UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 [Fee Required]
For the transition period from ________________ to
______________
Commission File No. 1-4383
ESPEY MFG. & ELECTRONICS CORP.
(Exact name of registrant as specified in its charter)
New York 14-1387171
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
233 Ballston Avenue, Saratoga Springs, NY 12866
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 584-4100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock $.33-1/3 par value American Stock Exchange
Common Stock Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months, and (2) has been subject to such filing requirements
for the past 90 days
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: $11,274,157.20 as of
September 23, 1998 based upon the closing sale price of $13-
15/16 on the American Stock Exchange on September 23, 1998.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest
practicable date.
Class Outstanding at September 23, 1998
Common Stock, $.33-1/3 par value 1,104,977
<PAGE>
PART I
Item 1. Business.
General
Espey Mfg. & Electronics Corp. (the "Company") was
incorporated in 1928. The Company presently operates a one
segment business. A significant portion of the Company's
business is the production of military and industrial
electronic equipment for use by the United States
Government, its agencies, and certain industrial customers.
In fiscal year ended June 30, 1998 (referred to herein
as "1998"), the Company's total sales were $10,793,572.
Sales made to the United States Government and its agencies
are primarily on a subcontract basis. Sales to three
domestic customers accounted for 47.9%, 14.7%, and 12.5% of
total sales in 1998. Sales to two domestic customers
accounted for 19.9% and 61.4% of total sales in 1997. Sales
to two domestic customers and one foreign customer accounted
for 28.9%, 22.8% and 17.8%, respectively, of total sales in
1996.
Export sales in 1998 and 1997 were not significant.
Export sales in 1996 aggregated approximately $3,073,000.
Products
The Company has been and intends to continue to be
engaged principally in the development, design, production
and sales of specialized electronic power conditioning
apparatus (electronic power supplies), a wide variety of
transformers and other types of iron-core components, and
electronic systems. In some cases, the Company manufactures
such products in accordance with pre-developed mechanical
and electrical requirements. In other cases, the Company is
responsible for both the overall design and manufacture of
the product. The Company does not generally manufacture
standardized components.
- 1 -
<PAGE>
The electronic power supplies and components
manufactured by the Company find application principally in
(i) computers, (ii) aircraft, shipboard and land based
radar, (iii) missile guidance and control systems, (iv)
short, medium range and global communication systems, (v)
navigation systems for aircraft, (vi) nuclear submarine
control systems, (vii) locomotives, and (viii) land-based
military vehicles. The electronic systems manufactured by
the Company include antenna systems and high power radar
transmitters. These systems utilize the Company's own
electronic power supplies, transformers, and other iron-core
components and mechanical assemblies. The Company's iron-
core components include (i) transformers of the audio, power
and pulse types, (ii) magnetic amplifiers, and (iii) audio
filters.
The following tabulation shows the percentage of the
Company's total sales represented by sales of each class of
similar products during one or more of the last three fiscal
years.
Fiscal Year Ended June 30
1998 1997 1996
Electronic Power Supplies 68% 82% 81%
Iron-Core Components 15% 11% 15%
Electronic Systems and Assemblies 17% 7% 4%
Raw Materials
The Company has never experienced any significant delay
or shortage with respect to the purchase of raw materials
and components used in the manufacture of its products, and
has at least two potential sources of supply for all raw
materials used by it.
- 2 -
<PAGE>
Sales Backlog
The total backlog of orders believed to be firm as of
June 30, 1998 was approximately $12,168,000 as compared to
approximately $9,037,000 as of June 30, 1997. The Company's
backlog is discussed in greater detail in Management's
Discussion and Analysis of Financial Condition and Results
of Operations, contained in Item 7, below.
It is presently anticipated that a minimum of
$10,000,000 of orders comprising the June 30, 1998 backlog
will be filled during the fiscal year ending June 30, 1999.
This is in addition to any shipments which may be made
against orders subsequently received during the fiscal year
ending June 30, 1999. The estimate of the June 1998 backlog
to be shipped is subject to future events which may cause
the amount of the backlog actually shipped to change.
Military Contracts
The Company, as well as other companies primarily
engaged in supplying equipment for military use, is subject
to various risks, including, without limitation, dependence
on government appropriations and program allocations, the
competition for available military business, and termination
of orders for convenience.
Marketing and Competition
The Company is on the eligible list of contractors of
many agencies of the Department of Defense and generally is
automatically solicited by such agencies for procurement
needs falling within the major classes of products produced
by the Company. In addition, the Company directly solicits bids
from both the Department of Defense and other United States
Government agencies for prime contracts. Subcontract work
for government end use is solicited from major electronic
and aircraft companies, primarily by the Company's own
employees and sales representatives. Business is likewise
solicited from both foreign governments and major foreign
electronics companies.
- 4 -
<PAGE>
There is competition in all classes of products
manufactured by the Company, from divisions of the largest
electronic companies in the country, as well as many small
companies. The Company's sales do not represent a
significant portion of the industry's production of any
class of products made by the Company. The principal
methods of competition for electronic products of both a
military and industrial nature include, among other factors,
price and product performance and the experience of the
particular company and history of its dealings in such
products.
The Company's business is not considered to be of a
seasonal nature.
Research and Development
The Company has increased its expenditures for research
and development over the past three fiscal years. In 1998,
approximately $244,000 was expended for this type of effort.
In 1997 and 1996, the Company spent approximately $223,000
and $205,000, respectively, on research and development.
Some of the Company's professional employees spend varying
degrees of time on either development of new products or
improvement of existing products.
Employees
The number of persons employed by the Company as of
September 15, 1998 was 163.
Government Regulations
Compliance with federal, state and local provisions
that have been enacted or adopted to regulate the discharge
of materials into the environment, or otherwise
relating to the protection of the environment, did not in
1998, and the Company believes will not in fiscal year
ending June 30, 1999 or any succeeding fiscal year, have a
material effect upon the capital expenditures, earnings or
competitive position of the Company.
- 4 -
<PAGE>
Item 2. Properties.
The Company's principal manufacturing and all of its
engineering facilities are at its plant in Saratoga Springs,
New York, which the Company owns. The Company initially
occupied the plant in 1952, and in 1955 consolidated all of
its manufacturing operations at the plant when it terminated
its manufacturing operations in New York, New York.
The Saratoga Springs plant was originally constructed
about 1900 and consists of various closely adjoining one-
story buildings. The plant has a sprinkler system
throughout and contains approximately 138,000 square feet of
floor space, of which 60,000 is used for manufacturing,
23,000 for engineering, 33,000 for shipping and climatically
secured storage, and 3,000 for offices. The offices,
engineering and some manufacturing areas are air-
conditioned. In addition to assembly and wiring operations,
the plant includes facilities for varnishing, potting,
impregnation, and spray painting operations. The
manufacturing operation also includes a complete machine
shop, with welding and sheet metal fabrication facilities
adequate for substantially all of the Company's current
operations. During fiscal year 1995, the Company expended
about $800,000 for the upgrading of its plating department
to more uniformly conform to the environmental standards set
by the Federal Government and established a new plating
division, called Saratoga Electro-Finishing. Besides normal
test equipment, the Company maintains a sophisticated on-
site environmental test facility. In addition to meeting
all of the Company's in-house needs, the plating and
environmental facilities are available to other companies on
a contract basis. A fully staffed Automatic Data Processing
Center is also on-site.
The Company owns an additional manufacturing facility
in a three-story, fully sprinklered building of
approximately 4,000 square feet at 146 Fulton Street,
Gloversville, New York. The facility is used primarily for
subcomponent wiring and assembly.
- 5 -
<PAGE>
The Company maintains a sales office in a modern office
building at 445 Northern Boulevard, Great Neck, New York.
This space, comprising approximately 750 square feet, is
leased from a non-affiliated person for a term expiring on
September 9, 2001.
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Price Range of Common Stock
The table below shows the range of high and low prices
for the Company's common stock on the American Stock
Exchange, the principal market for trading in the common
stock, for each quarterly period for the last two fiscal
years ended June 30:
1998 High Low
First Quarter 17 3/8 16 3/8
Second Quarter 18 1/8 16 3/4
Third Quarter 17 15
Fourth Quarter 15 3/8 13 3/4
- 6 -
<PAGE>
1997 High Low
First Quarter 16 15 5/8
Second Quarter 17 7/8 14 5/8
Third Quarter 19 1/4 15 1/2
Fourth Quarter 18 1/8 17
Holders
The approximate number of holders of the common stock
was 199 on September 17, 1998. Included in this number are
shares held in "nominee" or "street" name and, therefore,
the number of beneficial owners of the common stock are
believed to be substantially in excess of the foregoing
number.
Dividends
The Company paid a cash dividend on the common stock of
$.70 per share for its fiscal year ended June 30, 1997 and
$.70 per share for its fiscal year ended June 30, 1996. Due
to the recent decline in both revenues and profit the Board
of Directors has decided to omit the regular yearly dividend
at this time. The Board, however, anticipates that it will
re-institute dividend payments in the future upon a
satisfactory increase in earnings.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
ESPEY MFG. & ELECTRONICS CORP.
Five Years Ended June 30, 1998
Selected Income Statement Data
Year ended June 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net sales $ 10,793,572 15,166,075 16,800,200 14,574,097 14,678,303
Operating income (loss) ( 1,750,663) 342,177 209,226 24,064 1,502,470
Other income, net 595,691 525,046 575,006 726,073 435,238
Cumulative effect of
change in accounting
principle - - - - 201,653
Net earnings (loss) (739,602) 563,128 522,737 491,767 1,343,877
Earnings (loss) per common share:
Earnings before
cumulative effect of
change in accounting
principle $ (.67) .51 .41 .37 .85
Cumulative effect of change
change in accounting
principle - - - - .15
Net earnings (loss) $ (.67) .51 .41 .37 1.00
- 8 -
<PAGE>
Selected Balance Sheet Data June 30
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
Current assets $ 21,309,658 21,819,899 21,499,805 25,243,909 25,364,435
Current liabilities 883,980 599,180 623,908 983,401 722,170
Working capital 20,425,678 21,220,719 20,875,897 24,260,508 24,642,265
Total assets 24,574,108 25,199,951 24,950,043 28,839,718 28,474,536
Long-term liabilities
(deferred income
taxes) - - - 30,697 124,619
Stockholders' equity 23,690,128 24,600,771 24,326,135 27,825,620 27,627,747
Cash dividends
declared and paid
per common share $ .70 .70 .70 .60 .60
- 9 -
<PAGE>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
The Company presently operates a one segment manufacturing business. It
principally manufactures power supplies and components for military and
industrial use. Sales volume is primarily dependent on product mix in any
given fiscal period. This mix is in many cases subject to the dictates of
customer needs and delivery requirements. These factors principally account for
any variation in sales and operating income from year to year.
Sales for fiscal years ended June 30, 1998, 1997, and 1996 were
$10,793,572, $15,166,075, and $16,800,200, respectively. The decrease in sales
for the past three years, as previously discussed in the 1997 Annual Report to
Shareholders-"Management's Discussion and Analysis of Financial Condition and
Results of Operations.", was primarily a result of the consolidation and
relocation of the facilities and personnel of one of the Company's major
customers, and the attendant delay in its issuance of new orders and
establishment of new programs. The effect of this situation has diminished to
a point where the Company's backlog at September 24, 1998, stands at
approximately $15,000,000. As mentioned above, the backlog at June 30, 1998 was
$12,168,000, whereas at June 30, 1997 the backlog was $9,037,000. During the
first two months of fiscal 1999, the Company received approximately $5,000,000
in new orders.
As mentioned above, the decrease in sales was due primarily to the
relatively low June 30, 1997 backlog. This problem currently seems to have been
resolved. This reversal is evidenced by comparing the results of the third and
fourth quarters. Whereas the third quarter showed a gross loss of $457,608, the
fourth quarter showed a gross profit of $313,658. The Company expects the full
effect of the increased backlog to be realized in the second quarter of fiscal
year 1999. The third quarter reflected a net loss of $.46 per share of common
stock, whereas the fourth quarter reflected a loss of $.27 per share of common
stock. Of the $.27 net loss, approximately $.24 per share of common stock is
attributable to a one time charge taken as an unusual item. This item relates
to certain contracts entered into by the Company in connection with the
restructuring of its management. This item is more fully explained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Management Restructuring" and Note 15 to the Financial Statements.
The corresponding cost of sales, as a percentage of sales, for fiscal years
1998, 1997 and 1996 were 94%, 86%, 89%, respectively. The increase in cost of
sales as a percentage of sales in 1998 is largely attributable to the 29%
decrease in sales for fiscal 1998. Since many of our expenses are fixed costs,
they are not, for the most part, significantly influenced by sales volume.
Another major cause of the percentage increase in cost of sales, as a percentage
of sales, is the fact that in an effort to expand and diversify our product
lines the Company accepted various contracts during the course of the year with
negative profit margins. This matter was discussed in greater detail in
Management's Discussion and Analysis of Financial Condition and Results of
Operation in the Company's Form 10-Q for the nine months ended March 31,1998.
Selling, general and administrative expenses increased approximately 8% for
the 1998 fiscal year. No one factor accounted for this increase.
The Company's total inventories show an increase of approximately $600,000
due mainly to the purchase of materials for orders received during the fourth
quarter. Work-in-Process, however, has decreased, and will to continue to
decrease as anticipated orders are received.
The increase in accounts receivable reflects shipments made toward
the end of the fiscal year. A large majority of these receivables have been paid
subsequent to the fiscal year end.
- 10 -
<PAGE>
Business Outlook
Customer order patterns are inherently difficult to predict. As noted in
the 1997 Annual Report to Shareholders-"Management's Discussion and Analysis of
Financial Condition and Results of Operations.", one of the Company's major
customers had undergone the consolidation and relocation of several of its
facilities and various personnel. The transition stage of this consolidation
caused delays in both ongoing and newly proposed programs. As reported above,
however, the effect of this situation has been alleviated to a great extent and
the Company is receiving orders and proposal requests from this customer more
consistent with its past experience. The Company currently has outstanding
quotations well in excess of $50,000,000 for both repeat and new programs, in
addition to increase option clauses in various existing contracts. The Company
has already received major contracts for power supplies for a new locomotive,
which should find extensive use throughout the world. The Company has also
received substantial orders for spare parts on the various types of transmitters
which are already in the field, and a number of contracts for further
development and manufacture of numerous transformers using our recently patented
"quiet transformer" technology. The outstanding quotations mentioned above not
only encompass various new and previously manufactured power supplies,
transformers, and subassemblies, but also represent a minimum of 12 transmitters
which are exclusive to the Company. These transmitters which are for use by
foreign governments on a global basis should produce initial minimum revenues of
$17,000,000. The Company has also received an initial order for a newly designed
grid antenna. The total future value of this order could be approximately
$6,000,000; however, the Company is hopeful that this new technology will
produce additional orders. The Company expects to receive a patent for this new
antenna in the immediate future.
Although there can be no assurance that the Company will acquire any or all
of the proposed orders described above since such a forward-looking statement is
subject to future events, market conditions, political stability of foreign
governments, and allocations of the United States Defense Budget, management is
presently anticipates that the Company will realize both an increase in revenues
and earnings.
- 11 -
<PAGE>
Liquidity and Capital Resources
The Company's working capital is an appropriate indicator of the liquidity
of its business, and during the past three fiscal years, the Company, when
possible, has funded all of its operations, including financing activities,
with cash flows resulting from operating activities. The Company did not
borrow any funds during the last three fiscal years and does not currently
anticipate that it will borrow any funds during fiscal year 1999.
The Company's working capital as of June 30, 1998, 1997, and 1996 was
$20,425,678, $21,220,719, and $20,875,897, respectively. On March 7, 1996, the
Company purchased a combined total of 219,400 shares of common stock from the
Entwistle Company and Global Securities at a total cost of $3,620,100. In
addition, the Company purchased 7,426 shares of common stock from the Company's
ESOP during 1997 for a total purchase price of $116,031. The Company did not
repurchase any of its common stock during fiscal year 1998. However, on
August 21, 1998, in fiscal year 1999, the Company repurchased 6,243 shares of
common stock from the Company's ESOP at a purchase price of $87,402. Under
existing authorizations, as of August 21, 1998, funds in the amount of
$1,796,589 were available for the continuing repurchase of the Company's shares
of common stock.
The Company's combined investment in both short-term investments and
marketable investment securities was (i) $13,290,888 as of June 30, 1994, (ii)
$12,022,004 as of June 30, 1995, (iii) $7,505,507 as of June 30, 1996, and (iv)
$10,706,782 as of June 30, 1997, and (v) $9,635,749 as of June 30, 1998. These
investments consisted of certificates of deposit, United States Treasury Bills,
equity securities of a preferred nature, and a money market account. During
fiscal years 1994 through 1998, interest rates on short-term investments ranged
from 6.00% to 2.10%. This factor accounts, along with the changes in the overall
balances of short-term investments and marketable investment securities, for the
fluctuation of interest income during much of the five-year period. Interest
income was $556,565 in fiscal 1996, $514,822 in fiscal 1997, and $553,540 in
fiscal 1998. Interest income in fiscal 1996 and 1997, however, was affected by
the decrease in the Company's investment base arising from the capital
expenditures of $1,080,000 in 1995 and purchase of the Company's common stock
in the amount of $3,696,340 during fiscal 1996. Since a majority of the
Company's investment base is represented by certificates of deposit, United
States Government Treasury Securities and a money market account, the Company
does not feel that there is any significant risk associated with its investment
policy.
The fluctuations in cash and short-term investments reflected in the
Statements of Cash Flows are largely due to the Company's purchases of
investment securities with longer maturities than in prior years. In addition,
the Company purchased 8000 shares of corporate preferred equity securities at a
total price of $419,000. These securities are considered to be held for
investment and are classified as available for sale.
Management feels that the Company's reserve for bad debts of $3,000 is
adequate given the customers with whom the Company deals. The amount of bad
debts over the years has been minimal.
During fiscal year 1998, the Company expended approximately $300,000 for
plant improvements and new equipment. The Company plans to expend approximately
$350,000 for new equipment and plant improvements in fiscal 1999. Management
presently anticipates that the funds required will be available from current
operations.
- 12 -
<PAGE>
Management Restructuring
As part of the restructuring of the management of the Company, the Company
has implemented a management succession plan. The plan has been effectuated
through agreements with five executive officers of the Company: Joseph Canterino
(former President and Chief Executive Officer), Barry Pinsley (former Vice
President-Investor Relations and Human Resources), Seymour Saslow (Senior Vice
President), Herbert Potoker (Treasurer and Principal Financial Officer) and
Reita Wojtowecz (Secretary). Under the terms of the agreements, the executive
officers have agreed to resign from their positions as executive officers and
will be compensated in accordance with their respective agreements.
The implementation of this plan has resulted in the Company recording a
$479,500 pre-tax charge for payments due under the contracts and costs related
to the implementation of the plan. The costs of the plan will be paid with cash
flows from the Company's operating activities See "Executive Compensation -
Employment Contracts and Termination of Employment and Change in Control
Agreements." See also Note 15 to the Financial Statements.
The agreement with Mr. Canterino provided for his resignation as of June 9,
1998. The Board of Directors has appointed Executive Vice President, Howard
Pinsley, as interim President and Chief Operating Officer until the Board
chooses a successor to Mr. Canterino. The Board has initiated a search to find
a qualified successor to Mr. Canterino. The Board currently anticipates
completing the search process by December 1, 1998. The Board further
contemplates that it will fill the other vacated executive officer positions
with the assistance of the new President and Chief Executive Officer.
New Accounting Pronouncements:
In June, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS 130, "Reporting Comprehensive Income". SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. SFAS 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statements that is displayed in
equal prominence with the other financial statements.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
Comparative financial statements provided for earlier periods are required to be
reclassified to reflect the provisions of this Statement. The Company will
comply with the reporting requirements of SFAS 130 beginning with the quarter
ending September 30, 1998.
- 12 -
<PAGE>
Other Matters
An Employee Retirement Plan and Trust ("ESOP") was established for the
eligible non-union employees of the Company and was effective as of July 1,1988.
The ESOP used the proceeds of a loan from the Company to purchase 316,224 shares
of the Company's common stock for approximately $8,400,000, and the Company
contributed approximately $400,000 to the ESOP, which was used by the ESOP to
purchase an additional 15,000 shares of the Company's common stock.
Each year the Company makes contributions to the ESOP which are used to
make loan interest and principal payments. With each loan and interest payment,
a portion of the common stock will be allocated to participating employees. As
of June 30, 1998, there were 165,139 shares allocated to participants.
Dividends attributable to allocated shares were likewise allocated to the
participants' accounts, whereas the dividends on unallocated shares were used as
part of the loan repayment, thus reducing the Company's required contribution.
The loan from the Company to the ESOP is repayable in annual installments
of $1,039,605, including interest through June 30, 2004. Interest is payable at
a rate of 9% per annum. The Company's receivable from the ESOP is recorded as
common stock subscribed in the accompanying balance sheets. In 1997 and 1996,
7,426 and 5,402 shares of the Company's common stock, respectively, were
purchased from the ESOP, representing distributions taken by participants. There
were no shares of the Company's common stock purchased from the ESOP in fiscal
1998.
Year 2000 Issues
The Year 2000 issue is the result of computer programs having been written
using two digits, rather than four, to define the applicable year. Any of the
Company's computers, computer programs, manufacturing and administration
equipment or products that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the Year 2000. If any of the Company's
systems or equipment that have date-sensitive software use only two digits,
system failures or miscalculations may result causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
send and receive electronic data with third parties or engage in similar normal
business activities.
- 13 -
<PAGE>
The Company has formed a team to address the Year 2000 issue that
encompasses operating and administrative areas of the Company. The team has
begun to identify and resolve significant Year 2000 issues in a timely manner.
In addition, executive management monitors the status of the Company's Year 2000
remediation plans. The process includes an assessment of issues and development
of remediation plans, where necessary, as they relate to internally used
software, computer hardware and use of computer applications in the Company's
manufacturing processes and products. In addition, the Company is engaged in
assessing the Year 2000 issue with significant suppliers. The Company has
initiated communications with its significant suppliers and large customers to
determine the extent to which the Company is vulnerable to those third parties'
failure to remediate their own Year 2000 issues. Finally, with regard to
products sold by the Company, the Company has determined that contingencies
related to the Year 2000 Issue will not have a material adverse effect on the
Company. Accordingly, the Company has not established a contingency plan and
does not anticipate creating such a plan.
The Company intends to use both internal and external resources to
reprogram, or replace and test, the software it currently uses for Year 2000
modifications. The Company plans to substantially complete its Year 2000
assessment and remediation by January 31, 1999. The total project cost has not
yet been determined. To date, the Company has not incurred any material costs
related to the assessment of, and preliminary efforts in connection with, its
Year 2000 issues.
The costs of the project and the date on which the Company plans to
complete its Year 2000 assessment and remediation are based on management's
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ significantly
from those plans. Specific factors that might cause differences from
management's estimates include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct
relevant computer codes, and similar uncertainties. Management believes that
the Company is devoting the necessary resources to identify and resolve
significant Year 2000 issues in a timely manner.
With regard to its internal Year 2000 compliance program, the Company has
completed approximately 75% of its review and, when necessary, remediation.
With regard to its Year 2000 compliance program addressing the status of the
Company's suppliers and customers, the Company has completed approximately 33%
of its review.
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
It should be noted that certain statements in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The terms "believe," "anticipate,"
"intend," "goal," "expect," and similar expressions may identify forward-looking
statements. These forward-looking statements represent the Company's current
expectations or beliefs concerning future events. The matters covered by these
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those set forth in the forward-looking
statements, including the Company's dependence on timely development,
introduction and customer acceptance of new products, the impact of competition
and price erosion, as well as supply and manufacturing constraints and other
risks and uncertainties. The foregoing list should not be construed as
exhaustive, and the Company disclaims any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made.
- 14 -
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 16
Balance Sheets at June 30, 1998 and 1997 17
Statements of Earnings for the years ended June 30,
1998, 1997 and 1996 19
Statements of Changes in Stockholders' Equity for the
years ended June 30, 1998, 1997 and 1996 20
Statements of Cash Flows for the years ended June 30,
1998, 1997 and 1996 21
Notes to Financial Statements 22
- 15 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Form 10-K
June 30, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors and Stockholders
Espey Mfg. & Electronics Corp.:
We have audited the financial statements of Espey Mfg. & Electronics Corp. as
listed in the accompanying index. In connection with our audits of the financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Espey Mfg. & Electronics Corp.
as of June 30, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended June 30, 1998, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Albany, New York
August 26, 1998
- 16 -
<PAGE>
[CAPTION]
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
June 30, 1998 and 1997
<TABLE>
Assets 1998 1997
<S> <C> <C>
Current assets:
Cash $ 191,739 1,416,801
Short-term investments, at cost
(market value - $2,400,000 in 1998
and $10,746,731 in 1997) 2,400,000 10,706,782
Total cash and short-term investments 2,591,739 12,123,583
Investment securities (note 2) 7,235,749 -
Trade accounts receivable, net of
$3,000 allowance in 1998 and 1997 1,866,336 1,142,599
Income tax refund receivable 270,408 -
Other receivables 18,642 21,231
Net receivables 2,155,386 1,163,830
Inventories:
Raw materials and supplies 558,951 449,416
Work in process 2,905,269 3,225,657
Costs relating to contracts
in process (notes 3 and 4) 5,324,491 4,526,802
Net inventories 8,788,711 8,201,875
Deferred income taxes (note 8) 348,514 137,758
Prepaid expenses and other
current assets 189,559 192,853
Total current assets 21,309,658 21,819,899
Deferred income taxes (note 8) 80,793 74,671
Property, plant and equipment, at cost
(note 5) 12,344,139 12,043,850
Less accumulated depreciation (9,160,482) (8,738,469)
Net property, plant and equipment 3,183,657 3,305,381
$ 24,574,108 25,199,951
(Continued)
- 17 -
</TABLE>
<PAGE>
[CAPTION]
<TABLE>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets, Continued
June 30, 1998 and 1997
Liabilities and Stockholders' Equity 1998 1997
Current liabilities:
Accounts payable $ 207,886 245,803
Accrued expenses:
Salaries, wages and commissions (note 15) 583,058 107,640
Employee insurance costs 37,472 40,573
Other 12,204 8,994
Payroll and other taxes withheld and accrued 43,360 47,564
Income taxes payable - 148,606
Total current liabilities 883,980 599,180
Stockholders' equity:
Common stock, par value $.33-1/3
per share(note 11)
Authorized 2,250,000 shares; issued
1,514,937 shares in 1998 and 1997 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Net unrealized gain on available-for
-sale investment securities, net of
$3,740 of income tax 7,260 -
Retained earnings 22,671,840 24,148,405
33,680,366 35,149,671
Less:
Common stock subscribed (note 12) (3,351,974) (3,910,636)
Cost of 403,717 shares of common
stock in treasury in 1998 and 1997 (6,638,264) (6,638,264)
Total stockholders' equity 23,690,128 24,600,771
Commitments (note 14)
$ 24,574,108 25,199,951
See accompanying notes to financial statements.
- 18 -
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Earnings
Years ended June 30, 1998, 1997 and 1996
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 10,793,572 15,166,075 16,800,200
Cost of sales 10,107,619 13,015,436 14,973,018
Gross profit 685,953 2,150,639 1,827,182
Selling, general and
administrative expenses 1,957,116 1,808,462 1,617,956
Unusual costs (note 15) 479,500 - -
Operating income (loss) (1,750,663) 342,177 209,226
Other income:
Interest income 553,540 514,822 556,565
Sundry income 42,151 10,224 18,441
595,691 525,046 575,006
Earnings (loss) before
income taxes (1,154,972) 867,223 784,232
Provision (benefit) for
income taxes (note 8) (415,370) 304,095 261,495
Net earnings (loss) $ (739,602) 563,128 522,737
Earnings per common share
(note 9):
Net earnings (loss) per
common share - basic $ (.67) .51 .41
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Changes in Stockholders' Equity
Years ended June 30, 1998, 1997 and 1996
Net unrealized
gain on
Capital available-for-sale Common Total
Common in excess investment Retained stock Treasurystockholders'
stock of par value securities earnings subscribed stock equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 $ 504,979 10,496,287 - 24,678,208 (5,027,962)(2,825,892)27,825,620
Dividends paid on common
stock $.70 per share - - - (937,119) - - (937,119)
Net earnings - 1996 - - - 522,737 - - 522,737
Tax effect of dividends on
unallocated ESOP shares (note 8) - - - 52,574 - - 52,574
Purchase of treasury stock
(224,802 shares) - - - - - (3,696,340)(3,696,340)
Reduction of common stock
subscribed - - - - 558,663 - 558,663
Balance at June 30, 1996 504,979 10,496,287 - 24,316,400 (4,469,299)(6,522,232)24,326,135
Dividends paid on common
stock $.70 per share - - - (777,855) - - (777,855)
Net earnings - 1997 - - - 563,128 - - 563,128
Tax effect of dividends on
unallocated ESOP shares
(note 8) - - - 46,732 - - 46,732
Purchase of treasury stock
(7,426 shares) - - - - - (116,032) (116,032)
Reduction of common
stock subscribed - - - - 558,663 - 558,663
Balance at June 30, 1997 504,979 10,496,287 - 24,148,405(3,910,636)(6,638,264)24,600,771
Dividends paid on common
stock $.70 per share - - - (777,854) - - (777,854)
Net loss - 1998 - - - (739,602) - - (739,602)
Tax effect of dividends on
unallocated ESOP shares
(note 8) - - - 40,891 - - 40,891
Change in unrealized gain
on available-for-sale
securities, net of tax - - 7,260 - - - 7,260
Reduction of common stock
subscribed - - - - 558,662 - 558,662
Balance at June 30, 1998 $ 504,979 10,496,287 7,260 22,671,840(3,351,974)(6,638,264)23,690,128
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
- 20 -
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Years ended June 30, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings (loss) $ (739,602) 563,128 522,737
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Tax effect of dividends on unallocated
ESOP shares 40,891 46,732 52,574
Depreciation 422,013 488,617 503,160
Gain on sale of marketable investment
securities - - (5,796)
Deferred income tax benefit (220,618) (202,545) (116,496)
Change in assets and liabilities:
Decrease (increase) in trade accounts
receivable and other receivables,
net (721,148) 410,751 371,824
Decrease (increase) in inventories,
net (586,836) 2,831,471 (785,021)
Decrease (increase) in income tax
refund receivable (270,408) - 410,467
Decrease in prepaid expenses and
other current assets 3,294 79,955 112,225
Increase (decrease) in accounts
payable (37,9170) 87,172 (438,192)
Increase (decrease) in accrued
salaries, wages and commissions 475,418 (8,711) 12,082
Increase (decrease) in accrued
employee insurance costs (3,101) (14,166) 4,446
Increase (decrease) in other accrued
expenses 3,210 (8,446) 2,852
Increase (decrease) in payroll and
other taxes withheld and accrued (4,204) (109,326) 15,377
Increase (decrease) in income taxes
payable (148,606) 28,749 119,857
Net cash provided by (used in)
operating activities (1,787,614) 4,193,381 782,096
Cash flows from investing activities:
Proceeds from maturity of investment
securities - 7,949,583 10,454,464
Additions to property, plant and
equipment (300,289) (352,848) (348,501)
Reduction of common stock subscribed 558,662 558,663 558,663
Proceeds from sale of investment
securities - - 3,866,542
Purchases of investment securities (7,224,749) (4,928,388) (6,781,941)
Net cash provided by (used in)
investing activities (6,966,376) 3,227,010 7,749,227
Cash flows from financing activities:
Dividends on common stock (777,854) (777,855) (937,119)
Purchase of treasury stock - (116,032) (3,696,340)
Net cash used in financing activities (777,854) (893,887) (4,633,459)
Increase (decrease) in cash and short-term
investments (9,531,844) 6,526,504 3,897,864
Cash and short-term investments,
beginning of year 12,123,583 5,597,079 1,699,215
Cash and short-term investments,
end of year $ 2,591,739 12,123,583 5,597,079
Supplemental disclosures of cash flow information:
Income taxes paid (refund) $ 224,262 431,160 (204,907)
<FN>
See accompanying notes to financial statements.
</FN>
- 21 -
</TABLE>
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Notes to Financial Statements
June 30, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
Espey Mfg. & Electronics Corp. (the Company) is a manufacturer of electronic
equipment used primarily in military and industrial applications. The principal
markets for the Company's products are companies that provide electronic support
to both military and industrial applications.
(b) Inventory Valuation and Income Recognition
Raw materials are valued at cost, principally on the first-in, first-out method.
Inventoried work relating to contracts in process and work in process is valued
at actual production cost, including factory overhead and initial set-up costs
incurred to date, reduced by amounts identified with revenue recognized on units
shipped and billed. Work in process represents spare units and parts and other
inventory items acquired or produced to service units previously sold or to meet
anticipated future orders. Provision for losses on contracts is made when
existence of such losses becomes evident. The costs attributed to units
delivered under contracts are based on the estimated average cost of all units
expected to be produced. Certain contracts are expected to extend beyond twelve
months.
The cost elements of contracts in process consist of production costs of goods
and services currently in process and overhead relative to those contracts where
such costs are reimbursable under the terms of the contracts. General and
administrative expenses are charged to operations in the period in which they
are incurred.
Revenue is recognized on contracts and orders in the period in which the units
are shipped and billed (unit-of-delivery method).
(c) Depreciation
Depreciation of plant and equipment is computed generally on a straight-line
basis over the estimated useful lives of the assets for book purposes and on an
accelerated method for tax purposes.
(d) Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes".
- 22 -
<PAGE>
(1), Continued
Under the provisions of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. In
addition, SFAS No. 109 requires that the tax benefit of tax deductible dividends
on unallocated ESOP shares be recorded as a direct addition to retained earnings
rather than as a reduction of income tax expense.
(e) Short-Term Investments and Cash Equivalents
All short-term investments, consisting of certificates of deposit, money market
accounts, and U.S. Treasury bills, with maturities of three months or less, are
considered cash equivalents for purposes of the statements of cash flows.
(f) Investment Securities
The Company accounts for its investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Investment securities at June 30, 1998 consist of U.S. Treasury securities and
corporate equity securities. The Company classifies U.S. Treasury securities
and corporate equity securities as available-for-sale.
Unrealized holding gains and losses, net of related tax effect, on available-
for-sale securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. Realized gains and losses for
securities classified as available-for-sale are included in earnings and are
determined using the specific identification method. Interest income is
recognized when earned.
(g) Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(h) Investment Tax Credits
Investment tax credits are accounted for as a reduction of income tax expense in
the year taxes payable are reduced.
- 23 -
<PAGE>
(2) Marketable Investment Securities
Marketable investment securities at June 30, 1998, consist of U.S. Treasury
bills and corporate equity securities, which are classified as available-for-
sale securities, and recorded at market value. The amortized cost, gross
unrealized gains, gross unrealized losses and fair value for available-for-sale
securities by major security type at June 30, 1998 are as follows:
<TABLE>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury bills $ 6,805,744 - - 6,805,744
Corporate equity securities 419,005 11,000 - 430,005
$ 7,224,749 11,000 - 7,235,749
</TABLE>
There were no sales or maturities of marketable investment securities classified
as available-for-sale during 1998. The U.S. Treasury bills classified as
available-for-sale at June 30, 1998 mature during 1999.
(3) Inventories and Cost of Sales
Included in costs relating to contracts in process at June 30, 1998, 1997 and
1996 are costs of $310,724, $368,687, and $1,504,409, respectively, relative to
contracts that may not be completed within the ensuing year. Under the unit-of-
delivery method, the related sale and cost of sales will not be reflected in the
statement of earnings until the units under contract are shipped.
(4) Contracts in Process
Contracts in process at June 30, 1998 and 1997 are as follows:
<TABLE>
1998 1997
<S> <C> <C>
Gross contract value $ 12,167,932 9,037,572
Carrying value of contracts
in process included in current assets $ 5,324,491 4,526,802
</TABLE>
- 24 -
<PAGE>
(5) Property, Plant and Equipment
A summary of property, plant and equipment at June 30, 1998 and 1997 is as
follows:
<TABLE>
1998 1997
<S> <C> <C>
Land $ 50,000 50,000
Buildings and improvements 3,863,413 3,863,413
Machinery and equipment 8,078,787 7,807,631
Furniture, fixtures and office
equipment 351,939 322,806
$ 12,344,139 12,043,850
</TABLE>
<TABLE>
The estimated useful lives of depreciable assets are as follows:
Buildings and improvements 20 - 25 years
Machinery and equipment 10 years
Furniture, fixtures and office equipment 10 years
Autos and trucks 5 years
(6) Research and Development Costs
Research and development costs charged to operations during the years ended
June30, 1998, 1997 and 1996 were approximately $244,000, $223,000, and $205,000,
respectively.
(7) Pension Expense
Under terms of a negotiated union contract, the Company is obligated to make
contributions to a union-sponsored defined benefit pension plan covering
eligible employees. Such contributions are based upon hours worked at a
specified rate and amounted to $54,269 in 1998, $66,642 in 1997 and $79,282 in
1996.
(8) Provision (Benefit) for Income Taxes
A summary of the components of the provision (benefit) for income taxes for the
years ended June 30, 1998, 1997 and 1996 is as follows:
1998 1997 1996
<S> <C> <C> <C>
Current tax expense (benefit) - Federal $ (195,179) 481,729 366,108
Current tax expense - State 427 24,911 11,883
Deferred tax benefit (220,618) (202,545) (116,496)
$ (415,370) 304,095 261,495
</TABLE>
- 25 -
<PAGE>
(8), Continued
Total income tax expense (benefit) for the years ended June 30, 1998, 1997 and
1996 was allocated as follows:
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
Earnings (loss) from operations $ (415,370) 304,095 261,495
Stockholders' equity, for tax effect of:
Dividends on unallocated ESOP shares (40,891) (46,732) ( 52,574)
Unrealized gain on available-for-sale
securities 3,740 - -
$ (452,521) 257,363 208,921
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between the
amount of assets and liabilities for financial reporting purposes and such
amounts measured by tax laws and regulations. These "temporary differences" are
determined in accordance with SFAS No. 109.
The combined U.S. Federal and state effective income tax rates of (36.0)%, 35.1%
and 33.3% for 1998, 1997 and 1996, respectively, differed from the statutory
U.S. Federal income tax rate for the following reasons:
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
U.S. statutory tax rate (34.0)% 34.0% 34.0%
Increase (reduction) in rate resulting
from:
Dividends received deduction - (.3) (.3)
State franchise tax, net of
Federal income tax benefit (2.4) 1.9 1.0
Other .4 (.5) (1.4)
Effective tax rate (36.0)% 35.1% 33.3%
</TABLE>
For the years ended June 30, 1998 and 1997 deferred income tax benefit of
$220,618 and $202,545, respectively, result from the changes in temporary
differences for the years. The tax effects of temporary differences that give
rise to deferred tax assets and deferred tax liabilities as of June 30, 1998 and
1997 are presented below:
<TABLE>
1998 1997
<S> <C> <C>
Deferred tax assets:
Inventory - differences in valuation
methods $ 169,521 179,533
Common stock subscribed - due to difference
in interest recognition 471,882 475,493
Non-deductible accruals 172,524 -
Other 37,626 -
Total gross deferred tax assets 851,553 655,026
Deferred tax liabilities:
Property, plant and equipment -
principally due to differences in
depreciation methods 391,089 400,822
Inventory - effect of uniform capitalization 27,417 41,775
Unrealized gain on available-for-sale
investment securities 3,740 -
Total gross deferred tax liabilities 422,246 442,597
Net deferred tax asset $ 429,307 212,429
</TABLE>
- 26 -
<PAGE>
(8), Continued
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projection for future taxable income over the
period in which the deferred tax assets are deductible, management believes it
is more likely than not that the Company will realize the benefits of these
temporary differences without consideration of a valuation allowance.
(9) Common Stock and Earnings Per Share
Earnings per share information is based on the weighted average number of common
shares outstanding during the respective periods. The weighted average number of
shares used in the computation was 1,111,220 in 1998, 1,112,074 in 1997, and
1,269,467 in 1996.
(10) Segment Reporting
A significant portion of the Company's business is the production of military
and industrial electronic equipment for use by the U.S. Government and its
agencies and certain industrial customers. Sales made to the U.S. Government
and its agencies are primarily on a subcontract basis. Sales to three domestic
customers accounted for 47.9%, 14.7% and 12.5%, respectively, of total sales in
1998. Sales to two domestic customers accounted for 19.9%, and 61.4%,
respectively, of total sales in 1997. Sales to two domestic customers and one
foreign customer accounted for 28.9%, 22.8% and 17.8%, respectively, of total
sales in 1996.
Export sales in 1998 and 1997 were not significant. Export sales in 1996
aggregated approximately $3,073,000.
(11) Stock Rights Plan
During 1989, the Company adopted a Shareholder Rights Plan which expires on
March 31, 1999. Under this plan, common stock purchase rights were distributed
as a dividend at the rate of one right for each share of common stock
outstanding as of or issued subsequent to April 14, 1989. Each right entitles
the holder thereof to buy one-half share of common stock of the Company at an
exercise price of $75 per share subject to adjustment. The rights are
exercisable only if a person or group acquires beneficial ownership of 25% or
more of the Company's common stock or commences a tender or exchange offer
which, if consummated, would result in the offer or, together with all
affiliates and associates thereof, being the beneficial owner of 30% or more of
the Company's common stock.
- 27 -
<PAGE>
(11), Continued
If a 25% or larger shareholder should engage in certain self-dealing
transactions or a merger with the Company in which the Company is the surviving
corporation and its shares of common stock are not changed or converted into
equity securities of any other person, or if any person were to become the
beneficial owner of 30% or more of the Company's common stock, than each right
not owned by such shareholder or related parties of such shareholder (all of
which will be void) will entitle its holder to purchase, at the right's then
current exercise price, shares of the Company's common stock having a value of
twice the right's exercise price. In addition, if the Company is involved in any
other merger or consolidation with, or sells 50% or more of its assets or
earning power to, another person, each right will entitle its holder to
purchase, at the right's then current exercise price, shares of common stock of
such other person having a value of twice the right's exercise price.
The Company generally is entitled to redeem the rights at one cent per right at
any time until the 15th day (or 25th day if extended by the Company's Board of
Directors) following public announcement that a 25% position has been acquired
or the commencement of a tender or exchange offer which, if consummated, would
result in the offeror, together with all affiliates and associates thereof,
being the beneficial owner of 30% or more of the Company's common stock.
(12) Employee Stock Ownership Plan
In 1989, the Company established an Employee Stock Ownership Plan (ESOP) for
eligible non-union employees. The ESOP used the proceeds of a loan from the
Company to purchase 316,224 shares of the Company's common stock for
approximately $8.4 million and the Company contributed approximately $400,000 in
1989 to the ESOP which was used by the ESOP to purchase an additional 15,000
shares of the Company's common stock. Since inception of the Plan, the ESOP has
sold or distributed 40,014 shares of the Company's common stock to pay benefits
to participants. At June 30, 1998, the ESOP held a total of 291,210 shares of
the Company's common stock, of which 165,139 shares were allocated to
participants in the Plan.
The loan from the Company to the ESOP is repayable in annual installments of
$1,039,605, including interest, through June 30, 2004. Interest is payable at a
rate of 9% per annum. The Company's receivable from the ESOP is recorded as
common stock subscribed in the accompanying balance sheets. The Company
recognizes the principal payments of the ESOP debt, on a straight-line basis
over the term of the note, as compensation expense.
Each year, the Company makes contributions to the ESOP which are used to make
loan payments. With each loan payment, a portion of the common stock is
allocated to participating employees. In 1998, the Company's required
contribution of $1,039,605 was reduced by $102,959, which represents the
dividends paid on the unallocated ESOP shares. The resulting payment of
$936,646 includes $455,704 classified as compensation expense. In 1997, the
Company's required contribution of $1,039,605 was reduced by $117,667, which
represents the dividends paid on the unallocated ESOP shares. The resulting
payment of $921,938 includes $440,996 classified as compensation expense. In
1996, the Company's required contribution of $1,039,605 was reduced by $132,376,
which represents the dividends paid on the unallocated ESOP shares. The
resulting payment of $907,229 includes $426,287 classified as compensation
expense. All shares purchased by the ESOP are considered to be outstanding for
the earnings per share computation.
- 28 -
<PAGE>
(13) Financial Instruments/Concentration of Credit Risk
The carrying amounts of financial instruments, including cash, short-term
investments, investment securities, accounts receivable, accounts payable and
accrued expenses, approximated fair value as of June 30, 1998 and 1997 because
of the relatively short maturities of these instruments.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and short-term investments and accounts
receivable. The Company maintains cash and short-term investments with various
financial institutions. At times such investments may be in excess of FDIC
insurance limits. As disclosed in note 10, a significant portion of the
Company's sales are made to the U.S. Government and its agencies and certain
industrial customers. The related accounts receivable balance represented 76.2%
and 66.7% of the Company's total trade accounts receivable balance at June 30,
1998 and 1997, respectively.
Although the Company's exposure to credit risk associated with nonpayment of
these balances is affected by conditions or occurrences within the U.S.
Government, the Company believes that its trade accounts receivable credit risk
exposure is limited . The Company performs ongoing credit evaluations of its
customers' financial conditions and requires collateral, such as progress
payments, in certain circumstances. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
(14) Commitments
The Company under an operating lease agreement rents a sales office in Great
Neck, New York. This lease, which expires on September 9, 2001, requires future
minimum lease payments of $26,412 payable as follows:
<TABLE>
Year ending June 30,
<S> <C>
1999 $ 12,190
2000 12,190
2001 2,032
2002 -
2003 -
$ 26,412
</TABLE>
Rent expense for the years ended June 30, 1998, 1997 and 1996 was $12,398,
$14,156, and $22,624, respectively.
- 29 -
<PAGE>
(15) Unusual Costs
During 1998 the Company implemented a management succession plan that involves
agreements with five members of management. These agreements require the
Company to pay certain amounts for a period of approximately two years after the
employees' resignations from the Company in exchange for the employees'
agreements to be available to the Company on an as-needed basis. Since there is
no minimum service required by the agreements, the Company accrued for these
payments on the effective date of the plan as the employees are eligible for the
benefit at that date. At June 30, 1998, $479,500 has been accrued to record the
future payments relating to these agreements.
(16) Quarterly Financial Information (Unaudited)
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1998:
Net sales $ 2,503,584 3,549,697 2,240,347 2,499,944
Gross profit 428,603 401,300 (457,608) 313,658
Net earnings (loss) 45,009 24,955 (507,426) (302,140)
Net earnings (loss)
per share-basic $ .04 .02 (.46) (.27)
1997:
Net sales $ 4,586,892 4,066,386 3,805,569 2,707,228
Gross profit 698,018 729,221 544,037 179,363
Net earnings (loss) 228,719 244,126 127,370 (37,087)
Net earnings (loss)
per share-basic $ .21 .21 .12 (.03)
1996:
Net sales $ 4,000,805 4,434,896 4,352,275 4,012,224
Gross profit 404,675 486,916 533,557 402,034
Net earnings 98,440 125,906 169,479 128,912
Net earnings per
share-basic $ .07 .09 .13 .12
</TABLE>
Financial information for the fourth quarter of 1997 reflects a pre-tax write
off of approximately $385,000 related to inventory for which the Company
expected to receive orders during the year. In the fourth quarter of 1997,
management's assessment of this inventory resulted in the aforementioned write-
off as previously anticipated orders did not materialize.
- 30 -
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Identification of Directors
Date Present Term Other Positions
Expires and Period and Offices Held
Name Served as Director With Registrant Age
Joseph Canterino Annual Meeting in None 73
December 1998
Director since
December 11, 1992
Paul J. Corr Annual Meeting in None 54
December 1999
Director since
April 3, 1992
William P. Greene Annual Meeting in None 68
December 1998
Director since
April 3, 1992
Barry Pinsley Annual Meeting in None 56
December 1999
Director since
March 25, 1994
Howard Pinsley Annual Meeting in President and Chief 58
December 2000 Operating Officer
Director since
December 11, 1992
Sol Pinsley Annual Meeting in Chairman of 85
December 2000 the Board
Director since 1950
(continued)
- 31 -
<PAGE>
Date Present Term Other Positions
Expires and Period and Offices Held
Name Served as Director With Registrant Age
Seymour Saslow Annual Meeting in Senior Vice President 77
December 1998
Director since
December 11, 1992
Michael W. Wool Annual Meeting in None 52
December 1999
Director since 1990
Identification of Executive Officers
Positions and
Offices Held Period Served As
Name With Company Executive Officer Age
Howard Pinsley President and Served as Vice President- 58
Chief Operating Special Power Supplies
Officer from April 3, 1992 until
being elected as Executive
Vice President on December
6, 1997. Elected to present
office on June 9, 1998
Seymour Saslow Senior Vice President Served as Vice 77
and Director President from April 3,
1992 until being elected
to present position on
December 6, 1997
John J. Pompay, Jr. Vice President- Since December 6, 1996 63
Marketing and Sales
Herbert Potoker Treasurer and Principal Since September 10, 69
Financial Officer 1993
Garry M. Jones Assistant Treasurer Since August 4, 1988; 58
and Principal Accounting Principal Financial
Officer Officer from August 4,
1988 to September 10,
1993
Reita Wojtowecz Secretary Since June 27, 1994 69
The terms of office of Mr. Howard Pinsley and Mr. Garry M. Jones are until
the next annual meeting of the Board of Directors unless successors are sooner
appointed by the Board of Directors. The terms of office of Mr. Saslow, Mr.
Potoker, Mr. Pompay and Ms. Wotjowecz are subject to the provisions of
agreements between each officer and the Company. See "Executive Compensation-
Employment Contracts and Termination of Employment and Change in Control
Agreements."
- 32 -
<PAGE>
Family Relationships
Sol Pinsley is the father of Barry Pinsley and uncle of Howard Pinsley.
Barry Pinsley and Howard Pinsley are cousins. Howard Pinsley and Herbert Potoker
are cousins.
Business Experience of Directors and Officers
Joseph Canterino is former President and Chief Executive Officer, an office
the held from August 1, 1996 to June 9, 1998. Prior to that Mr. Canterino served
as Vice President-Manufacturing since April 3, 1992 and Plant Manager for more
than five years prior to being elected Vice President-Manufacturing.
Paul J. Corr is a Certified Public Accountant and currently a consultant to
the Latham, New York accounting firm of Richter & Company. Mr. Corr was a
partner of the accounting firm of Corr & Company from 1982 to 1993. Since 1981
to date, Mr. Corr has been professor of Business at Skidmore College in Saratoga
Springs, New York. Mr. Corr currently holds the position of Associate Professor.
William P. Greene has been employed as Vice President of Operations for
National Library of Music since August, 1997. Prior to his present position,
Mr. Greene was employed as Vice President of Operations for Bulk Materials
International Co., Newton, Connecticut from 1994 to August, 1997. From 1991 to
1994, Mr. Greene was Associate Professor of Finance and International Business
at Pennsylvania State University, Kutztown, Pennsylvania. From 1985 to 1990, he
was Associate Dean at the School of Business, United States International
University in San Diego, California. From 1982 to 1985, he was Chairman,
Department of Business, Skidmore College, Saratoga Springs, New York. Prior to
that time, he had been employed as an officer with several financial
institutions.
- 33 -
<PAGE>
Garry M. Jones for more than the past five years has been employed by the
Company on a full-time basis as Senior Accountant prior to being elected
Assistant Treasurer and Principal Financial and Accounting Officer on August 4,
1988.
Barry Pinsley is a Certified Public Accountant who for five years acted as
a consultant to the Company prior to his election as a Vice President-Special
Projects on March 25, 1994. On December 6, 1997, Mr. Pinsley was elected to the
position of Vice President-Investor Relations and Human Resources, from which he
resigned on June 9, 1998. Mr. Pinsley has been a practicing Certified Public
Accountant in Saratoga Springs, New York since 1975.
Howard Pinsley for more than the past five years has been employed by the
Company on a full-time basis as Program Director prior to being elected Vice
President-Special Power Supplies on April 3, 1992. On December 6, 1996, Mr.
Pinsley was elected to the position of Executive Vice President. He was
subsequently elected to the positions of President and Chief Operating Officer
on June 9, 1998.
Sol Pinsley had been for more than the past five years employed on a full-
time basis as the President and Chief Executive Officer of the Company. Mr.
Pinsley retired from these positions effective August 1, 1996. He has remained
with the Company as Chairman of the Board.
Herbert Potoker for more than the past five years has been employed by the
Company on a full-time basis in a senior financial management position prior to
being elected Treasurer and Principal Financial Officer on September 10, 1993.
Mr. Potoker previously had been the Treasurer and Principal Financial and
Accounting Officer of the Company until August 4, 1988.
Seymour Saslow has been Senior Vice President since December 6, 1996.
Prior to being elected to his present position, Mr. Saslow served as Vice
President-Engineering since April 3, 1992.
- 34 -
<PAGE>
Reita Wojtowecz has been Secretary of the Company since June 27, 1994. She
has been employed by the Company as Director of Human Resources for more than
the past five years.
Michael W. Wool has been an attorney in private practice and a partner in
the law firm of Langrock, Sperry & Wool in Burlington, Vermont for more than the
past five years.
John J. Pompay, Jr. for more than the past five years has been employed by
the Company on a full-time basis as Director of Marketing and Sales prior to
being elected Vice President-Marketing and Sales on December 6, 1996.
Directorships
None of the directors holds a directorship in any other company with a
class of securities registered pursuant to Section 12 of the Exchange Act or
subject to the requirements of Section 15(d) of that Act or any company
registered as an Investment company under the Investment Company Act of 1940.
Legal Proceedings
None of the directors or executive officers of the Company were involved
during the past five years in any legal proceedings specified under Item 401(f)
of Regulation S-K.
Item 11. Executive Compensation.
Executive Compensation Table
The following table summarizes the annual compensation for each of the
fiscal years ended June 30, 1998, June 30, 1997 and June 30, 1996 received by
the Company's Chief Executive Officer, the other five highest paid executive
officers of the Company who were such as of June 30, 1997, and Sol Pinsley, for
whom disclosure would have been required but for the fact Mr. Pinsley resigned
as President and Chief Executive Officer in August, 1996:
<TABLE>
SUMMARY COMPENSATION TABLE
Name and Fiscal Annual All Other
Principal Position Year Salary Bonus Compensation(1)
<S> <C> <C> <C> <C>
Sol Pinsley (2) 1998 $155,650 $ 0 $13,092
Chairman of 1997 $156,670 $25,000 $14,969
the Board 1996 $193,900 $25,000 $14,129
Seymour Saslow 1998 $119,625 $25,000 $15,024
Senior Vice President 1997 $117,075 $25,000 $15,353
1996 $112,900 $25,000 $15,063
Joseph Canterino (3) 1998 $149,600 $25,000 $15,803
Former President and 1997 $133,880 $25,000 $16,536
Chief Executive 1996 $103,180 $25,000 $15,819
Officer
Howard Pinsley (4) 1998 $120,125 $25,000 $15,961
Executive Vice 1997 $109,600 $25,000 $16,455
President 1996 $ 93,350 $20,000 $15,567
Herbert Potoker 1998 $113,226 $25,000 $12,314
Treasurer and 1997 $109,855 $25,000 $13,289
Principal Financial 1996 $107,680 $25,000 $11,892
Officer
Barry Pinsley (3) 1998 $ 85,050 $12,000 $12,710
Former Vice 1997 $ 85,050 $12,000 $13,338
President-Investor 1996 $ 84,675 $10,000 $12,389
Relations and
Human Resources
John J. Pompay, Jr. 1998 $176,297 $ 0 $12,314
Vice President-Sales 1997 $172,963(3) $ 0 $13,289
</TABLE>
- 35 -
<PAGE>
[FN]
(1) Represents (a) the cash and market value of the
shares allocated for the respective fiscal years under the
Company's ESOP to the extent to which each named executive
officer is vested, and (b) directors' fees except for Mr.
Potoker and Mr. Pompay.
(2) Effective August 1, 1996, Mr. Pinsley retired from
the position of President and Chief Executive Officer. In
accordance with the terms of his Employment Agreement, Mr.
Pinsley has remained as Chairman of the Board and as a non-
executive officer of the Company at a reduced salary. See
"Executive Compensation - Employment Contracts and
Termination of Employment and Change in Control Agreements."
(3) Represents wages as both an executive officer and
non-executive officer during fiscal year ending June 30,
1998. Mr. Canterino resigned from the office of President
and Chief Executive Officer and Mr. Barry Pinsley resigned
as Vice-President of Investor Relations and Human Resources
on June 9, 1998.
(4) Represents wages of $108,750 and $11,375 as
Executive Vice President and President and Chief Operating
Officer respectively. Mr. Howard Pinsley was elected
President and Chief Operating Officer on June 9, 1998.
Insurance
The executive officers of the Company are covered under group life and
medical and health plans which do not discriminate in favor of the officers or
directors of the Company and which are available generally to all salaried
employees.
The Company maintains insurance coverage, as authorized by Section 727 of
the New York Business Corporation Law, providing for (a) reimbursement of the
Company for payments it makes to indemnify officers and directors of the
Company, and (b) payment on behalf of officers and directors of the Company for
losses, costs and expenses incurred by them in any actions.
Employee Retirement Plan and Trust
Under the Company's ESOP, approved by the Board of Directors on June 2,
1989, effective July 1, 1988, all non-union employees of the Company, including
the Company's executive and non-executive officers, five of whom, Sol Pinsley,
Seymour Saslow, Joseph Canterino, Barry Pinsley and Howard Pinsley are also
directors of the Company, are eligible to participate. The ESOP is a non-
contributory plan which is designed to invest primarily in shares of common
stock of the Company. Reference is made to, and there is incorporated by
reference, the description of the ESOP, its implementation and pertinent
documents attached as exhibits in the Company's Form 8-K dated June 16, 1989,
filed with the Commission on June 20, 1989, and to the amendments thereto filed
as an Exhibit to the 10-K Report for the fiscal year ended June 30, 1991.
Certain technical amendments not considered material were adopted during the
year effective as of June 30, 1994.
- 36 -
<PAGE>
Of the 150,989 shares of common stock of the Company allocated to
participants of the ESOP as of June 30, 1998, 1,169.71 shares were allocated to
Sol Pinsley, 5,474.71 shares were allocated to each of Joseph Canterino, Herbert
Potoker and John J. Pompay, Jr., 5,155.73 shares were allocated to Howard
Pinsley, 5,123.71 shares were allocated to Seymour Saslow and 2,036.40 shares
were allocated to Barry Pinsley.
Compensation of Directors
The Company's standard arrangement compensates each director of the Company
a fee in the amount of $500 for each meeting of the Board of Directors attended
by such director. No amount in excess of such fee per meeting of the Board of
Directors was paid to any director during the last fiscal year for services as a
director. Each member of the Audit Committee is compensated in the amount of
$500 for each Committee meeting attended. Paul J. Corr was paid $6,468.24
for additional services in connection with his duties as a director for the
fiscal year ended June 30, 1998.
Employment Contracts and Termination of Employment and
Change in Control Agreements
There has been in effect, since July 1, 1973, a full-time employment
contract with Sol Pinsley, who was President, Chief Executive Officer and a
director of the Company until August 1, 1996. The most recent employment
contract was entered into by the Company with Mr. Pinsley on June 12, 1995
pursuant to prior authorization given by the Board of Directors on March 24,
1995. This employment contract, which was approved and ratified by the Board of
Directors on June 17, 1995, is dated and effective as of January 1, 1995 for a
term expiring December 31, 1998, and covers Mr. Pinsley's employment as
President (or Chairman of the Board) and Chief Executive Officer and also as a
non-executive officer employee should Mr. Pinsley elect to become a non-
executive officer employee. The agreement provided a minimum base annual
compensation of $182,000 for each calendar year commencing 1995 and the Board of
Directors in its discretion may increase such compensation for any calendar year
and/or award Mr. Pinsley a bonus for any calendar year. The foregoing
compensation is to be reduced by $40,000 per annum in the event Mr. Pinsley
elects to become a non-executive officer employee. The employment agreement
further provides that in the event of his disability the foregoing compensation
shall continue to be paid to Mr. Pinsley until the expiration date of the
agreement, and, in the event of his death, such compensation shall be paid to
his estate until the expiration date of the agreement or 187 days after his
death, whichever is later. The agreement provides for (i) a restrictive covenant
of non-competition by Mr. Pinsley, and (ii) his covenant not to divulge or use,
other than for the registrant, confidential information concerning the
registrant during and for 18 months after the expiration date of the agreement.
Effective August 1, 1996, Mr. Pinsley retired from the positions of
President and Chief Executive Officer. In accordance with the terms of the
above agreement, Mr. Pinsley has remained as Chairman of the Board and as a non-
executive officer of the Company at a reduced salary.
- 37 -
<PAGE>
The Company has entered into an employment contract with John J. Pompay Jr.
in connection with his duties as Vice President-Marketing and Sales. The
contract is dated and effective as of December 6, 1996 and terminates on
December 31, 1998. The contract provides for a minimum base annual salary of
$10,400 plus commissions at the rate of 3% on all payments received by the
Company against Mr. Pompay's open orders as of the date of the contract and
those orders booked up to and including December 31, 1996, and 1% on all
payments received against orders booked by the Company between January 1, 1997
and December 31, 1998. The contract further provides that if Mr. Pompay's
employment is terminated by the Company prior to the expiration date, other than
for cause, he will continue to receive his full salary for one year after the
termination date and the Company will pay him commissions on all orders received
during the year after termination whenever shipped and paid. The contract also
provides for a restrictive covenant of non-competition by Mr. Pompay for a
period of two years upon termination for cause or termination of the contract by
Mr. Pompay.
As part of a management succession plan as implemented by the Board of
Directors in June 1998, the Company has entered into agreements with the
following named executive officers: Joseph Canterino, Barry Pinsley, Seymour
Saslow and Herbert Potoker. The contracts provide for the resignation of the
above officers from their positions as executive officers and for them to be
compensated in accordance with their respective agreements. The effective
date of the resignations of Mr. Canterino and Mr. Barry Pinsley as executive
officers was June 9, 1998. The effective dates of the resignations of Mr.
Saslow and Mr. Potoker as executive officers are January 1, 2000 and January 1,
1999, respectively. The compensation to be paid under the agreements is $1,000
per week for Messrs. Canterino, Saslow and Potoker and $500 per week for Mr.
Pinsley during such two year period. In the event of a named executive
officer's death, the Company is obligated to continue the payments as scheduled
under the terms of the agreements.
All of the named executive officers' contracts contain a restrictive
covenant regarding non-competition with the Company during the term of the
agreement and for a period of five years after the termination of the agreement
and an agreement regarding the treatment of confidential information.
- 38 -
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
Security Ownership of Certain Beneficial Owners
The following information is furnished as of September 23, 1998 (unless
otherwise indicated) with respect to any person (including any "group" as that
term is used in Section 13(d)(3) of the Act) who is known to the Company to
be the beneficial owner of more than five percent of any class of the Company's
voting securities:
<TABLE>
Amount and
Nature of
Title of Name and Address Beneficial Percent of
Class of Beneficial Owner Ownership Class
<S> <C> <C> <C>
Common Stock Sol Pinsley 73,261.00 -Direct 6.7350%
$.33-1/3 p.v. P.O. Box 422 1,169.71 -Indirect(1)
Saratoga Springs,
NY 12866
Amount and
Nature of
Title of Name and Address Beneficial Percent of
Class of Beneficial Owner Ownership Class
" Dimensional Fund 74,400.00 -Direct(2) 6.7332%
Advisors Inc.
1299 Ocean Avenue
11th Floor
Santa Monica,
CA 90401
" Franklin Resources, Inc. 108,000.00 -Direct(3) 9.7740%
777 Mariners Island
Blvd., P.O. Box 7777
San Mateo,
CA 94403-7777
Common Stock The Adirondack Trust 277,061.00 -Direct(4) 25.0739%
$.33-1/3 p.v. Company, as Trustee of
the Company's Employee
Retirement Plan and Trust
473 Broadway
Saratoga Springs,
NY 12866
</TABLE>
[FN]
(1) Does not include 4,200 shares of common stock of the Company owned by the
testamentary trust of the deceased spouse of Sol Pinsley, Ruth Pinsley,
beneficial ownership of which is disclaimed by Mr. Pinsley. The shares listed
as indirectly owned by Sol Pinsley are the shares allocated to him as of June
30, 1998 as a participant in the Company's ESOP. Mr. Pinsley has the right
under the ESOP to direct the manner in which such shares allocated to him are to
be voted by the ESOP Trustee.
(2) The information as to the number of shares of common stock of the Company
that may be deemed beneficially owned by Dimensional Fund Advisors Inc.
("Dimensional") is from the Schedule 13G dated February 5, 1997 filed with the
Securities and Exchange Commission (the "SEC"). Dimensional, a registered
investment advisor, is deemed to have beneficial ownership of 74,400 shares of
Espey Mfg. & Electronics Corp. stock as of December 31, 1996, all of which
shares are held in portfolios of DFA Investment Dimensions Group, Inc., a
registered open-end investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares. Dimensional reported sole
voting power with respect to 49,500 shares.
(3) The information as to the number of shares of common stock of the Company
that may be deemed beneficially owned by Franklin Resources, Inc. ("Franklin")
is from the Schedule 13G, dated January 16,1998 filed with the SEC. The Franklin
statement indicated that Franklin's investment advisory subsidiary, Franklin
Advisory Services, Inc.("Franklin Advisory") has sole voting and dispositive
power with respect to all of the shares of common stock shown in the table above
for Franklin. The Franklin statement indicates that the common stock set forth
in the table is beneficially owned by one or more open or closed-end investment
companies or other managed accounts which are advised by direct and indirect
Franklin investment advisory subsidiaries, including Franklin Advisory. The
statement also indicated that it filed the Schedule 13G on behalf of itself,
Franklin Advisory, and Franklin's principal shareholders, Charles B. Johnson and
- 39 -
<PAGE>
Rupert H. Johnson, Jr.(the "Principal Shareholders"), all of which are deemed
beneficial owners of the shares of common stock shown in the above table for
Franklin. Franklin, the Principal Shareholders and Franklin Advisory disclaim
any economic interest or beneficial ownership in any of the common stock shown
in the table for Franklin.
(4) This information is from the Form 4 dated September 8, 1998, filed with the
SEC by the Trustee on behalf of the Company's ESOP. The ESOP Trustee has sole
voting power with respect to unallocated common shares owned by the Trust,
126,072 shares as of August 28, 1998, as directed by the Plan Administrator
appointed by the Company's Board of Directors. As to the common shares allocated
to participants, 150,989 shares as of August 28, 1998, the ESOP Trustee has the
power to vote such shares as directed by such Plan Administrator to the extent
the participants do not direct the manner in which such shares are to be voted.
Security Ownership of Management
The following information is furnished as of September 19, 1998 (unless
otherwise indicated), as to each class of equity securities of the Company
beneficially owned by all the Directors and by Directors and Officers of the
Company as a Group:
<TABLE>
Amount and
Nature of
Title of Name of Beneficial Percent of
Class Beneficial Owner Ownership Class
<S> <C> <C> <C>
Common Stock
$.33-1/3 p.v. Paul J. Corr 500.00 -Direct .0452%
" William P. Greene 100.00 -Direct .0090%
" Michael W. Wool 100.00 -Direct .0090%
" Sol Pinsley 73,261.00 -Direct 6.7350%
1,169.71 -Indirect(1)(2)
(continued)
</TABLE>
- 40 -
<PAGE>
<TABLE>
Amount and
Nature of
Title of Name of Beneficial Percent of
Class Beneficial Owner Ownership Class
<S> <C> <C> <C>
Common Stock Seymour Saslow 351.00 -Direct .4595%
$.33-1/3 p.v. 5,123.71 -Indirect(2)
" Joseph Canterino 7, 500.00 -Direct 1.1740%
5,474.71 -Indirect(2)
" John J. Pompay, Jr. 5,474.71 -Indirect(2) .4954%
" Howard Pinsley 41,134.00 -Direct 4.189%
5,155.73 -Indirect(2)
" Barry Pinsley 2,100.00 -Direct .7544%
6,236.40 -Indirect
(2)(3)(4)
" Herbert Potoker 6,490.00 -Direct 1.0828%
5,474.71 -Indirect
(2)(5)
" Garry M. Jones 2,581.88 -Indirect(2) .23365%
" Reita Wojtowecz 1,769.30 -Indirect(2) .16012%
" Officers and Directors 131,536.00 -Direct 15.3846%
as a Group 38,460.86 -Indirect(6)
</TABLE>
_____________
(1) Excludes 4,200 shares owned by a testamentary trust of Ruth Pinsley, the
deceased spouse of Sol Pinsley. Beneficial ownership of the shares owned by the
trust is disclaimed by Mr. Pinsley.
(2) Shares allocated to named officer as of June 30, 1998 as a participant in
the Company's ESOP. Each such person has the right to direct the manner in which
such shares allocated to him or her are to be voted by the ESOP Trustee.
(3) Excludes 1,300 shares owned by Barry Pinsley's spouse, as to which
beneficial ownership is disclaimed by Mr. Pinsley.
(4) Includes 4,200 shares owned by a testamentary trust of Ruth Pinsley, the
deceased spouse of Sol Pinsley. As trustee of the trust, Barry Pinsley is deemed
the beneficial owner, as defined in Rule 13d-3, of the shares held by the
trust.
(5) Includes 300 shares owned by Herbert Potoker's spouse, as to which
beneficial ownership is disclaimed by Mr. Potoker.
(6) Shares allocated to all officers as a group as of June 30, 1998 who
participate in the Company's ESOP. Each such person has the right to direct the
manner in which such shares allocated to him or her are to be voted by the ESOP
Trustee.
There are no arrangements known to the Company the operation of which may
at a subsequent date result in change of control of the Company.
- 41 -
<PAGE>
Item 13. Certain Relationships and Related Transactions.
For the fiscal year ended June 30, 1998, Christopher Canterino, who is a
full time employee of the Company and the son of Joseph Canterino, who, prior to
his resignation on June 9, 1998, was President and Chief Executive Officer
of the Company, received compensation as such employee of $87,100.00, as well as
an ESOP allocation of Company Stock and dividends thereon totaling $9,958.96.
As previously reported, the Company established and sold to the ESOP Trust
on June 5, 1989, 331,224 shares of the Company's treasury stock at a price of
$26.50 per share, which purchase price was funded by the Company making a cash
contribution and loan. Each year, the Company makes contributions to the ESOP
which are used to make loan interest and principal payments to the Company.
With each such payment, a portion of the common stock held by the ESOP is
allocated to participating employees. As of June 30, 1998, there were 165,138.84
shares allocated to participants. The loan from the Company to the ESOP is
repayable in annual installments of $1,039,605, including interest, through
June 30, 2004. Officers of the Company, including five (Sol Pinsley, Seymour
Saslow, Joseph Canterino, Howard Pinsley and Barry Pinsley) who are also
directors, are eligible to participate in the ESOP and to have shares and cash
allocated to their accounts and distributed to them in accordance with the terms
of the ESOP.
The Company paid the law firm of Langrock, Sperry & Wool, of which Michael
W. Wool, a director of the Company, is a partner, a total of $42,000 for legal
services during the fiscal year ended June 30, 1998. The Company believes
the services provided to it by Langrock, Sperry & Wool were provided to it at a
cost comparable to that which the Company would have been required to pay for
comparable services from an unaffiliated third party.
- 42 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
Included in Part II of this report:
Independent Auditors' Report
Balance Sheets at June 30, 1998 and 1997
Statements of Earnings for the years ended
June 30, 1998, 1997 and 1996
Statements of Changes in Stockholders' Equity
for the years ended June 30, 1998, 1997 and 1996
Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996
Notes to Financial Statements
2. Financial Statement Schedules
Included in Part IV of this report: Page
Schedule II - Valuation and Qualifying Accounts 47
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements
or notes thereto.
3. Exhibits
Page
10.1 Agreement between the Company and Joseph 49
Canterino, dated June 9, 1998
10.2 Agreement between the Company and Barry 53
Pinsley, dated June 30, 1998
10.3 Agreement between the Company and Seymour 57
Saslow, dated August 21, 1998
10.4 Agreement between the Company and Herbert 61
Potoker, dated June 30, 1998
- 43 -
<PAGE>
10.5 Agreement between the Company and Reita 65
Wojtowecz, dated June 30, 1998
11.1 Statement re: Computation of Per Share Earnings 69
27 Financial Data Schedule N/A
(b) Reports on Form 8-K
On June 15, 1998, the Company filed a Current Report on Form 8-K reporting
the resignations of Joseph Canterino from the positions of President and
Chief Executive Officer and Barry Pinsley from the position of Vice
President - Investor Relations and Human Resources.
- 44 -
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ESPEY MFG. & ELECTRONICS CORP.
/s/ Howard Pinsley
Howard Pinsley, President and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
President
(Principal Executive Officer)
/s/Howard Pinsley September 28, 1998
Howard Pinsley
Treasurer
(Principal Financial Officer)
/s/ Herbert Potoker September 28, 1998
Herbert Potoker
Assistant Treasurer
(Principal Accounting Officer)
/s/ Garry M. Jones September 28, 1998
Garry M. Jones
(signatures continued)
- 45 -
<PAGE>
Vice President and Director
/s/ Barry Pinsley September 28, 1998
Barry Pinsley
Chairman of the Board and Director
/s/ Sol Pinsley September 28, 1998
Sol Pinsley
Vice President and Director
/s/ Seymour Saslow September 28, 1998
Seymour Saslow
Director
/s/ Joseph Canterino September 28, 1998
Joseph Canterino
Director
/s/ Michael W. Wool September 28, 1998
Michael W. Wool
Director
/s/ Paul J. Corr September 28, 1998
Paul J. Corr
Director
/s/ William P. Greene September 28, 1998
William P. Greene
- 46 -
<PAGE>
SCHEDULE II
ESPEY MFG. & ELECTRONICS CORP.
Valuation and Qualifying Accounts
Years ended June 30, 1998, 1997 and 1996
<TABLE>
Balance at Additions Deductions Balance at
beginning to from end of
Description of period reserve reserve period
Allowance for
doubtful accounts:
<S> <C> <C> <C> <C>
1998 $ 3,000 - - 3,000
1997 $ 3,000 - - 3,000
1996 $ 3,000 - - 3,000
</TABLE>
- 47 -
<PAGE>
EXHIBIT INDEX
Exhibit No. Page
10.1 Agreement between the Company and Joseph 49
Canterino, dated June 9, 1998
10.2 Agreement between the Company and Barry 53
Pinsley, dated June 30, 1998
10.3 Agreement between the Company and Seymour 57
Saslow, dated August 21, 1998
10.4 Agreement between the Company and Herbert 61
Potoker, dated June 30, 1998
10.5 Agreement between the Company and Reita 65
Wojtowecz, dated June 30, 1998
11.1 Statement re: Computation of Per Share Earnings 69
27 Financial Data Schedule N/A
- 48 -
<PAGE>
AGREEMENT
AGREEMENT dated as of June 9, 1998 by and between Espey Mfg. & Electronics
Corp., a New York corporation having its principal place of business at Congress
and Ballston Avenues, Saratoga Springs, New York 12866 (the "Company") and
Joseph Canterino,an individual residing at 9 Tensprings Drive, Saratoga Springs,
New York 12866 (the "Employee").
WHEREAS, the Employee has been a valued employee of the Company for many years,
and is now President and Chief Executive Officer of the Company; and
WHEREAS, the Employee now wishes to assist the Company in a management
transition, including the search and appointment of a new President and Chief
Executive Officer.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
herein, the parties agree as follows:
1. Resignation. The Company hereby accepts the Employee's resignation as
President and Chief Executive Officer of the Company. Employee shall be a
non-executive officer of the Company for the duration of this Agreement.
2. Compensation and Duties. In consideration of the Employee's willingness to
continue to be reasonably available to the Company for advice and counsel during
the transition period and thereafter for the duration of this Agreement to
perform duties as reasonably requested by the Company, the Employee shall
receive the following compensation:
a. The Employee shall continue to receive his current salary and all current
benefits through and including September 4, 1998, payable weekly in accordance
with the Company's regular payroll; and
b. After September 4, 1998, the Employee's compensation will change to
$1,000 per week for the succeeding 104 weeks, payable weekly in accordance with
the Company's regular payroll, and shall receive all current benefits.
c. It is agreed that the Employee shall be reasonably available by telephone
or otherwise to render advice and counsel, but need not be physically present,
unless his physical presence is reasonably requested by the Company. The parties
agree that the Employee need not be physically present at the Company's offices
after the date of this Agreement, and that there shall be no minimum amount of
hours per week or month that the Employee must be available to the Company. For
ESOP and benefits purposes, the Employee will continue to be treated as a full-
time employee for the duration of this Agreement, to the extent consistent with
the ESOP and applicable law.
- 49 -
<PAGE>
d. If the Employee dies during the term of this Agreement, remaining payments
will be made, as scheduled, to the Employee's spouse, and if she dies before
full payment, to her estate or as she may direct. In the event of Employee's
death, all benefits shall cease at death, except that the Company shall continue
to pay Employee's spouse's medical benefits for ninety days from the date of
Employee's death or to the termination date of this Agreement, whichever
is earlier.
3. Expenses. If the Employee is requested by the Company at any point during the
duration of this Agreement to return to Saratoga, and the Employee is then not
in the Saratoga Springs area, the Company shall pay the airfare for the Employee
and his spouse to return. The Employee shall not be reimbursed for any other
expenses hereunder unless the Employee and the Company so agree with respect to
a specific expense. This will not effect the Employee's entitlement to Board
fees and expenses for as long as he is a member of the Board.
4. Lump-Sum Payout. If the Company chooses to pay all or any part of the
Employee's remaining payments under this Agreement prior to the date due, the
Company shall include an additional payment equal to 25% of the amount so
prepaid.
5. Term. This Agreement shall be effective as of June 9, 1998 and shall continue
in effect through and including the pay period ending September 1, 2000, unless
sooner terminated in accordance with the provisions hereof.
6. Restrictive Covenant: Confidential Infonnation. a. The Employee agrees that
during the term of this Agreement and for a period of five years thereafter, he
shall not directly or indirectly, on behalf of himself or on behalf of any other
corporation, person or entity other than the Company, render any services to,
consult for, contract with or-become an employee, officer, director, partner,
member, or (except as a five (5%) percent or less shareholder of any publicly
traded company) owner or shareholder of, any individual or entity which engages
in the Company's business or which otherwise competes with the Company.
b. The Employee recognizes and acknowledges that there has been made
available to him confidential information concerning matters affecting or
relating to the products, services or business of the Company, its subsidiaries,
or affiliates, including, but not limited to, intellectual property, technology,
proprietary information, customer lists and other financial information,
contractual relationships, past or contemplated actions, personnel matters,
marketing or sales data and written or oral communications or
- 50 -
understandings of any sort of the Company or of any of its customers in either
tangible or intangible form ("Confidential Information"). The Employee further
recognizes and acknowledges that this Confidential Information as it may exist
from time to time belongs to the Company and is a valuable, special and unique
asset of the Company's business. The Employee will not, during or after the term
of this Agreement, at any time, directly or indirectly, divulge, disclose or
communicate any Confidential Information to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever. Employee will
promptly deliver to Company all copies of all Confidential Information and all
material of any nature belonging to Company, and Employee will not take with him
any such Confidential Information, materials or reproductions thereof or any
proprietary information of Company in tangible or intangible form.
c. The parties agree to continue to work cooperatively and in good faith, now
and in the future, to carry out the transactions contemplated by this Agreement
and to execute any documents reasonably required to effect this Agreement.
Neither party shall disparage, defame or slander the other.
7. Successors and Assigns. This Agreement is binding upon the parties hereto,
their heirs, administrators, executors, successors and assigns.
8. Notices. Any notices, consents or information required or requested or
permitted by this Agreement shall be sent to the parties at the addresses shown
above, unless such address is changed by written notice hereunder.
9. Severabilitv. In the event any provision of this Agreement or any portion
thereof shall be deemed invalid or unenforceable for any reason, that portion or
provision shall be deemed excised from this Agreement and this Agreement shall
be governed, interpreted and enforced in all respects as if such invalid or
unenforceable provision were originally omitted from this Agreement.
10. Waiver. The waiver of any party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. Headings. The descriptive headings used in this Agreement are for purposes
of convenience only and do not constitute a part of this Agreement.
13. Entire Agreement. This Agreement is the entire agreement among the parties
regarding the subject matter hereof, and supersedes any prior agreements or
discussions.
- 51 -
<PAGE>
This Agreement may not be altered or amended except in writing signed by both
parties. In the event of any conflict between this Agreement and the terms of
any of Company's employment policies, manuals, or other statements regarding
employment generally, now existing or hereafter promulgated, the terms of this
Agreement shall control.
IN W1TNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
ESPEY MFG. & ELECTRONICS CORP.
By /s/ Howard Pinsley
Name: Howard Pinsley
Title: President
/s/ Joseph Canterino
Joseph Canterino
- 52 -
<PAGE>
AGREEMENT
AGREEMENT dated as of June 30, 1998 by and between Espey Mfg. & Electronics
Corp., a New York corporation having its principal place of business at Congress
and Ballston Avenues, Saratoga Springs, New York 12866 (the "Company") and Barry
Pinsley, an individual residing at 4 Eureka Avenue, Saratoga Springs, New York
12866 (the "Employee").
WHEREAS, the Employee has been a valued employee of the Company for many
years, and is now Vice President-Investor Relations and Human Resources of the
Company; and
WHEREAS, the Employee now wishes to assist the Company in a management
transition.
NOW, THEREFORE;in consideration of the mutual promises and covenants set forth
herein, the parties agree as follows:
1. Resignation. The Company hereby accepts the Employee's resignation as Vice
President-Investor Relations and Human Resources of the Company. Employee shall
be a non-executive officer of the Company for the duration of this Agreement.
2. In consideration of the Employee's willingness to continue to be reasonably
available to the Company for advice and counsel during the transition period and
thereafter for the duration of this Agreement to perform duties as reasonably
requested by the Company, the Employee shall receive the following compensation:
a. The Employee shall continue to receive his current salary and all
current benefits through and including September 4, 1998, payable weekly in
accordance with the Company's regular payroll; and
b. After September 4, 1998, the Employee's compensation will change to
$500 per week for the succeeding 2 years, payable weekly. In accordance with
the Company's regular payroll, and shall receive all current benefits.
c. It is agreed that the Employee shall be reasonably available by
telephone or otherwise to render advice and counsel, but need not be physically
present, unless his physical presence is reasonably requested by the Company.
The parties agree that the Employee need not be physically present at the
Company's offices after the date of this Agreement, and that there shall bc no
minimum amount of hours per week or month that the Employee must be available to
the Company. For ESOP and benefits purposes, the Employee will continue to be
- 53 -
<PAGE>
treated as a full-time employee for thc duration of this Agreement,to the extent
consistent with the ESOP and applicable law.
d. If the Employee dies during the term of this Agreement,remaining
payments will be made, as scheduled, to the Employee's spouse, and if she dies
before full payment, to her estate or as she may direct. In the event of
Employee's death, all benefits shall cease at death except that the Company
shall continue to pay Employee's spouse's medical benefits for ninety days from
the date of Employee's death or to the termination date of this Agreement,
whichever is earlier.
3. Expenses. If the Employee is requested by the Company at any point during
the duration of this Agreement to return to Saratoga, and the Employee is then
not in the Saratoga Springs area, the Company shall pay the airfare for thc
Employee and his spouse to return The Employee shall not be reimbursed for any
other expensee hereunder unless the Employee and the Company so agree with
respect to a specific expense. This will not effect the Employee's entitlement
to Board fees and expenses for as long as he is a member of the Board.
4. Lump-Sum Payout. If the Company chooses to pay all or any part of the
Employee's remaining payments under this Agreement prior to the date due, the
Company shall include an additional payment equal to 25% of the amount so
prepaid.
5. Term, This Agreement shall be effective as of June 3O, 1998 and shall
continue in effect through and including thc pay period ending September 8,
2000, unless sooner terminated in accordance with the provisions hereof.
6. Restrictive Convenant: Confidential Information. a. The Employee agrees that
during the term of this Agreement and for a period of five years thereafter, he
shall not directly or indirectly, on behalf of himself or on behalf of any other
corporation, person or entity other than the Company, render any services to,
consult for, contract with or become an employee, officer, director, partner,
member, or (except as a five (5%) percent or less shareholder of any publicly
traded company) owner or shareholder of, any individual or entity which engages
in the Company's business or which otherwise competes with the Company.
b. The Employee recognizes and acknowledges that there has been made
available to him confidential information concerning matters affecting or
relating to the products, services or business of the Company, its subsidiaries,
or affiliates, including, but not limited to, intellectual property, technology,
proprietary information, customer lists and other financial information,
contractual relationships, past or contemplated actions, personnel matters,
marketing or sales data and written or oral communications or
- 54 -
<PAGE>
understandings of any sort of the Company or of any of its customers in either
tangible or intangible form ("Confidential Information"). The Employee further
recognizes and acknowledges that this Confidential Information as it may exist
from time to time belongs to thc Company and is a valuable, special and unique
asset of the Company's business The Employee will not, during or after the term
of this Agreement, at any time, directly or indirectly, divulge, disclose or
communicate any Confidential Information to any person, firm, corporation,
association or other entity for any reason or purpose whatsoevcr. Employoc will
promptly deliver to Company all copies of all Confidential Information and all
material of any nature belonging to (:ompany, and Employee will not take with
him any such Confidential Information, materials or reproductions thereof or any
proprietary information of Company in tangible or intangible form.
c. The parties agree to continue to work cooperatively and in good faith,
now and in thc future, to carry out thc transactions contemplated by this
Agreement and to execute any documents reasonably required to effect this
Agreement. Neither party shall disparage, defame or slander the other.
7. Successors and Assigns. This Agreement is binding upon the parties hereto,
their heirs, administrators, executors, successors and assigns.
8. Notices. Any notices, consents or information required or requested or
permitted by this Agreement shall be sent to the parties at the addresses shown
above, unless such address is changed by written notice hereunder.
9. Severability. In the event any provision of this Agreement or any portion
thereof shall be deemed invalid or unenforceable for any reason, that portion
or provision shall be deemed excised from this Agreement and this Agreement
shall be governed, interpreted and enforced in all respects as if such invalid
or unenforceable provision were originally omitted from this Agreement.
10. Waiver. The waiver of any party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subseguent
breach.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. Headings. The descriptive headings used in this Agreement are for purposes
of convenience only and do not constitute a part of this Agreement.
13. Entire Agreement. This Agreement is the entire agreement among the parties
regarding the subject matter hereof, and supersedes any prior agreements or
discussions.
- 53 -
<PAGE>
This Agreement may not be altered or amended except in writing signed by both
parties. In the event of any confict between this Agreement and the terms of
any of Company's employment policies, manuals, or other statements regarding
employment generally, now existing or hereafter promulgated, the terms of this
Agreement shall control.
IN WlTNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
ESPEY MFG. & ELECTRONICS CORP.
By: /s/ Howard Pinsley
Name: Howard Pinsley
Title: President
/s/ Barry Pinsley
BARRY PINSLEY
- 56 -
<PAGE>
AGREEMENT dated as of August 21, 1998, by and between Espey Mfg. & Electronics
Corp., a New York corporation having its principal place of business at 233
Ballston Avenue, Saratoga Springs, New York 12866 (the "Company") and Seymour
Saslow, an individual residing at 199 Caroline St., Saratoga Springs, New York,
12866 (the"Employee").
WHEREAS, the Employee has been a valued employee of the Company for many years,
and is now Senior Vice President of the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
herein the parties agree as follows:
1. RESIGNATION. The Company hereby accepts his resignation as Senior Vice
President, effective January 1, 2000, or sooner at the employees' request, at
which time the Employee shall become a non-executive officer of the Company for
a period of twenty-seven (27) months from the date of his resignation.
COMPENSATION AND DUTIES. In consideration ofthe Employee's willingness to
continue to be reasonably available to the Company for advice and counsel after
his resignation, and to perform duties as reasonably requested by the Company,
the Employee shall receive the following compensation:
(A) The employee shall continue to receive the salary and all benefits
being received at the time of his resignation for a period of thirteen (13)
weeks, in accordance with the Company's regular payroll.
(B) At the end ofthirteen (13) pay periods the Employee's compensation will
change to $1000.00 per week for the succeeding 104 weeks, and he shall receive
all current benefits as above. The Employee shall be eligible to participate in
new benefits should they occur during this period of time.
(C) It is agreed that the Employee shall be reasonably available by
telephone or otherwise to render advice and counsel, but need not be physically
present, unless his physical presence is reasonably requested by the Company.
The parties agree that the Employee need not be physically present at the
Company's offices after the date of his resignation, and that there shall be no
minimum amount of hours per week or month that the Employee must be available to
the Company. Should the Employee be required to engage in any activity not
within the intended scope of this agreement, he shall be reimbursed, in addition
to his weekly salary, at an hourly rate to be mutually agreed upon between an
authorized representative of the Company and himself. For ESOP and all other
benefit purposes, the Employee shall continue to be treated as a full-time
employee for the duration of this agreement to the extent consistent with the
terms of the ESOP and all applicable law.
- 57 -
<PAGE>
(D) If the Employee dies during the term of this Agreement, remaining
payments will be made, as scheduled, to the Employee's spouse. In the event of
Employee's death, all benefits shall cease at death.
3. Expenses. If the Employee is requested by the Company at any point during
the duration of this Agreement to return to Saratoga, and the Employee is then
not in the Saratoga Springs area, the Company shall pay the transportation costs
for the Employee to return. The Employee shall not be reimbursed for any other
expenses hereunder unless the Employee and the Company so agree with respect to
a specific expense.
4. Lump-Sum Payout. If the Company chooses to pay all or any part of the
Employee's remaining payments under this Agreement prior to the date due, the
Company shall include an additional payment equal to twenty-five (25%) percent
of the amount so prepaid.
5. Term. This Agreement shall be effective as of August 21, 1998 and shall
continue in effect through and including the pay period ending One-Hundred
Seventeen (117) pay periods from the date of the Employee's resignation.
6. RESTRICTIVE COVENANT: CONFIDENTIAL INFORMATION.
A. The Employee agrees that during the term of this Agreement and for a
period of five (5) years thereafter, he shall not directly or indirectly, on
behalf of himself or on behalf of any other corporation, person or entity other
than the Company, render any services to, consult for, contract with or become
an employee, officer, director, partner, member, or (except as a five (5%)
percent or less shareholder of any publicly traded company) owner or shareholder
of, any individual or entity which engages in the Company's business or which
otherwise competes with the Company.
B. The Employee recognizes and acknowledges that there has been made
available to him confidential information concerning matters affecting or
relating to the products, services or business of the Company, its subsidiaries,
or affiliates, including, but not limited to, intellectual property, technology,
proprietary information, customer lists and other financial information,
contractual relationships, past or contemplated actions, personnel matters,
marketing or sales data and written or oral communications or understandings of
any sort of the Company or of any of its customers in either tangible or
intangible form ("Confidential Information"). The Employee further recognizes
and acknowledges that this Confidential Information as it may exist from time to
time belongs to the Company and is a valuable, special and unique asset of the
Company's business. The Employee will not, during or after the term of this
Agreement, at any time, directly or indirectly, divulge, disclose or communicate
any Confidential Information to any person, firm, corporations, association or
other entity for any reason or purpose whatsoever.
- 58 -
<PAGE>
Employee will promptly deliver to the Company all copies of all Confidential
Information and all material of any nature belonging to the Company, and
Employee will not take with him any such Confidential Information, materials or
reproductions thereof or any proprietary information of the Company in tangible
or intangible form.
C. The parties agree to continue to work cooperatively and in good faith,
now and in the future, to carry out the transactions contemplated by this
Agreement and to execute any documents reasonably required to effect this
Agreement. Neither party shall disparage, defame or slander the other.
7. Successor and Assigns. This Agreement is binding upon the parties hereto,
their heirs, administrators, executors, successors and assigns.
8. Notices. Any notices, consents or information required or requested or
permitted by this Agreement shall be sent to the parties at the addresses shown
above, unless such address is changed by written notice hereunder.
9. Severability. In the event any provision of this Agreement or any portion
thereof shall be deemed invalid or unenforceable for any reason, that portion or
provision shall be deemed excised from this Agreement and this Agreement shall
be governed, interpreted and enforced in all respects as if such invalid or
unenforceable provision were originally omitted from this Agreement.
10. Waiver. The waiver of any party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. Headings. The descriptive headings used in this Agreement are for purposes
of convenience only and do not constitute a part of this Agreement.
13. Entire Agreement. This Agreement is the entire agreement among the parties
regarding the subject matter hereof, and supersedes any prior agreements or
discussions.
- 59 -
<PAGE>
This AGREEMENT may not be altered or amended except in writing signed by both
parties. In the event of any conflict between this Agreement and the terms of
any of the Company's employment policies, manuals, or other statements regarding
employment generally, now existing or hereafter promulgated, the terms of this
Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
ESPEY MFG. & ELECTRONICS CORP.
By: /s/ Howard Pinsley
Name: Howard Pinsley
Title: President
Employee: /s/ Seymour Saslow
Seymour Saslow
- 60 -
<PAGE>
AGREEMENT dated as of June 30, 1998, by and between Espey Mfg. & Electronics
Corp., a New York corporation having its principal place of business at 233
Ballston Avenue, Saratoga Springs, New York 12866 (the "Company") and Herbert
Potoker, an individual residing at 24 Benton Drive, New York, 12866 (the
"Employee").
WHEREAS, the Employee has been a valued employee of the Company for many years,
and is now Treasurer and Chief Financial Officer of the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
herein, the parties agree as follows:
1. RESIGNATION. The Company hereby accepts his resignation as Treasurer and
Chief Financial Officer, effective January 1,1999, or sooner at the employee's
request, at which time the Employee shall become a non-executive officer of
the Company for a period of twenty-seven (27) months from the date of
resignation.
COMPENSATION AND DUTIES. In consideration of the Employee's willingness to
continue to be reasonably available to the Company for advice and counsel after
his resignation, and to perform duties as reasonably requested by the Company,
the Employee shall receive the following compensation:
(A) The employee shall continue to receive the salary and all benefits
being received at the time of his resignation for a period of thirteen (13)
weeks, in accordance with the Company's regular payroll.
(B) At the end of thirteen (13) pay periods the Employee's compensation
will change to $1000.00 per week for the succeeding 104 weeks, and he shall
receive all current benefits as above. The Employee shall be eligible to
participate in new benefits should they occur during this period of time.
(C) It is agreed that the Employee shall be reasonably available by
telephone or otherwise to render advice and counsel, but need not be physically
present, unless his physical presence is reasonably requested by the Company.
The parties agree that the Employee need not be physically present at the
Company's offices after the date of his resignation, and that there shall be no
minimum amount of hours per week or month that the Employee must be available to
the Company. Should the Employee be required to engage in any activity not
within the scope of this agreement, he shall be reimbursed, in addition to his
weekly salary, at an hourly rate to be mutually agreed upon between an
authorized representative of the Company and himself. For ESOP and all other
benefit purposes, the Employee shall continue to be treated as a full-time
employee for the duration of this agreement to the extent consistent with the
terms of the ESOP and all applicable law.
- 61 -
<PAGE>
(D) If the Employee dies during the term of this Agreement, remaining
payments will be made, as scheduled, to the Employee's Estate. In the event of
Employee's death, all benefits shall cease at death.
3. Expenses. If the Employee is requested by the Company at any point during
the duration of this Agreement to return to Saratoga, and the Employee is then
not in the Saratoga Springs area, the Company shall pay the transportation costs
for the Employee to return. The Employee shall not be reimbursed for any other
expenses hereunder unless the Employee and the Company so agree with respect to
a specific expense.
4. Lump-Sum Pavout. If the Company chooses to pay all or any part of the
Employee's remaining payments under this Agreement prior to the date due, the
Company shall include an additional payment equal to twenty-five (25%) percent
of the amount so prepaid.
5. Term. This Agreement shall be effective as of June 30, 1998 and shall
continue in effect through and including the pay period ending One-Hundred
Seventeen (117) pay periods from the date of the Employee's resignation.
6. RESTRICTIVE COVENANT: CONFIDENTIAL INFORMATION.
A. The Employee agrees that during the term of this Agreement and for a
period of five (5) years thereafter, he shall not directly or indirectly, on
behalf of himself or on behalf of any other corporation, person or entity other
than the Company, render any services to, consult for, contract with or become
an employee, officer, director, partner, member, or (except as a five (5%)
percent or less shareholder of any publicly traded company) owner or shareholder
of, any individual or entity which engages in the Company's business or which
otherwise competes with the Company.
B. The Employee recognizes and acknowledges that there has been made
available to him confidential information concerning matters affecting or
relating to the products, services or business of the Company, its subsidiaries,
or affiliates, including, but not limited to, intellectual property, technology,
proprietary information, customer lists and other financial information,
contractual relationships, past or contemplated actions, personnel matters,
marketing or sales data and written or oral communications or understandings of
any sort of the Company or of any of its customers in either tangible or
intangible form ("Confidential Information"). The Employee further recognizes
and acknowledges that this Confidential Information as it may exist from time to
time belongs to the Company and is a valuable, special and unique asset of the
Company's business. The Employee will not, during or after the term of this
Agreement, at any time, directly or indirectly, divulge, disclose or communicate
any Confidential Information to any person, firm, corporations, association or
other entity for any reason or purpose whatsoever.
- 62 -
<PAGE>
Employee will promptly deliver to the Company all copies of all Confidential
Information and all material of any nature belonging to the Company, and
Employee will not take with him any such Confidential Information, materials or
reproductions thereof or any proprietary information of the Company intangible
or intangible form.
C. The parties agree to continue to work cooperatively and in good faith,
now and in the future, to carry out the transactions contemplated by this
Agreement and to execute any documents reasonably required to effect this
Agreement. Neither party shall disparage, defame or slander the other.
7. Successor and Assigns. This Agreement is binding upon the parties hereto,
their heirs, administrators, executors, successors and assigns.
8. Notices. Any notices, consents or information required or requested or
permitted by this Agreement shall be sent to the parties at the addresses shown
above, unless such address is changed by written notice hereunder.
9. Severability. In the event any provision of this Agreement or any portion
thereof shall be deemed invalid or unenforceable for any reason, that portion or
provision shall be deemed excised from this Agreement and this Agreement shall
be governed, interpreted and enforced in all respects as if such invalid or
unenforceable provision were originally omitted from this Agreement.
10. Waiver. The waiver of any party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. Headings. The descriptive headings used in this Agreement are for purposes
of convenience only and do not constitute a part of this Agreement.
13. Entire Agreement. This Agreement is the entire agreement among the parties
regarding the subject matter hereof, and supersedes any prior agreements or
discussions.
- 63 -
<PAGE>
This AGREEMENT may not be altered or amended except in writing signed by both
parties. In the event of any conflict between this Agreement and the terms of
any of the Company's employment policies, manuals, or other statements regarding
employment generally, now existing or hereafter promulgated, the terms of this
Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
ESPEY MFG. & ELECTRONICS CORP.
By: /s/ Howard Pinsley
Name: Howard Pinsley
Title: President
Employee: /s/ Herbert Potoker
Herbert Potoker
- 64 -
<PAGE>
AGREEMENT dated as of June 30, 1998, by and between Espey Mfg. & Electronics
Corp., a New York corporation having its principal place of business at 233
Ballston Avenue, Saratoga Springs, New York 12866 (the "Company") and Reita M.
Wojtowecz, an individual residing at 1040 Middle Line Road, Ballston Spa, New
York, 12020 (the "Employee").
WHEREAS, the Employee has been a valued employee of the Company for many years,
and is now Secretary of the Company.
NOW, TEIEREFORE, in consideration of the mutual promises and covenants set forth
herein, the parties agree as follows:
1. RESIGNATION. The Company hereby accepts her resignation as Secretary,
effective October 1, 1998, or sooner at the employees' request, at which time
the Employee shall become a non-executive officer of the Company for a period of
twenty-seven (27) months from the date of resignation.
COMPENSATION AND DUTIES. In consideration of the Employee's willingness to
continue to be reasonably available to the Company for advice and counsel after
her resignation, and to perform duties as reasonably requested by the Company,
the Employee shall receive the following compensation:
(A) The employee shall continue to receive the salary and all benefits
being received at the time of her resignation for a period of thirteen (13)
weeks, in accordance with the Company's regular payroll.
(B) At the end ofthirteen (13) pay periods the Employee's compensation will
change to $225.00 per week for the succeeding 104 weeks, and she shall receive
all current benefits as above. The Employee shall be eligible to participate in
new benefits should they occur during this period of time.
(C) It is agreed that the Employee shall be reasonably available by
telephone or otherwise to render advice and counsel, but need not be physically
present, unless her physical presence is reasonably requested by the Company.
The parties agree that the Employee need not be physically present at the
Company's offices after the date of her resignation, and that there shall be no
minimum amount of hours per week or month that the Employee must be available to
the Company. Should the Employee be required to engage in any activity not
within the scope of this agreement, she shall be reimbursed, in addition to her
weekly salary, at an hourly rate to be mutually agreed upon between an
authorized representative of the Company and herself. For ESOP and all other
benefit purposes, the Employee shall continue to be treated as a full-time
employee for the duration of this agreement to the extent consistent with the
terms of the ESOP and all applicable law.
- 65 -
<PAGE>
(D) If the Employee dies during the term of this Agreement, remaining
payments will be made, as scheduled, to the Employee's Estate. In the event of
Employee's death, all benefits shall cease at death.
3. Expenses. If the Employee is requested by the Company at any point during
the duration of this Agreement to return to Saratoga, and the Employee is then
not in the Saratoga Springs area, the Company shall pay the transportation costs
for the Employee to return. The Employee shall not be reimbursed for any other
expenses hereunder unless the Employee and the Company so agree with respect to
a specific expense.
4. Lump-Sum Pavout. If the Company chooses to pay all or any part of the
Employee's remaining payments under this Agreement prior to the date due, the
Company shall include an additional payment equal to twenty-five (25%) percent
of the amount so prepaid.
5. Term. This Agreement shall be effective as of June 30, 1998 and shall
continue in effect through and including the pay period ending One-Hundred
Seventeen (117) pay periods from the date of the Employee's resignation.
6. RESTRICTIVE COVENANT: CONIFIDENTIAL INFORMATION.
A. The Employee agrees that during the ter n of this Agreement and for a
period of five (5) years thereaRer, she shall not directly or indirectly, on
behalf of herself or on behalf of any other corporation, person or entity other
than the Company, render any services to, consult for, contract with or become
an employee, officer, director, partner, member, or (except as a five (5%)
percent or less shareholder of any publicly traded company) owner or shareholder
of, any individual or entity which engages in the Company's business or which
otherwise competes with the Company.
B. The Employee recognizes and acknowledges that there has been made
available to her confidential information concerning matters affecting or
relating to the products, services or business of the Company, its subsidiaries,
or affiliates, including, but not limited to, intellectual property, technology,
proprietary information, customer lists and other financial information,
contractual relationships, past or contemplated actions, personnel matters,
marketing or sales data and written or oral comrnunications or understandings of
any sort of the Company or of any of its customers in either tangible or
intangible form ("Confidential Information"). The Employee further recognizes
and acknowledges that this Confidential Information as it may exist from time to
time belongs to the Company and is a valuable, special and unique asset of the
Company's business. The Employee will not, during or after the term of this
Agreement, at any time, directly or indirectly, divulge, disclose or communicate
any Confidential Information to any person, firm, corporations, association or
other entity for any reason or purpose whatsoever.
- 66 -
<PAGE>
Employee will promptly deliver to the Company all copies of all Confidential
Information and all material of any nature belonging to the Company, and
Employee will not take with her any such Confidential Information, materials or
reproductions thereof or any proprietary information of the Company in tangible
or intangible form.
C. The parties agree to continue to work cooperatively and in good faith,
now and in the future, to carry out the transactions contemplated by this
Agreement and to execute any documents reasonably required to effect this
Agreement. Neither party shall disparage, defame or slander the other.
7. Successor and Assigns. This Agreement is binding upon the parties hereto,
their heirs, administrators, executors, successors and assigns.
8. Notices. Any notices, consents or information required or requested or
permitted by this Agreement shall be sent to the parties at the addresses shown
above, unless such address is changed by written notice hereunder.
9. Severabilitv. In the event any provision of this Agreement or any portion
thereof shall be deemed invalid or unenforceable for any reason, that portion or
provision shall be deemed excised from this Agreement and this Agreement shall
be governed, interpreted and enforced in all respects as if such invalid or
unenforceable provision were originally omitted from this Agreement.
10. Waiver. The waiver of any party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. Headings. The descriptive headings used in this Agreement are for purposes
of convenience only and do not constitute a part of this Agreement.
13. Entire Agreement. This Agreement is the entire agreement among the parties
regarding the subject matter hereof, and supersedes any prior agreements or
discussions.
- 67 -
<PAGE>
This AGREEMENT may not be altered or amended except in writing signed by both
parties. In the event of any conflict between this Agreement and the terms of
any of the Company' s employment policies, manuals, or other statements
regarding employment generally, now existing or hereafter promulgated, the terms
of this Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
ESPEY MFG. & ELECTRONICS CORP.
By: /s/ Howard Pinsley
NAME: Howard Pinsley
Title: President
Employee: /s/ Reita M. Wojtowecz
Reita M. Wojtowecz
- 68 -
<PAGE>
[CAPTION]
EXHIBIT 11.1
ESPEY MFG. & ELECTRONICS CORP.
Computation of per Share Earnings as
Disclosed in Item 14 of Form 10-K
Five years ended June 30, 1998
<TABLE>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Computation of earnings
per share:
Number of shares
issued at
beginning of year 1,514,937 1,514,937 1,514,937 1,514,937 1,514,937
Monthly weighted
average number of
treasury shares (403,717) (402,863) (245,470) (168,180) (164,229)
Weighted average
number of primary
shares outstanding 1,111,220 1,112,074 1,269,467 1,346,757 1,350,708
Net earnings (loss) $ (739,602) 563,128 522,737 491,767 1,343,877
Per share $(.67) .51 .41 .37 1.00
</TABLE>
- 69 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the year
ending June-30-1998 10-K filing and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 191,739
<SECURITIES> 2,400,000
<RECEIVABLES> 2,155,386
<ALLOWANCES> 0
<INVENTORY> 8,788,711
<CURRENT-ASSETS> 21,309,658
<PP&E> 12,344,139
<DEPRECIATION> 9,160,482
<TOTAL-ASSETS> 24,574,108
<CURRENT-LIABILITIES> 883,980
<BONDS> 0
<COMMON> 504,979
0
0
<OTHER-SE> 23,690,128
<TOTAL-LIABILITY-AND-EQUITY> 24,574,108
<SALES> 10,793,572
<TOTAL-REVENUES> 10,793,572
<CGS> 10,107,619
<TOTAL-COSTS> 10,107,619
<OTHER-EXPENSES> 2,436,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,154,972)
<INCOME-TAX> (415,370)
<INCOME-CONTINUING> (739,602)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (739,602)
<EPS-PRIMARY> (.67)
<EPS-DILUTED> 0
</TABLE>
