Edgar Filing: ENGINEERED SUPPORT SYSTEMS INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

Filed by the Registrant |X|
Filed by a Party other than the Registrant | |

ENGINEERED SUPPORT SYSTEMS, INC.
(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS OF
ENGINEERED SUPPORT SYSTEMS, INC.

St. Louis, Missouri
August , 2004

To the Shareholders of Engineered Support Systems, Inc.:

A Special Meeting of the Shareholders of Engineered Support
Systems, Inc. ("ESSI" or "Company") will be held at the headquarters of the
Company, 201 Evans Lane, St. Louis, Missouri 63121 on Wednesday, September
15, 2004 at 10:00 a.m., local time, for the purpose of considering and
voting upon the following matters:

1. The approval of a proposed amendment to Article Three of the
Company's Articles of Incorporation to increase the number of
authorized shares of common stock from 30,000,000 to
90,000,000;

2. The approval of the Engineered Support Systems, Inc.
Executive Incentive Performance Plan;

3. To grant to the proxyholders the authority to vote in their
discretion with respect to the approval of any proposal to
postpone or adjourn the Special Meeting to a later date to
solicit additional proxies in favor of the approval of the
amendment of the Company's Articles of Incorporation and/or
the approval of the Engineered Support Systems, Inc.
Executive Incentive Performance Plan if there are not
sufficient votes for approval of both proposals at the
Special Meeting; and

4. To transact such other business, if any, as lawfully may be
brought before the meeting or any adjournment thereof.

A proxy statement and proxy accompany this Notice of the Special
Meeting of the Shareholders.

We encourage all shareholders to attend the Special 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 September , 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

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 SEPTEMBER , 2004 IN THE ENCLOSED ENVELOPE TO ENSURE
THAT YOUR VOTE IS COUNTED AT THE SPECIAL MEETING.

ENGINEERED SUPPORT SYSTEMS, INC.
201 EVANS LANE
ST. LOUIS, MISSOURI 63121

PROXY STATEMENT
FOR THE
SPECIAL MEETING OF THE SHAREHOLDERS
TO BE HELD ON SEPTEMBER 15, 2004

THIS PROXY STATEMENT, WHICH IS BEING MAILED TO SHAREHOLDERS ON, OR ABOUT,
AUGUST , 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 SPECIAL MEETING OF THE SHAREHOLDERS OF THE COMPANY
TO BE HELD ON SEPTEMBER 15, 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 AND THE PROXY ARE ENCLOSED IN THIS PACKAGE. THE PROXY
SHOULD BE RETURNED BY SEPTEMBER , 2004 IN THE ENCLOSED SELF-ADDRESSED,
POSTAGE PREPAID, ENVELOPE. FOR SECURITY PURPOSES, IF YOU PLAN TO ATTEND THE
SPECIAL MEETING, YOU MUST NOTIFY THE SECRETARY OF THE COMPANY OF YOUR INTENT
TO DO SO BY SEPTEMBER , 2004.

PROXY

The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company to be used at the Special 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. If the
Company receives an executed proxy that contains no instructions, the shares
covered by the proxy will be voted in accordance with the Board of
Directors' recommendations as follows:

1. "FOR" the approval of the proposed amendment to Article Three
of the Company's Articles of Incorporation to increase the
number of authorized shares of common stock from 30,000,000
to 90,000,000;

2. "FOR" the approval of the Engineered Support Systems, Inc.
Executive Incentive Performance Plan;

3. "FOR" the approval of any proposal to postpone or adjourn the
Special Meeting to a later date to solicit additional proxies
in favor of the approval of the proposed amendment to the
Company's Articles of Incorporation and/or the Engineered
Support Systems, Inc. Executive Incentive Performance Plan if
there are not sufficient votes for approval of both proposals
at the Special Meeting; 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 Special Meeting of
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 August ,
2004 are entitled to vote at the Special Meeting of the Shareholders or any
adjournments or postponements thereof. Shares covered by proxies properly
executed by the Company's shareholders of record on August , 2004 will be
voted as specified on the proxy and will be voted on all business to be
voted upon at the Special Meeting of the Shareholders and any adjournment
thereof. Each share is entitled to one vote. As of July 23, 2004, there were
26,561,829 shares of common stock outstanding and entitled to vote.

VOTE REQUIRED

A quorum is required for the transaction of business at the Special
Meeting. Attendance at the meeting in person or by proxy of holders of a
majority of the issued and outstanding shares entitled to vote at the
Special 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 those 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.

Under applicable law, the vote required for the approval of the
amendment to the Company's Articles of Incorporation is a majority of the
issued and outstanding common stock. The vote required for the approval of
the Engineered Support Systems, Inc. Executive Incentive Performance Plan is
a majority of shares represented at the Special 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
July 23, 2004.

SHARES OF COMMON STOCK PERCENT OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING(1)
------------------------------------ ------------------ --------------

Neuberger Berman, Inc. 3,110,289(2) 11.7%
605 Third Avenue
New York, NY 10158

Barclays Global Investors, N.A. 2,315,324(3) 8.7%
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 July 23, 2004.

(2) The information provided herein is based on a Schedule 13G, dated
February 13, 2004, 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 42,562 shares, shared voting power with respect to
2,274,800 shares and shared dispositive power with respect to
3,110,289 shares reported as beneficially owned. Neuberger Berman
Genesis Fund reported shared voting and shared dispositive power with
respect to 2,163,975 shares reported as beneficially owned.

(3) The information provided herein is based on a Schedule 13G, dated
February 17, 2004, filed jointly by Barclays Global Investors N.A.,
Barclays Global Fund Advisors, Barclays Global Investors, Ltd.,
Barclays Global Investors Japan Trust and Banking Company Limited,
Barclays Life Assurance Company Limited, Barclays Bank PLC, Barclays
Capital Securities Limited, Barclays Private Bank & Trust (Isle of
Man) Limited, Barclays Private Bank and Trust (Jersey) Limited,
Barclays Bank Trust Company Limited, Barclays Bank (Suisse) SA,
Barclays Private Bank Limited, and Barclays Capital Inc. The filing
parties reported sole voting and sole dispositive power with respect
to 2,124,714 shares.

The following table sets forth the number of shares of common stock
beneficially owned by (a) each director, (b) each executive officer named in
the Summary Compensation Table, and (c) all directors and executive officers
as a group as of July 23, 2004:

SHARES OF COMMON STOCK PERCENT OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) OUTSTANDING(3)
------------------------ ------------------------ -----------------

Michael F. Shanahan, Sr. 563,375 2.1%

Gerald E. Daniels 202,512 (4)

Gerald A. Potthoff 602,549 2.2%

Gary C. Gerhardt 818,373 3.0%

Ronald W. Davis 232,590 (4)

William H. T. Bush 61,876 (4)

General Michael P.C. Carns, U.S. Air Force, Retired 55,716 (4)

MG George E. Friel, U.S. Army, Retired 8,041 (4)

Thomas J. Guilfoil 87,216 (4)

S. Lee Kling 68,069 (4)

LTG Kenneth E. Lewi, U.S. Army, Retired 48,978 (4)

General Charles T. Robertson, Jr. 19,688 (4)
U.S. Air Force, Retired

General Crosbie E. Saint, U.S. Army, Retired 13,688 (4)

Michael F. Shanahan, Jr. 87,562 (4)

Earl W. Wims, Ph.D. 42,889 (4)

All directors and executive officers as a group
(38 persons) 3,746,893 12.81%

---------

(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 July 23, 2004: Mr. Shanahan, Sr. (0), Mr. Daniels (200,000),
Mr. Potthoff (540,938), Mr. Gerhardt (704,063), Mr. Davis (228,438),
Mr. Bush (53,438), Mr. Carns (53,438), Mr. Friel (5,625), Mr. Guilfoil
(11,250), Mr. Kling (30,938), Mr. Lewi (5,625), Mr. Robertson, Jr.
(19,688), Mr. Saint (13,688), Mr. Shanahan, Jr. (16,875), Mr. Wims
(28,125) and all directors and executive officers as a group
(2,693,629).

(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 July 23, 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
AMENDMENT TO ARTICLES OF INCORPORATION

The Board is proposing an amendment to Article Three of the
Company's Articles of Incorporation to increase the number of authorized
shares of stock of the Company from 30,000,000 shares of common stock to
90,000,000 shares of common stock (the "Articles Amendment") for approval by
the shareholders. A copy of the form of Articles Amendment is attached to
this proxy statement as Appendix A.
----------

REASONS FOR ARTICLES AMENDMENT

The Board of Directors believes that the flexibility provided by
the increase in the authorized shares of common stock, which will permit the
Board, in its discretion, to issue or reserve additional shares of common
stock without the delay or expense of a meeting of shareholders, is in the
best interests of the Company and the shareholders. Shares of common stock
may be used for general corporate purposes, including acquisitions, possible
financing activities, stock splits and other employee, executive and
director benefit plans. Possible financing activities might include raising
additional capital funds through offerings of shares of the common stock.
The Board of Directors has no current plan, understanding or arrangement to
issue any of the additional shares of common stock.

EFFECT OF ARTICLES AMENDMENT

The issuance of any additional shares of common stock may have the
effect of diluting the percentage of stock ownership, book value and voting
rights of the present holders of the common stock. The increase in the
authorized common stock of the Company also may have the effect of
discouraging attempts to take over control of the Company, as additional
shares of common stock could be issued to dilute the stock ownership and
voting power of, or increase the cost to, a party seeking to obtain control
of the Company. The Articles Amendment is not being proposed in response to
any known effort or threat to acquire control of the Company and is not part
of a plan by management to adopt a series of amendments to the Company's
Articles of Incorporation and Bylaws having an anti-takeover effect.

The Board adopted the Articles Amendment on July 15, 2004 and is
seeking approval by the shareholders through this proxy solicitation.

THE BOARD RECOMMENDS THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF
THE ARTICLES AMENDMENT.

PROPOSAL TWO
APPROVAL OF THE ENGINEERED SUPPORT SYSTEMS, INC.
EXECUTIVE INCENTIVE PERFORMANCE PLAN

The Board is proposing the Engineered Support Systems, Inc.
Executive Incentive Performance Plan (the "Incentive Plan") for approval by
the shareholders. The following description of the material features of the
Incentive Plan is a summary and is qualified in its entirety by reference to
the Incentive Plan, a copy of which is attached to this proxy statement as
Appendix B.
----------

DESCRIPTION OF THE INCENTIVE PLAN

The objective of the Incentive Plan is to provide for the payment
of qualified performance-based compensation in the form of bonuses that is
not subject to the deduction limitation contained in Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). Employees who are
"covered employees" for purposes of Section 162(m) or who may be a covered
employee as of the end of the tax year for which the Company would claim a
tax deduction in connection with payment of compensation to that employee
are eligible for awards under the Incentive Plan. Section 162(m) defines
covered employees as the chief executive officer of the Company or an
individual acting in that capacity and those employees whose compensation
the Company is required by the Securities Exchange Act of 1934, as amended,
to report to shareholders because the employee is among the four other
highest paid officers for the taxable year. Currently, there are five
employees who would be eligible under the Incentive Plan.

The Incentive Plan will be administered by the Compensation
Committee of the Board or another committee appointed by the Board to serve
as administrator of the Incentive Plan (the "Committee"). The Committee at
all times will consist of persons who are "outside directors" as that term
is defined in the regulations adopted under Section 162(m). The Committee,
in its sole and absolute discretion, may modify, amend, terminate or suspend
the Incentive Plan.

The Committee will determine annually the employees who will
participate in the Incentive Plan (the "Participants"). The Committee may
withdraw approval for a Participant's participation at any time, at which
time the employee involved will cease to be a Participant in the Incentive
Plan. Participants may be awarded bonuses subject to a maximum bonus amount
of $4,000,000 for the fiscal year ending October 31, 2004, which maximum
bonus amount for each subsequent fiscal year shall be increased by 10% of
the maximum bonus for the preceding fiscal year.

The Committee shall establish objective performance criteria for
the attainment of each Participant's maximum bonus amount for any fiscal
year which shall include one or more of the following criteria: (1) pre-tax
or after-tax return on equity; (2) earnings per share; (3) pre-tax or
after-tax net income, as defined by the Committee; (4) business unit or
departmental pre-tax or after-tax income; (5) book value per share;
(6) relative performance to peer group companies; (7) expense management; and
(8) total return to shareholders. The Committee establishes the performance
criteria for a Participant at the beginning of the period set by the
Committee for achievement of the criteria. Following the period set for
achievement of the criteria, the Committee will certify in writing whether
the goals were met by the Participant. If the goals for a Participant were
not met, no amounts will be paid to that Participant under the Incentive
Plan.

FEDERAL INCOME TAX CONSEQUENCES

Assuming compliance with Section 162(m) of the Code, the Company is
entitled to a tax deduction at the time the Participant realizes taxable
income. Section 162(m) and the regulations adopted thereunder limit the
deductibility of non-qualifying compensation in excess of $1,000,000 paid to
covered employees. However, the statute exempts qualifying performance-based
compensation from the deduction limit if certain requirements are met. The
Compensation Committee's policy is to maximize the tax deductibility of
executive compensation without compromising the essential framework of the
existing total compensation program. The Committee may elect to forgo
deductibility for federal income tax purposes if such action is, in the
opinion of the Committee, necessary or appropriate to further the goals of
the Company's executive compensation program, or otherwise is in the
Company's best interests.

NEW PLAN BENEFITS

The amounts that will be received by or allocated to employees
under the Incentive Plan are not determinable because such amounts, if any,
will be awarded in the future at the discretion of the Committee.

The Board adopted the Incentive Plan on July 15, 2004 and is
seeking approval by the shareholders through this proxy solicitation.

THE BOARD RECOMMENDS THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF
THE INCENTIVE PLAN.

PROPOSAL THREE
APPROVAL OF ANY PROPOSAL TO POSTPONE OR
ADJOURN THE SPECIAL MEETING

If the requisite shareholder votes approving the Articles Amendment
and the Incentive Plan have not been received at the time of the Special
Meeting, holders of the Company's common stock may be asked to vote on a
proposal to adjourn or postpone the Special Meeting, if necessary, to
solicit additional proxies in favor of the Articles Amendment and Incentive
Plan proposals.

THE BOARD RECOMMENDS THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF
ANY SUCH ADJOURNMENT OR POSTPONEMENT OF THE MEETING, IF NECESSARY.

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 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 executive's 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. As of July 23, 2004,
there were 3,360,027 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 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 FOR FISCAL YEAR 2003

LTG Kenneth E. Lewi, Chairman
Thomas J. Guilfoil
Earl W. Wims

The report set forth above was furnished by the Compensation
Committee for fiscal year 2003. In March 2004, General Crosbie E.
Saint replaced Earl W. Wims on the Company's Compensation Committee.

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. Additionally, on
March 2, 2004, Mssrs. Bush, Carns, Friel, Guilfoil, Kling, Lewi, Robertson,
Saint, Shanahan, Jr. and Wims each received an option to acquire 5,625
shares of the Company's common stock at an exercise price of $53.75 per
share.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with certain executive
officers. The following is 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 Development.

CHAIRMAN OF THE BOARD. The employment agreement with Michael F.
Shanahan, Sr. was executed on September 1, 1998 for a term of three years.
Unless terminated by either party upon 30 days prior written notice, or for
cause upon seven days notice, the employment agreement continues on a
year-to-year basis. The current base salary under this agreement is
$1,250,000.

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
60 consecutive months. For retirement or death, the benefit is $52,500 per
month for 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 year.
Unless terminated by either party upon 30 days prior written notice, or for
cause upon seven 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 $720,000 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
years. Unless terminated by either party upon 30 days prior written notice,
or for cause upon seven 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
years. Unless terminated by either party upon 30 days prior written notice,
or for cause upon seven 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.

PRESIDENT, BUSINESS DEVELOPMENT. The employment agreement with
Ronald W. Davis was executed on October 1, 1999 for a term of three years.
Unless terminated by either party upon 30 days prior written notice, or for
cause upon seven 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 and 2004.

SUMMARY COMPENSATION TABLE

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:

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 Operating 2002 320,000 250,000 350,625 181,900
Officer 2001 300,000 160,000 105,000 110,300

Gary C. Gerhardt 2003 400,000 300,000 15,000 29,600
Vice Chairman and Chief 2002 280,000 200,000 275,625 15,000
Financial Officer 2001 255,000 140,000 90,000 14,700

Ronald W. Davis 2003 350,000 262,500 15,000 30,200
President, Business Development 2002 200,000 175,000 275,625 14,900
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.

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
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES PERCENT OF EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING TOTAL OPTIONS PRICE FOR OPTION TERM(3)
OPTIONS GRANTED IN PER EXPIRATION ----------------------------
NAME GRANTED (1) FISCAL YEAR (%) SHARE ($)(1) DATE(2) 5% ($) 10% ($)
---- ----------- --------------- ------------ ---------- ------ -------

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.

VALUE OF
NUMBER OF UNEXERCISED
SECURITIES IN-THE-MONEY
UNDERLYING OPTIONS OPTIONS AT
NUMBER OF AT 10/31/03 10/31/03
SHARES VALUE EXERCISEABLE/ EXERCISABLE/
NAME ACQUIRED ON 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.

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
EQUITY COMPENSATION
NUMBER OF SHARES TO BE WEIGHTED-AVERAGE PLANS (EXCLUDING
ISSUED UPON 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 $20.182 754,326

Equity compensation plans not
approved by stockholders 390,775 23.12 --
----------------------- ------------------- -----------------------
Total 4,432,498 $20.44 754,326
----------------------- ------------------- -----------------------

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 and 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.

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.

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 Special Meeting if such proposals are received by the
Company no later than December 15, 2004. All proposals should be submitted
to the Company at 201 Evans Lane, St. Louis, MO 63121, Attention: Corporate
Secretary.

INCORPORATION BY REFERENCE

In the Company's filings with the Securities and Exchange
Commission (the "SEC"), information is sometimes "incorporated by
reference." This means that the Company is referring you to information that
has previously been filed with the SEC, so the information should be
considered as part of the filing you are reading. This proxy statement
incorporates by reference the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 2003, and the Company's Quarterly Reports on
Form 10-Q for the fiscal quarters ended January 31, 2004 and April 30, 2004,
which contains important information about the Company and the Company's
financial condition that is not set forth in this proxy statement. Upon
written request from any shareholder of record as of August , 2004 (or any
beneficial owner representing they are or were entitled to vote at the
Special Meeting), the Company will furnish to that shareholder, without
charge, its Annual Report on Form 10-K for the fiscal year ended October 31,
2003, and its Quarterly Reports on Form 10-Q for the fiscal quarters ended
January 31, 2004, and April 30, 2004, as filed with the SEC, including
financial statements. Requests should be directed to: Investor Relations,
Engineered Support Systems, Inc., 201 Evans Lane, St. Louis, MO 63121.

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: August , 2004

Mark Here / /
for Address Change or
Comments
SEE REVERSE SIDE

1. Amendment of the Company's Articles of FOR AGAINST ABSTAIN
Incorporation to increase the number of | | | | | |
authorized shares of common stock from
30,000,000 to 90,000,000.

2. Engineered Support Systems, Inc. Executive FOR AGAINST ABSTAIN
Incentive Performance Plan. | | | | | |

3. Grant to the proxyholders the authority to FOR AGAINST ABSTAIN
vote, in their discretion, with respect to the | | | | | |
approval of any proposal to postpone or adjourn
the Special Meeting to a later date to solicit
additional proxies in favor of the approval of
the amendment of the Company's Articles of
Incorporation and the Engineered Support
Systems, Inc. Executive Incentive Performance
Plan if there are not sufficient votes for
approval of both proposals at the Special
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 SPECIAL 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.

-----------------------------------------------------------

TELEPHONE
1-800-435-6710
Use any touch-tone telephone to
vote your proxy. Have your proxy
card in hand when you call.

-----------------------------------------------------------

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 SPECIAL MEETING OF SHAREHOLDERS SEPTEMBER 15, 2004

The undersigned hereby appoints Michael F. Shanahan, Sr. proxy, with full
power of substitution, to represent the undersigned at the Special 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
Wednesday, September 15, 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)

APPENDIX

Page 14 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.

Appendix A

FORM OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
ENGINEERED SUPPORT SYSTEMS, INC.

Article Number Three is amended to read as follows:

The aggregate number of shares which the Corporation shall have authority to
issue shall be: Ninety Million Shares (90,000,000) of common stock, with the
par value of One Cent ($.01) per share.

Appendix B

ENGINEERED SUPPORT SYSTEMS, INC.

EXECUTIVE INCENTIVE PERFORMANCE PLAN

ARTICLE I. ESTABLISHMENT AND PURPOSE

1.1 ESTABLISHMENT OF THE PLAN. Engineered Support Systems, Inc.
(the "Company") hereby establishes the Engineered Support Systems, Inc.
Executive Incentive Performance Plan (the "Plan") as set forth in the
Agreement.

1.2 PURPOSE. Section 162(m) of the Internal Revenue Code of 1986
limits to $1,000,000 the amount of an employer's deduction for a fiscal year
relating to compensation for certain executive officers, with exceptions for
specific types of compensation such as performance-based compensation.

This Plan is intended to provide for the payment of
qualified performance-based compensation in the form of bonuses that is not
subject to the Section 162(m) deduction limitation.

1.3 EFFECTIVE DATE. The effective date of the Plan is July 15,
2004, subject to approval of the material terms of the Plan by the Company's
shareholders.

ARTICLE II. DEFINITIONS

2.1 DEFINITIONS. Whenever used herein, the following terms will
have the meanings set forth below, unless otherwise expressly provided. When
the defined meaning is intended, the term is capitalized.

(a) "Board" means the Board of Directors of the Company.

(b) "Code" means the Internal Revenue Code of 1986, as amended.

(c) "Committee" means the Compensation Committee of the
Board, or another committee appointed by the Board to serve as the
administrator for the Plan, which committee at all times consists of persons
who are "outside directors" as that term is defined in the regulations
promulgated under Section 162(m) of the Code.

(d) "Company" means Engineered Support Systems, Inc.

(e) "Employer" means the Company and any entity that is a
subsidiary or affiliate of the Company.

(f) "Participant" for a Performance Period means an
officer or other key employee who is designated by the Committee as a
participant in the Plan for that Performance Period in accordance with
Article III.

(g) "Target Award" shall mean the maximum amount that may
be paid to a Participant as a bonus for a Performance Period if certain
performance criteria are achieved in the Performance Period.

(h) "Performance Period" shall mean the fiscal year of
the Company; or any other period designated as a Performance Period by the
Committee.

2.2 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity will
not affect the remaining parts of the Plan, and the Plan will be construed
and enforced as if the illegal or invalid provision had not been included.

ARTICLE III. ELIGIBILITY AND PARTICIPATION

3.1 ELIGIBILITY. The Participants in this Plan for any Performance
Period shall be comprised of each employee of the Company who is a "covered
employee" for purposes of Section 162(m) of the Code, or who may be such a
covered employee as of the end of a tax year for which the Company would
claim a tax deduction in connection payment of compensation to such
employee, during such Performance Period and who is designated individually
or by class to be a Participant for such Performance Period by the Committee
at the time a Target Award is established for such employee.

3.2 PARTICIPATION. Participation in the Plan will be determined
annually by the Committee. Employees approved for participation will be
notified of their selection as soon after approval as practicable.

3.3 TERMINATION OF APPROVAL. The Committee may withdraw approval
for a Participant's participation at any time. In the event of such
withdrawal, the Employee concerned will cease to be a Participant as of the
date of such withdrawal. The Employee will be notified of such withdrawal as
soon as practicable following the Committee's action. A Participant who is
withdrawn from participation under this Section will not receive any award
for the Performance Period under this Plan.

ARTICLE IV. PERFORMANCE CRITERIA

4.1 TARGET AWARDS. The Committee shall establish objective
performance criteria for the Target Award of each Participant for each
Performance Period in writing. Such formula shall be based upon one or more
of the following criteria, individually or in combination, as the
Compensation Committee in its discretion shall determine: (a) pre-tax or
after-tax return on equity; (b) earnings per share; (c) pre-tax or after-tax
net income, as defined by the Committee; (d) operating cash flow; (e)
earnings before interest expense, income taxes, depreciation and
amortization; (f) revenue; (g) business unit or departmental pre-tax or
after-tax income; (h) book value per share; (i) market

price per share; (j) relative performance to peer group companies;
(k) expense management; and (l) total return to stockholders. Such formula
shall be sufficiently detailed and objective so that a third party having
knowledge of the relevant performance results could calculate the bonus
amount to be paid to the Participant pursuant to such Target Award formula.

Such Target Award shall be established in writing by the
Committee no later than 90 days after the beginning of such Performance
Period (but no later than the time prescribed by Section 162(m) of the Code
or the regulations thereunder in order for the level to be considered
pre-established).

4.2 PAYMENT OF BONUS. As a condition to the right of a Participant
to receive any bonus under this Plan, the Committee shall first be required
to certify in writing, by resolution of the Committee or other appropriate
action, that the performance criteria of the Target Award have been achieved
and that the bonus amount of such Target Award has been accurately
determined in accordance with the provisions of this Plan. For this purpose,
approved minutes of a meeting of the Committee in which the certification is
made shall be treated as written certification.

The Committee shall have the right to reduce the amount
payable pursuant to a Target Award of a Participant in its sole discretion
at any time and for any reason before the bonus is payable to the
Participant, based on such criteria as it shall determine. Notwithstanding
any contrary provision of this Plan, the Committee may not adjust upwards
the amount payable pursuant to a Target Award subject to this Plan, nor may
it waive the achievement of the performance criteria established pursuant to
this Plan for the applicable Performance Period.

The bonus amount so determined by the Committee shall be
paid to the Participant as soon as administratively practical after the
amount of the bonus had been determined and documented as provided above.
The bonus payable under this Plan shall be the sole bonus payable to each
Participant with respect to a Performance Period.

The amount payable pursuant to Target Award may be paid in
the form of cash, an award under any benefit plan of the Company or any
other form of payment approved by the Committee; provided that the value of
such payments at the time the payment, credit or award is made, does not
exceed the dollar amount of the Target Award.

4.3 MAXIMUM BONUS. The maximum bonus amount payable to each
Participant for the 2004 year Performance Period shall be $4,000,000.
Thereafter, the maximum bonus amount for each subsequent Performance Period
shall be increased by 10% over the maximum bonus amount for the immediately
preceding Performance Period.

The Committee shall have the power to impose such other
restrictions on Target Awards and bonuses subject to this Plan as it may
deem necessary or appropriate to ensure that such bonuses satisfy all
requirements for "performance-based compensation" within the meaning of
Section 162(m) of the Code, the regulations promulgated thereunder, and any
successors thereto.

ARTICLE V. RIGHTS OF PARTICIPATION

5.1. EMPLOYMENT. Nothing in this Plan will interfere with or limit
in any way the right of the Employer to terminate a Participant's employment
at any time, nor confer upon any Participant any right to continue in the
employ of an Employer.

5.2 NONTRANSFERABILITY. No right or interest of any Participant in
this Plan will be assignable or transferable or subject to any lien or
encumbrance, whether directly or indirectly, by operation of law or
otherwise, including without limitation execution, levy, garnishment,
attachment, pledge, and bankruptcy.

5.3 NO FUNDING. Nothing contained in this Plan and no action taken
hereunder will create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and any Participant or
beneficiary or any other person. Amounts due under this Plan at any time and
from time to time will be paid from the general funds of the Company. To the
extent that any person acquires a right to receive payments hereunder, such
right shall be that of an unsecured general creditor of the Company.

5.4 NO RIGHTS PRIOR TO AWARD APPROVAL. No Participant will have any
right to payment of a bonus pursuant to this Plan unless and until it has
been determined and approved under Section 4.2.

ARTICLE VI. ADMINISTRATION

6.1 ADMINISTRATION. This Plan will be administered by the Committee
according to any rules that it may establish from time to time that are not
inconsistent with the provisions of the Plan.

6.2 EXPENSES OF THE PLAN. The expenses of administering the Plan
will be borne by the Company.

ARTICLE VII. REQUIREMENTS OF LAW

7.1 GOVERNING LAW. The Plan will be construed in accordance with
and governed by the laws of the State of Missouri.

7.2 WITHHOLDING TAXES. The Company has the right to deduct from all
payments under this Plan any Federal, State, or local taxes required by law
to be withheld with respect to such payments.

ARTICLE VIII. AMENDMENT AND TERMINATION

8.1 AMENDMENT AND TERMINATION. The Committee, in its sole and
absolute discretion may modify or amend any or all of the provisions of this
Plan at any time and from time to time, without notice, and may suspend or
terminate it entirely.

ARTICLE IX. SHAREHOLDER APPROVAL

9.1 SHAREHOLDER APPROVAL. This Plan shall be subject to approval by
the affirmative vote of a majority of the shares cast in a separate vote of
the shareholders of the Company at a Special Meeting of Shareholders, and
such shareholder approval shall be a condition to the right of a Participant
to receive any bonus hereunder.

The undersigned hereby certifies that this Plan was duly adopted by
the Board at its meeting on July 15, 2004.

By: /s/ David D. Mattern
------------------------------
Title: Secretary and General Counsel
Date: July 28, 2004