%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Merrill Lynch Asset Management, L.P. and......... 774,900(4) 6.3%
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, NJ 08536
Donald Smith & Co., Inc. ........................ 667,100(5) 5.4%
East 80 Route 4 Suite 360
Paramus, NJ 07652
</TABLE>
- -------------------------
(1) Based on information provided by Franklin Resources, Inc. ("FRI") indicating
beneficial ownership as of September 30, 1998 by the mutual funds in the
Franklin/Templeton Group of Funds (a tradename for U.S.-based separate,
unaffiliated investment companies whose investment advisers are direct or
indirect wholly-owned subsidiaries of FRI) and other managed accounts
advised by direct or indirect wholly-owned subsidiaries of FRI. Charles B.
Johnson and Rupert H. Johnson, Jr. each owns in excess of 10% of the
outstanding common stock of FRI, and may each be deemed to be the beneficial
owner of the 1,114,350 shares. Franklin Advisory Services, Inc. ("FAS"),
Franklin Mutual Advisors, Inc. ("FMA") and Franklin Advisers, Inc. ("FA")
are the investment advisers for such shares. FAS has sole voting power as to
883,000 shares and shared investment power as to 1,108,750 shares. FMA has
sole voting power and shared investment power as to 5,000 shares. FA has
sole voting power and shared investment power as to 600 shares. Each of the
foregoing persons and entities disclaims any economic interest in or
beneficial ownership of the 1,114,350 shares. The address of FAS is One
Parker Plaza, Sixteenth Floor, Fort Lee, NJ 07024.
(2) Based on information provided by David L. Babson and Company Inc. indicating
beneficial ownership as of November 1, 1998 (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, 1998 (having sole voting power for 559,224
shares and sole investment power as to all 864,700 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
864,700 shares.
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<PAGE> 15
(4) Based on information provided by Merrill Lynch Asset Management, L.P.
("MLAM") and Fund Asset Management ("FAM"), registered investment advisers,
indicating that as of October 31, 1998, advisory accounts of MLAM own
257,100 shares (7,800 shares held by private account and 249,300 shares held
by ML Variable Series Funds, Inc.-Special Value Focus Fund), with respect to
which MLAM has voting and investment power as to all such shares, and that
advisory accounts of FAM own 517,800 shares (all held by ML Special Value
Fund, Inc.), with respect to which FAM has voting and investment power as to
all such shares. For purposes of Schedule 13G filings, the positions of MLAM
and FAM are reported with ownership attributing to Princeton Services, Inc.
("PSI"), as General Partner for both MLAM and FAM. MLAM, FAM and PSI
disclaim beneficial ownership of all such shares pursuant to Section 13d-4
of the Securities Exchange Act of 1934. In view of PSI's affiliation with
MLAM and FAM, PSI may be deemed to share voting and investment power as to
such shares with MLAM and FAM, respectively.
(5) Based on information provided by Donald Smith & Co., Inc. indicating
beneficial ownership as of November 1, 1998 (having sole voting and
investment power as to all such shares).
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
Securites and Exchange Commission initial reports of such ownership and reports
of changes in such ownership. Officers, directors and such beneficial owners are
required by Securities and Exchange Commission regulation to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
based solely on review of the copies of such reports furnished to the Company
and written representations that no other reports were required, during the
fiscal year ended September 30, 1998, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
TWO NOMINEES FOR DIRECTORS.
II. PROPOSAL TO APPROVE 1999 STOCK OPTION PLAN
The Company has adopted the 1999 Stock Option Plan (the "1999 Stock Option
Plan"), subject to approval of the Stockholders, under which the Company may
grant to key management employees of the Company and its subsidiaries options to
purchase a maximum of 610,000 Common Shares and alternative stock appreciation
rights ("SARs") with respect to all or any part of the number of shares covered
by those options. As of November 17, 1998, a total of 3,184 Common Shares
remained available for future awards under the 1990 Stock Option Plan and a
total of 107,097 Common Shares remained available for future awards under the
1994 Stock Option Plan. The purpose of the 1999 Stock Option Plan is to provide
increased incentive to key management employees throughout the Company and to
encourage their ownership of the Company's stock. Both incentive stock options
and non-statutory stock options may be granted under the 1999 Stock Option Plan.
So long as the Deposit and Trust Agreement is in effect, upon exercise of the
options, the optionee will receive Receipts evidencing Common Shares in lieu of
Common Shares. The Company may also grant options to purchase Receipts as
opposed to Common Shares.
The complete text of the 1999 Stock Option Plan is set forth in Exhibit A
to this proxy statement. The following summary of certain provisions of the 1999
Stock Option Plan is qualified by reference to the text of the 1999 Stock Option
Plan.
The 1999 Stock Option Plan will be administered by the Human Resources and
Ethics Committee (the "Committee"), which at all times will be constituted to
comply with the requirements of Rule 16b-3 under the Securities Exchange Act of
1934 or any successor rule. The Committee will determine the individuals to
whom, and the time or times at which, options and SARs are granted and the
number of shares subject to each option or SAR. No more than 70,000 options or
SARs may be granted to any individual during any
14
<PAGE> 16
calendar year. Participants in the Plan must be full-time employees of the
Company or its subsidiaries who are key management personnel. Approximately 300
persons are expected to be eligible to participate in the Plan.
The Committee will have plenary authority to interpret the 1999 Stock
Option Plan, to determine the terms and provisions of each option and SAR
agreement (which need not be identical) and to make all other determinations in
the administration of the 1999 Stock Option Plan. Under the Internal Revenue
Code of 1986, as amended, to the extent the aggregate fair market value,
determined at the time of grant, of Common Shares with respect to which
incentive stock options are exercisable for the first time during any calendar
year exceeds $100,000, such options are treated as non-statutory stock options.
The purchase price under each stock option may not be less than 100% of the fair
market value of the Common Shares at the time of the grant. Such fair market
value shall generally be considered to be the mean between the high and low
price of the Common Shares as traded on the New York Stock Exchange on the day
the option is granted; provided, that the Committee may adopt any other
criterion for the determination of such fair market value as it may determine to
be appropriate. The purchase price is to be paid in cash or, at the discretion
of the Committee, in Common Shares with an equivalent market value, or in cash
and Common Shares.
Under the 1999 Stock Option Plan, at the time an option is granted or at
any time thereafter, the Committee, in its discretion, may grant to an optionee
an alternative SAR with respect to all or any part of the number of shares
covered by his unexercised option. The optionee who also holds a SAR may, in
lieu of exercising the option, exercise the SAR. Upon exercise of the SAR, the
optionee will be paid in cash or Common Shares an amount equal to the excess of
the fair market value of one share on the date of exercise over the per share
exercise price for the option in respect of which the SAR was granted,
multiplied by the number of shares as to which the SAR is exercised. The
Committee will determine the form of payment of the SAR. Each SAR will be
exercisable for such period as the Committee determines, which time period may
not exceed the time period during which the corresponding option may be
exercised.
The term of each option will be not more than 10 years from the date of
grant. Subject to limitations set out in the next paragraph, options will be
exercisable at such time or times as the Committee in each instance approves,
which need not be uniform for all options.
Incentive stock options and SARs will not be transferable except by will or
the laws of descent and distribution, and may be exercised during the lifetime
of the optionee only by the optionee. An option or SAR must be exercised prior
to the termination of employment, except as follows: if employment is terminated
with the approval of the Company, the Committee in its discretion may permit the
option or SAR to be exercised, to the extent it was exercisable at the date of
termination, within three months after such termination; if employment is
terminated on account of disability, the option or SAR may be exercised, to the
extent it was exercisable at the date of termination, within one year after such
termination; in the event of death of the optionee while employed by the Company
or within three months after termination of employment (or one year in the case
of termination due to disability), the option or SAR may be exercised, to the
extent it was exercisable at the date of death, within one year after the date
of death; but in no case may an option or SAR be exercised after 10 years from
the date of grant of the option.
If any option expires or terminates without having been exercised in full,
the unpurchased shares subject to such option will again be available for the
grant of options under the 1999 Stock Option Plan. Any shares tendered in
exercise of an option will again be available for grant under the 1999 Stock
Option Plan.
The number of shares subject to options and SARs, and the option prices and
SAR exercise amounts, may be appropriately adjusted in the event of changes in
the outstanding Common Shares by reason of stock dividends, recapitalizations,
mergers, consolidations, split-ups, combinations or exchanges of shares and the
like. The Board of Directors or the Committee may at any time terminate or
modify the 1999 Stock Option Plan, except that without further approval of the
Stockholders they may not increase the maximum number of shares as to which
options or SARs may be granted under the Plan (except under the anti-dilution
provision thereof), or change the class of employees to whom options or SARs may
be granted, or withdraw the authority to administer the Plan from a committee
consisting of Directors of the Company whose members satisfy the requirements of
paragraph 4 of the Plan. The 1999 Stock Option Plan will terminate on August 5,
2008. No termination or amendment of the Plan may, without the consent of the
optionee to whom
15
<PAGE> 17
an option or SAR shall have been granted, adversely affect the rights of such
optionee under the option or SAR.
No options have been granted under the 1999 Stock Option Plan as of the
date hereof, and no determinations have been made as to whom options will be
granted. The last reported sale price of Receipts as reported on the New York
Stock Exchange on November 30, 1998, was $9.875 per share.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee does not realize income on the grant
of an incentive stock option. If an optionee exercises an incentive stock option
in accordance with the terms of the option and does not dispose of the shares
acquired within two years from the date of the grant of the option or within one
year from the date of exercise, the optionee will not realize any ordinary
income by reason of the exercise, and the employer will be allowed no deduction
by reason of the grant or exercise. The optionee's basis in the shares acquired
upon exercise will be the amount of cash paid upon exercise. Provided the
optionee holds the shares as a capital asset at the time of sale or other
disposition of the shares, his gain or loss, if any, recognized on the sale or
other disposition will be capital gain or loss. The amount of his gain or loss
will be the difference between the amount realized on the disposition of the
shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will realize ordinary income at the time of
disposition which will equal the excess, if any, of the lesser of (a) the amount
realized on the disposition or (b) the fair market value of the shares on the
date of exercise, over the optionee's basis in the shares. The Company will be
entitled to a deduction in an amount equal to such income. The excess, if any,
of the amount realized on disposition of such shares over the fair market value
of the shares on the date of exercise will be long- or short-term capital gain,
depending upon the holding period of the shares, provided the optionee holds the
shares as a capital asset at the time of disposition.
The excess of the fair market value of the shares at the time the incentive
stock option is exercised over the exercise price for the shares is tax
preference income taken into account in computing the alternative minimum tax
applicable to individuals.
Non-Statutory Stock Options. Non-statutory stock options do not qualify
for the special tax treatment accorded to incentive stock options under the
Code. Although an optionee does not recognize income at the time of the grant of
the option, he recognizes ordinary income upon the exercise of a non-statutory
option in an amount equal to the excess of the fair market value of the stock on
the date of exercise of the option over the amount of cash paid for the stock.
As a result of the optionee's exercise of a non-statutory stock option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. If the optionee pays all or part of the
option price of a non-statutory stock option by surrendering shares already
owned by him, certain additional tax rules apply.
The excess of the fair market value of the stock on the date of exercise of
a non-statutory stock option over the exercise price is not a tax preference
item.
Stock Appreciation Rights. Although the recipient of a SAR does not
recognize income at the time the right is granted, he will recognize income when
the right is exercised in an amount equal to the cash and the fair market value
of the property he receives. The Company will be entitled to deduct as
compensation an amount equal to the income recognized by the recipient.
However, so long as sale of the stock (if any) received would subject him
to suit under Section 16(b) of the Securities Exchange Act of 1934, the
recipient does not recognize income and no tax deduction is allowed to the
Company until the earlier of the expiration of six months from the date of
exercise and the date on which the Section 16(b) restriction lapses. At such
time, the recipient will recognize income equal to the fair market value of the
stock at the time the Section 16(b) restriction lapses and the Company will be
entitled to a tax deduction of a like amount. The recipient may elect to
recognize income upon receipt of the stock and
16
<PAGE> 18
not at the later time, in which case the tax consequences to the recipient and
the Company are the same as if he were not subject to the Section 16(b)
restriction.
If a SAR is paid in stock, the recipient's basis will be equal to the
amount of ordinary income recognized by the recipient in respect of such stock,
and his holding period will commence on the day such income is recognized.
The foregoing is a summary of the federal income tax consequences to the
participants in the 1999 Stock Option Plan and to the Company, based upon
current income tax laws, regulations and rulings.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
1999 STOCK OPTION PLAN.
III. VOTING
The affirmative vote of the holders of a majority of the shares entitled to
vote which are present in person or represented by proxy at the 1999 Annual
Meeting is required to elect directors, to approve the 1999 Stock Option Plan
and to act on any other matters properly brought before the meeting. Shares
represented by proxies which are marked "withhold authority" with respect to the
election of any one or more nominees for election as directors, proxies which
are marked "abstain" on the proposal to approve the 1999 Stock Option Plan, and
proxies which are marked to deny discretionary authority on other matters will
be counted for the purpose of determining the number of shares represented by
proxy at the meeting. Such proxies will thus have the same effect as if the
shares represented thereby were voted against such nominee or nominees, against
such proposal to approve the 1999 Stock Option Plan, and against such other
matters, respectively. Shares not voted on one or more but less than all such
matters on proxies returned by brokers will be treated as not represented at the
meeting as to such matter or matters.
The Company knows of no other matters to come before the meeting. If any
other matters properly come before the meeting, the proxies solicited hereby
will be voted on such matters in accordance with the judgment of the persons
voting such proxies.
IV. INDEPENDENT AUDITORS
KPMG Peat Marwick LLP were the auditors for the fiscal year ended September
30, 1998, and the Audit and Finance Committee has selected them as auditors for
the year ending September 30, 1999. 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.
V. STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the 2000 Annual
Meeting must be received by the Company by August 6, 1999 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
17
<PAGE> 19
that are not made in accordance with these procedures or that are not a proper
subject for Stockholder action in accordance with the provisions of applicable
law. These requirements are separate from and in addition to the requirements a
Stockholder must meet to have a proposal included in the Company's proxy
statement. The foregoing time limits also apply in determining whether notice is
timely for purposes of rules adopted by the Securities and Exchange Commission
relating to the exercise of discretionary voting authority.
In each case, the notice must be given to the Secretary of the Company,
whose address is 8888 Ladue Road, Suite 200, St. Louis, Missouri 63124-2090. 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.
18
<PAGE> 20
EXHIBIT A
ESCO ELECTRONICS CORPORATION
1999 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The ESCO Electronics Corporation 1999 Stock Option Plan (the "Plan") is
intended as an incentive to, and to encourage ownership of the stock of ESCO
Electronics Corporation ("Company") by, certain key officers, managers and
professional employees of the Company and its subsidiaries. It is intended that
certain options granted hereunder will qualify as incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and that other options granted
hereunder will not qualify as Incentive Stock Options.
2. STOCK SUBJECT TO THE PLAN.
Six hundred ten thousand (610,000) shares of the authorized but unissued
Common Stock, par value of $0.01 per share, of the Company have been allocated
to the Plan and will be reserved for issue upon the exercise of options granted
under the Plan. The Company may, in its discretion, use shares held in the
treasury in lieu of authorized but unissued shares. If any such option shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for the purposes of
the Plan. Any shares of Common Stock which are used by an optionee as full or
partial payment to the Company of the purchase price of shares of Common Stock
upon exercise of a stock option shall again be available for the purposes of the
Plan. Options may also be granted to purchase Common Stock Trust Receipts issued
under the Deposit and Trust Agreement dated September 24, 1990 among the
Company, Emerson Electric Co., Boatmen's Trust Company, as Trustee (of which The
Chase Manhattan Bank is the current Trustee), and the holders of such Receipts
from time to time, and whenever such Agreement is in effect, the term "Common
Stock" hereunder shall include such Common Stock Trust Receipts wherever
appropriate. The number of shares with respect to which options and stock
appreciation rights ("SARs") may be granted to any individual during any
calendar year may not exceed seventy thousand (70,000) shares.
3. ADMINISTRATION.
The Plan shall be administered by the Committee referred to in Paragraph 4
(the "Committee"). Subject to the express provisions of the Plan, the Committee
shall have plenary authority, in its discretion, to determine the individuals to
whom, and the time or times at which, options and SARs shall be granted and the
number of shares to be subject to each option or SAR. In making such
determinations the Committee may take into account the nature of the services
rendered by the respective individuals, their present and potential
contributions to the Company's success and such other factors as the Committee,
in its discretion, shall deem relevant. Subject to the express provisions of the
Plan, the Committee shall also have plenary authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the terms and provisions of the respective stock option and SAR agreements
(which need not be identical) and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's determinations on
the matters referred to in this Paragraph 3 shall be conclusive.
4. THE COMMITTEE.
The Committee shall be the Human Resources and Ethics Committee of the
Board of Directors and shall at all times be constituted to comply with Rule
16b-3 under the Securities Exchange Act of 1934, or any successor to such Rule.
In addition, such Committee shall consist solely of two or more Outside
Directors. For this purpose, an Outside Director shall mean a director of the
Company who:
(1) is not an employee of the Company or any subsidiary while he is a
member of the Committee;
(2) is not a former employee of the Company or a subsidiary who receives
compensation for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year;
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<PAGE> 21
(3) has not been an Officer of the Company or a subsidiary; and
(4) shall not receive Remuneration from the Company or a subsidiary either
directly or indirectly in any capacity other than as a director.
"Remuneration" and "Officer" as used herein shall be determined in accordance
with Treas. Reg.1.162-27(e)(3) or any successor thereto.
The Committee shall be appointed by the Board of Directors, which may from
time to time appoint members of the Committee in substitution for members
previously appointed and may fill vacancies, however caused, in the Committee.
The Board of Directors shall select one of the Committee members as its
Chairman, and shall hold its meetings at such times and places as it may
determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members
present at any meeting at which there is a quorum. Any decision or determination
reduced to writing and signed by all of the members shall be fully as effective
as if it had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary, shall keep minutes of its meetings and shall
make such rules and regulations for the conduct of its business as it shall deem
advisable.
5. ELIGIBILITY.
Options and SARs may be granted only to key officers, managers and
professional employees of the Company or its subsidiaries. The term "key
officers, managers and professional employees" is not limited to, but includes,
officers, whether or not they are directors, but does not include directors who
are not also executive employees of the Company, or a subsidiary thereof. The
term "subsidiary" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the option or SAR, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain, or such other meaning as may be hereafter ascribed to it in
Section 424 of the Code.
6. OPTION PRICES.
The purchase price of the Common Stock under each option shall not be less
than 100% of the fair market value of the stock at the time of the granting of
the option. Such fair market value shall generally be considered to be the mean
between the high and low prices of the Company's Common Stock as traded on the
New York Stock Exchange on the day the option is granted; provided, however,
that the Committee may adopt any other criterion for the determination of such
fair market value as it may determine to be appropriate. The purchase price is
to be paid in full upon the exercise of the option, either (i) in cash, (ii) in
the discretion of the Committee, by the tender to the Company of shares of the
Common Stock of the Company, owned by the optionee and registered in his name,
having a fair market value equal to the cash exercise price of the option being
exercised, with the fair market value of such stock to be determined in such
appropriate manner as may be provided for by the Committee or as may be required
in order to comply with, or to conform to the requirements of, any applicable
laws or regulations, or (iii) in the discretion of the Committee, by any
combination of the payment methods specified in clauses (i) and (ii) hereof;
provided that, no shares of Common Stock may be tendered in exercise of an
Incentive Stock Option if such shares were acquired by the optionee through the
exercise of an Incentive Stock Option unless (i) such shares have been held by
the optionee for at least one year and (ii) at least two years have elapsed
since such prior Incentive Stock Option was granted. In addition, the optionee
may effect a "cashless exercise" of an option in lieu of paying the option price
in cash or shares of Common Stock of the Company owned by the optionee, by
surrendering the option for that number of shares of Common Stock determined by
multiplying the number of option shares to which he would otherwise be entitled
by a fraction, the numerator of which is the excess of the then current fair
market value per share of the Common Stock over the exercise price, and the
denominator of which is the then current fair market value per share of Common
Stock. The proceeds of sale of stock subject to option are to be added to the
general funds of the Company or to the shares of the Common Stock of the Company
held in its Treasury, and used for its corporate purposes as the Board of
Directors shall determine.
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<PAGE> 22
7. OPTION AMOUNTS.
The maximum aggregate fair market value (determined at the time an option
is granted in the same manner as provided for in Paragraph 6 hereof) of the
Common Stock of the Company with respect to which Incentive Stock Options are
exercisable for the first time by any optionee during any calendar year (under
all plans of the Company and its subsidiaries) shall not exceed $100,000.
8. EXERCISE OF OPTIONS.
The term of each option shall be not more than ten (10) years from the date
of granting thereof or such shorter period as is prescribed in Paragraph 9
following. Within such limit, options will be exercisable at such time or times,
and subject to such restrictions and conditions, as the Committee shall, in each
instance, approve, which need not be uniform for all optionees; provided,
however, that except as provided in Paragraphs 9 and 10 following, no option may
be exercised at any time unless the optionee is then an employee of the Company
or a subsidiary and has been so employed continuously since the granting of the
option. The holder of an option shall have none of the rights of a shareholder
with respect to the shares subject to option until such shares shall be issued
to him upon the exercise of his option. Upon exercise of an option the Committee
shall withhold a sufficient number of shares to satisfy the Company's
withholding obligations for any taxes incurred as a result of such exercise, and
the Committee may, at the request of the optionee, withhold a sufficient number
of shares to satisfy the optionee's tax liability incurred as a result of such
exercise up to the maximum marginal federal, state and local tax rates;
provided, that in lieu of all or part of such withholding, the optionee may pay
an equivalent amount of cash to the Company.
9. TERMINATION OF EMPLOYMENT.
The holder of any option issued hereunder must exercise the option prior to
his termination of employment, except that if the employment of an optionee
terminates with the consent and approval of his employer, the Committee may, in
its absolute discretion, permit the optionee to exercise his option, to the
extent that he was entitled to exercise it at the date of such termination of
employment, at any time within three (3) months after such termination, but not
after ten (10) years from the date of the granting thereof. If the optionee
terminates employment on account of disability he may exercise such option to
the extent he was entitled to exercise it at the date of such termination at any
time within one (1) year of the termination of his employment but not after ten
(10) years from the date of the granting thereof. For this purpose a person
shall be deemed to be disabled if he is permanently and totally disabled within
the meaning of Section 422(c)(6) of the Code, which, as of the date hereof,
shall mean that he is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. A person shall be considered
disabled only if he furnishes such proof of disability as the Committee may
require. Options granted under the Plan shall not be affected by any change of
employment so long as the holder continues to be an employee of the Company or a
subsidiary thereof. The option agreements may contain such provisions as the
Committee shall approve with reference to the effect of approved leaves of
absence. Nothing in the Plan or in any option granted pursuant to the Plan shall
confer on any individual any right to continue in the employ of the Company or
any subsidiary or interfere in any way with the right of the Company or any
subsidiary thereof to terminate his employment at any time.
10. DEATH OF HOLDER OF OPTION.
In the event of the death of an individual to whom an option has been
granted under the Plan, while he is employed by the Company (or a subsidiary) or
within three (3) months after the termination of his employment (or one (1) year
in the case of the termination of employment of an option holder who is disabled
as above provided) the option theretofore granted to him may be exercised, to
the extent that he was entitled to exercise it at the date of such death, by a
legatee or legatees of the option holder under his last will, or by his personal
representatives or distributees, at any time within a period of one (1) year
after his death, but not after ten (10) years from the date of granting thereof,
and only if and to the extent that he was entitled to exercise the option at the
date of his death.
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<PAGE> 23
11. NON-TRANSFERABILITY OF OPTIONS.
Each Incentive Stock Option granted under the Plan shall, by its terms, be
non-transferable otherwise than by will or the laws of descent and distribution
and an option may be exercised, during the lifetime of the holder thereof, only
by him.
12. SUCCESSIVE OPTION GRANTS.
Successive option grants may be made to any holder of options under the
Plan.
13. INVESTMENT PURPOSE.
Each option under the Plan shall be granted only on the condition that all
purchases of stock thereunder shall be for investment purposes, and not with a
view to resale or distribution, except that the Committee may make such
provision with respect to options granted under this Plan as it deems necessary
or advisable for the release of such condition upon the registration with the
Securities and Exchange Commission of stock subject to the option, or upon the
happening of any other contingency warranting the release of such condition.
14. ALTERNATIVE STOCK APPRECIATION RIGHTS.
(a) Grant. At the time of grant of an option, the Committee, in its
discretion, may grant to the optionee under the Plan an alternative SAR for all
or any part of the number of shares covered by his option. The SAR agreement
shall specify the options in respect of which the alternative SAR is granted.
Any subsequent exercise of an option by the holder thereof who also holds an
alternative SAR shall reduce his alternative SAR by the same number of shares as
to which his option is exercised. Any exercise of his alternative SAR shall
reduce his option by the same number of shares as to which his SAR is exercised.
An alternative SAR granted to an option holder shall specify a time period for
exercise of such SAR, which time period may not extend beyond, but may be less
than, the time period during which the corresponding option may be exercised.
The failure of the holder of the alternative SAR to exercise such SAR within the
time period specified shall not reduce his option rights. If an alternative SAR
is granted for a number of shares less than the total number of shares covered
by the corresponding option the Committee may later grant to the option holder
an additional alternative SAR covering additional shares, provided, however,
that the aggregate amount of all alternative SARs held by an option holder shall
at no time exceed the total number of shares covered by his unexercised options.
(b) Exercise. The holder of any option which by its terms is exercisable
who also holds an alternative SAR may, in lieu of exercising his option, elect
to exercise his alternative SAR; subject, however, to the limitations on time of
exercise hereinafter set forth. Such SAR shall be exercised by the delivery to
the Company of a written notice which shall state that the optionee elects to
exercise his SAR as to the number of shares specified in the notice and which
shall further state what portion, if any, of the SAR exercise amount
(hereinafter defined) the holder thereof requests be paid to him in cash and
what portion, if any, he request be paid to him in Common Stock of the Company.
The Committee promptly shall cause to be paid to such holder the SAR exercise
amount either in cash, in Common Stock of the Company, or any combination of
cash and stock as it may determine. Such determination may be either in
accordance with the request made by the holder of the SAR or otherwise, in the
sole discretion of the Committee. The SAR exercise amount is the excess of the
fair market value of one share of the Company's Common Stock on the date of
exercise over the per option price for the option in respect of which the
alternative SAR was granted multiplied by the number of shares as to which the
SAR is exercised. For the purposes hereof fair market value of one share of the
Company's Common Stock on the date of exercise shall be the mean between the
high and low prices of the Company's Common Stock on the New York Stock Exchange
on such date; provided, that the Committee may adopt any other criterion for the
determination of such fair market value as it may determine to be appropriate.
(c) Other Provisions of Plan Applicable. All provisions of this Plan
applicable to options granted hereunder shall apply with equal effect to
alternative SARs. Not in limitation of the prior sentence it is expressly
provided that no SAR shall be transferable otherwise than by will or the laws of
descent and distribution and an SAR may be exercised, during the lifetime of the
holder thereof, only by such holder.
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<PAGE> 24
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR CORPORATE ACQUISITIONS.
Notwithstanding any other provisions of the Plan, the option and SAR
agreements may contain such provisions as the Committee shall determine to be
appropriate for the adjustment of the number and class of shares subject to each
outstanding option or SAR and the option prices and SAR exercise amounts in the
event of changes in the outstanding Common Stock by reason of stock dividends,
recapitalization, mergers, consolidations, split-ups, combinations or exchanges
of shares and the like, and, in the event of any such change in the outstanding
Common Stock, the aggregate number and class of shares available under the Plan
and the maximum number of shares as to which options and SARs may be granted to
any individual shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. In the event the Company or a subsidiary
enters into a transaction described in Section 424(a) of the Code with any other
corporation, the Committee may grant options or SARs to employees or former
employees of such corporation in substitution of options or SARs previously
granted to them upon such terms and conditions as shall be necessary to qualify
such grant as a substitution described in Section 424(a) of the Code.
16. AMENDMENT AND TERMINATION.
Either the Board of Directors or the Committee may at any time terminate
the Plan, or make such modifications of the Plan as it shall deem advisable;
provided, however, that neither the Board of Directors nor the Committee may,
without further approval by the holders of Common Stock, increase the maximum
numbers of shares as to which options or SARs may be granted under the Plan
(except under the anti-dilution provisions hereof), or change the class of
employees to whom options or SARs may be granted, or withdraw the authority to
administer the Plan from a committee whose members satisfy the requirements of
Paragraph 4. No termination or amendment of the Plan may, without the consent of
the optionee to whom any option or SAR shall theretofore have been granted,
adversely affect the rights of such optionee under such option or SAR.
17. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective upon adoption by the Board of Directors or
the Committee subject, however, to its further approval by the shareholders of
the Company given within twelve (12) months of the date the Plan is adopted by
the Board of Directors or the Committee at a regular meeting of the shareholders
or at a special meeting duly called and held for such purpose. Grants of options
or SARs may be made prior to such shareholder approval but all option and SAR
grants made prior to shareholder approval shall be subject to the obtaining of
such approval and if such approval is not obtained, such options and SARs shall
not be effective for any purpose.
18. TIME OF GRANTING OF OPTIONS OR SARS.
An option or SAR grant under the Plan shall be deemed to be made on the
date on which the Committee, by formal action of its members duly recorded in
the records thereof, makes an award of an option or SAR to an eligible employee
of the Company or its subsidiaries (but in no event prior to the adoption of the
Plan by the Board of Directors), provided that such option or SAR is evidenced
by a written option or SAR agreement duly executed on behalf of the Company and
on behalf of the optionee within a reasonable time after the date of the
Committee action.
19. TERM OF PLAN.
This Plan shall terminate ten (10) years after the date on which it is
approved and adopted by the Board of Directors or the Committee, and no option
or SAR shall be granted hereunder after the expiration of such ten-year period.
Options or SARs outstanding at the termination of the Plan shall continue in
accordance with their terms and shall not be affected by such termination.
The foregoing Plan was approved and adopted by the Human Resources and
Ethics Committee of the Board of Directors of the Company on August 6, 1998.
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<PAGE> 25
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 9, 1999, 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> 26
Please mark
your votes as X
indicated in
this example
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS (INSTRUCTION: To withhold authority to vote for any individual
FOR all nominees WITHHOLD nominee,strike a line through the nominee's name on the list below.)
listed to the right AUTHORITY
(except as marked to vote for all nominees Nominees: J.J. Adorjan, W.S. Antle III
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 4,
1998.
2. APPROVAL OF 1999 STOCK OPTION PLAN The proxies will instruct the Trustee to vote the Common Shares
represented by your Receipts in the manner directed herein by the
undersigned Receiptholder.
FOR AGAINST ABSTAIN If no direction is made, this proxy will be voted FOR Proposal 1 and
/ / / / / / FOR Proposal 2.
Please sign exactly as your name appears to the left. When signing as
an attorney, executor, administrator, trustee or guardian, please give
full title as such. If signing on behalf of a corporation, please sign in
full corporate name by President or other authorized officer. If signing
on behalf of a partnership, please sign in partnership name by authorized
person.
Dated: , 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 4, 1998
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 Tuesday, February 9, 1999.
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.
