SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[ X ] Filed by the registrant
[ ] Filed by a party other than the registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
ESPEY MFG. & ELECTRONICS CORP.
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(Name of Registrant as Specified in Its Charter)
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 11, 1998
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November 9, 1998
To the Shareholders of
ESPEY MFG. & ELECTRONICS CORP.:
The Annual Meeting of Shareholders of Espey Mfg. & Electronics Corp., will
be held at the Holiday Inn, South Broadway and Route 50, Saratoga Springs, New
York, on December 11, 1998, at 9:30 a.m., Eastern Standard Time, for the
following purposes:
1. To elect two Class B directors to serve for a three year term or
until their respective successors are elected and qualify;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent public auditors for the fiscal year ending June
30, 1999;
3. To act upon a shareholder proposal, if presented at the Annual
Meeting, concerning the recommendation that the Board consider the
initiation and consummation of a merger, sale or other extraordinary
transaction; and
4. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 30, 1998,
as the record date for the purpose of determining shareholders entitled to
notice of, and to vote at, said meeting or any adjournment thereof. The books
for transfer of the Company's capital stock will not be closed.
Even if you expect to attend the meeting in person, it is urged by the
Company that you mark, sign, date and return the enclosed proxy. The proxy may
be revoked at any time before it is voted and shareholders who execute proxies
may nevertheless attend the meeting and vote their shares in person. Every
properly signed proxy will be voted as specified unless previously revoked.
By Order of the Board of Directors,
/s/PEGGY A. MURPHY
------------------
Peggy A. Murphy
Secretary
Please make your specifications and sign and date the enclosed proxy and
mail it promptly in the accompanying addressed and postage-free envelope.
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
233 Ballston Avenue
Saratoga Springs, New York 12866
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Espey Mfg. &
Electronics Corp. (the "Company") for use in voting at the Annual Meeting of the
Shareholders of the Company to be held at the Holiday Inn, South Broadway and
Route 50, Saratoga Springs, New York, on December 11, 1998, at 9:30 a.m.,
Eastern Standard Time, and at any postponement or adjournment thereof, for the
purposes set forth in the attached Notice of Meeting. It is anticipated that
this Proxy Statement and the form of proxy will be mailed on or about November
9, 1998.
Voting and Revocability of Proxies
Every properly dated, executed and returned proxy will be voted at the
Annual Meeting in accordance with the instructions of the shareholder. If no
specific instructions are given, the shares represented by such proxy will be
voted: (i) FOR the election of Class B directors nominated by the Board of
Directors; (ii) FOR ratification of the appointment of PricewaterhouseCoopers
LLP as independent public auditors of the Company for the fiscal year ending
June 30, 1999; and (iii) AGAINST Shareholder Proposal No. 1 concerning the
recommendation that the Board consider the initiation and consummation of a
merger, sale or other extraordinary transaction. Any shareholder giving a proxy
has the power to revoke it at any time prior to the voting thereof by voting in
person at the Annual Meeting, by giving written notice to the Secretary prior to
the Annual Meeting, or by signing and delivering a new proxy card bearing a
later date.
The Company has only one class of voting securities, its Common Stock, par
value $.33-1/3 per share (the "Common Stock"). Each share of Common Stock
outstanding on the record date will be entitled to one vote on all matters. In
accordance with the Company's By-Laws and applicable state law, the election of
directors will be determined by a plurality of the votes cast by the holders of
shares of Common Stock present and entitled to vote thereon, in person or by
proxy, at the Annual Meeting. Shares present which are properly withheld as to
voting with respect to any one or more nominees, and shares present with respect
to which a broker indicates that it does not have authority to vote ("broker
non-vote") will not be counted. Cumulative voting in connection with the
election of directors is not permitted. In accordance with the Company's By-Laws
and applicable state law, the affirmative vote of shares representing a majority
of the votes cast by the holders of shares present and entitled to vote is
required to approve the other matters to be voted on at the Annual Meeting.
Shares which are voted to abstain and broker non-votes are not counted as votes
cast on any matter to which they relate.
The By-Laws of the Company provide that the majority of the shares of the
Common Stock of the Company issued and outstanding and entitled to vote, present
in person or by proxy, shall constitute a quorum at the Annual Meeting. Shares
which are voted to abstain are considered as present at the Annual Meeting for
the purposes of determining a quorum. Broker non-votes are considered as not
present at the Annual Meeting for the purposes of determining a quorum.
<PAGE>
Record Date and Share Ownership
Only holders of Common Stock of record on the books of the Company at the
close of business on October 30, 1998, will be entitled to vote at the meeting.
There were outstanding and entitled to vote on October 30, 1998, 1,104,997
shares of Common Stock.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation, as amended, provides that the
Board of Directors shall consist of three classes of directors (Class A, Class B
and Class C) with overlapping three-year terms. One class of directors is to be
elected each year for a term extending to the third succeeding Annual Meeting
after such election or until their respective successors are duly elected and
qualify. The term of the three Class B directors expire at the current Annual
Meeting. The Board of Directors has nominated only two persons to stand for
election as Class B directors. The Company learned only recently that Joseph
Canterino, a Class B director whose term expires at this Annual Meeting, will
not stand for re-election. The Board of Directors did not have sufficient time
prior to this Annual Meeting to investigate and select an alternate nominee for
Class B director. Such open directorship will be filled in accordance with the
Company's By-Laws.
The votes will be cast pursuant to the enclosed proxy for the election of
each of the Class B nominees named below unless specification is made
withholding such authority. Each of the nominees is presently a director of the
Company and was previously elected a director by the shareholders. Should any of
said nominees for Class B directors become unavailable, which is not
anticipated, the proxies named in the enclosed proxy will vote for the election
of such other persons as the Board of Directors may recommend. Proxies may not
be voted for a greater number of persons than the nominees named.
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<PAGE>
The names and business experience for the past five years of the two
persons who have been nominated by the Board of Directors to stand for election
as Class B directors at the Annual Meeting and the remaining directors whose
terms are continuing until the 1999 or 2000 Annual Meeting appear below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOLLOWING
NOMINEES FOR CLASS B DIRECTOR.
<TABLE>
<CAPTION>
NOMINEES FOR CLASS B DIRECTORS -- TO SERVE AS DIRECTORS FOR
A THREE YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING
Period to
Offices and Date
Positions Held Principal Occupation Served as
Name Age with Company or Employment Director
---- --- ------------ ------------- --------
<S> <C> <C> <C> <C>
William P. Greene 68 -- Since January 2, 1998 to present, Vice 1992
President of Finance for ComCierge, LLC,
San Diego, CA, which is a corporation
engaged in the development of computer
software. Prior to his present position, he
was Vice President of Operations for
National Library of Music, which is a
corporation engaged in the development of
computer software from August, 1997, to
December 31, 1997; Vice President-
Operations of Bulk Materials International
Co., Newton, CT, which is principally
engaged in the sale of industrial minerals to
the cement producing industry; Associate
Professor of Finance and International
Business, Pennsylvania State University in
Kutztown, PA from 1991 to June, 1994
Seymour Saslow 77 Senior Vice President Prior to his election as Senior Vice 1992
President on December 6, 1996, he was
Vice President-Engineering from April 3,
1992
<CAPTION>
CLASS A DIRECTORS -- SERVING FOR A
THREE YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING
Period to
Offices and Date
Positions Held Principal Occupation Served as
Name Age with Company or Employment Director
---- --- ------------ ------------- --------
<S> <C> <C> <C> <C>
Howard Pinsley (1) 58 President and Chief Prior to his election as President and Chief 1992
Operating Officer Operating Officer on June 9, 1998, he was
Executive Vice President from December 6,
1996, and prior to that he was Vice
President-Special Power Supplies from April
3, 1992
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CLASS C DIRECTORS -- SERVING FOR A
THREE YEAR TERM EXPIRING AT THE 1999 ANNUAL MEETING
Period to
Offices and Date
Positions Held Principal Occupation Served as
Name Age with Company or Employment Director
---- --- ------------ ------------- --------
<S> <C> <C> <C> <C>
Paul J. Corr 54 -- Certified Public Accountant, who from 1992
1982 to 1993 was the managing partner of
Corr & Company, a public accounting firm
in Latham, NY; Since 1981, Professor of
Business, Skidmore College, in Saratoga
Springs, NY, currently holding the position
of Associate Professor
Barry Pinsley (1) 56 Non-Executive Officer Certified Public Accountant in Saratoga 1994
Springs, NY, who was Vice President-
Investor Relations and Human Resources
from December 6, 1996 to June 9, 1998,
and prior to that he was Vice President-
Special Projects from March 25, 1994, and
acted as a consultant to the Company for
more than the past five years
Michael W. Wool 52 -- Attorney engaged in private practice of law 1990
and partner of the law firm of Langrock,
Sperry & Wool, in Burlington, VT for
more than the past five years
</TABLE>
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(1) Barry Pinsley and Howard Pinsley are cousins. Howard Pinsley and Herbert
Potoker, Treasurer and Principal Financial Officer of the Company, are
cousins.
None of the directors holds a directorship in any other company with a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or subject to the requirements of Section 15(d) of the Securities
Act of 1933 or any company registered as an Investment Company under the
Investment Company Act of 1940.
The only individuals currently considered executive officers of the Company
not identified above are:
Herbert Potoker, 69, Treasurer and Principal Financial Officer of the
Company since September 10, 1993. During the past five years and before being
elected to his present office, he was employed by the Company on a full-time
basis in a senior financial management position.
Garry M. Jones, 58, Assistant Treasurer and Principal Accounting Officer of
the Company since August 4, 1988. He was also the Principal Financial Officer
from August 4, 1988 to September 10, 1993. Prior to being elected an officer of
the Company, Mr. Jones was employed by the Company on a full-time basis as a
Senior Accountant.
John J. Pompay, Jr., 63, Vice President-Marketing and Sales since December
6, 1996. During the past five years and before being elected to his present
position, Mr. Pompay was employed by the Company on a full-time basis as
Director of Marketing and Sales.
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<PAGE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the Company's fiscal year ended June 30, 1998, the Board of
Directors held a total of eight meetings, and each director then in office
attended at least 75% of such meetings. 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 and an additional
$500 for each meeting of the Audit Committee attended by such director as a
member of the Audit Committee. 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.
The Board has a standing Audit Committee whose members are Paul J. Corr,
Chairman, William P. Greene and Michael W. Wool. The functions of this Committee
include reviewing the engagement of the independent accountants, the scope and
timing of the audit and any non-audit services to be rendered by the independent
accountants, reviewing with the independent accountants and management the
Company's policies and procedures with respect to internal auditing, accounting
and financial controls, and reviewing the report of the independent accountants
upon completion of its audit. During the fiscal year ended June 30, 1998, the
Committee held nine meetings, and each Committee member attended at least 75% of
such meetings.
There is no standing nominating or compensation committee of the Board of
Directors, or committees performing similar functions.
COMPENSATION OF EXECUTIVE OFFICERS
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
(i) all persons serving as the Company's Chief Executive Officer (or acting in a
similar capacity), (ii) the other three highest paid executive officers of the
Company who were such as of June 30, 1998 and (iii) Barry Pinsley, for whom
disclosure would have been required but for the fact that he resigned as Vice
President-Investor Relations and Human Resources on June 9, 1998:
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Annual Compensation All Other
Principal Position Fiscal Year Salary Bonus Compensation(1)
------------------ ----------- ------ ----- ---------------
<S> <C> <C> <C> <C> <C>
Howard Pinsley (2) 1998 $120,125 $25,000 $15,961
President and 1997 $109,600 $25,000 $16,455
Chief Operating Officer 1996 $ 93,350 $20,000 $15,567
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
Herbert Potoker 1998 $113,226 $25,000 $12,314
Treasurer and 1997 $109,855 $25,000 $13,289
Principal Financial Officer 1996 $107,680 $25,000 $11,892
Barry Pinsley (3) 1998 $ 85,050 $12,000 $12,710
Former Vice President- 1997 $ 85,050 $12,000 $13,338
Investor Relations and 1996 $ 84,675 $10,000 $12,389
Human Resources
John J. Pompay, Jr. 1998 $176,297 $ 0 $12,314
Vice President-Sales 1997 $172,963 $ 0 $13,289
Joseph Canterino (3) 1998 $149,600 $25,000 $15,803
Former President and 1997 $133,880 $25,000 $16,536
Chief Executive Officer 1996 $103,180 $25,000 $15,819
</TABLE>
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<PAGE>
(1) Represents (a) the cash and market value of the shares allocated for the
respective fiscal years under the Company's Employee Retirement Plan and
Trust (the "ESOP") to the extent to which each named executive officer is
vested, and (b) directors' fees except for Mr. Potoker and Mr. Pompay.
(2) 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.
(3) Represents wages as both an executive officer and non-executive officer
during fiscal year ended 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.
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.
EMPLOYMENT CONTRACTS
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 each
<PAGE>
employee's full pay and benefits, respectively, for a period of thirteen (13)
weeks, and thereafter $1,000 per week for Messrs. Canterino, Saslow and Potoker
and $500 per week for Mr. Pinsley during the following 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.
-5-
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN
The Board of Directors of the Company adopted on June 2, 1989 effective as
of July 1, 1988, and thereafter amended and restated on June 30, 1994, an
Employee Retirement Plan and Trust (the "ESOP") to provide retirement benefits
to eligible employees of the Company including officers and to enable such
employees to share in the ownership of the Company. The ESOP used the proceeds
of a loan from the Company to purchase on June 5, 1989 from the Company 316,224
shares of the Company's Common Stock for approximately $8.4 million and the
Company on the same date contributed $397,500 to the ESOP which was used by the
ESOP to purchase from the Company 15,000 shares of the Company's Common Stock.
The loan from the Company to the ESOP is repayable in annual installments of
$1,039,065 including interest at the rate of 9% per annum through June 30, 2004.
The assets of the ESOP are intended to be invested primarily in Common
Stock of the Company and it is intended that at all times the ESOP will
constitute a qualified plan under the Internal Revenue Code. By providing its
employees with a convenient vehicle for accumulating capital for their future
economic security, the Company believes that the ESOP will assist it in
attracting and retaining capable personnel.
All employees of the Company, other than those covered under a collective
bargaining agreement, who have completed one year of service and are 21 years or
older, are eligible to participate in the ESOP. For each plan year the Company's
contributions may be paid to the trustee of the ESOP in such amount as may be
determined by the Board of Directors, provided, however, that the Company has
agreed to make contributions sufficient to discharge the ESOP's loan obligations
with respect to its aforementioned purchase of the Company's Common Stock.
Contributions by the Company may be paid in cash or in shares of Common Stock of
the Company. No participant is required or permitted to make contributions to
the ESOP.
With each principal and interest payment made by the ESOP on the loan
obligation, a portion of the Company's Common Stock purchased with such loan
proceeds will be allocated to participating employees. The allocation of the
Company stock for any plan year will be credited to each participant's account
on the basis of the ratio of such participant's compensation (up to a maximum of
$100,000) to the aggregate compensation of all participants in the ESOP for such
plan year; provided, however, that for each plan year the annual allocation with
respect to any participant may not exceed the lesser of 25% of compensation or
$30,000. In addition, a participant's account will be credited annually with a
share of the investment earnings and losses of the ESOP, allocated in a manner
similar to the above. Forfeitures will likewise be allocated among the remaining
participants in a similar manner.
As of June 30, 1998, there were 150,989 shares of the Company's Common
Stock in the ESOP allocated to participants, of which 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.
<PAGE>
The trustee for the ESOP will vote the shares of the Company's Common Stock
in accordance with instructions received from participants with respect to
shares allocated to their respective accounts, and in accordance with
instructions received from the plan administrator appointed by the Company with
respect to shares not allocated to participants and with respect to shares
allocated to participants for which voting instructions are not received from
participants.
Generally, no benefits are vested until the completion of three continuous
years of service with the Company, as defined by the plan. At that time a
participant's interest will be 20% vested; such vested interest will increase by
20% for each additional year of continuous service and will reach 100% after
seven years. Upon death or upon attaining Normal Retirement Age, a participant
will become 100% vested.
At retirement, termination, death or permanent disability, a participant
will be entitled to his or her vested benefit. Distribution of vested benefits
will be made in accordance with the terms of the plan and in accordance with the
Internal Revenue Code. Subject to certain exceptions, distributions must begin
no later than April 1 following the calendar year in which the participant
reaches age 70-1/2, even if the participant does not retire.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
The following table sets forth information regarding ownership of the
Company's outstanding Common Stock as of October 21, 1998 by each person or
group who is known to the Company to be the beneficial owner of more than five
percent of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
Amount and Percent
Name of Nature of of
Beneficial Owner Beneficial Ownership Class
---------------- -------------------- -----
<S> <C> <C>
Sol Pinsley 73,261.00 -Direct (1) 6.7350%
P.O. Box 422 1,169.71 -Indirect (1)
Saratoga Springs, NY 12866
Dimensional Fund Advisors Inc. 74,400.00 -Direct (2) 6.7332%
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
The Adirondack Trust Company, 277,061.00 -Direct (4) 25.0739%
as Trustee of the Company's Employee
Retirement Plan and Trust
473 Broadway
Saratoga Springs, NY 12866
</TABLE>
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(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 a
<PAGE>
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 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.
-7-
<PAGE>
(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 October 21, 1998, 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>
<CAPTION>
Amount and
Name and Nature of Percent
Address of Beneficial of
Beneficial Owner Ownership Class
---------------- --------- -----
<S> <C> <C>
Paul J. Corr 500.00 -Direct .0452%
William P. Greene 100.00 -Direct .0090%
Michael W. Wool 100.00 -Direct .0090%
Seymour Saslow 351.00 -Direct .4595%
5,123.71 -Indirect (1)
Joseph Canterino 7,500.00 -Direct 1.1740%
5,474.71 -Indirect (1)
John J. Pompay, Jr. 5,474.71 -Indirect (1) .4954%
Howard Pinsley 41,134.00 -Direct 4.189%
5,155.73 -Indirect (1)
Barry Pinsley 2,100.00 -Direct (2) .7544%
6,236.40 -Indirect (1)(3)
Herbert Potoker 6,490.00 -Direct (4) 1.0828%
5,474.71 -Indirect (1)
Garry M. Jones 2,581.88 -Indirect (1) .23365%
Officers and Directors as a Group 58,275.00 -Direct 8.4884%
35,521.85 -Indirect (5)
</TABLE>
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(1) 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.
<PAGE>
(2) Excludes 2,000 shares owned by Barry Pinsley's spouse, as to which
beneficial ownership is disclaimed by Mr. Pinsley.
(3) Includes 4,200 shares owned by a testamentary trust of Ruth Pinsley, the
deceased spouse of Sol Pinsley, former President and Chief Executive
Officer, and most recently, a non-executive officer until his resignation
effective October 30, 1998. 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.
(4) Includes 300 shares owned by Herbert Potoker's spouse, as to which
beneficial ownership is disclaimed by Mr. Potoker.
(5) Includes 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.
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<PAGE>
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 three (Seymour Saslow, 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.
BOARD OF DIRECTORS' PROPOSAL TO RATIFY
APPOINTMENT OF INDEPENDENT PUBLIC AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
recommended the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ending June 30, 1999.
PricewaterhouseCoopers LLP was engaged by the Company on October 23, 1998. Also
upon the recommendation of the Audit Committee, on October 23, 1998, the Board
notified KPMG Peat Marwick LLP, the Company's independent auditors for the
fiscal year ended June 30, 1998, that the Company would not engage them as
independent auditors for the fiscal year ending June 30, 1999. During the
Company's two most recent fiscal years and the subsequent interim period
preceding such dismissal, there were no disagreements with KPMG Peat Marwick LLP
regarding any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
Unless otherwise specified by the shareholders, the shares represented by
their properly executed proxies will be voted for ratification of the
appointment of PricewaterhouseCoopers LLP as independent auditors for the fiscal
year ending June 30, 1999. The Company is advised by said firm that neither
PricewaterhouseCoopers LLP nor any of its partners now has, or during the past
three years had, any direct financial interest or material indirect financial
interest or any connection with the Company.
<PAGE>
A representative of PricewaterhouseCoopers LLP is expected to be present at
the Annual Meeting with the opportunity to make a statement if he or she desires
to do so and to be available to respond to appropriate questions from
shareholders. A representative of KPMG Peat Marwick LLP is expected to be
present at the Annual Meeting with the opportunity to make a statement if he or
she desires to do so and to be available to respond to appropriate questions
from shareholders with respect to services it has provided for the fiscal year
ended June 30, 1998, and the interim period until the engagement of
PricewaterhouseCoopers LLP.
For the fiscal year ended June 30, 1998, the only professional services
provided by KPMG Peat Marwick LLP to the Company were audit services, tax
services and services in connection with the audit of the ESOP. The only fees
paid by the Company to KPMG Peat Marwick LLP were for the foregoing services.
The Audit Committee has approved this change of the Company's independent
auditors. If the stockholders do not ratify the appointment of
PricewaterhouseCoopers LLP the Board will consider other independent auditors
upon recommendation of the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE
COMPANY FOR FISCAL YEAR ENDING JUNE 30, 1999.
-9-
<PAGE>
SHAREHOLDER PROPOSAL
There is one proposal submitted by a shareholder, which if the proponent
presents at the Annual Meeting, will be acted upon at the Annual Meeting. THE
BOARD OF DIRECTORS, FOR THE REASONS STATED BELOW, RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
PROPOSAL NO. 1
Proposal No. 1, submitted by Gary L. Sample, 224 N. Duke Street, Lancaster,
PA 17602, as owner of 100 shares of Common Stock, together with its supporting
statement, is as follows:
Proposal
RESOLVED, that the shareholders of Espey Manufacturing and Electronics
present or voting by proxy at the 1998 annual meeting hereby recommend to the
Board of Directors that such Board initiate and complete the steps necessary to
achieve a sale, merger, management buyout or other restructuring of Espey
Manufacturing and Electronics on terms that will maximize and realize
shareholder value as promptly as possible.
Proponent's Supporting Statement
I believe the value that may be achieved for stockholders of Espey
Manufacturing and Electronics by a corporate form event or action is
significantly greater than the current market price of our common stock.
Consider the following financials of our company keeping in mind this
proposal was submitted to management before July 8, 1998:
1. Tangible book value per share was $21.08 as of March 31, 1998. That
value consisted of cash and short term investments of $10,226,097 or
$9.20 per share. Current working capital was $21,171,880 or $19.05 per
share.
2. The market price of the common stock on June 30, 1998 was $14.00 per
share.
3. Management has taken sales from 15 million in 1990 to 15.2 million
in 1997. Can anyone figure that annual growth rate? It would appear
sales will plummet this fiscal year due to "significant delays in the
awarding of contracts." Recently, two executives resigned for "personal
reasons." Are there philosophical differences between the Board and
management?
4. Earnings per share were $1.79 in 1990 and seven years later they
registered $.51. Once again, that is a very stellar growth rate.
5. Return on assets was a respectable 11.2% in 1990 and a dismal 2.2%
in 1997. The average annual return over eight years is 5.5% which is
totally unacceptable in the current economic environment.
6. Return on shareholder equity was 12.1% in 1990 and 2.3% in 1997.
That may explain why on December 31, 1990 the stock closed at $12.00
per share and presently trades in the $14.00 range. The average annual
return per year including dividends from 1990 through 1997 inclusive is
4.6%. This could be easily ascertained if there was a performance graph
in previous proxy statements.
<PAGE>
I believe the Company's business and stock market record demonstrates
management's apathy toward shareholder need for a competitive return on
investment. If the present Board and management cannot maximize the return on
stockholders' investment, the best interest of the majority Espey shareholders
will be served by the sale, merger or other restructuring of our Company and I
recommend that you vote "FOR" this proposal.
Management Statement on Proposal
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL NO. 1 FOR THE
FOLLOWING REASONS:
The Board has already met with a nationally recognized investment bank
regarding strategies for maximizing shareholder value, and plans to continuing
exploring those strategies. The Company has also implemented a management
succession plan, resulting in a transformation among the ranks of its officers
and directors.
-10-
<PAGE>
The proposal recommends not only that the Board undertake an extraordinary
corporate transaction, but also that the same be completed "as promptly as
possible." If it is determined that a merger, sale or similar transaction is in
the best interests of shareholders, transaction negotiations should be conducted
deliberately and from a position of strength. In the opinion of management, the
adoption of the proposal would create a perception of urgency and would
significantly undermine the Company's ability to effectively carry out the
selected strategy and its ongoing business operations. Your Board remains
committed to its practice of diligently evaluating alternatives aimed at
maximizing shareholder value.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, generally
requires the Company's directors, executive officers, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of beneficial ownership and changes in beneficial ownership with
the Securities and Exchange Commission. Based solely upon its review of copies
of such reports received by it, or upon written representations obtained from
certain reporting persons, the Company believes that its officers, directors,
and stockholders who own more than ten percent of the Company's equity
securities have complied with all Section 16(a) filing requirements except that
one report covering one transaction was filed late by Joseph Canterino.
ANNUAL REPORTS
The Annual Report of the Company to the shareholders for the fiscal year
ended June 30, 1998, including financial statements, accompanies this Proxy
Statement. Such financial statements are not incorporated herein by reference.
A copy of the Company's Annual Report on Form 10-K (including financial
statements and schedules thereto) for the fiscal year ended June 30, 1998 filed
with the Securities and Exchange Commission will be provided without charge upon
the written request of shareholders to Espey Mfg. & Electronics Corp.,
attention: Secretary, 233 Ballston Avenue, Saratoga Springs, New York 12866.
Copies of Exhibits to Form 10-K for the fiscal year ended June 30, 1998 will be
provided upon request upon payment of a reasonable fee.
SHAREHOLDER PROPOSALS FOR 1999
ANNUAL MEETING
Any shareholder proposal which may be a proper subject for inclusion in the
proxy statement and for consideration at the 1999 Annual Meeting must be
received by the Company at its principal executive office no later than August
7, 1999, if it is to be included in the Company's 1999 proxy statement and proxy
form.
OTHER MATTERS
Proxy Solicitation
The solicitation of the enclosed proxy is being made on behalf of the Board
of Directors and the cost of preparing and mailing the Notice of Meeting, Proxy
Statement and form of proxy to shareholders is to be borne by the Company.
<PAGE>
Other Matters
The Company is unaware of any other matter that will be brought before the
meeting for action. If other matters should come before the meeting which
require a shareholder vote, it is intended that the proxy holders will use their
own discretion in voting on such other matters.
By Order of the Board of Directors,
/s/HOWARD PINSLEY
-----------------
Howard Pinsley
President and Chief
Operating Officer
November 9, 1998
Saratoga Springs, New York
-11-
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ESPEY MFG. & ELECTRONICS CORP.
PROXY FOR THE
1998 ANNUAL MEETING OF SHAREHOLDERS
December 11, 1998
The undersigned hereby appoints Howard Pinsley and Barry Pinsley as Proxies,
each with the power to appoint his substitute, and hereby authorizes them or any
one of them to represent and to vote, as designated below, all the shares of
common stock of ESPEY MFG. & ELECTRONICS CORP. which the undersigned would be
entitled to vote if personally present at the 1998 Annual Meeting of
Shareholders to be held on December 11, 1998 or any adjournment thereof.
1. ELECTION OF CLASS B DIRECTORS
[ ] FOR all nominees listed below
(except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY
to vote for all nominees listed below
WILLIAM P. GREENE SEYMOUR SASLOW
Management recommends a vote FOR these nominees.
INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
"FOR" box above AND write the nominee's name in the space provided below.
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2. PROPOSAL TO APPROVE THE APPOINTMENT OF PricewaterhouseCoopers LLP as the
independent public auditors of the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Management recommends a vote FOR this proposal.
3. SHAREHOLDER PROPOSAL NO. 1 concerning the recommendation that the Board
consider the initiation and consummation of a merger, sale or other
extraordinary transaction.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Management recommends a vote AGAINST this proposal.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
Please be sure to sign and date
this Proxy in the box below.
_________________________________________
Date
_________________________________________
Stockholder sign above
_________________________________________
Co-holder (if any) sign above
Fold card here, sign, date and mail in postage paid envelope provided.
ESPEY MFG. & ELECTRONICS CORP.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE ABOVE SIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2 AND AGAINST PROPOSAL 3.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporation name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
