SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
/X/ Definitive Proxy Statement Commission Only (as permitted
/ / Definitive Additional Materials by Rule 14a-6(e)(2))
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
ENGINEERED SUPPORT SYSTEMS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
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(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
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(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):
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(4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
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(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(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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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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NOTICE OF THE ANNUAL MEETING OF
THE SHAREHOLDERS OF
ENGINEERED SUPPORT SYSTEMS, INC.
St. Louis, Missouri
February 2, 2004
To the Shareholders of
Engineered Support Systems, Inc.:
The Annual Meeting of the Shareholders of Engineered Support
Systems, Inc. will be held at the headquarters of the Company, 201
Evans Lane, St. Louis, Missouri 63121 on Tuesday, March 2, 2004 at
10:00 a.m., local time, for the purpose of considering and voting
upon the following matters:
1. The election of six (6) directors to hold office for three
(3) years;
2. The approval of the Engineered Support Systems, Inc. 2004
Stock Option Plan and the reservation of 350,000 shares of
Engineered Support Systems, Inc. common stock for future
issuance under the plan;
3. The approval of the Engineered Support Systems, Inc. 2004
Non-Executive Stock Option Plan and the reservation of
350,000 shares of Engineered Support Systems, Inc. common
stock for future issuance under the plan; and,
4. To transact such other business, if any, as lawfully may be
brought before the meeting or any adjournment thereof.
A proxy statement, proxy and a copy of the Company's Annual
Report for the year ended October 31, 2003 accompany this Notice of
the Annual Meeting of the Shareholders.
We encourage all shareholders to attend the 2004 Annual Meeting
at the headquarters of the Company, 201 Evans Lane, St. Louis,
Missouri 63121. For security purposes, if you plan to attend, you
must notify the Secretary of the Company of your intent to do so by
Friday, February 27, 2004 by checking the appropriate box of the
proxy or by mail to the address indicated above.
ENGINEERED SUPPORT SYSTEMS, INC.
/s/ Gerald E. Daniels
Gerald E. Daniels
Vice Chairman and Chief Executive Officer
/s/ David D. Mattern
David D. Mattern
Secretary and General Counsel
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE EXECUTE THE
ENCLOSED PROXY AND MAIL IT PROMPTLY. A RETURN ENVELOPE, WHICH DOES
NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR
YOUR CONVENIENCE. THE PROXY SHOULD BE RETURNED BY FEBRUARY 27, 2004
IN THE ENCLOSED ENVELOPE TO ENSURE THAT YOUR VOTE IS COUNTED AT THE
2004 ANNUAL MEETING.
ENGINEERED SUPPORT SYSTEMS, INC.
201 EVANS LANE
ST. LOUIS, MISSOURI 63121
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF THE SHAREHOLDERS
TO BE HELD ON MARCH 2, 2004
THIS PROXY STATEMENT, WHICH IS BEING MAILED TO SHAREHOLDERS ON,
OR ABOUT, FEBRUARY 2, 2004, IS PROVIDED IN CONJUNCTION WITH THE
SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF ENGINEERED
SUPPORT SYSTEMS, INC. ("ESSI" OR "COMPANY") FOR USE AT THE 2004
ANNUAL MEETING OF THE SHAREHOLDERS OF THE COMPANY TO BE HELD ON
MARCH 2, 2004 AT 10:00 A.M. LOCAL TIME AT THE HEADQUARTERS OF THE
COMPANY, 201 EVANS LANE, ST. LOUIS, MISSOURI 63121. THE NOTICE OF
MEETING, THE PROXY AND THE ANNUAL REPORT FOR THE YEAR ENDED OCTOBER
31, 2003 ARE ENCLOSED IN THIS PACKAGE. THE PROXY SHOULD BE RETURNED
BY FEBRUARY 27, 2004 IN THE ENCLOSED SELF-ADDRESSED, POSTAGE
PREPAID, ENVELOPE. FOR SECURITY PURPOSES, IF YOU PLAN TO ATTEND THE
2004 ANNUAL MEETING, YOU MUST NOTIFY THE SECRETARY OF THE COMPANY OF
YOUR INTENT TO DO SO BY FRIDAY, FEBRUARY 27, 2004.
PROXY
The accompanying proxy is being solicited on behalf of the Board
of Directors of the Company to be used at the 2004 Annual Meeting of
the Shareholders.
The shares represented by each executed proxy will be voted at
the meeting in accordance with the instructions contained in the
proxy. In the event the Company receives an executed proxy that
contains no instructions, the proxy shall be voted in accordance
with the Board of Directors' recommendations as follows:
1. "FOR" the election of six (6) directors to hold office for
three (3) years;
2. "FOR" the approval of the 2004 Stock Option Plan and the
reservation of 350,000 shares of Engineered Support Systems,
Inc. common stock for future issuance under the plan;
3. "FOR" the approval of the 2004 Non-Executive Stock Option
Plan and the reservation of 350,000 shares of Engineered
Support Systems, Inc. common stock for future issuance under
the plan; and,
4. At the discretion of those individuals named in the enclosed
proxy, on any other matter that may lawfully be brought
before the meeting or any adjournment thereof.
The Company will pay the reasonable expenses associated with its
solicitation of the proxies for the meeting. These expenses include
the cost of preparing, assembling and mailing the Notice of the
Annual Meeting of the Shareholders, the proxy, the proxy statement
and the return envelopes, as well as the cost of handling and
tabulating the number of proxies received, and the reasonable fees
which brokerage houses, other institutions, nominees or fiduciaries
customarily charge to forward the aforementioned material to the
beneficial owners.
RIGHT OF REVOCATION
Any shareholder executing a proxy for the meeting may revoke the
proxy by written notice of revocation delivered or mailed to, and
received by, the Secretary of the Company at 201 Evans Lane, St.
Louis, Missouri 63121 prior to the time the proxy is voted.
VOTING RIGHTS
The shareholders of record at the close of business on January
16, 2004 are entitled to vote at the 2004 Annual Meeting of the
Shareholders. Proxies properly executed by the Company's
shareholders of record on January 16, 2004 will be voted as
specified on the proxy and will be voted on all business to be voted
upon at the
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Annual Meeting of the Shareholders and any adjournment thereof.
Generally, each share is entitled to one vote. However, in the
election of directors, cumulative voting applies in which each
shareholder has the right to cast as many votes as equals the number
of shares held by that shareholder multiplied by the number of
directors to be elected. Each shareholder may also cast the whole
number of votes for one nominee or distribute them among some or all
nominees. If authority is withheld to vote for one or more
individual nominees on the proxy, the total cumulative votes will be
allocated equally among the remaining nominees. As of January 16,
2004, there were 25,864,074 shares of common stock outstanding and
entitled to vote.
VOTE REQUIRED
A quorum is required for the transaction of business at the
Annual Meeting. A majority of the issued and outstanding shares
entitled to vote at the Annual Meeting will constitute a quorum.
Shares represented by properly executed proxies, including proxies
which direct that the shares be voted to abstain or withhold a vote
on a matter, will be counted for purposes of determining whether a
quorum exists. Broker non-votes will be counted for purposes of
determining whether a quorum exists only if such shares are voted on
a matter presented at the meeting. A broker non-vote occurs when a
nominee holding shares for a beneficial owner does not vote a
particular proposal because the nominee does not have discretionary
voting power with respect to that item and has not received
instructions from the beneficial owner. Every decision of a majority
of such quorum shall be valid as a corporate act unless a larger
vote is required under the Statutes of Missouri.
At all elections of directors of the Company, each shareholder
shall have the right to cast as many votes in the aggregate as shall
equal the number of voting shares so held by him or her in the
Company, multiplied by the number of directors to be elected at such
election; and each shareholder may cast the whole number of votes
either in person or by proxy for one nominee or distribute them
among two or more nominees. Approval of the Engineered Support
Systems, Inc. 2004 Stock Option Plan and 2004 Non-Executive Stock
Option Plan each requires a vote of holders of a majority of shares
represented at the Annual Meeting.
BENEFICIAL OWNERSHIP OF COMMON STOCK OF THE COMPANY
The table below sets forth the number of shares of common stock
(the only class of outstanding securities of the Company) known by
the Company to be beneficially owned by each 5% or greater
shareholder as of January 16, 2004.
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING(1)
------------------- ---------------------- --------------------
Neuberger Berman, Inc.......................... 2,418,570(2) 9.4%
605 Third Avenue
New York, NY 10158
Barclays Global Investors, N.A................. 2,229,101(3) 8.6%
45 Fremont Street
San Francisco, CA 94105
---------------
(1) For purposes of this table, the calculation of the
Percentage of Shares Outstanding is based on the number of
shares of common stock outstanding as of January 16, 2004.
(2) The information provided herein is based on a Schedule 13G,
dated February 12, 2003, filed jointly by Neuberger Berman,
Inc., Neuberger Berman, LLC, Neuberger Berman Management,
Inc. and Neuberger Berman Genesis Fund. The filing parties
reported sole voting power with respect to 10,350 shares,
shared voting power with respect to 1,774,800 shares and
shared dispositive power with respect to 2,418,570 shares
reported as beneficially owned. Neuberger Berman Genesis
Fund reported shared voting and shared dispositive power
with respect to 1,712,025 shares reported as beneficially
owned.
(3) The information provided herein is based on a Schedule 13G,
dated November 10, 2003, filed jointly by Barclays Global
Investors N.A., Barclays Global Fund Advisors and Barclays
Capital Inc. The filing parties reported sole voting and
sole dispositive power with respect to 2,229,101 shares.
3
The following table sets forth the number of shares of common
stock beneficially owned by (a) each director, (b) each nominee for
director, (c) each executive officer named in the Summary
Compensation Table, and (d) all directors and executive officers as
a group as of January 16, 2004:
SHARES OF COMMON STOCK PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) OUTSTANDING(3)
------------------------ ------------------------ --------------------
Michael F. Shanahan, Sr..................................... 576,929 2.2%
Gerald E. Daniels........................................... 151,719 (4)
Gerald A. Potthoff.......................................... 761,530 2.9%
Gary C. Gerhardt............................................ 958,998 3.6%
Ronald W. Davis............................................. 432,776 1.7%
William H. T. Bush.......................................... 56,251 (4)
General Michael P.C. Carns.................................. 50,805 (4)
U.S. Air Force, Retired
MG George E. Friel.......................................... 8,755 (4)
U.S. Army, Retired
Thomas J. Guilfoil.......................................... 87,216 (4)
S. Lee Kling................................................ 62,444 (4)
LTG Kenneth E. Lewi......................................... 47,353 (4)
U.S. Army, Retired
General Charles T. Robertson, Jr............................ 14,063 (4)
U.S. Air Force, Retired
General Crosbie E. Saint.................................... 13,688 (4)
U.S. Army, Retired
Michael F. Shanahan, Jr..................................... 84,186 (4)
Earl W. Wims, Ph.D.......................................... 37,264 (4)
All directors and executive officers as a group (38
persons).................................................. 4,041,247 14.0%
---------------
(1) Except as otherwise noted, each individual has sole voting
and investment power with respect to shares listed above.
(2) Totals include the following shares subject to stock options
owned that are either presently exercisable or exercisable
within 60 days after January 16, 2004: Mr. Shanahan, Sr.
(0), Mr. Daniels (150,000), Mr. Potthoff (698,438), Mr.
Gerhardt (844,688), Mr. Davis (428,438), Mr. Bush (47,813),
Mr. Carns (47,813), Mr. Friel (5,625), Mr. Guilfoil
(11,250), Mr. Kling (25,313), Mr. Lewi (0), Mr. Robertson,
Jr. (14,063), Mr. Saint (13,688), Mr. Shanahan, Jr.
(11,250), Mr. Wims (22,500) and all directors and executive
officers as a group (2,954,129).
(3) For purposes of this table, the calculation of the
Percentage of Shares Outstanding is based on the number of
shares of common stock outstanding as of January 16, 2004,
as increased by the assumed exercise of all options owned by
the Beneficial Owner indicated.
(4) The Percentage of Shares Outstanding is less than one
percent.
PROPOSAL ONE
ELECTION OF DIRECTORS
The by-laws of the Company provide for staggered terms for the
Directors. The election of the Directors for staggered terms
maintains management continuity and discourages undesirable mergers,
tender offers, proxy contests and the ill-favored exertion of
control by a large block of common stock.
The nominees, Gerald E. Daniels, Ronald W. Davis, William H. T.
Bush, S. Lee Kling, General Crosbie E. Saint (U.S. Army, Retired) and
Earl W. Wims, Ph.D., are each proposed to be elected for a three (3)
year term. The shares of common stock represented by properly executed
proxies will be voted in accordance with the
4
instructions contained in the proxy or, if no instructions are given,
for each of the nominees. All nominees have consented to be named and
to serve, if elected. If any nominee is unable to serve (which
management has no reason to expect), the individuals named in the
proxy intend to vote for the balance of those named and for a
substitute nominee, if management recommends a vote for the substitute
nominee.
THE BOARD RECOMMENDS THE SHAREHOLDERS VOTE "FOR" THE SIX (6)
NOMINEES TO THE BOARD.
The following table sets forth, for each director and nominee,
his principal occupation, the year in which his current term ends,
the year in which he was first elected as a director and his age.
NAME AND PRINCIPAL CURRENT FIRST
OCCUPATION OR EMPLOYMENT(1) TERM ENDS ELECTED AGE
--------------------------- --------- ------- ---
Michael F. Shanahan, Sr................................. March December 64
Chairman 2006 1983
Gerald E. Daniels....................................... March March 58
Vice Chairman and Chief Executive Officer 2004 2003
Gerald A. Potthoff...................................... March October 63
President and Chief Operating Officer 2005 1999
Gary C. Gerhardt........................................ March March 58
Vice Chairman and Chief Finanical Officer 2005 1998
Ronald W. Davis......................................... March March 57
President, Business Development 2004 2003
William H.T. Bush....................................... March March 65
Chairman 2004 2000
Bush-O'Donnell & Co., Inc.
General Michael P.C. Carns.............................. March March 66
U.S. Air Force, Retired 2006 2000
Major General (MG) George E. Friel...................... March September 61
U.S. Army, Retired 2005 1998
Thomas J. Guilfoil...................................... March March 84
Attorney at Law 2005 1993
Guilfoil, Petzall & Shoemake
S. Lee Kling............................................ March March 75
Chairman 2004 2000
The Kling Company
Lieutenant General (LTG) Kenneth E. Lewi................ March March 73
U.S. Army, Retired 2006 1992
General Charles T. Robertson, Jr........................ March December 57
U.S. Air Force, Retired 2005 2001
Vice President, Business Development Aerospace Support
The Boeing Company
General Crosbie E. Saint................................ March August 67
U.S. Army, Retired 2004 2000
Michael F. Shanahan, Jr................................. March December 37
2006 1994
Earl W. Wims, Ph.D...................................... March March 64
Chairman 2004 1992
Marketing Horizons, Inc.
---------------
(1) Michael F. Shanahan, Jr. is the son of Michael F. Shanahan,
Sr. and the son-in-law of Earl W. Wims. There are no other
family relationships between any of the directors or
executive officers.
Michael F. Shanahan, Sr. was elected Chairman of the Board of
the Company in July 1987. He has served as Chief Executive Officer
of the Company from 1985 to 2003. Mr. Shanahan also serves on the
Board of Directors of Falcon Products, Inc.
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Gerald E. Daniels was named Vice Chairman and Chief Executive
Officer of the Company in April 2003. Prior thereto, he served as
Senior Vice President of The Boeing Company, a designer and
manufacturer of commercial airplanes, military aircraft and missile
systems, and space and communications systems, since May 2000. In
addition, he has been President since May 2000 and Chief Executive
Officer since March 2001 of Boeing Military Aircraft and Missile
Systems. Prior thereto, he was Vice President and General Manager of
Boeing's U.S. Navy and Marine Corps Programs for Military Aircraft
and Missile Systems since August 1997. Mr. Daniels is also on the
Board of Directors of PRG-Schultz International, Inc.
Gerald A. Potthoff was named President and Chief Operating
Officer of the Company in October 1999. Prior thereto, Mr. Potthoff
served as President of Systems & Electronics Inc. from October 1991
to July 2000.
Gary C. Gerhardt was named Vice Chairman of the Company in
October 1999 and prior thereto served as Executive Vice President
since December 1994. He has been Chief Financial Officer of the
Company since October 1993.
Ronald W. Davis has been President, Business Development since
October 2002. Prior thereto, he served as Vice President--Planning &
Development since December 1999. Prior thereto, he served as Vice
President--Marketing for the Company since April 1999 and for
Engineered Air Systems, Inc. since 1990.
William H.T. Bush has been Chairman of the investment firm
Bush-O'Donnell & Co., Inc. since 1986. Previously, he was President
and Chief Executive Officer of Boatmen's National Bank of St. Louis.
Mr. Bush is also on the Board of Directors of DT Industries, Inc.,
WellPoint Heathcare Networks, Inc. and the Lord Abbett Family of
Mutual Funds.
General Michael P.C. Carns (U.S. Air Force, Retired) served in
the United States Air Force for 35 years until his retirement in
1994. From May 1991 until his retirement, General Carns served as
Vice Chief of Staff, Headquarters U.S. Air Force. Prior thereto, he
served as director of the Joint Staff from September 1989. He is
also on the Board of Directors of Rockwell Collins, Inc. and
Mykrolis Corporation.
MG George E. Friel (U.S. Army, Retired) served in the United
States Army for 38 years until his retirement in 1998. In the six
years preceding his retirement, Major General Friel headed the U.S.
Army Chemical and Biological Defense Command. He is also on the
Board of Directors of Quick-Med Technologies, Inc.
Thomas J. Guilfoil is the Senior and Founding Partner of the St.
Louis law firm, Guilfoil, Petzall & Shoemake. Mr. Guilfoil's
distinguished legal career of over 50 years began in St. Louis in
1941. Mr. Guilfoil also serves as Vice Chairman of the Arizona
Football Cardinals.
S. Lee Kling has been Chairman of the Kling Company, a merchant
banking company, since 2002 and prior thereto was Chairman of Kling
Rechter & Company, a merchant banking company, since 1991.
Previously, he was Chairman of Landmark Bancshares Corp., a bank
holding company. Mr. Kling is also on the Board of Directors of
Bernard Chaus, Inc., Electro Rent Corporation, Falcon Products,
Inc., Kupper Parker Communications, Inc. and National Beverage
Corporation.
LTG Kenneth E. Lewi (U.S. Army, Retired) served in the United
States Army for 34 years until his retirement in 1989. His career in
the U.S. Army centered primarily on providing logistical support to
U.S. armed forces.
General Charles T. Robertson, Jr. (U.S. Air Force, Retired) has
been Vice President, Business Development Aerospace Support of The
Boeing Company since April 2002. Prior thereto, he served in the
United States Air Force for 33 years until his retirement in 2001.
General Robertson served as Commander in Chief, U.S. Transportation
Command, and Commander, Air Mobility Command, Scott Air Force Base,
since 1998. Prior thereto he served as Commander, 15th Air Force,
Travis Air Force Base, since 1996.
General Crosbie E. Saint (U.S. Army, Retired) served in the
United States Army for 33 years until his retirement in 1992. In the
four years preceding his retirement, General Saint served as
Commander in Chief, United States Army, Europe and Seventh Army;
Commander, Central Army Group (NATO).
6
Michael F. Shanahan, Jr. served as Executive Vice President of
Lockton Companies, an insurance concern, from November 2000 to
September 2003. Prior thereto, he was a Producer for Lockton
Companies since October 1994.
Earl W. Wims, Ph.D., has been Chairman of Marketing Horizons,
Inc., a marketing research and consulting firm, since 1986. Dr. Wims
is nationally recognized for his work in market strategy and focus.
DIRECTOR MEETINGS AND COMMITTEES
During the year ended October 31, 2003, the Board of Directors
of the Company met four (4) times. The Board has determined that
each of William H. T. Bush, General Michael P. C. Carns, MG George
E. Friel, Thomas J. Guilfoil, S. Lee Kling, LTG Kenneth E. Lewi,
General Charles T. Robertson, Jr. and General Crosbie E. Saint
qualify as independent directors in accordance with the listing
standards and rules of the Nasdaq Stock Market, Inc. (Nasdaq). The
Board has four committees: Executive, Compensation, Audit and
Nominating. All directors attended 75% or more of the aggregate
number of meetings of the Board and applicable Committee meetings,
with the exception of General Saint who attended less than 75% of
Board meetings.
The Executive Committee for fiscal year 2003 consisted of
Michael F. Shanahan, Sr., Gerald E. Daniels, Gerald A. Potthoff,
Gary C. Gerhardt and Michael F. Shanahan, Jr. The principal function
of the Executive Committee is to execute all the authority and power
of the full Board of Directors in the management and operation of
the Company and to act on behalf of the Board between regular
meetings of the Board of Directors, except where action is
authorized to be taken only by the full Board. The Executive
Committee met on several occasions, as needed, throughout the course
of fiscal year 2003.
The Audit Committee for fiscal year 2003 consisted of William
H. T. Bush, General Michael P. C. Carns, MG George E. Friel and
S. Lee Kling, all of whom are considered independent under the listing
standards of Nasdaq. Mr. Kling serves as the Audit Committee's
financial expert. The Audit Committee operates under a written
charter adopted by the Board of Directors, a copy of which is
included with this proxy statement as Appendix A. The function of
the Audit Committee is to: review, from time to time, the financial
statements of the Company; meet, together and separately, with
management of the Company and its independent accountants to discuss
the financial statements and general accounting policies of the
Company; and, review the management letter issued by the independent
accountants and the Company's responses thereto. The Audit Committee
met five (5) times during fiscal year 2003.
The Compensation Committee for fiscal year 2003 consisted of
Thomas J. Guilfoil, LTG Kenneth E. Lewi and Earl W. Wims. The
purpose of the Compensation Committee is to review and approve the
compensation policies and arrangements of the Company and its
subsidiaries, as well as to administer the Company's stock option
and purchase plans. Members of the Compensation Committee are
restricted from voting on matters that affect them. The Compensation
Committee met three (3) times during fiscal year 2003.
The Nominating Committee for fiscal year 2003 consisted of
Thomas J. Guilfoil and General Charles T. Robertson, Jr. each of
whom are considered independent under the listing standards of the
Nasdaq. The purpose of the Nominating Committee is to identify,
evaluate and select potential director nominees. The Nominating
Committee operates pursuant to a written charter adopted by the
Board of Directors, a copy of which is included with this proxy
statement as Appendix B. The charter describes the committee's
process for identifying and evaluating nominees. The Nominating
Committee met once during fiscal 2003.
The Nominating Committee will consider nominees recommended by
shareholders. Any shareholder wishing to nominate a candidate for
director at a shareholders' meeting must submit a proposal as
described under "Shareholder Proposals for the Next Annual Meeting"
and furnish certain information about the proposed nominee. The notice
submission should include information on a candidate for director,
including the proposed candidate's name, age, business address,
residence address, principal occupation or employment for the previous
five years, and class or series and number of shares of the Company's
common stock owned beneficially or of record. In considering a
potential nominee for the Board, shareholders should note that the
rules of Nasdaq require that a majority of the Board be independent,
as defined by Nasdaq rules. Further, the candidates should evidence:
personal characteristics of the highest personal and professional
ethics, integrity
7
and values; an inquiring and independent mind and practical wisdom and
mature judgment; board training and experience at the policy-making
level in business, government or community organizations; expertise
that is useful to the Company and complementary to the background and
experience of other Board members; willingness to devote a required
amount of time to carrying out the duties and responsibilities of
Board membership; commitment to serve on the Board over a period of
several years to develop knowledge about the Company, its strategy and
its principal operations; and willingness to represent the best
interests of all constituencies and objectively appraise management
performance and involvement in activities or interests that do not
create a conflict with the director's responsibilities to the Company.
The notice submission should be addressed to Nominating Committee
Chair, c/o Engineered Support Systems, Inc. 201 Evans Lane, St. Louis,
Missouri 63121.
Shareholders who desire to communicate with members of the Board
should send correspondence addressed to Michael F. Shanahan, Sr.,
Chairman of the Board, c/o Engineered Support Systems, Inc. 201
Evans Lane, St. Louis, Missouri 63121. The Company does not,
however, forward sales or marketing materials or correspondence not
clearly identified as shareholder correspondence.
DIRECTORS FEES
Directors who are not full-time employees of the Company are
paid $1,000 for each meeting of the Board and $500 for each meeting
of the committee(s) on which they serve. Committee chairmen receive
an additional $500 per meeting. Directors are also paid $2,800 per
month during their term. Non-employee directors are reimbursed for
expenses incurred in attending meetings.
Non-employee directors also receive annual stock option awards
in accordance with the Engineered Support Systems, Inc. 2002 Stock
Option Plan for Non-Employee Directors. On March 4, 2003, Mssrs.
Bush, Carns, Friel, Guilfoil, Kling, Lewi, Robertson, Saint,
Shanahan, Jr. and Wims each received an option to acquire 5,625
shares of Engineered Support Systems, Inc. common stock at an
exercise price of $24.92 per share. Both the option shares and
exercise price have been adjusted to reflect the three-for-two stock
split effected by the Company on October 31, 2003.
RELATED PARTY TRANSACTIONS
Portal Dynamics Incorporated ("Portal") provided various
services to the Company in fiscal 2003 which included maintaining,
securing and monitoring the Company's ESSIbuy.com website and
performing as a subcontractor for the Company's Radian, Inc.
subsidiary. The Company paid Portal $1,126,000 in connection with
these services. During fiscal 2003, Portal paid the Company $160,000
for leased facilities. Timothy B. Fleischer, a former director and
former Group President of the Company, is the majority shareholder
of Portal.
Lockton Companies ("Lockton") served as agent on substantially
all of the Company's insurance policies in fiscal 2003. Total
commissions earned by Lockton on insurance premiums paid by the
Company in fiscal 2003 were $575,000. Michael F. Shanahan, Jr. was
the Executive Vice President of Lockton through September 2003, a
director of the Company and the son of Michael F. Shanahan, Sr.,
Chairman of the Board of the Company.
The Company paid David D. Mattern $345,000 in fees during fiscal
2003 for his services as Secretary and General Counsel of the
Company. David D. Mattern is the son-in-law of Michael F. Shanahan,
Sr., Chairman of the Board of the Company.
The Audit Committee of the Board of Directors has formally
approved all related party transactions.
REPORT OF THE AUDIT COMMITTEE
The following report is provided by the Audit Committee. The
Committee oversees and monitors the Company's financial reporting
process on behalf of the Board of Directors. The Committee, which
consists entirely of non-employee directors, who are independent
under Nasdaq rules, met five (5) times in fiscal year 2003.
8
The Audit Committee has reviewed and discussed the audited
financial statements with management; discussed with the independent
accountants the matters required to be discussed by Statement on
Auditing Standards No. 61, as may be modified or supplemented; and,
received from the independent accountants written disclosures and
the letter regarding their independence required by Independence
Standards Board Standard No. 1, as currently in effect, and
discussed with the independent accountants their independence. Based
on the review and discussions noted above, the Audit Committee has
recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K
for the year ended October 31, 2003 for filing with the Securities
and Exchange Commission.
The Audit Committee
S. Lee Kling, Chairman
William H. T. Bush
General Michael P. C. Carns
MG George E. Friel
9
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The following report is provided by the Compensation Committee.
The Committee supervises the Company's Executive Compensation
Program ("Program") and is directly responsible for compensation
actions affecting the Chairman and other executive officers of the
Company and its subsidiaries. The Committee met three (3) times in
fiscal year 2003.
THE EXECUTIVE COMPENSATION PHILOSOPHY
The Program is designed and managed to link executive
compensation to four basic objectives: Company performance,
shareholder return, individual performance and competitive position.
With respect to competitive position, the Program is designed to pay
competitive compensation so the Company is able to attract and
retain highly qualified executives. In determining competitive
compensation practices, the Committee frequently utilizes
information about other relevant companies' compensation levels, as
well as information from qualified compensation consultants.
The Program uses overall Company performance in determining
compensation levels and compensation changes. The Committee
considers the Company's overall performance in meeting both
short-term and long-term objectives and considers the Company's
operating achievements in typical performance measures such as
earnings, cash management and contract backlog. The Committee also
considers the Company's progress towards long-term strategic
objectives that cannot be easily quantified.
The Program also links the interests of the Company's executives
with the interests of its shareholders. This is accomplished by
allocating a portion of executive compensation to performance-based
equity compensation.
THE EXECUTIVE COMPENSATION PROGRAM
The Program consists of three basic elements: base salary,
incentive bonus compensation and performance-based equity
compensation. Base salaries are reviewed annually. Salary changes
reflect overall Company performance, pay competitiveness and
individual performance.
A substantial portion of each executive's annual cash
compensation is tied to the Company's performance through incentive
bonus compensation. The goals of this element of compensation are to
focus the attention of executives on profits, continued growth,
increased efficiency and teamwork, as well as to improve the
Company's ability to attract and retain outstanding executive
talent.
The Committee determines the annual incentive bonus payment for
each executive at the end of each fiscal year based on the Company's
performance in important areas such as earnings, contract backlog
and cash management. The Committee also considers the executive's
individual contribution to the Company's performance and the
executives contributions to the Company's progress towards long-term
strategic objectives. Certain executives do receive minimum bonus
payments.
To ensure that management's interests are directly tied to
shareholder return, a substantial portion of an executive's total
compensation is equity compensation. To place emphasis on
shareholder return, the Company, pursuant to shareholder approval,
has adopted various Stock Option Plans ("Option Plans"). As of
October 31, 2003, there were 4,432,498 shares reserved for issuance
upon the exercise of outstanding options or future issuance under
the Option Plans. All options granted to date have been awarded at
an exercise price equal to the fair market value of the stock on the
date of the award. The Option Plans are administered by the
Compensation Committee and option awards are made subjectively based
upon the evaluations of the executive's past and anticipated future
contribution to the Company's performance.
FISCAL YEAR 2003 EXECUTIVE OFFICER COMPENSATION
In determining the fiscal year 2003 performance compensation
payments for the Chairman and Chief Executive Officer and the other
executive officers, the Committee considered the Company's operating
performance and return to shareholders. Fiscal year 2003 net
revenues from continuing operations, net income from continuing
operations and book value increased 40%, 56% and 46%, respectively,
over fiscal year 2002. Share price increased 125% from $24.44 per
share on December 31, 2002, as adjusted for the three-for-two stock
10
split effected by the Company on October 31, 2003, to $55.06 per
share on December 31, 2003. The Committee also considered each
executive's contribution to the Company's performance.
Based on the subjective evaluation of the above factors, the
Committee approved the base annual salary of $1,000,000 and an
incentive bonus payment of $1,500,000 for the Company's Chairman.
Based on the subjective evaluation of the above factors, the
Committee also approved the base annual salary of $600,000 and an
incentive bonus payment of $262,500 for the Vice Chairman and Chief
Executive Officer, the base annual salary of $500,000 and an
incentive bonus payment of $375,000 for the President and Chief
Operating Officer; the base annual salary of $400,000 and an
incentive bonus payment of $300,000 for the Vice Chairman and Chief
Financial Officer; and, the base annual salary of $350,000 and an
incentive bonus payment of $262,500 for the President, Business
Development. The Committee also awarded options for 0, 150,000,
15,000, 15,000 and 15,000 shares under the Option Plans to Mr.
Shanahan, Sr., Mr. Daniels, Mr. Potthoff, Mr. Gerhardt and Mr.
Davis, respectively.
The Company does have employment agreements with its Chairman
and the other executive officers. These employment agreements are
discussed in the next section of this proxy statement.
SUMMARY
Through the design and management of the Executive Compensation
Program, as described above, the Committee believes total
compensation of the Company's executives is linked directly to
Company performance, individual performance and shareholder return.
The Committee will continue to emphasize performance-based and
stock-based compensation that is consistent with individual
performance and that links management and shareholder interests. The
Committee concludes that the Company's performance and the
competitive market warrant the compensation package approved for Mr.
Shanahan, Sr. and the other executive officers.
The Compensation Committee
LTG Kenneth E. Lewi, Chairman
Thomas J. Guilfoil
Earl W. Wims
11
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain executive
officers. The following represents a summary of the terms and
conditions of those agreements with the Chairman, the Vice Chairman
and Chief Executive Officer, the President and Chief Operating
Officer, the Vice Chairman and Chief Financial Officer and the
President, Business Develoment.
CHAIRMAN OF THE BOARD. The employment agreement with Michael F.
Shanahan, Sr. was executed on September 1, 1998 for a term of three
(3) years. Unless terminated by either party upon thirty (30) days
prior written notice, or for cause upon seven (7) days notice, the
employment agreement continues on a year-to-year basis. The current
base salary under this agreement is $1,050,000.
If the agreement is terminated by the Company, for other than
cause, Mr. Shanahan is entitled to termination pay equal to twice
his total annual compensation (payable in 24 equal monthly payments)
for the fiscal year of the Company ending immediately prior to the
date of termination. Mr. Shanahan is prohibited from competing with
the Company for a period of one year after termination. The
employment agreement further provides that he shall be entitled to a
bonus in accordance with the terms of the agreement. The employment
agreement also provides that the Company will reimburse his expenses
associated with performing his duties on behalf of the Company.
The Company is also a party to split dollar life insurance
agreements with Mr. Shanahan. Under these arrangements, the Company
will make annual life insurance premium payments for Mr. Shanahan.
In return, the Company will be reimbursed for premiums it has paid.
As provided for by the insurance policies, the Company can borrow
funds against the cash surrender value. Ownership rights are
subordinate to the Company's rights to be reimbursed for the
premiums it has paid. Mr. Shanahan's employment agreement requires
the Company to maintain life insurance on Mr. Shanahan during the
term of the agreement.
The employment agreement also provides for deferred compensation
to be paid in the event of the retirement, disability or death of
Mr. Shanahan. For disability, the benefit is $52,500 per month for a
maximum of sixty (60) consecutive months. For retirement or death,
the benefit is $52,500 per month for twenty-four (24) months.
Although Mr. Shanahan has the right to vote on the authorization of
his employment agreement as recommended by the Compensation
Committee, he abstained from voting on it as on all other matters
pertaining to his compensation.
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER. The employment
agreement with Gerald E. Daniels was executed on April 1, 2003 for a
term of one (1) year. Unless terminated by either party upon thirty
(30) days prior written notice, or for cause upon seven (7) days
notice, the employment agreement continues on a year-to-year basis.
Under the terms of Mr. Daniels' employment agreement, Mr. Daniels is
paid a base annual salary of $600,000 and receives an annual
incentive bonus payment. Mr. Daniels has also been granted club
membership and is reimbursed for expenses associated with performing
his duties on behalf of the Company.
PRESIDENT AND CHIEF OPERATING OFFICER. The employment agreement
with Gerald A. Potthoff was executed on October 1, 1999 for a term
of three (3) years. Unless terminated by either party upon thirty
(30) days prior written notice, or for cause upon seven (7) days
notice, the employment agreement continues on a year-to-year basis.
Under the terms of Mr. Potthoff's employment agreement, Mr. Potthoff
is paid a base annual salary of $550,000 and receives an annual
incentive bonus payment. Mr. Potthoff has also been granted club
memberships and is reimbursed for expenses associated with
performing his duties on behalf of the Company. The Company also has
a split dollar life insurance arrangement with Mr. Potthoff similar
to its agreement with Mr. Shanahan. Mr. Potthoff also receives
benefits under a Supplemental Executive Retirement Plan.
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER. The employment
agreement with Gary C. Gerhardt was executed on October 1, 1999 for
a term of three (3) years. Unless terminated by either party upon
thirty (30) days prior written notice, or for cause upon seven (7)
days notice, the employment agreement continues on a year-to-year
basis. Under the terms of Mr. Gerhardt's employment agreement, Mr.
Gerhardt is paid a base annual salary of $480,000 and receives an
annual incentive bonus payment. Mr. Gerhardt has also been granted
club memberships and is reimbursed for expenses associated with
performing his duties on behalf of the Company. The Company has a
split dollar life insurance arrangement with Mr. Gerhardt similar to
its agreement with Mr. Shanahan.
12
PRESIDENT, BUSINESS DEVELOPMENT. The employment agreement with
Ronald W. Davis was executed on October 1, 1999 for a term of three
(3) years. Unless terminated by either party upon thirty (30) days
prior written notice, or for cause upon seven (7) days notice, the
employment agreement continues on a year-to-year basis. Under the
terms of Mr. Davis' employment agreement, Mr. Davis is paid a base
annual salary of $430,000 and receives an annual incentive bonus
payment. Mr. Davis has also been granted club memberships and he is
reimbursed for expenses associated with performing his duties on
behalf of the Company. The Company has a split dollar life insurance
arrangement with Mr. Davis similar to the agreement with Mr.
Shanahan.
Pending clarification of certain provisions of the
Sarbanes-Oxley Act of 2002, the Company has suspended payment of
premiums with respect to the split dollar life insurance agreements
for Mr. Shanahan and for those other officers with split dollar life
insurance agreements with the Company. In accordance with the terms
of the insurance policies, the insurance carriers have applied
available cash values in payment of premiums otherwise payable in
2003.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the last
three fiscal years for the Company's Chairman and the four next most
highly compensated executive officers for the fiscal year ended
October 31, 2003:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) COMPENSATION
--------------------------- ---- ------ ----- ---------- ------------
Michael F. Shanahan, Sr. 2003 $1,000,000 $1,500,000 0 $301,300(2)
Chairman 2002 $ 900,000 $ 714,000 860,625 $233,600
2001 $ 720,000 $ 700,000 967,500 $157,300
Gerald E. Daniels(4) 2003 $ 350,000 $ 262,500 150,000 $ 14,400
Vice Chairman and
Chief Executive Officer
Gerald A. Potthoff 2003 $ 500,000 $ 375,000 15,000 $268,600(3)
President and Chief 2002 $ 320,000 $ 250,000 350,625 $181,900
Operating Officer 2001 $ 300,000 $ 160,000 105,000 $110,300
Gary C. Gerhardt 2003 $ 400,000 $ 300,000 15,000 $ 29,600
Vice Chairman 2002 $ 280,000 $ 200,000 275,625 $ 15,000
and Chief Financial 2001 $ 255,000 $ 140,000 90,000 $ 14,700
Officer
Ronald W. Davis 2003 $ 350,000 $ 262,500 15,000 $ 30,200
President, Business 2002 $ 200,000 $ 175,000 275,625 $ 14,900
Development 2001 $ 177,500 $ 100,000 90,000 $ 14,700
---------------
(1) All option amounts have been restated to reflect a 3-for-2
stock split effected in the form of a 50% stock dividend on
October 31, 2003.
(2) This amount includes $270,700 accrued pursuant to Mr.
Shanahan's employment agreement which provides for deferred
compensation to be paid in the event of retirement,
disability, or death; $17,400 pursuant to the benefit of
life insurance premiums paid by the Company on Mr.
Shanahan's behalf; and, $13,200 of common stock contributed
through the Engineered Support Systems, Inc. Employee Stock
Ownership Plan.
(3) This amount includes $245,000 accrued pursuant to Mr.
Potthoff's employment agreement in connection with a
Supplemental Executive Retirement Plan; $11,600 of life
insurance premiums paid by the Company on Mr. Potthoff's
behalf; and, $12,000 for reimbursement of personal expenses.
(4) Amounts for 2002 and 2001 are not presented for Mr. Daniels
as his employment with the Company commenced April 1, 2003.
13
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock
option grants made during the fiscal year ended October 31, 2003 to
the individuals named in the Summary Compensation Table.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF PRICE APPRECIATION
SECURITIES PERCENT OF FOR OPTION TERM(2)
UNDERLYING TOTAL OPTIONS -------------------------
OPTIONS GRANTED IN EXERCISE PRICE EXPIRATION 5% ASSUMED 10% ASSUMED
NAME GRANTED(1) FISCAL YEAR PER SHARE(1) DATE RATE RATE
---- ---------- ------------- -------------- ---------- ---------- -----------
Michael F. Shanahan, Sr....... 0 0.0% -- -- -- --
Gerald E. Daniels............. 150,000 19.6% $26.10 3/31/08 $1,082,000 $ 2,390,000
Gerald A. Potthoff............ 15,000 2.0% $44.187 10/27/08 $ 846,000 $ 1,067,000
Gary C. Gerhardt.............. 15,000 2.0% $44.187 10/27/08 $ 846,000 $ 1,067,000
Ronald W. Davis............... 15,000 2.0% $44.187 10/27/08 $ 846,000 $ 1,067,000
---------------
(1) All option amounts and exercise prices have been adjusted to
reflect a 3-for-2 stock split effected in the form of a 50%
stock dividend on October 31, 2003.
(2) The indicated 5% and 10% rates of appreciation are provided
to comply with Securities and Exchange Commission
regulations and do not necessarily reflect the views of the
Company as to the likely trend in the common stock price.
Actual gains, if any, on stock option exercises and common
stock holdings will be dependent on, among other things, the
future performance of the common stock and overall market
conditions. There can be no assurance that the amounts
reflected above will be achieved. Additionally, these values
do not take into consideration the option provision
providing for nontransferability.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
The following table sets forth information concerning the number
of exercisable and unexercisable stock options at October 31, 2003
held by the individuals named in the Summary Compensation Table.
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
NUMBER OPTIONS OPTIONS
OF SHARES AT 10/31/03 AT 10/31/03
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE(1) UNEXERCISABLE
---- ----------- -------- ---------------- -------------
Michael F. Shanahan, Sr........... 225,000 $1,042,000 1,065,938/0 $27,720,800/$0
Gerald E. Daniels................. 0 $ 0 150,000/0 $2,846,000/$0
Gerald A. Potthoff................ 60,750 $1,322,000 698,438/0 $19,564,800/$0
Gary C. Gerhardt.................. 42,189 $ 862,000 844,688/0 $27,364,800/$0
Ronald W. Davis................... 0 $ 0 428,438/0 $10,765,200/$0
---------------
(1) All option amounts have been adjusted to reflect a 3-for-2
stock split effected in the form of a 50% stock dividend on
October 31, 2003.
14
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of October 31, 2003
with respect to the shares of common stock that may be issued under
the Company's existing equity compensation plans:
NUMBER OF SHARES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SHARES TO EQUITY COMPENSATION
BE ISSUED UPON WEIGHTED-AVERAGE PLANS (EXCLUDING
EXERCISE OF EXERCISE PRICE OF SECURITIES REFLECTED IN
OUTSTANDING OPTIONS OUTSTANDING OPTIONS COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- ------------------- ------------------- -----------------------
Equity compensation plans approved by
shareholders............................ 4,041,723 $20.18 754,326
Equity compensation plans not approved by
shareholders............................ 390,775 $23.12 --
--------- -------
Total................................. 4,432,498 $20.44 754,326
========= =======
---------------
(1) All shares and per share amounts have been restated to
reflect a three-for-two stock split effected by the Company
on October 31, 2003.
PERFORMANCE GRAPH
The following graph compares the annual percentage change in the
Company's cumulative total shareholder return on its common stock
with (1) the cumulative total return on the Standard and Poor's 500
composite index ("S&P 500") and with (2) the cumulative total return
of the Standard and Poor's Aerospace & Defense index ("S&P Aerospace
& Defense") for the period October 31, 1998 through October 31,
2003.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ENGINEERED SUPPORT SYSTEMS, INC., THE S & P 500 INDEX
AND THE S & P AEROSPACE & DEFENSE INDEX
[GRAPH]
10/98 10/99 10/00 10/01 10/02 10/03
----- ----- ----- ----- ----- -----
ENGINEERED SUPPORT SYSTEMS, INC. 100.00 82.68 130.54 439.73 432.51 897.24
S & P 500 100.00 125.67 133.33 100.12 85.00 102.68
S & P AEROSPACE & DEFENSE 100.00 99.08 124.25 90.70 92.92 106.17
---------------
*Assumes $100 invested on October 31, 1998 and assumes the
reinvestment of dividends.
15
PROPOSAL TWO
APPROVAL OF ENGINEERED SUPPORT SYSTEMS, INC.
2004 STOCK OPTION PLAN AND RESERVATION OF 350,000 SHARES
OF COMMON STOCK TO THE PLAN
The Company is seeking shareholder approval of the Engineered
Support Systems, Inc. 2004 Stock Option Plan for officers, key
employees and consultants of the Company, and the reservation of
350,000 shares of Engineered Support Systems, Inc. common stock for
future issuances under the plan which, if approved, the Company
proposes to implement after March 2, 2004. The purpose of the plan
is to motivate officers, key employees and consultants by creating
an incentive for them to remain in the employ of the Company and to
work for the achievement of the Company's strategic objectives. To
accomplish this purpose, the Compensation Committee may award
so-called "non-incentive" stock options to purchase the Company's
common stock to eligible officers, key employees and consultants as
earned by their performance.
The complete text of the plan is attached as Appendix C to this
proxy statement. The following summary of certain provisions of the
plan is qualified by reference to the text of the plan.
The Compensation Committee shall administer the plan and, in
connection therewith, shall have full power to grant awards,
construe and interpret the plan, establish rules and regulations and
perform all other acts deemed reasonable and proper to administer
the plan, subject to the provisions of the plan.
The options shall be granted at the fair market value of the
Company's common stock on the date awarded. All shares subject to
options may be awarded to any one individual in any calendar year.
The closing price of the Company's common stock as of January 16,
2004 was $49.79 per share. The options expire five (5) years from
the date of grant, unless terminated sooner due to the termination
of service or death of the optionee. The plan will expire on October
31, 2009 unless extended or sooner terminated by the Company's
Board. In case of death, the beneficiary of the deceased will have
the right for six (6) months after the date of death to exercise the
options. The options granted may not be repriced at any time and are
not transferable or assignable. For federal income tax purposes, no
income will be realized by a participant in the plan upon the grant
of an option, and the Company will not be entitled to a deduction at
that time. Upon the exercise of the option, the excess of the fair
market value of the stock on the date of exercise over the purchase
price is ordinary income to the holder as of the date of exercise.
The Company generally will be entitled to a deduction equal to the
excess amount in the year of exercise.
THE BOARD RECOMMENDS THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF
THE ENGINEERED SUPPORT SYSTEMS, INC. 2004 STOCK OPTION PLAN.
16
PROPOSAL THREE
APPROVAL OF ENGINEERED SUPPORT SYSTEMS, INC.
2004 NON-EXECUTIVE STOCK OPTION PLAN AND RESERVATION OF 350,000 SHARES
OF COMMON STOCK TO THE PLAN
The Company is seeking shareholder approval of the Engineered
Support Systems, Inc. 2004 Non-Executive Stock Option Plan for key
employees and consultants of the Company, and the allocation of
350,000 shares of Engineered Support Systems, Inc. common stock for
future issuance under the plan which, if approved, the Company
proposes to implement after March 2, 2004. The purpose of the plan
is to motivate key employees and consultants, by creating an
incentive for them to remain in the employ, or consultancy, of the
Company and to work for the achievement of the Company's strategic
objectives. To accomplish this purpose, the Compensation Committee
may award so-called "non-incentive" stock options of the Company's
common stock to eligible key employees and consultants as earned by
their performance.
The complete text of the plan is attached as Appendix D to this
proxy statement. The following summary of certain provisions of the
plan is qualified by reference to the text of the plan.
ANY EMPLOYEE OR CONSULTANT OF THE COMPANY SHALL BE ELIGIBLE TO
PARTICIPATE IN THE PLAN, EXCEPT NO "OFFICER" OF THE COMPANY AS THAT
TERM IS DEFINED IN RULE 16a-1 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, OR DIRECTOR OF THE COMPANY SHALL BE ELIGIBLE TO
PARTICIPATE IN THE PLAN. The Compensation Committee shall administer
the plan and, in connection therewith, shall have full power to
grant awards, construe and interpret the plan, establish rules and
regulations and perform all other acts deemed reasonable and proper
to administer the plan, subject to the provisions of the plan.
The options shall be granted at the fair market value of the
Company's common stock on the date awarded. The closing price of the
Company's common stock as of January 16, 2004 was $49.79 per share.
The options expire five (5) years from the date of grant, unless
terminated sooner due to the termination of service or death of the
optionee. The plan will expire on October 31, 2009 unless extended
or sooner terminated by the Company's Board. In case of death, the
beneficiary of the deceased will have the right for six (6) months
after the date of death to exercise the options. The options granted
may not be repriced at any time and are not transferable or
assignable. For federal income tax purposes, no income will be
realized by a participant in the plan upon the grant of an option,
and the Company will not be entitled to a deduction at that time.
Upon the exercise of the option, the excess of the fair market value
of the stock on the date of exercise over the purchase price is
ordinary income to the holder as of the date of exercise. The
Company generally will be entitled to a deduction equal to the
excess amount in the year of exercise.
THE BOARD RECOMMENDS THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF
THE ENGINEERED SUPPORT SYSTEMS, INC. 2004 NON-EXECUTIVE STOCK OPTION
PLAN.
17
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP, independent certified public
accountants, have been the auditors of the accounts of the Company
since 1991, including the year ended October 31, 2003. The Company
anticipates that representatives of PricewaterhouseCoopers LLP will
be present at the 2004 Annual Meeting of the Shareholders and
PricewaterhouseCoopers LLP will have the opportunity to make a
statement if they so desire at that time. PricewaterhouseCoopers LLP
will also be available to respond to appropriate questions raised at
the 2004 Annual Meeting of the Shareholders.
PricewaterhouseCoopers LLP has informed the Company that it does
not have any direct financial interest in the Company and that it
has not had any direct connection with the Company as either a
promoter, an underwriter, a director, an officer or an employee.
The following table displays the aggregate fees for professional
audit services for the audit of the financial statements for the
years ended October 31, 2003 and 2002 and fees billed for other
services during those periods by PricewaterhouseCoopers LLP. Certain
amounts for fiscal year 2002 have been reclassified to conform to
the fiscal year 2003 presentation.
2003 2002
-------- --------
Audit fees (1)................................... $298,785 $215,900
Audit related-fees (2)........................... 67,180 226,800
Tax fees (3)..................................... 165,147 105,588
All other fees................................... -- --
-------- --------
Total........................................ $531,112 $548,288
======== ========
---------------
(1) Audit fees consisted of audit work performed in the
preparation of financial statements as well as work
generally only the independent auditors can reasonably be
expected to provide, such as statutory audits.
(2) Audit related fees consisted of the following: $43,500 and
$35,300 in fiscal years 2003 and 2002, respectively, for
employee benefit plan audits; $2,500 and $2,500 in fiscal
years 2003 and 2002, respectively, for Form S-8 consents;
$21,180 in fiscal year 2003 for Sarbanes-Oxley Section 404
internal control procedures; and $189,000 in fiscal year
2002 for internal audit services.
(3) Tax fees consisted of assistance with matters related to tax
compliance and consulting.
POLICY REGARDING THE APPROVAL OF INDEPENDENT AUDITOR PROVISION
OF AUDIT AND NON-AUDIT SERVICES
Consistent with Securities and Exchange Commission requirements
regarding auditor independence, the Audit Committee has adopted a
policy to pre-approve all audit and permissible non-audit services
provided by the independent auditor. Under the policy, the Committee
must pre-approve services prior to commencement of the specified
service. The requests for pre-approval are submitted to the Audit
Committee by the Vice Chairman and Chief Financial Officer or his
designee with a statement as to whether in their view the request is
consistent with the Securities and Exchange Commission's rules on
auditor independence.
As is customary, accountants for the current fiscal year will,
upon the recommendation of the Audit Committee, be appointed by the
Board of Directors at their meeting immediately following the Annual
Meeting of the Shareholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 2003, Thomas J. Guilfoil, LTG Kenneth E. Lewi and Earl
W. Wims served on the Company's Compensation Committee. No member of
the Compensation Committee was an officer or employee of the Company
during that period.
18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires that the Company's executive officers and
directors, and persons who own more than ten percent of the
Company's outstanding stock, file reports of ownership and changes
in ownership with the Securities and Exchange Commission. To the
knowledge of the Company, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than ten
percent beneficial owners were complied with during the fiscal year
ended October 31, 2003, except that each of Mssrs. Shanahan, Sr.,
Daniels, Potthoff, Gerhardt, Davis, Bush, Carns, Friel, Guilfoil,
Kling, Lewi, Robertson, Jr., Saint, Shanahan, Jr. and Wims filed a
late Form 5, "Annual Statement of Changes in Beneficial Ownership"
and Mr. Gerhardt filed a late Form 4, "Statement of Changes in
Beneficial Ownership".
SHAREHOLDER PROPOSALS FOR THE 2005 ANNUAL MEETING
Shareholder proposals for the 2005 Annual Meeting of the
Shareholders must be received by the Company no later than October
31, 2004 for inclusion in the Company's proxy statement and proxy
for that meeting. Shareholder proposals that are not included in the
proxy statement may be considered at the 2005 Annual Meeting if such
proposals are received by the Company no later than December 15,
2004. The procedures to be used by shareholders to recommend
nominees to the Board are outlined on pages 7 and 8. All proposals
should be submitted to the Company at 201 Evans Lane, St. Louis, MO
63121, Attention: Corporate Secretary.
OTHER MATTERS
Other than the foregoing, the Board of Directors does not intend
to bring any other matter before the meeting and does not know of
any matter that anyone else proposes to present for action at the
meeting. However, if any other matters properly come before such
meeting, the individuals named in the accompanying proxy, or their
duly qualified substitutes acting at the meeting, will be deemed
authorized to vote or otherwise act in accordance with their
judgment on such matters.
By order of the Board of Directors
/s/ David D. Mattern
David D. Mattern,
Secretary and General Counsel
Dated: February 2, 2004
NOTICE: UPON WRITTEN REQUEST FROM ANY SHAREHOLDER OF RECORD AS
OF JANUARY 16, 2004 (OR ANY BENEFICIAL OWNER REPRESENTING THEY ARE
OR WERE ENTITLED TO VOTE AT THE 2004 ANNUAL MEETING), THE COMPANY
WILL FURNISH TO SUCH SHAREHOLDER, WITHOUT CHARGE, ITS ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 2003, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, INCLUDING FINANCIAL STATEMENTS.
THE COMPANY MAY IMPOSE A REASONABLE FEE FOR ITS EXPENSE IN
CONNECTION WITH PROVIDING EXHIBITS REFERRED TO IN SUCH FORM 10-K, IF
THE FULL TEXT OF SUCH EXHIBITS ARE SPECIFICALLY REQUESTED. REQUESTS
SHOULD BE DIRECTED TO: INVESTOR RELATIONS, ENGINEERED SUPPORT
SYSTEMS, INC., 201 EVANS LANE, ST. LOUIS, MO 63121.
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APPENDIX A
ENGINEERED SUPPORT SYSTEMS, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
PURPOSE
There shall be an Audit Committee (the "Committee") of the Board
of Directors of Engineered Support Systems, Inc., a Missouri
corporation (the "Company").
The Committee shall have responsibility to oversee the Company's
management and internal and outside auditors in regard to corporate
accounting and financial reporting. The Committee has the authority
to institute, conduct and oversee any investigation it deems
appropriate, with full access to all books and records, facilities,
personnel and outside advisors of the Company. The Committee is
empowered to retain outside counsel, auditors or other experts in
its discretion, and the Company shall provide any funding, as
determined by the Committee, in connection with the Committee's
engagement of any outside counsel, auditor or other experts.
The Committee's primary purposes shall be as follows:
* Be directly responsible for the appointment, compensation and
oversight of the work of any outside auditor employed by the
Company (including resolution of disagreements between
management and the outside auditor regarding financial
reporting) for the purpose of preparing or issuing an audit
report or related work;
* Assist the Board in fulfilling its responsibilities to the
shareholders, potential shareholders and the investment
community with regard to the oversight of (1) the quality and
integrity of the Company's financial statements and (2) the
Company's compliance with legal requirements;
* Oversee the accounting and financial reporting processes,
including audits of the financial statements of the Company;
* Serve as a communications focal point among non-Committee
directors, management, any internal auditor (or person(s) or
firm fulfilling the internal audit function) and the outside
auditors with respect to accounting, financial reporting and
compliance issues;
* Oversee the qualifications, independence and performance of
the Company's internal audit function and outside auditor;
* Prepare the Committee report required in the Company's proxy
statement; and
* Perform other functions as time to time required by law,
regulation, the Nasdaq Stock Market, Inc. ("Nasdaq") rules or
assigned by the Board.
ORGANIZATION
The Committee shall:
Number and Appointment * consist of at least three directors, each appointed by the
full Board;
Requirement of Independence * consist solely of directors deemed to be "independent" in
accordance with the rules and regulations promulgated by the
Securities Exchange Commission and Nasdaq.
Understanding of Financial * consist of members able to read and understand fundamental
Information financial statements, including the Company's balance sheet,
income statement and cash flow statement. If a director is
not capable of understanding such fundamental financial
statements, he or she must become able to do so within a
reasonable period of time after appointment to the
Committee;
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Limitation on Participation in * not have participated in the preparation of the financial
Company's Financial Reporting statements of the Company at any time during the past three
Process years
Limitation on Service on other * not have any member that serves on more than two other audit
Audit Committees committees, unless the Board of Directors determines that
service on more than two other audit committees will not
impair the ability of the director to serve effectively on
the Committee. Any such determination by the Board of
Directors will be disclosed in the Company's proxy
statement; and
Audit Committee Financial * have at least one member of the Committee who is deemed an
Expert "audit committee financial expert." The determination that a
Committee member is an "audit committee financial expert"
shall be made by the Board of Directors.
* An "audit committee financial expert" is a person who
has the following attributes: (1) an understanding
generally accepted accounting principles ("GAAP") and
financial statements, (2) the ability to assess the
general application of such principles in connection
with the accounting for estimates, accruals and
reserves, (3) experience in preparing, auditing,
analyzing or evaluating financial statements that
present a breadth and level of complexity of accounting
that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to
be raised by the Company's financial statements, or
experience in supervising one or more persons engaged
in such activities, (4) an understanding of internal
controls and procedures for financial reporting, and
(5) an understanding of audit committee functions.
* An "audit committee financial expert" shall have
acquired the foregoing attributes through: (1)
education or experience (as a public accountant,
principal financial officer, comptroller or principal
accounting officer or a position that involves the
performance of similar functions); (2) experience in
supervising a public accountant, principal financial
officer, comptroller or principal accounting officer or
person in a similar position; (3) experience in
overseeing or accessing the performance of companies or
public accountants with respect to the preparation,
auditing or evaluation of financial statements; or (4)
other relevant experience.
RESPONSIBILITIES
The Committee recognizes that the preparation of the Company's
financial statements and other financial information is the
responsibility of the Company's management and that the auditing, or
conducting limited reviews, of those financial statements and other
financial information is the responsibility of the Company's outside
auditors. The Committee's responsibility is to oversee the financial
reporting process.
The Company's outside auditors are ultimately accountable to the
Board and the Committee, as representatives of the shareholders. The
Committee has the sole authority and responsibility for the
appointment, compensation, oversight and, where appropriate,
replacement of the Company's outside auditors.
In carrying out its oversight responsibilities, the Committee
shall perform the following duties:
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Oversight of Outside Auditors
The Committee shall oversee the outside auditors and the
services provided by the outside auditors, including the following:
Responsibilities Over Outside * Be directly responsible for the appointment, compensation
Auditors and oversight of the work of any outside auditor employed by
the Company and, where appropriate, replacement of the
outside auditors. The outside auditors shall report directly
to the Committee;
Determine Outside Auditor's * Require that the outside auditors provide the Committee with
Independence a formal written statement delineating all relationships
between the outside auditors and the Company, consistent
with Independence Standards Board Standard No. 1, and
discuss with the outside auditors their independence;
* Actively engage in a dialogue with the outside auditors
regarding any disclosed relationships or services that may
impact the objectivity and independence of the outside
auditors;
* Take appropriate action to oversee the independence of the
outside auditors;
* Require that the outside auditors confirm that the audit
partners providing services to the Company are "independent"
of the Company under the requirements of the Sarbanes-Oxley
Act of 2002 (the "SO Act") and regulations pursuant to the
SO Act, including, without limitation, with regard to the
compensation paid to the audit partner;
* Ensure that no member of the outside auditor is hired by the
Company in a financial reporting oversight role if, within
the one-year period prior to the member's hiring, the member
was on the audit engagement team for the Company's account;
Oversee Rotation of Audit * Confirm and oversee that the outside auditor's audit
Partners partners which provide services to the Company are rotated
pursuant to the requirements of the SO Act and regulations
thereunder;
Pre-approve all Services * Pre-approve all services provided to the Company by the
provided to the Company by the outside auditors and confirm that any non-audit services
Outside Auditors provided to the Company by the outside auditor are permitted
non-audit services (defined below);
* Subject to the de minimus exception below, pre-approve the
scope and fees of audit and permitted non-audit services
provided by the outside auditors and disclose to investors
in the Company's periodic reports filed pursuant to the
Securities Exchange Act of 1934, the Committee's decision to
pre-approve any permitted non-audit services;
* Subject to the de minimus exception below, review permitted
non-audit services, including tax services, provided by the
outside auditors to determine what effect, if any, these
services may have on their independence;
Permitted Non-audit Services * "Permitted non-audit services" means services not related to
the audit services provided to the Company by its outside
auditors;
* The following will not be considered permitted non-audit
---
services and in no instance may be provided by the outside
auditors to the Company:
* management functions or human resources services;
* broker or dealer, investment adviser or investment banking
services;
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legal services and expert services unrelated to the
audit, such as providing an expert opinion or other
expert service for the Company in any litigation or
regulatory or administrative proceeding or
investigation; and
* any other service that the Public Company Accounting
Oversight Board determines, by regulation, is
impermissible.
* The following will not be considered permitted non-audit
---
services unless the Committee reasonably concludes that the
results of these services would not be subject to audit
procedures during an audit of the Company's financial
statements:
* bookkeeping or other services related to the accounting
records or financial statements of the Company;
* financial information designs and implementation;
* appraisal of valuation services, fairness opinions or
contribution-in-kind reports;
* actuarial services; and
* internal audit outsourcing services;
De Minimus Exception to * The pre-approval requirement will not apply to de minimus
Pre-Approval Requirement permitted non-audit services, which are those (1) that
account, in the aggregate, for less than 5% of the total
revenues paid by the Company to its auditors during the
fiscal years in which such services are provided, (2) that
the Company did not recognize as "non-audit" services at the
time of the engagement, and (3) are promptly brought to the
attention of, and approved by, the audit committee before
the completion of the audit; and
Delegation of Authority * The Committee may delegate, to one or more of its members,
the authority to pre-approve audit or permitted non-audit
services (or to approve, after the fact, permitted non-audit
services that fall within the de minimus exception) so long
as any decisions made under delegated authority are
presented to the full Committee at its next scheduled
meeting.
Review of Financial Reporting Matters with and Reports of
Outside Auditors and Management
The Committee shall review the following matters with and
require the following reports of outside auditors and management.
Unless otherwise specified, the timing of the review and reports
shall be as deemed necessary by the Committee, but not less than
annually:
Review of Policies and * Review with management and the outside auditors the policies
Procedures and procedures related to:
* conflicts of interest;
* ethical conduct;
* compliance with regulatory reporting and compliance
requirements; and
* risk assessment and risk management;
Review Scope and Plan of Audit * Review with the chief financial officer and the outside
auditors the coordination of the audit effort to assure
completeness of coverage, reduction of redundant offices,
and the effective use of audit resources;
* Review with the outside auditors the proposed scope
(including staffing) of their audit plan with emphasis on
accounting and financial areas where the Committee, the
internal auditors or management believe special attention
should be directed;
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Review Changes to Accounting * Review and consider with the outside auditors and management
Principles any significant changes to the Company's accounting
principles and the matters identified in Statement on
Auditing Standards No. 61;
Review Annual and Interim * Review with the outside auditors and management the
Financial Statements Company's audited financial statements, as well as
management's discussion and analysis of financial condition
and results of operations, that are to be included in the
Company's Form 10-K and determine whether to recommend to
the Board of Directors that the financial statements be
included in the Company's Form 10-K for filing with the
Securities and Exchange Commission;
* Review with management and the outside auditors the
Company's quarterly financial results prior to the release
of earnings, and policies with respect to risk assessment
and risk management. Review the Company's financial
statements that are to be included in the Company's Form
10-Q with the outside auditors and management, as well as
management's discussion and analysis of financial condition
and results of operations;
* Review any matters identified by the outside auditors
pursuant to Statement on Auditing Standards No. 71 regarding
the Company's interim financial statements. Any such review
shall occur prior to the filing of such interim financial
statements on the Company's Form 10-Q;
* In conjunction with reviewing the annual audited and
quarterly financial statements with management and the
outside auditors, the Committee should review:
* financial information and earnings guidance provided to
analysts and rating agencies;
* major issues regarding accounting principles and
financial statement presentation, including any
significant change in the Company's selection or
application of accounting principles and major issues
as to the adequacy of the Company's internal controls
and any special audit steps taken in light of major
control deficiencies;
* analyses prepared by management and/or the outside
auditor setting forth significant financial reporting
issues and judgments made in connection with the
preparation of the financial statements, including an
analysis of the effects of alternative GAAP methods on
the financial statements; and
* the effect of regulatory and accounting initiatives, as
well as off-balance sheet structures, on the financial
statements;
Report from Outside Auditors * Prior to filing any outside auditor's report with the SEC,
the Committee shall require the outside auditors to report
to it on:
* the results of their audit, including their opinion on
the financial statements and the outside auditors'
judgment on the quality and appropriateness, not just
the acceptability, of the Company's accounting
principles as applied in the financial statements;
* significant disputes, if any, with management;
* cooperation received from management in the conduct of
the audit;
* their evaluation of the adequacy of the Company's
system of internal controls;
* all critical accounting policies and practices to used;
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* all alternative treatments of financial information
within GAAP that have been discussed with management
officials of the Company, ramifications of the use of
such alternative disclosures and treatments, and the
treatment preferred by the outside auditor;
* other material written communications between the
auditor and management, such as any management letter
or schedule of unadjusted differences; and
* any material issues raised by the most recent internal
quality-control review, or peer review, of the outside
auditor or by any inquiry or investigation by
governmental or professional authorities in the
preceding five years relating to an independent audit
conducted by the outside audit firm and any steps taken
to deal with such issues;
Review of Management's * The Committee must regularly review with the independent
Cooperation with Audit auditor any difficulties the auditor encountered in the
course of the audit work, including any restrictions to
access to information, any significant disagreements with
management, any communications between the audit team and
the audit firm's national office respecting issues presented
by the engagement, any management letter issued, or proposed
to be issued, by the audit firm to the Company, and a
discussion of the adequacy of the Company's internal audit
function;
Dispute Resolution * The Committee shall resolve any disagreements between
management and the outside auditor regarding financial
reporting. The Committee may retain outside experts, in its
discretion, to assist in doing so and the Company shall
provide any funding, as determined by the Committee, in
connection with the Committee's engagement of outside
experts;
Report of Chief Executive * The Committee shall require the Chief Executive Officer and
Officer and Chief Financial Chief Financial Officer disclose, if applicable and as soon
Officer as practicable (1) all significant deficiencies in the
design or operation of the Company's internal controls which
could adversely affect the Company's ability to record,
process and report financial data, and (2) any fraud
(whether or not material) involving management or other
employees who have a significant role in the Company's
internal controls or preparation of financial statements;
and
Annual Review of Accounting * The Committee shall annually review (1) major issues
Issues regarding accounting principles and financial statement
presentations and major issues as to the adequacy of the
Company's internal controls, (2) an analysis of the
treatment of financial information and alternatives, (3) the
effect of regulatory and accounting initiatives on the
financial statements of the Company, and (4) earnings press
releases (paying specific attention to pro forma or adjusted
information) and financial information and guidance provided
to analysts and rating agencies.
Oversight of Internal Accounting Functions
The Committee shall oversee the internal operations of the
Company's accounting, auditing and internal audit functions,
including the following:
Staffing of Accounting and * Consider with management and the outside auditors the
Audit Positions possibility of employing audit firms other than the
principal outside auditors;
* Review and concur in the appointment, replacement,
reassignment or dismissal of the chief financial officer,
vice president finance, any internal auditor, and the
controller and review each individual's independence from
management;
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* Review the internal audit department's mission, objectives
and resources and its annual plan including its coordination
with the outside auditors;
* Review the results of internal audit activities and its
evaluation of the system of internal controls and discuss
with the internal auditor any difficulties encountered in
the course of audits including any restrictions on the scope
of the work or access to required information;
* Consider the effectiveness of the Company's internal control
system, including information technology security and
control;
Oversight of Legal Compliance * At least once annually, review with the Company's counsel
and Policies any legal matters that could have a significant impact on
the organization's financial statements, the Company's
system for monitoring compliance with applicable laws and
regulations, including management's responses to any
material inquiries received from regulators or governmental
agencies;
* In consultation with management, the outside auditors, and
any internal auditor, consider the integrity of the
Company's financial reporting processes and controls.
Discuss any significant financial risk exposures and the
steps management has taken to monitor, control and report
such exposures. Review significant findings prepared by the
outside auditors and the internal auditing function together
with management's responses;
* Oversee the development and enforcement of the Company's
Senior Executives Code of Ethics;
* Periodically review, with management and any internal
auditor, programs established to monitor compliance with the
Company's code of conduct, including the Foreign Corrupt
Practices Act;
* Review policies and procedures with respect to officers'
expense accounts and perquisites, including their use of
corporate assets, and consider the results of any review of
these areas by the outside auditors or internal auditors;
and
* Review significant accounting, reporting, regulatory or
industry developments affecting the Company, including the
potential impact of new accounting pronouncements or
reporting practices;
Establish Procedures for * Establish procedures to promote and protect
Reporting Complaints "whistleblowing," including procedures for:
* receiving, retaining, processing, evaluating and
addressing complaints received by the Company relating
to accounting and auditing matters; and
* enabling employees of the Company to submit to the
Committee, on a confidential and anonymous basis, any
concerns regarding questionable accounting or auditing
matters.
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Meetings
Meetings of the Committee shall be conducted as follows:
Frequency of Meetings * Meet at least four times annually, with additional meetings
held as necessary;
Meeting Participants * The Committee shall request that members of management, any
internal auditor and representatives of the outside auditors
be present at the meetings, as appropriate. The meetings
shall include separate sessions with management, the outside
auditors and the internal auditor, and shall also include
sessions with only Committee members present. The Committee
may ask members of management and internal and outside
auditors to attend other meetings and/or provide pertinent
information as necessary;
Rules of Conduct for Meetings * The Committee may appoint a member to act as Chairman of the
Committee;
* The Committee shall prepare and/or approve an agenda in
advance of each meeting. Company management shall assure
that the Committee timely receives any materials requested
by the Committee for review prior to each meeting;
* Committee members may attend meetings in person, by
telephone conference or similar communications equipment, or
as otherwise permitted by law;
* The Committee shall keep minutes of matters considered and
actions taken at meeting consistent with good corporate
practices; and
* Committee meetings shall be otherwise conducted in a manner
required of Board of Directors meetings as set forth in the
Company's By-laws.
Other
Other functions of the Committee include:
Review Audit Committee Function * Review and assess the adequacy of the Audit Committee
Charter at least once annually and confirm that all
responsibilities of the Committee set forth in the Audit
Committee Charter have been carried out, with the assistance
of counsel and the Company's outside auditors;
* Prepare self-assessments of Committee members and Committee
activities to communicate opinions on the effectiveness of
those activities and on the areas that could be approved;
Review Related-Party * The Committee must pre-approve all related-party
Transactions transactions proposed to be entered into on behalf of the
Company;
Prepare Report to Shareholders * Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report will be
included in the Company's annual proxy statement as required
by the applicable rules of the SEC and Nasdaq;
Review Any Report on the * Review any reports the Company issues that relate to the
Committee Committee's responsibilities;
Report to Board of Directors * Review with the full board any issues that arise with
respect to the Company's audit or financial reporting
functions;
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* Report regularly to the Board of Directors. The report
should include a review of any issues relating to the
quality or integrity of the Company's financial statements,
the Company's compliance with legal and regulatory
requirements, the performance or independence of the outside
auditors and the performance of the internal audit function;
and
General Oversight * Perform any other activities consistent with this Charter,
the Company's By-laws, and governing law and regulations, as
the Committee or the Board deems necessary or appropriate,
including, without limitation, overseeing compliance of the
Company and outside auditors with provisions of the SO Act
and Nasdaq listing requirements which effect the auditing
and financial reporting of the Company.
INTERPRETATION
Any clarification or interpretation of this Charter, to the
extent applicable, shall be made consistent with the provisions of
the SO Act, any regulations under the SO Act and the Nasdaq listing
requirements in effect from time to time.
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APPENDIX B
ENGINEERED SUPPORT SYSTEMS, INC.
CHARTER OF THE NOMINATING COMMITTEE
OF THE BOARD OF DIRECTORS
This Charter documents the purpose, authority, composition and
responsibilities of the Nominating and Corporate Governance
Committee (the "Committee") of the Board of Directors of Engineered
Support Systems, Inc. (the "Company"). This Charter shall be
published in the Company's Internet website and shall otherwise be
filed or reported from time to time as may be required by applicable
law or rules of the NASDAQ Stock Market, Inc. ("Nasdaq").
PURPOSE AND AUTHORITY
The Board of Directors has appointed the Committee to assist and
advise the Board of Directors with respect to:
* Identifying individuals qualified to become members of the
Board of Directors and to select, or to recommend that the
Board of Directors select, the director nominees for the next
annual meeting of shareholders; and
* Evaluating the overall functioning and performance of the
Board of Directors and its committees.
The Committee shall have the sole authority to retain and
terminate any search firm and any legal, accounting or other outside
advisors that it deems necessary to assist with the identification
of director candidates and to approve the firm's fees and retention
terms. The Committee shall also have the sole authority to retain
and terminate any legal, accounting or other outside advisors to
advise the Committee on any corporate governance matters within the
scope of the Committee's duties and responsibilities. The Committee
may rely for administrative support and background information
regarding possible nominees on the Company's human resources and
organizational development staff.
COMPOSITION, QUALIFICATIONS AND MEETINGS
The Committee shall be comprised of three or more directors as
determined from time to time by the Board of Directors. Each member
of the Committee shall be an "independent director" as defined by
the listing standards promulgated by Nasdaq.
Committee members shall be appointed by the Board of Directors
and shall serve until such member's successor is appointed and
qualified or until such member's earlier resignation or removal. The
members of the Committee may be removed, with or without cause, by a
majority vote of the Board of Directors.
At a minimum, the Committee shall meet at least one time
annually, or more frequently as circumstances dictate. All members
of the Committee shall be expected to attend each meeting, whether
in person or by telephone or video conference. For the transaction
of business at any meeting of the Committee, a majority of the
members shall constitute a quorum. If a Committee Chair is not
designated or present at a Committee meeting, the members of the
Committee may designate a Chair by a majority vote of the Committee
membership. Minutes of each meeting shall be kept and the Secretary
of the Company shall maintain all minutes of the Committee. After
each Committee meeting, the Committee or its designee shall report
to the Board of Directors as appropriate.
RESPONSIBILITIES
The Committee shall have the following responsibilities:
* Establish standards for the functioning of the Board of
Directors and evaluate the overall functioning and
performance of the Board of Directors, its committees and
management;
* Based upon its evaluations, recommend to the Board of
Directors whether existing Board members should be nominated
for new terms or replaced and whether more or fewer members
are appropriate;
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* Assist the Board of Directors in establishing criteria to
select new directors and recommend to the Board of Directors
a process for orientation of new Board or committee members;
* Oversee the search for individuals qualified to become
members of the Board of Directors and to select, or recommend
that the Board of Directors select, director nominees to be
presented for approval at the annual meeting of shareholders.
In identifying candidates for membership on the Board of
Directors, the Committee shall take into account all factors
it considers appropriate, which includes considering the
extent to which candidates have: personal characteristics of
the highest personal and professional ethics, integrity and
values; an inquiring and independent mind and practical
wisdom and mature judgment; broad training and experience at
the policy-making level in business, government or community
organizations; expertise that is useful to the Company and
complementary to the background and experience of other
members of the Board of Directors; willingness to devote a
required amount of time to carrying out the duties and
responsibilities of Board membership; commitment to serve on
the Board of Directors over a period of several years to
develop knowledge about the Company, its strategy and its
principal operations; and willingness to represent the best
interests of all constituencies and objectively appraise
management performance and involvement in activities or
interests that do not create a conflict with a director's
responsibilities to the Company;
* Consider nominees for directors recommended by the Company's
shareholders; and
* Review the committee structure of the Board of Directors and
recommend for its approval directors to serve as members of
each committee. The Committee shall review and make
recommendations with respect to committee membership annually
and shall recommend additional committee members to fill
vacancies as needed.
ANNUAL REVIEW
The Committee shall annually perform a review and evaluation of
the performance of the Committee and its members and report its
conclusions to the Board of Directors. In addition, the Committee
shall assess the adequacy of the Charter and the Committee's own
performance under the Charter. The Committee will determine whether
any changes to the Charter are advisable or any corrective actions
should be undertaken to correct any deficiencies or weaknesses noted
in the review and evaluation. The Committee shall present any
amendments to the Charter or corrective actions that the Committee
deems necessary or appropriate to the Board of Directors for its
approval.
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APPENDIX C
ENGINEERED SUPPORT SYSTEMS, INC.
2004 STOCK OPTION PLAN
ARTICLE I. GENERAL PROVISIONS
Section 1. Purpose of Plan. The purpose of the Engineered
Support Systems, Inc. 2004 Stock Option Plan (the "Plan") is to
enhance the profitability and value of Engineered Support Systems,
Inc. (the "Company") and its shareholders by strengthening the
Company's ability to attract, retain and motivate officers, other
key employees and consultants of the Company who make important
contributions to the success of the Company.
Section 2. Definitions of Terms as Used in the Plan.
(a) "Affiliate" means any subsidiary or parent of the Company.
(b) "Award" means a Stock Option granted under Article II.
(c) "Plan Administrator" means the Compensation Committee of the
Board of the Company.
(d) "Consultant" means any natural person who has a written
agreement with the Company or any Affiliate to provide consulting
services.
(e) "Stock" means the $.01 par value common stock of Engineered
Support Systems, Inc.
Section 3. Authorization and Reservation. There shall be
established a reserve of 350,000 shares of authorized and unissued
Stock and/or treasury shares which shall be the total number of
shares of Stock that may be issued pursuant to Awards. Upon the
cancellation or expiration of an Award, all shares of Stock not
issued thereunder shall become available for the granting of
additional Awards.
Notwithstanding the above, the maximum number of shares subject
to stock options under this Plan that may be awarded in any calendar
year to any individual shall not exceed 350,000 shares, as adjusted
in accordance with Section 6 of Article VI.
Section 4. Administration of the Plan. The Compensation
Committee shall administer the Plan. Subject to the terms of the
Plan, the Plan Administrator shall have full power to grant Awards,
construe and interpret the Plan, establish rules and regulations and
perform all other acts the Plan Administrator believes reasonable
and proper, including the power to delegate responsibility to others
to assist in administering the Plan.
Section 5. Participation in the Plan. Any officer, employee or
consultant of the Company shall be eligible to participate in the
Plan.
ARTICLE II. STOCK OPTIONS
Section 1. Description. All options granted under the Plan shall
be nonstatutory options not intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended.
Section 2. Terms and Conditions.
(a) Each stock option shall be set forth in a written Notice
containing such terms and conditions as the Plan Administrator may
determine, subject to the provisions of the Plan.
(b) The purchase price of any shares exercised under any stock
option must be paid in full upon such exercise. The payment shall be
made in such form, which may be in cash or Stock, as the Plan
Administrator may determine.
(c) No stock option may be exercised after the expiration of
five (5) years from the date such option is granted unless such term
is extended by the Plan Administrator as evidenced in writing.
(d) The option price of shares subject to any stock option shall
be the closing price of the Stock on the date that the stock option
is granted. If the stock option is granted on a day that is not a
trading day, the option price
C-1
shall be the closing price of the Stock on the immediately preceding
trading day. Stock options may not be repriced at any time.
ARTICLE III. FORFEITURE OF AWARDS
(a) The recipient of an Award, in the case of an employee of the
Company or any Affiliate, shall forfeit all amounts due or rights
not exercised upon the occurrence of any of the following events:
(i) the recipient is discharged for cause;
(ii) the recipient voluntarily terminates his employment;
(iii) the recipient engages in competition with the Company or
any Affiliate; or,
(iv) the recipient engages in any activity or conduct contrary
to the best interest of the Company or Affiliate.
(b) The recipient of an Award, in the case of a Consultant,
shall forfeit all options not exercised upon the cessation of the
provision of services to the Company by the Consultant.
(c) The Plan Administrator may include in any Award any
additional or different conditions of forfeiture it may deem
appropriate. The Plan Administrator may also, after taking into
account the relevant circumstances, waive any condition of
forfeiture stated above or in the Award.
(d) In the event of forfeiture, the recipient shall lose all
rights in and to the Award. This provision, however, shall not be
invoked to force any recipient to return any Stock already received
or due under an Award at the time of the event of forfeiture.
(e) Such determinations as may be necessary for application of
this section, including any grant of authority to others to make
determinations under this section, shall be at the sole discretion
of the Plan Administrator and his determinations shall be
conclusive.
ARTICLE IV. DEATH OF OPTIONEE
Section 1. Death of Optionee. Upon the death of an Award
recipient, a stock option, to the extent exercisable on the date of
his death, may be exercised at any time within six (6) months after
the recipient's death, but in no event after the expiration of the
term of the option, by the recipient's beneficiary. From time to
time, in a form acceptable to the Plan Administrator, the recipient
may designate any person or persons, including a trust
(concurrently, contingently or successively) to whom the Award shall
be transferred in the event that the recipient dies before
exercising the option. A beneficiary designation form shall be
effective only when the form is signed by the recipient and filed in
writing with the Plan Administrator while the recipient is alive,
and shall cancel all beneficiary designation forms that the
recipient previously signed and filed. If the recipient does not
designate a beneficiary, the beneficiary shall be the surviving
spouse of the recipient, and if the recipient has no spouse
surviving, by the personal representative or the person or persons
entitled thereto by will or in accordance with the laws of descent
and distribution applicable to the recipient.
ARTICLE V. EXERCISE OF OPTION AND ISSUANCE OF STOCK
Section 1. Exercise of Option. The holder of an Award shall
exercise their right to acquire the Stock pursuant to the Award by
written notice to the Secretary of the Company at 201 Evans Lane,
St. Louis, Missouri 63121. Written notice shall set forth the number
of shares for which the exercise is applicable together with a check
for the purchase price of the Stock. If the holder of the Award
exercises his option for less than the total number of shares
awarded, he will execute such documents as required by the Corporate
Secretary for the remaining number of shares subject to the Award.
C-2
ARTICLE VI. OTHER GOVERNING PROVISIONS
Section 1. Transferability. No Award shall be transferable other
than at death as set out in Article IV, and any right granted under
an Award may be exercised during the lifetime of the holder thereof
only by him.
Section 2. Rights as a Shareholder. A recipient of an Award
shall have no rights as a shareholder with respect to any options or
shares which may be issued in connection with the Award until the
issuance of a stock certificate for such shares, and no adjustment
shall be made for dividends or other rights for which the record
date is prior to the issuance of such stock certificate.
Section 3. General Conditions of Awards. No employee or other
person shall have any right with respect to the Plan, or in the
shares reserved pursuant to the Plan, or in any Award, contingent or
otherwise, until written evidence of the Award shall have been
delivered to the recipient and all the terms, conditions and
provisions of the Plan applicable to such recipient have been met.
Section 4. Limitation as to Service. Neither the Plan, nor the
granting of an option, nor any other action taken pursuant to the
Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an eligible participant has
a right to continue as an employee or consultant for any period of
time or at any particular rate of compensation.
Section 5. Acceleration. The Plan Administrator may in its sole
discretion accelerate the date of exercise of any Award.
Section 6. Adjustments. Upon any Stock split, Stock dividend,
combination or reclassification of shares of Stock, or
consolidation, merger or sale of all or substantially all of the
assets of the Company, appropriate adjustments shall be made to the
shares reserved under Article I of the Plan and the terms of the
outstanding Awards.
Section 7. Withholding of Taxes. The Company shall deduct from
any payment, or otherwise collect from the recipient, any taxes
required to be withheld by federal, state or local governments in
connection with any Award.
Section 8. No Warranty of Tax Effect. Except as may be contained
in the terms of any Award, no opinion is expressed nor warranties
made as to the effect for federal, state, or local tax purposes of
any Awards.
Section 9. Amendment of Plan. The Board of Directors of the
Company may from time to time amend, suspend or terminate the Plan,
in whole or in part, and if terminated may reinstate any or all of
the provisions of the Plan, except that (1) no amendment, suspension
or termination may apply to the terms of any Award (contingent or
otherwise) granted prior to the effective date of such amendment,
suspension or termination without the recipient's consent; and, (2)
any increase in the number of shares that may be issued under the
Plan, or any material increase in benefits under the Plan must be
approved by shareholders.
Section 10. Construction of Plan. The place of administration of
the Plan shall be in the State of Missouri, and the validity,
construction, interpretation, administration and effect of the Plan
and of its rules and regulations, and rights relating to the Plan,
shall be determined solely in accordance with the laws of the State
of Missouri.
ARTICLE VII. EFFECTIVE DATE AND TERM
This Plan shall be effective upon approval by the shareholders
of the Company. The Plan shall continue until October 31, 2009
unless sooner terminated or extended by the Board of Directors. Any
balances in the share reserve shall be canceled, and no Awards shall
be granted under the Plan thereafter. The Plan shall continue in
effect, however, insofar as is necessary to complete all of the
Company's obligations under outstanding Awards and to conclude the
administration.
C-3
(THIS PAGE INTENTIONALLY LEFT BLANK)
APPENDIX D
ENGINEERED SUPPORT SYSTEMS, INC.
2004 NON-EXECUTIVE STOCK OPTION PLAN
ARTICLE I. GENERAL PROVISIONS
Section 1. Purpose of Plan. The purpose of the Engineered
Support Systems, Inc. 2004 Non-Executive Stock Option Plan (the
"Plan") is to enhance the profitability and value of Engineered
Support Systems, Inc. (the "Company") and its shareholders by
strengthening the Company's ability to attract, retain and motivate
key employees and consultants of the Company who make important
contributions to the success of the Company.
Section 2. Definitions of Terms as Used in the Plan.
(a) "Affiliate" means any subsidiary or parent of the Company.
(b) "Award" means a stock option granted under Article II.
(c) "Plan Administrator" means the Compensation Committee of the
Board of Directors of the Company.
(d) "Consultant" means any natural person who has a written
agreement with the Company or any Affiliate to provide consulting
services.
(e) "Stock" means the $.01 par value common stock of Engineered
Support Systems, Inc.
Section 3. Authorization and Reservation. There shall be
established a reserve of 350,000 shares of authorized and unissued
Stock and/or treasury shares which shall be the total number of
shares of Stock that may be issued pursuant to Awards. Upon the
cancellation or expiration of an Award, all shares of Stock not
issued thereunder shall become available for the granting of
additional Awards.
Section 4. Administration of the Plan. The Compensation
Committee shall administer the Plan. Subject to the terms of the
Plan, the Plan Administrator shall have full power to grant Awards,
construe and interpret the Plan, establish rules and regulations and
perform all other acts the Plan Administrator believes reasonable
and proper, including the power to delegate responsibility to others
to assist in administering the Plan.
Section 5. Participation in the Plan. Any employee or Consultant
of the Company or any Affiliate shall be eligible to participate in
the Plan, except that no "officer" of the Company as that term is
defined in Rule 16a-1 promulgated under the Securities Exchange Act
of 1934, as amended, or director of the Company shall be eligible to
participate in the Plan.
ARTICLE II. STOCK OPTIONS
Section 1. Description. All options granted under the Plan shall
be nonstatutory options not intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended.
Section 2. Terms and Conditions.
(a) Each stock option shall be set forth in a written notice
containing such terms and conditions as the Plan Administrator may
determine, subject to the provisions of the Plan.
(b) The purchase price of any shares exercised under any stock
option must be paid in full upon such exercise. The payment shall be
made in such form, which may be in cash or Stock, as the Plan
Administrator may determine.
(c) No stock option may be exercised after the expiration of
five (5) years from the date such option is granted unless such term
is extended by the Plan Administrator as evidenced in writing.
(d) The option price of shares subject to any stock option shall
be the closing price of the Stock on the date that the stock option
is granted. If the stock option is granted on a day that is not a
trading day, the option price shall be the closing price of the
Stock on the immediately preceding trading day. Stock options may
not be repriced at any time.
D-1
ARTICLE III. FORFEITURE OF AWARDS
(a) The recipient of an Award, in the case of an employee of the
Company or any Affiliate, shall forfeit all options not exercised
upon the occurrence of any of the following events:
(i) the recipient is discharged for cause;
(ii) the recipient voluntarily terminates his employment;
(iii) the recipient engages in competition with the Company or
any Affiliate; or,
(iv) the recipient engages in any activity or conduct contrary
to the best interest of the Company or Affiliate.
(b) The recipient of an Award, in the case of a Consultant,
shall forfeit all options not exercised upon the cessation of the
provision of services to the Company by the Consultant.
(c) The Plan Administrator may include in any Award any
additional or different conditions of forfeiture it may deem
appropriate. The Plan Administrator may also, after taking into
account the relevant circumstances, waive any condition of
forfeiture stated above or in the Award.
(d) In the event of forfeiture, the recipient shall lose all
rights in and to the Award. This provision, however, shall not be
invoked to force any recipient to return any Stock already received
or due under an Award at the time of the event of forfeiture.
(e) Such determinations as may be necessary for application of
this section, including any grant of authority to others to make
determinations under this section, shall be at the sole discretion
of the Plan Administrator and his determinations shall be
conclusive.
ARTICLE IV. DEATH OF OPTIONEE
Section 1. Death of Optionee. Upon the death of a recipient of
any award, a stock option, to the extent exercisable on the date of
his death, may be exercised at any time within six (6) months after
the recipient's death, but in no event after the expiration of the
term of the option, by the recipient's beneficiary. From time to
time, in a form acceptable to the Plan Administrator, the recipient
may designate any person or persons, including a trust
(concurrently, contingently or successively) to whom the Award shall
be transferred in the event that the recipient dies before
exercising the option. A beneficiary designation form shall be
effective only when the form is signed by the recipient and filed in
writing with the Plan Administrator while the recipient is alive,
and shall cancel all beneficiary designation forms that the
recipient previously signed and filed. If the recipient does not
designate a beneficiary, the beneficiary shall be the surviving
spouse of the recipient, and if the recipient has no spouse
surviving, by the personal representative or the person or persons
entitled thereto by will or in accordance with the laws of descent
and distribution applicable to the recipient.
ARTICLE V. EXERCISE OF OPTION
Section 1. Exercise of Option. The holder of an Award shall
exercise their right to acquire the Stock pursuant to the Award by
written notice to the Secretary of the Company at 201 Evans Lane,
St. Louis, Missouri 63121. Written notice shall set forth the number
of shares for which the exercise is applicable together with a check
for the purchase price of the Stock. If the holder of the Award
exercises his option for less than the total number of shares
awarded, he will execute such documents as required by the Corporate
Secretary for the remaining number of shares subject to the Award.
ARTICLE VI. OTHER GOVERNING PROVISIONS
Section 1. Transferability. No Award shall be transferable other
than at death as set out in Article IV, and any right granted under
an Award may be exercised during the lifetime of the holder thereof
only by him.
Section 2. Rights as a Shareholder. A recipient of an Award
shall have no rights as a shareholder with respect to any options or
shares which may be issued in connection with the Award until the
issuance of a stock
D-2
certificate for such shares, and no adjustment shall be made for
dividends or other rights for which the record date is prior to the
issuance of such stock certificate.
Section 3. General Conditions of Awards. No employee or other
person shall have any right with respect to the Plan, or in the
shares reserved pursuant to the Plan, or in any Award, contingent or
otherwise, until written evidence of the Award shall have been
delivered to the recipient and all the terms, conditions and
provisions of the Plan applicable to such recipient have been met.
Section 4. Limitation as to Service. Neither the Plan, nor the
granting of an option, nor any other action taken pursuant to the
Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an eligible participant has
a right to continue as an employee or consultant for any period of
time or at any particular rate of compensation.
Section 5. Acceleration. The Plan Administrator may in its sole
discretion accelerate the date of exercise of any Award.
Section 6. Adjustments. Upon any Stock split, Stock dividend,
combination or reclassification of shares of Stock, or
consolidation, merger or sale of all or substantially all of the
assets of the Company, appropriate adjustments shall be made to the
shares reserved under Article I of the Plan and the terms of the
outstanding Awards.
Section 7. Withholding of Taxes. The Company shall deduct from
any payment, or otherwise collect from the recipient, any taxes
required to be withheld by federal, state or local governments in
connection with any Award.
Section 8. No Warranty of Tax Effect. Except as may be contained
in the terms of any Award, no opinion is expressed nor warranties
made as to the effect for federal, state, or local tax purposes of
any Awards.
Section 9. Amendment of Plan. The Board of Directors of the
Company may from time to time amend, suspend or terminate the Plan,
in whole or in part, and if terminated may reinstate any or all of
the provisions of the Plan, except that (1) no amendment, suspension
or termination may apply to the terms of any Award (contingent or
otherwise) granted prior to the effective date of such amendment,
suspension or termination without the recipient's consent; and, (2)
any increase in the number of shares that may be issued under the
Plan, or any material increase in benefits under the Plan must be
approved by shareholders.
Section 10. Construction of Plan. The place of administration of
the Plan shall be in the State of Missouri, and the validity,
construction, interpretation, administration and effect of the Plan
and of its rules and regulations, and rights relating to the Plan,
shall be determined solely in accordance with the laws of the State
of Missouri.
ARTICLE VII. EFFECTIVE DATE AND TERM
This Plan shall be effective upon approval by the shareholders
of the Company. The Plan shall continue until October 31, 2009
unless sooner terminated or extended by the Board of Directors. Any
balances in the share reserve shall be canceled, and no Awards shall
be granted under the Plan thereafter. The Plan shall continue in
effect, however, insofar as is necessary to complete all of the
Company's obligations under outstanding Awards and to conclude the
administration.
D-3
Mark Here / /
for Address
Change or
Comments
SEE REVERSE SIDE
1. Election of Directors (3 year term)
Nominees: FOR WITHHELD
01 William H.T Bush / / / /
02 Gerald E. Daniels
03 Ronald W. Davis
04 S. Lee Kling
05 General Crosbie E. Saint
(U.S. Army, Retired)
06 Earl W. Wims, Ph.D.
To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided. Your total cumulative votes will be allocated fully
among the remaining nominees.
For, except vote withheld from the following nominee(s):
-------------------------------------------------------------------------------
2. Engineered Support Systems, Inc. 2004 Stock FOR AGAINST ABSTAIN
Option Plan and the allocation of 350,000 / / / / / /
shares of Engineered Support Systems, Inc.
common stock to the Stock Option Plan.
3. Engineered Support Systems, Inc. 2004 FOR AGAINST ABSTAIN
Non-Executive Stock Option Plan and the / / / / / /
allocation of 350,000 shares of Engineered
Support Systems, Inc. common stock to the
Non-Executive Stock Option Plan. Attend Meeting / /
SIGNATURE SIGNATURE DATE
----------------------- ----------------------- -----------
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. JOINT MEMBERS SHOULD
EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN TIME
THE DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
--------------------------------------------
INTERNET
http://www.eproxy.com/easi
Use the Internet to vote your proxy.
Have your proxy card in hand when
you access the web site.
--------------------------------------------
OR
--------------------------------------------
TELEPHONE
1-800-435-6710
Use any touch-tone telephone to
vote your proxy. Have your proxy
card in hand when you call.
--------------------------------------------
OR
--------------------------------------------
MAIL
Mark, sign and date
your proxy card
and
return it in the
enclosed postage-paid
envelope.
--------------------------------------------
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
PROXY
ENGINEERED SUPPORT SYSTEMS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING OF SHAREHOLDERS MARCH 2, 2004
The undersigned hereby appoints Michael F. Shanahan, Sr. proxy, with
full power of substitution, to represent the undersigned at the annual meeting
of shareholders of Engineered Support Systems, Inc. to be held at the
headquarters of the Company, 201 Evans Lane, St. Louis, Missouri 63121 on
Tuesday, March 2, 2004, and at any adjournments thereof, on all matters coming
before said meeting.
You are encouraged to specify your choices by marking the appropriate
boxes on the REVERSE SIDE. The Proxy cannot vote your shares unless you sign
and return this card.
---------------------------------------------------------------------------
ADDRESS CHANGE/COMMENTS (Mark the corresponding box on the reverse side)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
APPENDIX
Page 15 of the printed Proxy contains a stock performance graph. The
information contained in the graph has been presented in a tabular format
that may be processed by the EDGAR system.