SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Penn Engineering & Manufacturing Corp.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
.......................................................
2) Aggregate number of securities to which transaction applies:
.......................................................
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
.......................................................
4) Proposed maximum aggregate value of transaction:
.......................................................
5) Total fee paid:
......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
the Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously.
<PAGE>
Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ______________________________________
2) Form, Schedule or Registration Statement No.: ________________
3) Filing Party:_________________________________________________
4) Date Filed: __________________________________________________
<PAGE>
PRELIMINARY COPY
PENN ENGINEERING & MANUFACTURING CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, MAY 22, 1996
TO THE STOCKHOLDERS OF PENN ENGINEERING & MANUFACTURING CORP.:
The Annual Meeting of Stockholders of Penn Engineering & Manufacturing
Corp. (hereinafter called the "Company") will be held on Wednesday, May 22, 1996
at 2:00 p.m., local time, at the offices of the Company, Plant #2, Old Easton
Road, Danboro, Pennsylvania 18916, for the following purposes:
1. To elect three Class B Directors of the Company to hold office until
the Annual Meeting of Stockholders to be held in 1999 and until their successors
are duly elected;
2. To elect one Class A Director of the Company to hold office until
the Annual Meeting of Stockholders to be held in 1998 and until his successor is
duly elected;
3. To consider and vote upon a proposal to elect Deloitte & Touche LLP
as auditors for the Company for its 1996 fiscal year;
4. To consider and vote upon a proposal to amend Article IV of the
Company's Certificate of Incorporation (the "Amendment") to (i) reclassify the
Company's existing Common Stock as Class A Common Stock, (ii) authorize a new
class of non-voting common stock designated as Common Stock, (iii) increase the
number of authorized shares of capital stock from 3,000,000 shares to 23,000,000
shares consisting of 20,000,000 shares of Common Stock and 3,000,000 shares of
Class A Common Stock and (iv) establish the rights, powers and limitations of
the Common Stock and the Class A Common Stock, all as more specifically
described in this Proxy Statement;
5. To consider and vote upon the adoption of the Company's 1996 Equity
Incentive Plan;
6. To consider and vote upon the adoption of the Company's 1996
Employee Stock Purchase Plan; and
7. To transact such other business as may properly come before the
Annual Meeting and any adjournment, postponement or continuation thereof.
The Board of Directors has fixed the close of business on April 15,
1996 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting. A copy of the Company's Annual Report for
1995 is being mailed with this Notice.
<PAGE>
If you do not expect to attend the Annual Meeting in person, please
fill in, sign, and return the enclosed form of proxy in the enclosed envelope to
Chemical Mellon Shareholder Services, L.L.C.
By Order of the Board of Directors,
Kenneth A. Swanstrom
Chairman of the Board
Date: April 29, 1996
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PENN ENGINEERING & MANUFACTURING CORP.
PROXY STATEMENT
This Proxy Statement and the form of proxy enclosed herewith, which are
first being mailed to stockholders on or about April 29, 1996, are furnished in
connection with the solicitation by the Board of Directors of Penn Engineering &
Manufacturing Corp. (the "Company") of proxies to be voted at the Annual Meeting
of Stockholders (the "Annual Meeting") to be held on Wednesday, May 22, 1996 at
2:00 p.m., local time, and at any adjournment, postponement or continuation
thereof, at Plant #2, Old Easton Road, Danboro, Pennsylvania 18916. The
Company's principal executive offices are located at Plant #1, Old Easton Road,
Danboro, Pennsylvania 18916.
Shares represented by proxies in the accompanying form, if properly
signed and returned, will be voted in accordance with the specifications made
thereon by the stockholders. Any proxy not specifying to the contrary will be
voted for the election of the nominees for Class B Director named below, for the
election of the nominee for Class A Director named below and in favor of the
proposals referred to in the Notice of Annual Meeting. A stockholder who signs
and returns a proxy in the accompanying form may revoke it at any time before it
is voted by giving written notice of revocation or a duly executed proxy bearing
a later date to the Secretary of the Company or by attending the Annual Meeting
and voting in person.
The cost of solicitation of proxies in the accompanying form will be
borne by the Company, including expenses in connection with preparing and
mailing this Proxy Statement. Such solicitation will be made by mail and may
also be made on behalf of the Company by the Company's regular officers and
employees, none of whom will receive special compensation for such services. The
Company, upon request therefor, will reimburse brokers, nominees, fiduciaries
and custodians and persons holding shares in their names or in the names of
nominees for their reasonable expenses in sending proxies and proxy material to
beneficial owners.
Only holders of Common Stock of record at the close of business on
April 15, 1996 will be entitled to notice of and to vote at the Annual Meeting.
As of April 15, 1996, the Company had outstanding 1,707,082 shares of Common
Stock, each of which is entitled to one vote. Cumulative voting rights do not
exist with respect to the election of directors.
As of April 15, 1996, certain stockholders listed in the table herein
under "Beneficial Ownership of Common Stock -- Principal Beneficial Owners of
Common Stock" beneficially owned
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in the aggregate 894,890 shares, or approximately 52.4%, of the Company's
outstanding Common Stock. Such stockholders have advised the Company that they
will vote their shares for the election of Kenneth A. Swanstrom, Lewis W. Hull
and Mark W. Simon as Class B Directors, for the election of Frank S. Hermance as
a Class A Director, for the election of Deloitte & Touche LLP as the Company's
auditors for 1996, for the adoption of the Amendment to the Company's
Certificate of Incorporation, for the adoption of the Company's 1996 Equity
Incentive Plan, and for the adoption of the Company's 1996 Employee Stock
Purchase Plan. Accordingly, Messrs. Swanstrom, Hull and Simon will be elected as
Class B Directors, Mr. Hermance will be elected as a Class A Director, Deloitte
& Touche LLP will be elected as auditors for the Company for 1996, the Amendment
to the Company's Certificate of Incorporation will be approved, the proposal to
adopt the Company's 1996 Equity Incentive Plan will be approved, and the
proposal to adopt the Company's 1996 Employee Stock Purchase Plan will be
approved regardless of the votes of the Company's stockholders other than those
listed in such table.
BENEFICIAL OWNERSHIP OF COMMON STOCK
Principal Beneficial Owners of Common Stock
The following table sets forth, as of March 1, 1996, the amount and
percentage of the Company's outstanding Common Stock beneficially owned by (i)
each person who is known by the Company to own beneficially more than 5% of its
outstanding Common Stock, (ii) each director and nominee for director, (iii)
each executive officer named in the Summary Compensation Table and (iv) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Shares of
Common Stock Percent of
Name of Individual Beneficially Outstanding
or Identify of Group Owned(1) Common Stock(1)
- -------------------- ------------- ---------------
<S> <C> <C>
5% Holders:
Kenneth A. Swanstrom
P.O. Box 1000
Danboro, PA 18916
Individually(2) 244,641 14.3%
Trust under the Will of 62,975 3.7%
Gladys Swanstrom(3)
Trusts Under the Will of 98,472 5.8%
Klas A. Swanstrom(3)
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Daryl L. Swanstrom
P.O. Box 2249
Peachtree City, GA 30269
Individually(4) 182,359 10.7%
Trust Under Item Fourth 54,240 3.2%
of the Will of Lawrence
W. Swanstrom(5)
Trust under Item Fifth 138,883 8.1%
of the Will of Lawrence
W. Swanstrom(5)
Thomas M. Hyndman, Jr.(6)
c/o Duane, Morris & Heckscher
4200 One Liberty Place
Philadelphia, PA 19103-7396
Individually 570 --
Trust under the Will of 62,975 3.7%
Gladys Swanstrom(3)
Trusts Under the Will of 98,472 5.8%
Klas A. Swanstrom(3)
Trust Under Item Fourth 54,240 3.2%
of the Will of Lawrence
W. Swanstrom(5)
Trust under Item Fifth 138,883 8.1%
of the Will of Lawrence
W. Swanstrom(5)
Trust under Deed of Klas A. 57,750 3.4%
Swanstrom dated 6/12/73(7)
First Union Corporation of 114,455 6.7%
New Jersey(8)
550 Broad Street
Newark, NJ 07102
Quest Advisory Corp.(9) 174,850 10.2%
Quest Management Company
1414 Avenue of the Americas
New York, NY 10019
Lazard Freres & Co. (10) 116,000 6.8%
30 Rockefeller Plaza
New York, NY 10020
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Dimensional Fund Advisors Inc.(11) 86,300 5.1%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Directors(12):
Willard S. Boothby, Jr. 400 *
Frank S. Hermance -- *
Lewis W. Hull 1,000 *
Maurice D. Oaks -- *
Mark W. Simon 100 *
Executive Officers(13):
Richard B. Ernest 5,230(14) *
Martin J. Bidart 100(15) *
Raymond L. Bievenour 100 *
All Executive Officers and
Directors as a Group 902,820 52.9%
(13 persons)
</TABLE>
* Less than 1%.
(1) Under the rules of the Securities and Exchange Commission (the
"Commission"), a person is deemed to be the beneficial owner of securities
if such person has, or shares, "voting power" (which includes the power to
vote, or to direct the voting of, such securities) or "investment power"
(which includes the power to dispose, or to direct the disposition, of such
securities). Under these rules, more than one person may be deemed the
beneficial owner of the same securities. The information set forth in the
above table includes all shares of Common Stock of the Company over which
the above named persons individually or together share voting power or
investment power adjusted, however, to eliminate the reporting of shares
more than once in order not to overstate the aggregate beneficial ownership
of such persons.
(2) Under the rules of the Commission, the maximum beneficial ownership of the
Company's Common Stock which Kenneth A. Swanstrom could be deemed to have
is 406,088 shares, or 23.8%, of the Company's outstanding Common Stock. Of
these shares, Mr. Swanstrom has sole voting and dispositive power with
respect to 240,174 shares and shared voting and dispositive power with
respect to 62,975 shares held in the Trust under the Will of Gladys
Swanstrom and 98,472 shares held in the Trusts under the
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Will of Klas A. Swanstrom. Of the total shown as held individually, 3,767
shares are owned by Mr. Swanstrom's wife and 700 shares are owned by his
daughters. Mr. Swanstrom disclaims beneficial ownership of the shares held
by his wife and daughters.
(3) The Trustees are Kenneth A. Swanstom, Thomas M. Hyndman, Jr., and PNC Bank.
(4) Under the rules of the Commission, the maximum beneficial ownership of the
Company's Common Stock which Daryl L. Swanstrom could be deemed to have is
375,482 shares, or 22.0%, of the Company's outstanding Common Stock. Of
this total, Mrs. Swanstrom has sole voting and dispositive power with
respect to 182,359 shares and shared voting and dispositive power with
respect to 54,240 shares held in the Trust under Item Fourth of the Will of
Lawrence W. Swanstrom and 138,883 shares held in the Trust under Item Fifth
of the Will of Lawrence W. Swanstom. Pursuant to an agreement between Mrs.
Swanstrom and the Company, which expires December 31, 2006, Mrs. Swanstrom
has agreed not to sell or otherwise transfer or dispose of any shares of
the Company's Common Stock owned by her or that she may acquire without
first offering to sell such shares to the Company. The purchase price upon
exercise of the option by the Company to buy such shares will be the higher
of the market price on the day prior to the day such shares are offered to
the Company, or the price offered by a third party for such shares.
(5) The Trustees are Daryl L. Swanstrom, Thomas M. Hyndman, Jr., and
NationsBank of Georgia, N.A.
(6) Under the rules of the Commission, the maximum beneficial ownership of the
Company's Common Stock which Thomas M. Hyndman, Jr., could be deemed to
have is 412,890 shares, or 24.2%, of the Company's outstanding Common
Stock. Of these shares, Mr. Hyndman has sole voting and dispositive power
with respect to 570 shares and shared voting and dispositive power with
respect to the 54,240 shares held in the Trust under Item Fourth of the
Will of Lawrence W. Swanstrom, 138,883 shares held in the Trust under Item
Fifth of the Will of Lawrence W. Swanstrom, 62,975 shares held in the Trust
under the Will of Gladys Swanstrom, 57,750 shares held under the Trust
under Deed of Klas A. Swanstrom dated 6/12/73 and 98,472 shares held in the
Trusts under the Will of Klas A. Swanstrom.
(7) The Trustees are Thomas M. Hyndman, Jr., and First Union Corporation of New
Jersey.
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<PAGE>
(8) Under the rules of the Commission, the maximum beneficial ownership of the
Company's Common Stock which First Union Corporation of New Jersey could be
deemed to have is 114,455 shares, or 6.7%, of the Company's outstanding
Common Stock, of which 57,750 shares are held under the Trust under Deed of
Klas A. Swanstrom dated 6/12/73 with voting power shared with Thomas M.
Hyndman, Jr., 38,500 shares are held under the Trust under Deed of Klas A.
Swanstrom dated 9/26/66 and 16,500 shares are held under the Trust under
Deed of Gladys Swanstrom dated 9/26/66.
(9) According to Amendment No. 7 to a Schedule 13G dated February 14, 1996
filed by Quest Advisory Corp., a New York corporation ("Quest"), Quest
Management Company ("QMC") and Charles M. Royce, Quest, QMC and Mr. Royce
reported as a "group" pursuant to Rule 13d-1(b)(ii)(H) of the Securities
Exchange Act of 1934 (the "Exchange Act") with respect to these shares.
According to such Amendment, Quest has sole voting and dispositive power
with respect to 165,650 of these shares, and QMC has sole voting and
dispositive power with respect to 9,200 of these shares. Mr. Royce may be
deemed to be a controlling person of Quest and QMC and as such may be
deemed to beneficially own the shares of Common Stock beneficially owned by
Quest and QMC. Mr. Royce does not own any shares outside of Quest and QMC
and disclaims beneficial ownership of the shares held by Quest and QMC.
(10) According to Amendment No. 1 to a Schedule 13G dated February 14, 1996,
Lazard Freres & Co., a registered investment advisor, is deemed to have
beneficial ownership of 116,000 shares of the Company's Common Stock.
(11) According to Amendment No. 2 to a Schedule 13G dated January 31, 1995,
Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 86,300 shares of the
Company's Common Stock as of December 31, 1994, all of which shares are
held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of 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, for
all of which Dimensional serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(12) Excludes directors listed under "5% Holders."
(13) Excludes executive officers listed under "5% Holders" or "Directors."
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<PAGE>
(14) Of these shares, 1,500 are held jointly with Mr. Ernest's sister.
(15) These shares are owned jointly with Mr. Bidart's wife.
ELECTION OF DIRECTORS
At the Annual Meeting, three Class B Directors will be elected for
a term expiring at the 1999 Annual Meeting of Stockholders and when their
successors have been duly elected, and one Class A Director will be elected for
a term expiring at the 1998 Annual Meeting of Stockholders and when his
successor has been duly elected. The other Class A Director and the Class C
Directors will continue in office for the remainder of their respective terms
shown below. Under the Company's By-laws, the number of directors constituting
the entire Board of Directors is determined by the Board of Directors, but such
number may not be less than three nor more than twelve. The Board of Directors
has currently fixed the number of members of the Board of Directors at eight.
Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the election of the nominees for Class A and Class
B Director listed below, each of whom is currently a director of the Company. If
any nominee becomes unavailable for any reason, it is intended that votes will
be cast for a substitute nominee designated by the Board of Directors. The Board
of Directors believes that the nominees named will be able to serve if elected.
Any vacancy on the Board of Directors for any reason may be filled by the
affirmative vote of 80% of the directors then in office. The three nominees for
Class B Director and the nominee for Class A Director receiving the highest
number of votes cast at the Annual Meeting will be elected. Shares held by
brokers or nominees as to which the broker or nominee does not have
discretionary voting power, i.e., broker non-votes, will be treated as not
present and not entitled to vote with respect to the election of directors.
Abstentions and broker non-votes on the election of the directors will have no
effect since they will not represent votes cast at the Annual Meeting for the
purpose of electing directors.
Certain information with respect to the Class B nominees, the
Class A nominee and each Class A Director and Class C Director continuing in
office following the Annual Meeting is as follows:
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<PAGE>
NOMINEES FOR CLASS B DIRECTORS
<TABLE>
<CAPTION>
Principal Occupation Director
Name Age for Past Five Years Since Class
- ---- --- --------------------- -------- -----
<S> <C> <C> <C> <C>
Kenneth A. Swanstrom............... 56 Chairman, President and 1970 Class B; Term
Chief Executive Officer of expires 1999*
the Company; formerly Chief
Operating Officer until
August 1993
Lewis W. Hull...................... 79 Chairman, Hull Corporation; 1974 Class B; Term
(1)(2)(3) manufacturer of freeze-dryer expires 1999*
and injection-molding
equipment
Mark W. Simon...................... 57 Vice President-Finance and 1983 Class B; Term
Chief Financial Officer of expires 1999*
the Company
</TABLE>
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* If elected at the Annual Meeting
NOMINEE FOR CLASS A DIRECTOR
<TABLE>
<CAPTION>
Principal Occupation Director
Name Age for Past Five Years Since Class
- ---- --- --------------------- -------- -----
<S> <C> <C> <C> <C>
Frank S. Hermance 47 Executive Vice President and 1996 Class A; Term
Chief Operating Officer of expires 1998*
Ametek, Inc. and President
of its Precision Instrument
Group
</TABLE>
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* If elected at the Annual Meeting
DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
Principal Occupation Director
Name Age for Past Five Years Since Class
- ---- --- --------------------- -------- -----
<S> <C> <C> <C> <C>
Class A Director
Maurice D. Oaks(1)................. 62 Retired; Vice President of 1994 Class A; Term
Worldwide Operations expires 1998
Planning of Bristol-Myers
Squibb from October 1990 to
October 1992; from July 1989
to September 1990, Executive
Vice President of Squibb
Pharmaceutical Group, U.S.;
manufacturer of
pharmaceuticals
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Principal Occupation Director
Name Age for Past Five Years Since Class
- ---- --- --------------------- -------- -----
Class C Directors
<S> <C> <C> <C> <C>
Willard S. Boothby,................ 74 Former Managing Director, 1984 Class C; Term
Jr.(1)(2)(4) PaineWebber Incorporated; expires 1997
brokerage services
Thomas M. Hyndman,Jr............... 71 Of Counsel since 1993, 1974 Class C; Term
(1)(2)(5) Partner (1957-1992), Duane, expires 1997
Morris & Heckscher,
Attorneys and Counsel to the
Company
Daryl L. 49 President, Engineered 1987 Class C; Term
Swanstrom(2)(6).................... Components/Spyraflo, Inc.; expires 1997
distributor of electronic
components
</TABLE>
- -------------------
(1) Member of the Audit Committee. The Audit Committee is appointed annually by
the Board of Directors to recommend the selection of independent auditors,
review the scope and results of the audit, review the adequacy of the
Company's accounting, financial and operating controls and supervise
investigations. During 1995, the Audit Committee held three meetings.
(2) Member of the Compensation Committee. The Compensation Committee is
appointed annually by the Board of Directors to recommend to the Board of
Directors remuneration for senior management, adoption of compensation
plans in which officers are eligible to participate, the administration of
the Company's 1996 Equity Incentive Plan and the Company's 1996 Employee
Stock Purchase Plan and related matters. During 1995, the Compensation
Committee held one meeting.
(3) Mr. Hull is also a director of Willow Grove Federal Savings Bank.
(4) Mr. Boothby is also a director of Georgia-Pacific Corporation and The
Glenmede Fund, Inc.
(5) Mr. Hyndman is also a director of Rochester & Pittsburgh Coal Company.
(6) Mrs. Swanstrom was the wife of Kenneth A. Swanstrom's late brother,
Lawrence W. Swanstrom.
During 1995, the Company's Board of Directors held five meetings.
None of the directors attended fewer than 75% of the aggregate of the total
number of meetings of the Board of Directors plus the total number of meetings
of all committees of the Board of Directors on which such director served that
were
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held during 1995. The Company's Board of Directors does not have
a nominating committee.
EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth certain information with respect to
compensation paid or accrued by the Company in each of the last three years to
the Company's Chief Executive Officer and the four other most highly compensated
executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------- All Other
Name and Principal Position Year Salary($) Bonus($) Compensation(1)
--------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Kenneth A. Swanstrom, Chairman, 1995 $270,000 $129,416 $17,680
President and Chief Executive Officer 1994 250,000 122,662 17,100
1993 220,000 74,502 22,979
Mark W. Simon, Vice President - 1995 $158,000 $47,281 $16,672
Finance and Corporate Secretary 1994 146,000 43,841 15,764
1993 140,000 34,028 14,518
Martin J. Bidart, Vice President - 1995 $140,000 $41,825 $14,810
Manufacturing 1994 130,000 37,794 13,720
1993 125,000 30,601 13,175
Raymond L. Bievenour, Vice President 1995 $140,000 $41,825 $14,518
- - Marketing/Sales 1994 130,000 37,794 13,461
1993 125,000 30,601 12,932
Richard B. Ernest, Vice President - 1995 $130,000 $38,838 $14,123
Quality 1994 127,500 33,083 13,838
1993 123,250 26,424 12,957
</TABLE>
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(1) Includes amounts of Company contributions for 1995 to the Company's
Profit-Sharing Plan, as follows: Kenneth A. Swanstrom, $15,000; Mark W.
Simon, $15,000; Martin J. Bidart, $14,000; Raymond L. Bievenour, $14,000;
and Richard B. Ernest, $13,000. The amounts set forth were expensed during
the Company's 1995 fiscal year for financial reporting purposes under the
Company's Profit-Sharing Plan, which covers all of its United States
eligible employees, including officers, whose length of employment
qualified them to participate. The Company's contribution to the
Profit-Sharing Plan for each year is allocated among the participants in
proportion to their compensation for that year. Also included in these
amounts are insurance premiums paid by the Company in 1995 for the benefit
of such persons, as follows: Kenneth A. Swanstrom, $1,980; Mark W. Simon,
$972; Martin J. Bidart, $810; Raymond L. Bievenour, $518; and
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<PAGE>
Richard B. Ernest, $1,123. The total also includes directors fees of $700
paid to Mr. Swanstrom and Mr. Simon for meetings attended during 1995.
Report of the Compensation Committee of the Board of Directors
The Compensation Committee's executive compensation policies are
designed to focus the executive's attention and efforts on the attainment of
Company goals, reward the executive for the successful attainment of those
goals, provide a total cash compensation package that is competitive with the
market for similar talent and create a feeling of shared destiny between the
executives and all of the other employees.
The Company has a long history of paying its executive officers annual
cash bonuses for successful Company and individual performance. The Company has
not provided equity-based benefits to its executive officers, but intends to do
so commencing in 1996.
The compensation paid for the year 1995 to the Company's executive
officers, including its Chief Executive Officer and the four other highest paid
officers (the "Named Executive Officers"), consisted of a base salary and a
bonus. In addition, the executive officers are participants in the Company's
profit sharing plan, its pension plan and its various fringe benefit programs.
The annual salaries of the Named Executive Officers for fiscal year
1995 were determined in the month of December 1994. In determining the annual
salary for each of the executive officers of the Company, including the Named
Executive Officers, the Compensation Committee sought to establish salaries that
were fair and competitive with those paid by comparable organizations and that
fairly reward the executive officers for their performance and the Company's
performance. In determining the annual salary of each of the Named Executive
Officers, other than the Chief Executive Officer, the evaluation of the Chief
Executive Officer of their performance is considered, and each position is
measured against the knowledge and problem-solving ability required to fulfill
the assigned duties and responsibilities of such position and the officer's
impact upon the operations and profitability of the Company.
The same considerations were taken into account in fixing the Chief
Executive Officer's salary for 1995, except that the Committee did not have the
recommendation of the Chief Executive Officer.
The salary increases of the Named Executive Officers, other than the
Chief Executive Officer, for 1995 approximated 6.5%. The Chief Executive
Officer's salary increase for 1995 was approximately 13.8%. This increase
reflects the Committee's
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satisfaction with his performance as the Company's new Chief Executive Officer
as well as a recognition of his increased responsibilities.
Beginning with the year 1992, the Committee, with the assistance of
independent consultants and the approval of the Board of Directors, established
two formal incentive plans, one for all hourly and salaried employees of the
Company and the other for the executive officers, including the Named Executive
Officers. The bonus paid to each of the Named Executive Officers is determined
in accordance with the Plan which was slightly modified for 1995 for the
Company's executive officers.
Under the incentive plan for the executive officers of the Company,
three factors are taken into consideration in determining the amount of their
annual bonuses. The first and most significant is the Company's earnings before
interest and taxes as defined in the Plan, "EBIT"; the second is performance of
the individual against functional objectives established for his position; and
the third is a subjective evaluation of the individual's performance. The target
bonus for each officer, other than the Chief Executive Officer and the
Treasurer, is 25% of the individual's base salary. In the case of the Chief
Executive Officer, the target bonus is 40% of base salary (an increase of 5%
over 1994's target). The target bonus for the Treasurer, who is also the
Corporate Controller, is 20% of base salary. Depending upon the relationship of
the Company's actual EBIT for the year to the amount of EBIT fixed by the Board
of Directors at the start of the year as the target for the year, the bonus can
range from zero to 150% of the targeted amount. The consideration of EBIT is
also the most significant factor in determining the annual bonuses paid to all
other salaried and hourly workers under the employee incentive plan so that all
executive officers and employees have a common standard of measure.
Both the Pittman Division and the fastener operations of the Company
exceeded the EBIT targets set forth in their respective business plans for the
year 1995, and, as a result, the bonuses under the incentive plans exceeded
targeted awards for all participants.
With respect to the Chief Executive Officer, 50% of the 1995 bonus is
based upon EBIT of the Company; 25% is based upon the Company's return on
equity; and 25% is based upon the Committee's subjective analysis of his
performance.
The bonus paid to the Chief Executive Officer for the year 1995 was
determined in accordance with the provisions of the incentive plan and reflects,
in the opinion of the Committee, appropriate rewards for the outstanding
successes achieved during the year. As a result of these successes, that portion
of the Chief Executive Officer's bonus dependent upon EBIT and the
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achievement of his functional objectives was 126.44% of the target amount, and
that portion of the bonus which is based upon the Committee's subjective
analysis of his performance, which under the Plan cannot exceed 25% of the
target amount, was fixed at the full 25% of the target amount. Accordingly, the
total bonus paid to the Chief Executive Officer for 1995 was $129,416. This
bonus was $21,416 or 19.83% above the target amount. In determining the amount
of the discretionary portion of the bonus payable to the Chief Executive
Officer, the Committee took into account, among other things, the outstanding
success of the Company for the year (sales grew by 16.3% over 1994, and earnings
per share increased from $6.12 for 1994 to $8.08 for 1995, a 32% increase) and
the strong executive team which he has been most instrumental in assembling for
the Company.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation paid in excess of
$1 million to each of the corporation's chief executive officer and the four
other most highly compensated executive officers. Qualifying performance-based
compensation is not subject to the deduction limit if certain requirements are
met. The Committee did not consider the deductibility for federal tax purposes
of the compensation paid to the Chief Executive Officer and the Named Executive
Officers under the provisions of Section 162(m) given their current compensation
levels. The Committee intends to take the necessary steps to conform the
Company's policies with respect to executive compensation in order to comply
with the provisions of Section 162(m) if and at such time as the deductibility
thereof becomes affected by such provisions.
Respectfully submitted by the
Compensation Committee of the
Board of Directors,
Willard S. Boothby, Jr.
Lewis W. Hull
Thomas M. Hyndman, Jr.
Daryl L. Swanstrom
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Performance Graph
The following performance graph compares the cumulative total
stockholder return on the Company's Common Stock with the AMEX Market Value
Index and the following combined Standard & Poor's line-of-business indices (the
"S&P Indices"): Electronics-Semiconductor Companies; Electronics-Instrumentation
Companies; Office Equipment Companies; and Communications Equipment
Manufacturers. The S&P Indices consist of companies that are representative of
the lines of business that generate the major portion of the Company's revenues.
[GRAPHIC]
TOTAL STOCKHOLDER RETURNS(1)
In the printed document there is a performance graph which depicts the
following plot points:
Indexed Returns
Years Ending
Company/Index Dec 90 Dec 91 Dec 92 Dec 93 Dec 94 Dec 95
==============================================================================
Penn Engineering & Mfg Corp 100 142.92 200.16 260.90 242.04 571.92
American Stock Exchange Ind 100 128.22 129.57 154.86 140.75 177.93
Peer Group 100 147.34 197.40 254.33 293.50 405.18
(1) The comparisons of total return on investment (change in year end stock
price plus reinvested dividends) for each of the periods assumes that
$100 was invested on December 31, 1990 in each of the Company's Common
Stock, the AMEX Market Value Index and the S&P Indices with the
investment weighted on the basis of market capitalization.
Pension Plan
The following table is representative of the annual benefits payable
under the Company's qualified retirement plans to an employee currently age 65
whose annual compensation remained unchanged during the last five years of
employment and whose benefits will be paid for the remainder of the employee's
life.
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<PAGE>
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------------
Annual Compensation 10 20 30 40
- ------------------- ---- ---- ---- ---
<S> <C> <C> <C> <C>
$75,000..................................... $ 9,045 $18,090 $27,135 $36,180
100,000..................................... 12,170 24,340 36,510 48,680
125,000..................................... 15,295 30,590 45,885 61,180
150,000..................................... 18,420 36,840 55,260 73,680
175,000..................................... 18,420 36,840 55,260 73,680
200,000..................................... 18,420 36,840 55,260 73,680
300,000..................................... 18,420 36,840 55,260 73,680
400,000..................................... 18,450 36,840 55,260 73,680
500,000..................................... 18,420 36,840 55,260 73,680
</TABLE>
Credited full years of service for the five officers listed in the
Summary Compensation Table are as follows: Kenneth A. Swanstrom, 35 years; Mark
W. Simon, 19 years; Martin J. Bidart, 5 years; Raymond L. Bievenour, 5 years;
and Richard B. Ernest, 34 years. The covered compensation under the Pension Plan
Table is that amount shown in the salary and bonus columns of the Summary
Compensation Table. The amounts shown in the Pension Plan Table do not reflect
any deduction for social security or other offset amounts. Benefits are subject
to maximum limitations under the Internal Revenue Code of 1986, as amended (the
"Code"). Therefore, with regard to 1995, the maximum salary that can be
recognized under the plan is $150,000 and the maximum annual benefit at age 65
is limited to $120,000. The foregoing Pension Plan Table may be used for all
five officers, except for Kenneth A. Swanstrom, who is entitled to a higher
benefit due to plan provisions protecting prior accrued benefits. Mr.
Swanstrom's projected annual benefit at age 65, after 44 years of service, will
be $103,629.
Director Compensation
The Company's non-employee directors each receive an annual retainer of
$10,000 plus a fee of $750 for each meeting attended and reimbursement of travel
expenses. Employees who are directors of the Company each received a fee of $50
for each meeting attended in 1995 and will receive $250 per meeting attended in
1996. Members of the Audit Committee and the Compensation Committee each receive
a fee of $500 for each meeting attended plus reimbursement of travel expenses.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires that the Company's officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities,
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file reports of ownership and changes in ownership with the Commission. Based
solely on its review of the copies of such reports received by it, or written
representations from certain reporting persons that no Forms 5 were required for
those persons, the Company believes that, during the period January 1, 1995
through December 31, 1995, all filing requirements applicable to its officers
and directors were complied with, except that the initial reports of ownership
of two trusts established under the Will of Klas A. Swanstrom were not filed on
a timely basis.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Engineered Components/Spyraflo, Inc., which is engaged in the
manufacturing and distribution of various products, is an authorized distributor
for the Company's products in Florida, Alabama, Georgia and South Carolina. As
such, Engineered Components/Spyraflo, Inc. maintains an inventory of the
Company's products which Engineered Components/Spyraflo, Inc. purchases from the
Company at the Company's standard distributor prices for resale to Engineered
Components/Spyraflo, Inc.'s customers. In 1995, net sales by the Company to
Engineered Components/Spyraflo, Inc. were $7,932,000, and net purchases by the
Company from such company were $323,000. At December 31, 1995, the Company had
trade receivables balances due from this company of $778,000. Daryl L.
Swanstrom, a director of the Company and a member of the Compensation Committee,
is President and sole stockholder of Engineered Components/Spyraflo, Inc.
ELECTION OF AUDITORS
Deloitte & Touche LLP served as the Company's independent public
accountants for the Company's 1995 fiscal year. Unless instructed to the
contrary, it is intended that votes will be cast pursuant to the proxies for the
election of Deloitte & Touche LLP as auditors for the Company for its 1996
fiscal year. The Company has been advised by such firm that none of its members
or any of its associates has any direct financial interest or material indirect
financial interest in the Company or its subsidiaries. Election of Deloitte &
Touche LLP will require the affirmative vote of the holders of a majority of the
shares represented in person or by proxy at the Annual Meeting.
A representative of Deloitte & Touche LLP will attend the Annual
Meeting. This representative will have the opportunity to make a statement, if
such representative desires to do so, and will be available to respond to any
appropriate questions presented by the stockholders at the Annual Meeting.
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<PAGE>
PROPOSAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION
Description of the Amendment and the Stock Dividend
At the Annual Meeting, the stockholders will be asked to consider and
vote upon an amendment in the form attached hereto as Exhibit A (the
"Amendment") to Article IV of the Company's Certificate of Incorporation to: (i)
reclassify the Company's existing $1.00 par value per share Common Stock (the
"Prior Common Stock") as Class A Common Stock, $.01 par value per share (the
"Class A Common Stock"), (ii) authorize a new class of non-voting common stock,
designated as Common Stock, $.01 par value per share (the "Common Stock"), (iii)
increase the number of authorized shares of capital stock of the Company from
3,000,000 shares to 23,000,000 shares, consisting of 20,000,000 shares of Common
Stock and 3,000,000 shares of Class A Common Stock, and (iv) establish the
rights, powers and limitations of the Common Stock and the Class A Common Stock.
As of April 15, 1996, 1,707,082 shares of the Prior Common Stock were
outstanding leaving 1,292,918 shares available for issuance.
If the Amendment is approved by the stockholders of the Company, the
Board of Directors intends to prepare and file a Certificate of Amendment to the
Certificate of Incorporation of the Company in accordance with the Amendment,
which will become effective (the "Effective Date") immediately upon acceptance
of the filing by the Secretary of State of Delaware. The Board of Directors
would then have the power without soliciting stockholder approval to issue the
additional authorized shares, except to the extent that such approval may be
required by law, and such shares may be issued for such consideration, cash or
otherwise, at such times and in such amounts as the Board of Directors in its
discretion may determine, without further action by the stockholders. The future
issuance by the Company of shares of Common Stock may dilute the equity
ownership position of current holders of Common Stock and Class A Common Stock.
Although the Board of Directors presently intends to file the Certificate of
Amendment if the proposal is approved by the stockholders at the Annual Meeting,
the resolution of stockholders will reserve to the Board of Directors the right
to defer or abandon the proposal and not file such Certificate of Amendment even
if the Amendment is approved by the stockholders.
If the Board elects to file the Certificate of Amendment, promptly
after the Effective Date, the Board of Directors presently intends to authorize
a distribution of three shares of Common Stock for each share of Prior Common
Stock outstanding on the record date (the "Stock Dividend"). The Stock Dividend
will essentially be a four-for-one stock split. The record date for the Stock
Dividend (the "Stock Dividend Record Date") has been set for May 3, 1996, and
the date of distribution of the Common Stock under the Stock Dividend is
expected promptly after
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<PAGE>
the Amendment is approved and adopted by the stockholders. Stockholder approval
of the Stock Dividend is not required by Delaware law and is not being solicited
by this Proxy Statement and there is no assurance that the Stock Dividend will
actually be effected.
Upon effectiveness of the Amendment, each outstanding share of Prior
Common Stock automatically will be converted into, and the certificates therefor
will be deemed to represent, one share of Class A Common Stock. The Prior Common
Stock certificates will no longer specify the correct designation but will
represent an equal number of shares of Class A Common Stock. New certificates
representing the Class A Common Stock will not be issued until further transfer
of such shares to new holders or a request is received from a stockholder to
replace such stockholder's Prior Common Stock certificate with a Class A Common
Stock certificate. Under the provisions of the Amendment, the currently
outstanding shares of Prior Common Stock will be reclassified as Class A Common
Stock, which will continue to have the same rights, powers and limitations as
the Prior Common Stock, except that the par value per share will be changed from
$1.00 to $.01. As more fully described below, the holders of Common Stock will
not be entitled to vote on any matters except as otherwise required by the
Company's Certificate of Incorporation or Delaware law. At the time of the Stock
Dividend, there will be no change in the relative voting power or equity of any
stockholder of the Company, including members of the Swanstrom family, because
the Stock Dividend will be distributed to each stockholder in proportion to the
number of shares of Prior Common Stock owned on the Stock Dividend Record Date.
The Amendment has been unanimously approved by the Company's Board of
Directors, including directors who are neither a member of the Swanstrom family
nor an officer or employee of the Company. The Board of Directors believes that
the Amendment and the Stock Dividend are in the best interests of the Company
and its stockholders and recommends a vote FOR the approval and adoption of the
Amendment.
Background of the Proposal
In recent years, a number of publicly held companies with majority or
controlling ownership by their founding families have adopted dual class
capitalization structures. Many companies which adopted dual class voting
structures adopted such plans prior to the adoption in 1988 of Rule 19c-4 under
the Exchange Act. This Rule has since been vacated by a federal appellate court
decision in 1990. The American Stock Exchange, the New York Stock Exchange and
the National Association of Securities Dealers, Inc. have since adopted similar
rules that permit dual class structures that do not reduce the relative voting
rights of
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<PAGE>
the holders of an outstanding class of voting securities by the issuance of a
class having greater voting rights.
Members of the Swanstrom family together control approximately 52.4%
of the voting power of the Company. See "Beneficial Ownership of Common Stock --
Principal Beneficial Owners of Common Stock." For purposes of this section, the
"Swanstrom family" refers to Kenneth A. Swanstrom, Daryl L. Swanstrom and
certain related trusts which beneficially owned as of April 15, 1996 an
aggregate of 894,890 shares of the Prior Common Stock. The Board of Directors
believes that the management and operations of the Company in recent years,
which have been implemented in substantial part due to the influence and control
of members of the Swanstrom family, have contributed to the growth and success
of the Company. Therefore, the Board of Directors believes that maintaining the
relative voting power of the Swanstrom family is in the best interests of the
Company and its stockholders. Because any sales of voting stock by the Company
would reduce the Swanstrom family's voting power, preservation of that voting
power limits the Company's ability to sell stock in financings and the ability
of members of the Swanstrom family to increase liquidity while maintaining their
influence in the Company. The Board of Directors believes that the voting power
of the Swanstrom family has provided the stability and absence of disruption
necessary to pursue best a strategy of long-term growth of the Company.
Reasons for the Amendment; Recommendation of the Board of
Directors
The Board of Directors unanimously recommends that stockholders vote "For" the
Amendment.
The Board of Directors believes that a capital structure that has two
classes of common stock offers certain potential benefits to the Company and its
stockholders. The Amendment enables the Company to issue Common Stock or
securities convertible into Common Stock for financing, acquisition and
compensation purposes without adversely affecting the voting percentage of any
stockholder, including the Swanstrom family.
The Board of Directors has given due consideration to the Amendment and
the Stock Dividend and has determined that the adoption of the Amendment would
be in the best interests of the Company and its stockholders. Some stockholders,
on the other hand, may believe that the Amendment and the Stock Dividend are
disadvantageous to the extent that they may favor long-term investors and may
discourage takeovers of the Company. The Board of Directors, two of whom are
members of the Swanstrom family and one who is an officer of the Company,
considered this factor in reaching their recommendation. The Board of Directors
believes that the Amendment is advantageous to the Company's long-term growth
strategy to the extent that it may favor long-term investors and may discourage
takeovers of the Company. The Board of Directors suggests that each stockholder
carefully read and
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<PAGE>
review the description of the Amendment and the Stock Dividend and certain
effects thereof which are set forth below.
Financing Flexibility
The Company has followed, and continues to follow, a long-term strategy
for growth. The Board of Directors believes that this strategy will best
maximize the value of the Company and further believes that the voting power of
the Swanstrom family has provided the stability and absence of disruption
necessary to best pursue this strategy. Implementation of the Amendment would
provide the Company with increased flexibility in the future to issue common
equity in connection with acquisitions and to raise equity capital or to issue
convertible debt as a means to finance future growth without diluting the voting
power of the Company's existing stockholders, including the Swanstrom family.
The Common Stock may also be used, rather than voting Class A Common Stock, for
the Company's stock benefit plans. The Company has no current plans to issue
additional shares of Class A Common Stock.
Stockholder Flexibility
Under the Amendment and the Stock Dividend, stockholders desiring to
maintain their voting position would be able to do so even if they decide to
sell or otherwise dispose of shares of Common Stock. The Amendment therefore
gives all stockholders, including the Swanstrom family, increased flexibility to
dispose of a portion of their equity interest in the Company without necessarily
affecting their relative voting power. It is the present intention of members of
the Swanstrom family to hold the shares of Class A Common Stock and to sell
shares of Common Stock if they sell any shares.
Also, stockholders who are interested in maintaining their voting power
in the Company might be more willing to sell or otherwise dispose of part of
their holdings if the sale or other disposition would not decrease their
relative voting power, which may result in increased trading of shares and
increased liquidity.
Continuity
The adoption of the Amendment and the issuance of the Stock Dividend
should reduce the risk of disruption in the continuity of the Company's
long-term plans and objectives that could otherwise result if the members of the
Swanstrom family find it necessary to sell a significant block of stock for
diversification, to satisfy estate tax obligations or for other reasons.
Implementation of the proposal would allow members of the Swanstrom family to
continue to exercise control over a substantial portion of the Company's voting
power even if members of the Swanstrom family chose to reduce their total equity
position significantly, and to exercise additional estate
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<PAGE>
planning flexibility by determining the succession of voting control through
gifts or bequests of Class A Common Stock to their heirs. Therefore, the
Amendment and the Stock Dividend may provide a basis for continuity pursuant to
such plans and objectives, if and when such circumstances arise, and should
reduce the risk that the Company could at some future date be compelled to
consider a sale of the Company in an environment that could be dictated to the
Company and the Board of Directors by the financial circumstances of the members
of the Swanstrom family or by third parties who may be anticipating or
speculating about such circumstances.
Key Employees
Implementation of the Amendment and the Stock Dividend should allow all
employees to continue to concentrate on other responsibilities without undue
concern that the future of the Company could be affected by real or perceived
succession issues or an unwanted takeover that could otherwise be triggered by
any substantial divestiture by the Swanstrom family in the future. By reducing
the uncertainty that could result if members of the Swanstrom family should
dispose of a significant block of Prior Common Stock, the Amendment and the
Stock Dividend may, therefore, enhance the ability of the Company to attract and
retain highly qualified key employees.
Business Relationships
Implementation of the Amendment and the Stock Dividend may enhance the
existing and potential business relationships of the Company with suppliers,
customers and other parties who may become concerned about changes in control of
the Company in the event the Swanstrom family holdings are diluted.
Certain Potential Disadvantages of the Proposal
While the Board of Directors has determined that implementation of the
Amendment and the Stock Dividend is in the best interests of the Company and its
stockholders, the Board of Directors recognizes that implementation of the
Amendment and the Stock Dividend may result in certain disadvantages, including
the following:
Change of Control Impact
Members of the Swanstrom family currently own a significant portion of
the Prior Common Stock and collectively have effective voting control over the
Company. Regardless of whether the Amendment is adopted and the Stock Dividend
is implemented, the Swanstrom family will maintain the ability to keep or
dispose of such voting control. Implementation of the proposal will allow
members of the Swanstrom family to continue to exercise voting control even if
some or all of them choose to reduce their
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<PAGE>
holdings of shares of Common Stock. Implementation of the proposal is likely to
limit the future circumstances in which a sale or transfer of equity by the
Swanstrom family could lead to a merger proposal or tender offer that is not
acceptable to the Swanstrom family or a proxy contest for the removal of
incumbent directors. Consequently, the Amendment and the Stock Dividend might
reduce the possibility that stockholders of the Company may sell their shares at
a premium over prevailing market prices and make it more difficult to replace
the current Board of Directors and management of the Company.
Although the Board of Directors currently intends to utilize the
additional shares of Common Stock solely for the purposes set forth above, such
shares could also be used by the Board of Directors to dilute the stock
ownership of persons seeking to obtain control of the Company, thereby possibly
discouraging or deterring a nonnegotiated attempt to obtain control of the
Company and making removal of incumbent management more difficult. The proposal,
however, is not a result of, nor does the Board of Directors have knowledge of,
any effort to accumulate the Company's capital stock or to obtain control of the
Company by means of a merger, tender offer, solicitation in opposition to the
Board of Directors or otherwise. Because the Swanstrom family owns beneficially
approximately 52.4% of the Company's outstanding Prior Common Stock and, after
the consummation of the Stock Dividend, will continue to own approximately 52.4%
of the Company's outstanding Class A Common Stock, the likelihood of a
nonnegotiated attempt to obtain control of the Company is remote.
State Statutes
Some state securities statutes contain provisions which, due to the
issuance of Common Stock, may restrict an offering of equity securities by the
Company or the secondary trading of its equity securities in such states.
However, due to exemptions or for other reasons, the Company does not believe
that such provisions will have a material adverse effect on the amount of equity
securities which the Company will be able to offer, or on the price obtainable
for such equity securities in such an offering, or in the secondary trading
market for the Company's equity securities.
Acquisition Accounting
The Common Stock may not be used to effect a business combination to be
accounted for using the "pooling of interests" method. For such method to be
used, the Company would be required to issue shares of Class A Common Stock as
the consideration for the combination.
Brokerage Costs; Security for Credit
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<PAGE>
As typical in connection with any stock split, brokerage charges and
stock transfer taxes, if any, may be somewhat higher with respect to purchases
and sales of Common Stock and Class A Common Stock after the Stock Dividend,
assuming transactions of the same dollar amount, because of the increased number
of shares involved.
The Company does not expect that the adoption of the Amendment and the
implementation of the Stock Dividend will affect the ability of holders to use
the Common Stock or Class A Common Stock as security for the extension of credit
by financial institutions, securities brokers or dealers.
Investment by Institutions
Implementation of the proposal may affect the decision of certain
institutional investors that would otherwise consider investing in the Prior
Common Stock. The holding of non-voting common stock may not be permitted by the
investment policies of certain institutional investors.
Interests of Certain Persons
The Swanstrom family has an interest in the implementation of the
Amendment and the Stock Dividend because, as noted above, the proposal may
enhance the ability of members of the Swanstrom family to retain voting control
of the Company even if they dispose of a substantial portion of their shares of
Common Stock. See "Reasons for the Amendment; Recommendation of the Board of
Directors."
Description of the Common Stock and the Class A Common Stock
As indicated above, the Amendment will reclassify the Prior Common
Stock into Class A Common Stock and create a new Common Stock. The rights,
powers and limitations of the Common Stock and the Class A Common Stock are set
forth in full in the proposed Article IV of the Company's Certificate of
Incorporation. The full text of Article IV as proposed to be amended is set
forth as Exhibit A to this Proxy Statement and incorporated herein by reference.
The following summary should be read in conjunction with, and is qualified in
its entirety by reference to, such Exhibit A.
Voting
The holders of the shares of Class A Common Stock are entitled to one
vote on any matter to be voted on by the stockholders of the Company. There is
no provision in the Company's Certificate of Incorporation permitting cumulative
voting. The holders of shares of Common Stock are not entitled to vote on any
matter to be voted on by the stockholders of the
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<PAGE>
Company, except as required under the Delaware General Corporation Law (the
"DGCL").
Under the Certificate of Incorporation of the Company, as proposed to
be amended, and the DGCL, only the affirmative vote of the holders of a majority
of the outstanding shares of Class A Common Stock entitled to vote will be
required to amend the Certificate of Incorporation or to authorize additional
shares of Common Stock or Class A Common Stock; and the affirmative vote of the
holders of a majority of the Class A Common Stock will be required to approve
any merger or consolidation of the Company with or into any other corporation or
sale of substantially all its assets or to approve the dissolution of the
Company, subject to certain existing antitakeover provisions of the Company's
Certificate of Incorporation that would require the vote of the holders of at
least 80% of the outstanding Class A Common Stock if such transaction is not
approved by the requisite vote of the Company's Board of Directors.
The holders of the Class A Common Stock will elect the entire Board of
Directors. In addition, as permitted under the DGCL, the Certificate of
Incorporation, as amended, will provide that the number of authorized shares of
either class may be increased or decreased, but not below the number of shares
then outstanding, by the affirmative vote of the holders of a majority of the
Class A Common Stock.
Under the DGCL, the holders of Common Stock will be entitled to vote on
proposals to change the par value of the Common Stock or to alter or change the
powers, preferences or special rights of the shares of Common Stock, which may
affect them adversely.
Dividends and Distributions
Each share of Common Stock and Class A Common Stock will be equal in
respect to dividends and other distributions in cash, stock or property,
including distributions in connection with any recapitalization and upon
liquidation, dissolution or winding up of the Company, except that (i) a
dividend or distribution in cash or property on a share of Common Stock may be
greater than any dividend or distribution in cash or property on a share of
Class A Common Stock, and (ii) dividends or other distributions payable on the
Common Stock and Class A Common Stock in shares of capital stock shall be made
to all holders of the Common Stock and Class A Common Stock and may be made (a)
in shares of Common Stock to the holders of Common Stock and to the holders of
Class A Common Stock, (b) in shares of Class A Common Stock to the holders of
Class A Common Stock and in shares of Common Stock to the holders of Common
Stock, or (c) in any other authorized class or series of capital stock to the
holders Common Stock and Class A Common Stock. In no event will either Common
Stock or Class A Common Stock be split, subdivided or combined unless the other
is proportionately split, subdivided or combined.
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<PAGE>
Although the Board of Directors would have authority under the
Certificate of Incorporation, as amended by the Amendment, to pay dividends and
make distributions on the Common Stock in amounts greater than on the Class A
Common Stock, the Board of Directors currently intends that, if any dividends
are paid, both classes will be paid on an equal share basis.
There are no redemption or sinking fund provisions applicable to the
Common Stock or the Class A Common Stock. Holders of Common Stock and Class A
Common Stock are not subject to further calls or assessments by the Company. All
outstanding shares of Common Stock, when validly issued, will be fully paid and
non-assessable.
Except as otherwise required by the DGCL or as otherwise provided in
the Company's Certificate of Incorporation, each share of Common Stock and each
share of Class A Common Stock have identical powers, preferences and rights in
all other respects.
Mergers and Consolidations
Each holder of Common Stock will be entitled to receive the same per
share consideration as the per share consideration, if any, received by any
holder of the Class A Common Stock in a merger or consolidation of the Company.
Convertibility
Neither the Common Stock nor the Class A Common Stock will be
convertible into another class of common stock or any other security of the
Company.
In the event, however, that the Swanstrom family ceases to own
beneficially not less than an aggregate of 40% of the then outstanding shares of
Class A Common Stock, (i) all of the then issued shares of Common Stock will
automatically convert into an equal number of shares of Class A Common Stock,
and (ii) all rights, warrants or options to purchase shares of Common Stock, or
other securities convertible into shares of Common Stock, will be converted into
similar rights to purchase, or convert into, an equal number of shares of Class
A Common Stock.
Transferability; Trading Market
Like the Prior Common Stock, the Common Stock and the Class A Common
Stock will be freely transferable. The Company intends to file listing
applications with the American Stock Exchange (the "AMEX") with respect to the
Common Stock and the Class A Common Stock and, like the Prior Common Stock, it
is expected that both such classes will be listed on the AMEX. The Company also
intends to file applications with the New York Stock Exchange (the "NYSE") that
would permit shares of Common Stock and the Class A Common Stock to be listed on
the NYSE, and concurrently delisted from AMEX, although there can be no
assurance that such NYSE listing will be obtained.
Increase in Authorized Capital Stock; Change in Par Value
The Company's Certificate of Incorporation presently authorizes
3,000,000 shares of the Prior Common Stock. The Amendment would increase the
total authorized number of shares of capital stock from 3,000,000 to 23,000,000,
authorizing the issuance of up to 20,000,000 shares of Common Stock and up to
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<PAGE>
3,000,000 shares of Class A Common Stock. After implementation of the Amendment
and the Stock Dividend, 5,121,246 shares of Common Stock and 1,707,082 shares of
Class A Common Stock would be issued and outstanding. Approximately 14.9 million
shares of Common Stock and 1.3 million shares of Class A Common Stock would
therefore be available for issuance from time to time for any proper corporate
purpose, including stock splits, stock dividends, acquisitions, stock option
plans, funding of employee benefit plans and public and private equity
offerings. No further action or authorization by the stockholders would be
necessary prior to the issuance of the additional shares of Common Stock or
Class A Common Stock authorized pursuant to the Amendment unless applicable laws
or regulations would require such approval in a given instance.
The Amendment would not increase the number of shares of voting Class A
Common Stock that could be issued, but would only authorize a larger number of
shares of Common Stock. A larger amount of Common Stock is necessary in the
event the Company effects any stock splits or stock dividends on the Company's
capital stock. The Board of Directors also believes that it is desirable to have
the additional authorized shares of capital stock available for possible future
financing and acquisition transactions, and other general corporate purposes.
Having such additional authorized shares of capital stock available for issuance
in the future will give the Company greater flexibility and may allow such
shares to be issued without the expense or delay of a special stockholders'
meeting. The Company does not presently have any agreement, understanding,
arrangement or plans that would result in the issuance of any of the additional
shares of capital stock to be authorized except as set forth in the Amendment,
pursuant to the Stock Dividend and under the proposed 1996 Equity Incentive Plan
and the 1996 Stock Purchase Plan. Unissued shares of capital stock could be
issued in circumstances that would serve to preserve control of the Company's
then existing management. The Amendment will permit the holders of a majority of
the outstanding shares of the Class A Common Stock to amend the Certificate of
Incorporation of the Company to increase the number of authorized shares of
Common Stock or Class A Common Stock.
Stockholder Information
The Company intends to deliver to the holders of Common Stock the same
proxy statements, annual reports and other information and reports as it
delivers to holders of Class A Common Stock.
Certain Effects of the Amendment
Effects on Relative Ownership and Voting Power
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Because the Amendment provides that each whole share of Prior Common
Stock will be reclassified and changed into one share of Class A Common Stock
and because the Stock Dividend is to be made to all stockholders in proportion
to the number of shares of Class A Common Stock owned on the Stock Dividend
Record Date by each stockholder, the relative ownership interest and voting
power of each holder of a whole share of Prior Common Stock will be the same
immediately after effectiveness of the Amendment and Stock Dividend as it was
immediately prior thereto. Consequently, assuming that the members of the
Swanstrom family retain the shares of Class A Common Stock, the Amendment will
not alter the Swanstrom family's present voting position in the Company.
Stockholders who sell their shares of Class A Common Stock after the
Stock Dividend will lose a greater amount of voting control in proportion to
equity than they would have prior to the Stock Dividend. At the same time,
stockholders desiring to maintain a long-term investment in the Company will be
free to continue to hold the Class A Common Stock and retain the benefits of the
voting power attached to such Class A Common Stock.
As of the date of this Proxy Statement members of the Swanstrom family
owned an aggregate of approximately 52.4% of the outstanding Prior Common Stock
of the Company. Accordingly, the Swanstrom family will receive an aggregate of
approximately 52.4% Common Stock and Class A Common Stock in connection with the
Amendment and the Stock Dividend.
If the Swanstrom family, following the Stock Dividend, were to sell all
of the shares of Common Stock received in the Stock Dividend, the Swanstrom
family would still have approximately 52.4% of the voting power assuming no
other change. The foregoing is for illustrative purposes only and is in no way
intended to suggest that the Swanstrom family has any intention of selling any
or all of its shares of Common Stock or Class A Common Stock following the Stock
Dividend. It is the present intention of members of the Swanstrom family to hold
the shares of Class A Common Stock and to dispose of shares of Common Stock if
they dispose of any shares.
Effect on Market Price
The market price of shares of the Company's Common Stock and Class A
Common Stock after the distribution of the Stock Dividend will depend on many
factors, including, among others, the future performance of the Company, general
market conditions and conditions relating to companies similar to the Company
and the industry in general. Accordingly, the Company cannot predict the market
prices at which the Common Stock and the Class A Common Stock will trade
following the adoption of the Amendment and the distribution of the Stock
Dividend or whether one class will trade at a premium over the other class.
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Trading Market
Upon effectiveness of the Amendment, approximately 1.7 million shares
of Class A Common Stock will be issued and outstanding. After the Stock
Dividend, approximately 5.1 million shares of Common Stock will be issued and
outstanding. To minimize dilution of voting power to existing stockholders, the
Company is more likely to issue additional shares of Common Stock than Class A
Common Stock in the future to raise equity, finance acquisitions or fund
employee benefit plans. Furthermore, members of the Swanstrom family are more
likely to dispose of Common Stock over time than Class A Common Stock. Any such
issuance of additional Common Stock by the Company or dispositions of Common
Stock by members of the Swanstrom family or other major stockholders may serve
to further increase market activity in Common Stock relative to the Class A
Common Stock.
Effect on Book Value and Earnings Per Share
Although the interest of each stockholder in the total equity of the
Company will remain unchanged as a result of the Stock Dividend, the issuance of
the Common Stock pursuant to the Stock Dividend will, like any stock dividend,
cause the book value and earnings per share of the Company to be adjusted to
reflect the increased number of shares outstanding. Although effected in the
form of a dividend, for accounting purposes, the Stock Dividend will have the
same effect as a four-for-one stock split.
Federal Income Tax Consequences
The Company believes that, in general, for federal income tax purposes
(i) neither the reclassification of the Prior Common Stock into Class A Common
Stock nor the Stock Dividend of Common Stock will be taxable to a stockholder of
the Company, (ii) neither the Common Stock nor the Class A Common Stock will
constitute "Section 306 stock" within the meaning of Section 306(c) of the Code,
(iii) the cost or other basis of each share of Prior Common Stock will be
apportioned among the new shares of Common Stock and Class A Common Stock in
proportion to the fair market value of the shares of each class of stock on the
date of the Stock Dividend, and (iv) the holding period for each new share of
Common Stock and Class A Common Stock will include such stockholder's holding
period for the old share of Prior Common Stock with respect to which the Common
Stock and Class A Common Stock is distributed. Stockholders are urged to seek
the advice of their own tax advisors on this matter and on state income tax
matters.
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Registration Provisions of the Act
Because the Prior Common Stock will be reclassified as Class A Common
Stock with essentially the same rights, powers and limitations, the
redesignation is not an "offer," "offer to sell," "offer for sale" or "sale" of
a security within the meaning of Section 2(3) of the Securities Act of 1933, as
amended (the "Act"), and will not involve the substitution of one security for
another under Rule 145 thereunder. In addition, the Stock Dividend of Common
Stock will not involve a "sale" of a security under the Act or Rule 145.
Consequently, the Company is not required to register and has not registered the
Common Stock or the Class A Common Stock under the Act.
Because the Amendment and the Stock Dividend do not constitute a "sale"
of either Common Stock or Class A Common Stock under the Act, stockholders will
not be deemed to have purchased such shares separately from the Prior Common
Stock under the Act and Rule 144 thereunder. Class A Common Stock held
immediately upon effectiveness of the Amendment and shares of Common Stock
received in the Stock Dividend, other than any such shares held by affiliates of
the Company within the meaning of the Act, may be offered for sale and sold in
the same manner as the Prior Common Stock without registration under the Act.
Affiliates of the Company, including members of the Swanstrom family, will
continue to be subject to the restrictions specified in Rule 144 under the Act.
AMEX Criteria; NYSE Criteria
The Prior Common Stock is currently traded on the AMEX and the Company
intends to apply to trade the Common Stock and the Class A Common Stock on the
AMEX. The Amendment is intended to comply with the rules of AMEX that prohibit
the disparate reduction or restriction of the voting rights of existing
stockholders through any corporate action or issuance. The purpose of the rule
is to prohibit stock issuances and other corporate actions that have a
"disenfranchising effect" on existing stockholders. The NYSE has a similar rule.
The Company presently anticipates that both the Common Stock and the Class A
Common Stock will be traded on the AMEX. Future issuances of either Common Stock
or Class A Common Stock may be subject to further AMEX approval.
The Company intends to take such steps as may be required to qualify
the Common Stock and the Class A Common Stock for listing on the NYSE, and
concurrently to delist such classes from the AMEX, if the requirements of the
NYSE are satisfied. There is no assurance, however, that the Common Stock and
the Class A Common Stock will so qualify and that approval for listing by the
NYSE will be obtained.
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Vote Required
Approval of the Amendment will require the affirmative vote of the
holders of a majority of the shares of Prior Common Stock of the Company
outstanding and entitled to vote. Abstentions and broker non-votes are
considered shares of stock outstanding and entitled to vote and are counted in
determining the number of votes necessary for a majority. An abstention or
broker non-vote will therefore have the practical effect of voting against
approval of the Amendment because it represents one fewer vote for approval of
the Amendment. The Board of Directors recommends a vote FOR approval and
adoption of the Amendment.
PROPOSAL TO ADOPT THE COMPANY'S
1996 EQUITY INCENTIVE PLAN
Description of the 1996 Equity Incentive Plan
The Board of Directors of the Company adopted the 1996 Equity Incentive
Plan (the "1996 Plan") on April 17, 1996, subject to stockholder approval. The
purpose of the 1996 Plan is to further the growth, development and financial
success of the Company by providing additional incentives to those officers and
key employees who are responsible for the management and affairs of the Company,
which will enable them to participate in the growth of the value of the capital
stock of the Company.
The 1996 Plan permits the granting of options to purchase Common Stock
of the Company ("Options"), including Options intended to qualify as incentive
stock options ("Incentive Stock Options") under Section 422 of the Code, and
Options not intended to so qualify ("Non-Qualified Stock Options") to those
officers and key employees of the Company who are in positions in which their
decisions, actions and counsel significantly impact upon the profitability and
success of the Company. Directors of the Company who are not also officers or
employees of the Company are not eligible to participate in the 1996 Plan.
Approximately 50 persons are eligible to participate in the 1996 Plan,
including executive officers of the Company. No Options have yet been granted to
any person and no determination has been made as to the allocation of grants of
Options to specific employees under the 1996 Plan.
The total number of shares of the Company's non-voting Common Stock
that may be the subject of Options granted under the 1996 Plan may not exceed
500,000 shares in the aggregate. If an Option expires or is terminated for any
reason without having been fully vested or exercised, the number of shares
subject to such Option which have not been purchased or become vested may again
be made subject to an Option under the 1996 Plan. Appropriate adjustments to
outstanding Options and to the number or kind of shares subject to the 1996 Plan
are provided for in the event of a stock
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split, reverse stock split, stock dividend, share combination or
reclassification and certain other types of corporate transactions involving the
Company, including a merger or a sale of substantially all of the assets of the
Company.
The 1996 Plan will be administered by a committee (the "Committee") of
at least three persons appointed by the Company's Board of Directors, none of
whom is eligible to receive Options under the 1996 Plan. The Committee is
authorized to (i) interpret the provisions of the 1996 Plan and decide all
questions of fact arising in its application; (ii) select the employees to whom
Options are granted, and determine the timing, type, amount, size and terms of
each such grant; and (iii) make all other determinations necessary or advisable
for the administration of the 1996 Plan. The Compensation Committee of the Board
of Directors will initially administer the 1996 Plan.
Incentive and Non-Qualified Options
The exercise price of the shares subject to Options will be set by the
Committee but may not be less than 100% of the fair market value of such shares
on the date the Option is granted as determined by the Committee.
Options will be evidenced by written agreements in such form not
inconsistent with the 1996 Plan as the Committee shall approve from time to
time. Each Option will become exercisable in four installments of 25% of the
shares subject to the Option commencing the first, second, third and fourth
anniversary, respectively, after the grant date of the Option. The Committee may
accelerate the exercisability of any installments upon such circumstances and
subject to such terms and conditions as the Committee deems appropriate. Unless
the Committee accelerates exercisability, no Option that is unexercisable at the
time of the optionee's termination of employment may thereafter become
exercisable. No Option may be exercised after ten years from the date of grant.
An outstanding Non-Qualified Option that has become exercisable
generally terminates one year after the termination of employment due to death,
retirement or total disability and three months after employment termination for
any reason other than retirement, total disability or death. Incentive Stock
Options that have become exercisable generally will terminate one year after
termination of employment due to total disability or death and three months
after an employment termination for any other reason. No Option may be assigned
or transferred, except by will or by the applicable laws of descent and
distribution. During the lifetime of the optionee, the Option may be exercised
only by the optionee.
The Committee will determine whether Options granted are to be
Incentive Stock Options meeting the requirements of Section
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422 of the Code. Incentive Stock Options may be granted only to eligible
employees. Any such optionee must own less than 10% of the total combined voting
power of the Company or of any of its subsidiaries unless at the time such
Incentive Stock Option is granted the price of the Option is at least 110% of
the fair market value of the Common Stock subject to the Option and, by its
terms, the Incentive Stock Option is not exercisable after the expiration of
five years from the date of grant. An optionee may not receive Incentive Stock
Options for shares that first become exercisable in any calendar year with an
aggregate fair market value determined at the date of grant in excess of
$100,000.
The option price must be paid in full at the time of exercise unless
otherwise determined by the Committee. Payment must be made in cash, in shares
of the Company's Common Stock valued at their then fair market value, or a
combination thereof, as determined in the discretion of the Committee. It is the
policy of the Committee that any taxes required to be withheld must also be paid
at the time of exercise. An optionee will be restricted from selling shares of
Common Stock purchased upon exercise of an Option until a period of two years
have elapsed from the date the Option was exercised, subject to the removal of
such restriction in the discretion of the Committee.
Amendment and Termination
The 1996 Plan will remain in effect until all Options granted under the
1996 Plan have been satisfied by the issuance of shares, except that no Option
may be granted under the 1996 Plan after April 16, 2006. Without stockholder
approval, no amendments may be made to the 1996 Plan to: (i) materially increase
the maximum number of shares that may be issued under the 1996 Plan, except to
reflect adjustments in capitalization as described in the 1996 Plan; (ii)
materially increase the benefits accruing to participants under the 1996 Plan;
or (iii) materially modify requirements for eligibility for participation under
the 1996 Plan. In all other respects, the 1996 Plan can be amended, modified,
suspended, or terminated by the Board of Directors of the Company or the
Committee, except that no modification, amendment or termination may be made to
the 1996 Plan, without the consent of an optionee, if such modification,
amendment or termination will affect the rights of the optionee under an Option
previously granted.
Federal Income Tax Consequences
The 1996 Plan is not qualified under Section 401(a) of the Code. The
following description, which is based on existing laws, sets forth generally
certain of the federal income tax consequences of the Options under the 1996
Plan. This description may differ from the actual tax consequences of
participation in the 1996 Plan.
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An employee receiving an Option will not recognize taxable income upon
the grant of the Option, nor will the Company be entitled to any deduction on
account of such grant. In the case of Non-Qualified Stock Options, the optionee
will recognize ordinary income upon the exercise of the Non-Qualified Stock
Option in an amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise. When the optionee
disposes of the shares acquired upon exercise of the Option, the employee will
generally recognize capital gain or loss equal to the difference between (i) the
selling price of the shares and (ii) the sum of the option price and the amount
included in his income when the Option was exercised. Such gain will be
long-term or short-term depending upon whether the shares were held for more or
less than one year after the date of exercise.
Incentive Stock Options granted under the 1996 Plan are intended to
qualify as incentive stock options under Section 422 of the Code. A purchase of
shares upon exercise of an Incentive Stock Option will not result in recognition
of income at that time. However, the excess of the fair market value of the
shares purchased over the exercise price will constitute an item of tax
preference. This tax preference will be included in the optionee's computation
of his alternative minimum tax.
If the optionee does not dispose of the shares issued to him upon the
exercise of an Incentive Stock Option within one year of such issuance or within
two years from the date of the grant of such Option, whichever is later, then
any gain or loss realized by the optionee on a later sale or exchange of such
shares generally will be a long-term capital gain or a long-term capital loss.
If the optionee sells the shares during such period, the sale will be referred
to as a "disqualifying disposition." In that event, the optionee will recognize
ordinary income for the year in which the disqualifying disposition occurs equal
to the amount, if any, by which the lesser of the fair market value of such
shares on the date of exercise of such Option or the amount realized from the
sale exceeded the amount the optionee paid for such shares. Any additional gain
realized generally will be capital gain, which will be long-term or short-term
depending on the holding period for the shares. If the optionee disposes of the
shares by gift during such period, the transfer will be treated as a
disqualifying disposition subject to the rules described herein.
If the purchase price upon exercise of an Option is paid with shares of
the Company's Common Stock already owned by the optionee, generally no gain or
loss will be recognized with respect to the shares used for payment and the
additional shares received will be taxed as described herein. However, if
payment of the purchase price upon exercise of an Incentive Stock Option is made
with shares acquired upon exercise of an Incentive Stock Option before the
shares used for payment have been held for the
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two-year or one-year period described herein, use of such shares as payment will
be treated as a "disqualifying disposition" of the shares used for payment
subject to the rules described herein.
The Company will be entitled to a tax deduction in connection with an
Option under the 1996 Plan only in an amount equal to the ordinary income
realized by the optionee and at the time such optionee recognizes such income,
provided that applicable tax withholding requirements are met. The federal,
state and local income tax consequences to any particular taxpayer will depend
upon his individual circumstances. In addition, various tax legislative
proposals are introduced in the Congress from time to time, and it is not
possible to predict which of the various proposals introduced will be enacted
into law, the form in which they finally may be enacted, the effective dates
thereof or the effect on the tax consequences of participation in the 1996 Plan.
Vote Required
Approval of the 1996 Plan will require the affirmative vote of the
holders of a majority of the outstanding shares of the Company's Prior Common
Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote. Abstentions are considered shares of stock present in person
or represented by proxy at the meeting and entitled to vote and are counted in
determining the number of votes necessary for majority. An abstention from
voting will therefore have the practical effect of voting against approval of
the 1996 Plan because it does not represent a vote for approval. Broker
non-votes are not considered shares present in person or represented by proxy
and entitled to vote on the amendment and will have no effect on the vote. The
Board of Directors recommends a vote FOR the approval of the 1996 Plan.
APPROVAL OF THE 1996 EMPLOYEE STOCK PURCHASE PLAN
Description of the 1996 Employee Stock Purchase Plan
The Board of Directors of the Company adopted the 1996 Employee Stock
Purchase Plan (the "Stock Purchase Plan") as of April 17, 1996, subject to
stockholder approval. The purpose of the Stock Purchase Plan is to provide
eligible employees with an opportunity to acquire or increase their proprietary
interest in the Company through the purchase of the Company's non-voting Common
Stock at a discount from current market prices. The Stock Purchase Plan is
intended to meet the requirements of Section 423 of the Code.
The total number of shares of the Company's Common Stock that are
available for issuance under the Stock Purchase Plan is 150,000 shares.
Appropriate adjustments in the number or kind of
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shares reserved for sale under the Stock Purchase Plan are provided for in the
event of a stock split, stock dividend, share combination or spin-off and
certain other types of corporate transactions involving the Company, including
mergers, consolidations, reorganizations and reclassifications.
The Stock Purchase Plan is administered by a committee of at least
three persons appointed by the Company's Board of Directors. The committee is
authorized to adopt rules and regulations from time to time for carrying out the
provisions of the Stock Purchase Plan. Any interpretation or construction of any
provision of the Stock Purchase Plan by the committee is final and conclusive as
to all persons absent contrary action by the Board of Directors. Any
interpretation or construction of any provision of the Stock Purchase Plan by
the Board of Directors is final and conclusive as to all persons. The
Compensation Committee of the Board of Directors will initially administer the
Stock Purchase Plan.
Full-time employees of the Company or any subsidiary of the Company who
have completed one month of employment prior to the beginning of an enrollment
period are eligible to participate in the Stock Purchase Plan. An otherwise
eligible employee may not purchase shares under the Stock Purchase Plan if
exercising the right to purchase shares of the Company's Common Stock: (i) would
cause the employee to own shares of the Company's Common Stock that possess 5%
or more of the total combined voting power or value of all classes of the
Company's stock or any subsidiary of the Company; or (ii) would cause the
employee to have purchase rights under all stock purchase plans of the Company
or any subsidiary of the Company that meet the requirements of Section 423 of
the Code that accrue at a rate that exceeds $25,000 of fair market value of the
Common Stock of the Company or any subsidiary of the Company for each calendar
year in which such right is outstanding. Separation from employment for any
reason constitutes an automatic withdrawal from the Stock Purchase Plan.
The Stock Purchase Plan provides for semi-annual subscription periods,
extending from January 1 through June 30 or from July 1 through December 31,
respectively, beginning on July 1, 1996 and ending on June 30, 2006. Enrollment
for participation in the Stock Purchase Plan shall take place during the month
preceding each subscription period, which is either the period from December 1
through December 31 or the period from June 1 through June 30 of each year.
Payroll deduction is the only payment method available for the purchase
of Common Stock under the Stock Purchase Plan. Employees may invest a maximum of
10% of their base pay towards the purchase of Common Stock in any subscription
period. At a minimum, an employee must authorize a payroll deduction sufficient
to enable such employee to purchase at least ten shares of the Company's Common
Stock in any subscription period.
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Subscriptions received under the Stock Purchase Plan during each
subscription period will be held by the Company in a plan account maintained for
each employee. At the end of each subscription period, the amount contained in
the employee's plan account will be divided by the subscription price for the
applicable subscription period, and the employee's plan account will be credited
with the resulting number of whole shares. The subscription price for any
subscription period will be equal to the lesser of 90% of the closing price of
the Common Stock as reported on the last trading day before the first day of the
enrollment period with respect to such subscription period or 90% of the closing
price of the Common Stock as reported on the last trading day of such
subscription period; provided that the subscription price will never be less
than $.01 per share.
No employee may assign his rights under the Stock Purchase Plan. An
employee may transfer rights under the Stock Purchase Plan only by will or by
the laws of descent and distribution, and such subscription rights shall be
exercisable, during an employee's lifetime, only by the employee.
Upon the discontinuance of an employee's employment with the Company or
a subsidiary of the Company or an employee's withdrawal from the Stock Purchase
Plan, the amount of any cash credited to the employee's Stock Purchase Plan
account for the current subscription period will be refunded by the Company to
the employee without interest. Withdrawal by an officer subject to Section 16 of
the Exchange Act, except for withdrawal because of the discontinuance of an
officer's employment with the Company or a subsidiary of the Company, will
become effective only at the end of a subscription period. No further payroll
deductions will be made with respect to employees who have withdrawn from the
Stock Purchase Plan. An employee's withdrawal from the Stock Purchase Plan does
not affect such employee's eligibility to participate in the Stock Purchase Plan
during succeeding subscription periods. A retiring employee or a beneficiary of
a participating employee upon the death of such employee may elect to purchase
the appropriate number of whole shares of Common Stock using the date of
retirement or death as though it were the last day of a subscription period.
Amendment and Termination
The Stock Purchase Plan will remain in effect until June 30, 2006 or
until all shares available for purchase are purchased under the Stock Purchase
Plan. The Board of Directors of the Company has the right to terminate the Stock
Purchase Plan at any time without notice, as long as no participant's existing
rights are adversely affected thereby. Without stockholder approval, no
amendments may be made to the Stock Purchase Plan to: (i) increase materially
the benefits accruing to participants under the Stock Purchase Plan; (ii)
increase the total number of shares of Common Stock subject to the Stock
Purchase Plan; (iii) change
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the formula by which the price at which the shares of Common Stock shall be sold
is determined; or (iv) change the class of employees eligible to participate in
the Stock Purchase Plan.
Federal Income Tax Consequences
The Stock Purchase Plan is intended to qualify under the provisions of
Section 423 of the Code. No income will be realized for federal income tax
purposes by a participant upon the purchase of shares under the Stock Purchase
Plan. For participants who do not dispose of their shares within two years after
the date on which the right to purchase was granted nor within one year after
their shares were purchased, the gain on sale of the shares following the end of
the required holding period (or their increase in value in the event of death
prior to sale) will, under the present provisions of the Code, be taxed as
ordinary income to the extent of the lesser of (i) an amount equal to the
difference between the fair market value of the shares on the date of grant and
90% of such value on such date or (ii) an amount equal to the difference between
the fair market value of the shares at the time of disposition and the amount
paid for such shares under the Stock Purchase Plan. Any additional gain will be
treated as long-term capital gain assuming the shares are capital assets in the
participant's hands. If a participant is entitled to long-term capital gain
treatment upon a sale of the stock, the Company will not be entitled to any
deduction for federal income tax purposes with respect thereto. For participants
who dispose of their shares within two years after the date of grant or within
one year after their shares were purchased, the gain on the sale of the shares
will, under the present provisions of the Code, be taxed as ordinary income to
the extent of the difference between the purchase price of the shares and the
fair market value of the shares on the purchase date and such difference will be
deductible by the Company for federal income tax purposes. Any additional gain
will be treated as long-term or short-term capital gain, depending on whether
the shares have been held for more or less than one year from the date they were
purchased.
Vote Required
Approval of the Stock Purchase Plan will require the affirmative vote
of the holders of a majority of the outstanding shares of the Company's Prior
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote. Abstentions are considered shares of stock present in person
or represented by proxy at the meeting and entitled to vote and are counted in
determining the number of votes necessary for a majority. An abstention from
voting will therefore have the practical effect of voting against approval of
the Stock Purchase Plan because it represents one fewer vote for approval.
Broker non-votes are not considered shares present in person or represented by
proxy and entitled to vote on the amendment and
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will have no effect on the vote. The Board of Directors recommends a vote FOR
the approval of the Stock Purchase Plan.
STOCKHOLDER PROPOSALS
Any stockholder who, in accordance with and subject to the provisions
of the proxy rules of the Commission, wishes to submit a proposal for inclusion
in the Company's proxy statement for the 1997 Annual Meeting of Stockholders
must deliver such proposal in writing to the Secretary of the Company at the
Company's mailing address in Danboro, Pennsylvania, not later than December 30,
1996.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual Meeting,
but if other matters are properly presented, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance with their
judgment.
By Order of the Board of Directors,
Kenneth A. Swanstrom
Chairman of the Board
April 29, 1996
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EXHIBIT A
Article IV of the Certificate of Incorporation of Penn
Engineering & Manufacturing Corp. (the "Corporation:") is hereby
amended and restated in its entirety to provide as follows:
The total number of shares of stock which the Corporation
shall have the authority to issue is 23,000,000 shares consisting of
(i) 20,000,000 shares of Common Stock (the "Common Stock"), par value
$.01 per share, and (ii) 3,000,000 shares of Class A Common Stock (the
"Class A Common Stock"), par value $.01 per share. Upon a Certificate
of Amendment of Certificate of Incorporation becoming effective (the
"Effective Time") pursuant to the General Corporation Law of the State
of Delaware (the "DGCL"), and without any further action on part of the
Corporation or its stockholders, each share of the Corporation's Common
Stock, par value $1.00 per share (the "Prior Common Stock"), then
issued, including shares held in the treasury of the Corporation, shall
be automatically reclassified, changed and converted into one fully
paid and non-assessable share of Class A Common Stock, par value $.01
per share. Any stock certificate that, immediately prior to the
Effective Time, represents shares of Prior Common Stock, will, from and
after the Effective Time, automatically and without the necessity of
presenting the same for exchange, represent that number of shares of
Class A Common Stock equal to the number of shares of Prior Common
Stock represented by such certificate prior to the Effective Time. For
purpose of Article IX of this Certificate of Incorporation, the term
"Common Stock" as used in Article IX shall be deemed to refer to the
Class A Common Stock.
The Common Stock and Class A Common Stock are hereinafter
collectively referred to as the "Common Stocks." The designations and
powers, preferences and rights, and the qualifications, limitations on
restrictions thereof, of the above classes of stock shall be as
follows:
(a) Rights. Except as otherwise required by law or as
otherwise provided in this Article IV, each share of Common
Stock and each share of Class A Common Stock shall have
identical powers, preferences, qualifications, limitations and
other rights.
(b) Dividends. Subject to all of the rights of any
class of stock authorized after the effective date of this
provision of Article IV ranking senior to the Common Stocks as
to dividends, dividends may be paid upon the Common Stock and
the Class A Common Stock as and when declared by the Board of
Directors out of funds and other assets legally available for
the payment of dividends. If and when dividends on the Common
Stock and the Class A Common Stock are declared and payable
from time to time by the Board of Directors whether payable in
cash, in property or in shares of
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<PAGE>
stock of the Corporation, the holders of the Common Stock and
the holders of the Class A Common Stock shall be entitled to
share equally, on a per share basis, in such dividends, except
that (1) a dividend or distribution in cash or property on a
share of Common Stock may be greater than any dividend or
distribution in cash or property on a share of Class A Common
Stock, and (2) dividends or other distributions payable on the
Common Stocks in shares of any authorized class or series of
capital stock of the Corporation may be made (i) in shares of
Common Stock to the holders of Common Stock and in shares of
Class A Common Stock to the holders of Class A Common Stock,
(ii) in shares of Common Stock to the holders of Common Stock
and to the holders of Class A Common Stock, or (iii) in any
other authorized class or series of capital stock to the
holders of both classes of the Common Stocks.
(c) Liquidation. In the event of any liquidation,
dissolution or winding up of the Corporation, whether
voluntary or involuntary, and after the holders of any class
of stock authorized after the effective date of this provision
of Article IV ranking senior to the Common Stocks as to assets
shall have been paid in full the amount to which such holders
shall be entitled, or an amount sufficient to pay the
aggregate amount to which such holders shall be entitled shall
have been set aside for the benefit of the holders of such
stock, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of both classes of the
Common Stocks.
(d) Merger and Consolidation. In the event of a
merger or consolidation of the Corporation with or into
another entity (whether or not the Corporation is the
surviving entity), the holders of Common Stock shall be
entitled to receive the same per share consideration as the
per share consideration, if any, received by any holder of the
Class A Common Stock in such merger or consolidation.
(e) Voting.
(1) Except as otherwise expressly provided
with respect to any other class of stock and except
as otherwise may be required by law or this Article
IV, the Class A Common Stock shall have the exclusive
right to vote for the election of directors and for
all other purposes and each holder of Class A Common
Stock shall be entitled to one vote for each share of
Class A Common Stock held. Except as expressly
provided in this Article IV and except as otherwise
required by
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<PAGE>
law, the Common Stock shall have no voting rights.
There shall be no cumulative voting rights in the
election of directors.
(2) The Common Stock shall be entitled to
vote separately as a class only with respect to (i)
proposals to change the par value of the Common
Stock, (ii) other amendments to this Article IV that
alter or change the powers, preferences or special
rights of the Common Stock as to affect them
adversely, and (iii) such other matters as may
require class voting under the DGCL.
(3) The number of authorized shares of
Common Stock and Class A Common Stock may be
increased or decreased, but not below the number of
shares then outstanding, by the affirmative vote of
the holders of a majority of the Class A Common
Stock.
(f) Stock Splits. The Corporation may not split,
divide or combine the shares of either class of the Common
Stocks unless, at the same time, the Corporation splits,
divides or combines, as the case may be, the shares of the
other class of the Common Stocks into the same proportion and
manner.
(g) No Pre-emptive Rights. No stockholder of this
Corporation shall by reason of his holding shares of any class
have any pre-emptive or preferential right to purchase or
subscribe to any shares of any class of this Corporation, now
or hereafter to be authorized, or any notes, debentures,
bonds, or other securities convertible into or carrying
options or warrants to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any
such shares, or such notes, debentures, bonds or other
securities, would adversely affect the dividend or voting
rights of such stockholder, other than such rights, if any, as
the Board of Directors, in its discretion may fix; and the
Board of Directors may issue shares of any class of this
Corporation, or any notes, debentures, bonds, or other
securities convertible into or carrying options or warrants to
purchase shares of any class, without offering any such shares
of any class, either in whole or in part, to the existing
stockholders of any class.
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<PAGE>
(h) Issuances and Repurchases of the Common
Stocks.
(1) The Board of Directors shall have the
power to issue and sell all or any part of any class
of stock herein or hereafter authorized to such
persons, firms, associations or corporations, and for
such consideration as the Board of Directors shall
from time to time, in its discretion, determine,
whether or not greater consideration could be
received upon the issue or sale of the same number of
shares of another class, and as otherwise permitted
by law.
(2) The Board of Directors shall have the
power to purchase any class of stock herein or
hereafter authorized from such persons, firms,
associations or corporations, and for such
consideration as the Board of Directors shall from
time to time, in its discretion, determine, whether
or not less consideration could be paid upon the
purchase of the same number of shares of another
class, and as otherwise permitted by law.
(i) Convertibility.
Neither the Common Stock nor the Class A
Common Stock will be convertible into another
class of common stock or any other security of the
Company.
Notwithstanding the provisions set forth in
the preceding sentence, in the event that the
Swanstrom family ceases to own beneficially not less
than an aggregate of 40% of the then outstanding
shares of Class A Common Stock, (i) all of the then
issued shares of Common Stock will automatically
convert into an equal number of shares of Class A
Common Stock, and (ii) all rights, warrants or
options to purchase shares of Common Stock, or other
securities convertible into shares of Common Stock,
will be converted into similar rights to purchase, or
convert into, an equal number of shares of Class A
Common Stock. For purposes of this subparagraph, the
"Swanstrom family" shall mean Kenneth A. Swanstrom,
Daryl L. Swanstrom and certain related trusts, which
beneficially owned immediately prior to the Effective
Time an aggregate of 894,890 shares of the Prior
Common Stock.
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<PAGE>
PENN ENGINEERING & MANUFACTURING CORP.
Annual Meeting of Stockholders to be held May 22, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned hereby constitutes and appoints Kenneth A. Swanstrom
and Thomas M. Hyndman, Jr., and each or either of them, proxies of the
undersigned, with full power of substitution, to vote all of the shares of Penn
Engineering & Manufacturing Corp. (the "Company") which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of the Company to be held
at the offices of the Company, Plant #2, Old Easton Road, Danboro, Pennsylvania,
on Wednesday, May 22, 1996, at 2:00 p.m., and at any adjournments thereof, as
follows:
(Continued and to be signed on reverse side)
<PAGE>
|X| Please mark
your votes like
____________ this in blue or
COMMON black ink
WITHHOLD
1. Election of Class B Directors FOR AUTHORITY
Nominees: Kenneth A. Swanstrom |_| |_|
Lewis W. Hull
Mark W. Simon
Instruction: To Withhold authority, write the name of the nominee(s)
in the space provided:
WITHHOLD
2. Election of Class A Director FOR AUTHORITY
Nominee: Frank S. Hermance |_| |_|
3. Approval of Auditors FOR AGAINST ABSTAIN
Proposal to elect Deloitte & Touche LLP |_| |_| |_|
as the Company's independent public
accountants for 1996
4. Approval of the Amendment to the FOR AGAINST ABSTAIN
Company's Certificate of Incorporation |_| |_| |_|
5. Approval of the Company's 1996 FOR AGAINST ABSTAIN
Equity Incentive Plan |_| |_| |_|
6. Approval of the Company's 1996 FOR AGAINST ABSTAIN
Employee Stock Purchase Plan |_| |_| |_|
7. In their discretion the proxies are
authorized to vote upon such other
matters as may properly come
before the meeting and any
adjournment thereof.
This Proxy when properly executed will
be voted in the manner directed herein
by the undersigned stockholder. If no
direction is made, this proxy will be
voted FOR the nominees for Class B
Directors set forth in proposal 1, FOR
the nominee for Class A Director set
forth in proposal 2 and FOR proposals
3, 4, 5 and 6.
-------------------------------------
Signature of Stockholder
-------------------------------------
Signature(s)
Date:__________________________, 1996
Note: Please sign your name exactly
as it appears hereon.If stock is
registered in more than one name, each
joint owner must sign. When signing
as attorney, executor, administrator,
guardian or corporate officer, please
give your full title as such.
Please sign, date and return this proxy in the enclosed postage paid envelope.
<PAGE>
THE FOLLOWING MATERIALS ARE BEING PROVIDED TO THE COMMISSION
AND ARE NOT INCLUDED WITH THE PROXY MATERIALS TO BE DISTRIBUTED TO STOCKHOLDERS
APPENDIX A
PENN ENGINEERING & MANUFACTURING CORP.
1996 EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the Penn Engineering & Manufacturing Corp.
1996 Equity Incentive Plan (the "Plan") is to further the growth, development
and financial success of Penn Engineering & Manufacturing Corp. (the "Company")
and the subsidiaries of the Company by providing additional incentives to those
officers and key employees who are responsible for the management of the
business affairs of the Company and/or subsidiaries of the Company, which will
enable them to participate directly in the growth of the value of the capital
stock of the Company. The Company intends that the Plan will facilitate
securing, retaining and motivating management employees of high caliber and
potential. To accomplish these purposes, the Plan provides a means whereby
management employees may receive stock options ("Options") to purchase the
Company's nonvoting Common Stock, par value $.01 par value (the "Common Stock").
2. Administration.
(a) Composition of the Committee. The Plan shall be
administered by a committee of at least three persons (the "Committee")
appointed by the Company's Board of Directors. No member of the Committee shall
have been, or shall be, granted Options under the Plan, or options or other
awards under any other plan of the Company or any of its affiliates, in the year
preceding his appointment or while serving on the Committee, except for
participation in any plan in which participation would be permitted in
accordance with the applicable rules of the Securities and Exchange Commission
relating to disinterested administration under the Securities Exchange Act of
1934 (the "Exchange Act"). Subject to the foregoing, from time to time the Board
of Directors may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies, however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
(b) Authority of the Committee. The Committee shall have full
and final authority, in its sole discretion, to interpret the provisions of the
Plan and to decide all questions of fact arising in its application; to
determine the employees to whom Options shall be granted and the type, amount,
size and terms of each such grant; to determine the time when Options shall be
granted; and to make all other determinations necessary or advisable for the
administration of the Plan. All decisions, determinations and interpretations of
the Committee shall be final and binding on all optionees and all other holders
of Options granted under the Plan.
3. Stock Subject to the Plan. Subject to Section 16 hereof, the shares
that may be issued under the Plan shall not exceed in the aggregate 500,000
shares of Common Stock. Such shares may be authorized and unissued shares or
shares issued and subsequently reacquired by the Company. Except as otherwise
provided herein, any shares subject to an Option that for any
<PAGE>
reason expires or is terminated unexercised as to such shares shall again be
available under the Plan.
4. Eligibility To Receive Options. Persons eligible to receive Options
under the Plan shall be limited to those officers and other key employees of the
Company and any subsidiary of the Company (as defined in Section 425 of the
Internal Revenue Code of 1986 (the "Code") or any amendment or substitute
thereto) who are in positions in which their decisions, actions and counsel
significantly impact upon the profitability and success of the Company or any
subsidiary of the Company. Directors of the Company who are not also officers or
employees of the Company or any subsidiary of the Company shall not be eligible
to participate in the Plan.
5. Types of Options. Grants may be made at any time and from time to
time by the Committee in the form of stock options to purchase shares of Common
Stock. Options granted hereunder may be Options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code or any
amendment or substitute thereto ("Incentive Stock Options") or Options that are
not intended to so qualify ("Nonqualified Stock Options").
6. Option Agreements. Options for the purchase of Common Stock shall be
evidenced by written agreements in such form not inconsistent with the Plan as
the Committee shall approve from time to time. The Options granted hereunder may
be evidenced by a single agreement or by multiple agreements, as determined by
the Committee in its sole discretion. Each option agreement shall contain in
substance the following terms and conditions:
(a) Type of Option. Each option agreement shall identify the
Options represented thereby either as Incentive Stock Options or Nonqualified
Stock Options, as the case may be.
(b) Option Price. Each option agreement shall set forth the
purchase price of the Common Stock purchasable upon the exercise of the Option
evidenced thereby. Subject to the limitation set forth in Section 6(d)(ii) of
the Plan, the purchase price of the Common Stock subject to an Incentive Stock
Option shall be not less than 100% of the fair market value of such stock on the
date the Option is granted, as determined by the Committee, but in no event less
than the par value of such stock. The purchase price of the Common Stock subject
to a Nonqualified Stock Option shall be not less than 100% of the fair market
value of such stock on the date the Option is granted, as determined by the
Committee. For this purpose, fair market value on any date shall mean the
closing price of the Common Stock, as reported in The Wall Street Journal (or if
not so reported, as otherwise reported by the American Stock Exchange or the New
York Stock Exchange or such other exchange or system on which the Common Stock
shall then be listed, or if not so reported, the fair market value shall be as
determined by the Committee pursuant to Section 422 of the Code.
(c) Exercise Term. Each Option shall vest in four cumulative
installments consisting of 25% of the shares of Common Stock subject to the
Option commencing on the first, second, third and fourth anniversaries after the
grant date of the Option. The Committee shall
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<PAGE>
have the power to permit an acceleration of exercise terms upon such
circumstances and subject to such terms and conditions as the Committee deems
appropriate.
(d) Incentive Stock Options. In the case of an Incentive Stock
Option, each option agreement shall contain such other terms, conditions and
provisions as the Committee determines to be necessary or desirable in order to
qualify such Option as a tax-favored Option (within the meaning of Section 422
of the Code or any amendment or substitute thereto or regulation thereunder)
including without limitation, each of the following, except that any of these
provisions may be omitted or modified if it is no longer required in order to
have an Option qualify as a tax-favored Option within the meaning of Section 422
of the Code or any substitute therefor:
(i) The aggregate fair market value (determined as of the date
the Option is granted) of the Common Stock with respect to which Incentive Stock
Options are first exercisable by any employee during any calendar year (under
all plans of the Company) shall not exceed $100,000.
(ii) No Incentive Stock Options shall be granted to any
employee if at the time the Option is granted to the individual who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its subsidiaries unless at the time such Option is
granted the Option price is at least 110% of the fair market value of the stock
subject to the Option and, by its terms, the Option is not exercisable after the
expiration of five years from the date of grant.
(iii) No Incentive Stock Options shall be exercisable more
than three months (or one year, in the case of an employee who dies or becomes
disabled within the meaning of Section 22(e)(3) of the Code or any substitute
therefor) after termination of employment.
(e) Substitution of Options. Options may be granted under the
Plan from time to time in substitution for stock options held by employees of
other corporations who are about to become, and who do concurrently with the
grant of such options become, employees of the Company or a subsidiary of the
Company as a result of a merger or consolidation of the employing corporation
with the Company or a subsidiary of the Company, or the acquisition by the
Company or a subsidiary of the Company of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of the Company of
stock of the employing corporation. The terms and conditions of the substitute
options so granted may vary from the terms and conditions set forth in this
Section 6 to such extent as the Committee at the time of grant may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.
7. Date of Grant. The date on which an Option shall be deemed to have
been granted under the Plan shall be the date of the Committee's authorization
of the Option or such later date as may be determined by the Committee at the
time the Option is authorized. Notice of the determination shall be given to
each individual to whom an Option is so granted within a reasonable time after
the date of such grant.
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<PAGE>
8. Exercise and Payment for Shares; Restriction on Transferability of
Shares. Options may be exercised in whole or in part, from time to time, by
giving written notice of exercise to the Secretary of the Company, specifying
the number of shares to be purchased. The purchase price of the shares with
respect to which an Option is exercised shall be payable in full with the notice
of exercise in cash, Common Stock at fair market value, or a combination
thereof, as the Committee may determine from time to time and subject to such
terms and conditions as may be prescribed by the Committee for such purpose. No
shares purchased upon exercise of an Option may be sold or otherwise transferred
for a period of two years after the date that the Option was exercised, subject
to the removal of such restriction at the discretion of the Committee.
9. Rights upon Termination of Employment. In the event that an optionee
ceases to be an employee of the Company or any subsidiary of the Company for any
reason other than death, retirement, as hereinafter defined, or disability
(within the meaning of Section 22(e)(3) of the Code or any substitute therefor),
the optionee shall have the right to exercise the Option during its term within
a period of three months after such termination to the extent that the Option
was exercisable at the time of termination, or within such other period, and
subject to such terms and conditions as may be specified by the Committee. In
the event that an optionee dies, retires or becomes disabled prior to the
expiration of his Option and without having fully exercised his Option, the
optionee or his successor shall have the right to exercise the Option during its
term within a period of one year after termination of employment due to death,
retirement or disability to the extent that the Option was exercisable at the
time of termination, or within such other period, and subject to such terms and
conditions as may be specified by the Committee. As used in this Section 9,
"retirement" means a termination of employment by reason of an optionee's
retirement at or after his earliest permissible retirement date pursuant to and
in accordance with his employer's regular retirement plan or personnel
practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, if the
term of an Incentive Stock Option continues for more than three months after
termination of employment due to retirement or more than one year after
termination of employment due to death or disability, such Option shall
thereupon lose its status as an Incentive Stock Option and shall be treated as a
Nonqualified Stock Option.
10. General Restrictions. Each Option granted under the Plan shall be
subject to the requirement that if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the recipient of an Option with respect to the
disposition of shares of Common Stock is necessary or desirable as a condition
of or in connection with the granting of such Option or the issuance or purchase
of shares of Common Stock thereunder, such Option shall not be consummated in
whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
11. Rights of a Stockholder. The recipient of any Option under the
Plan, unless otherwise provided by the Plan, shall have no rights as a
stockholder unless and until certificates for shares of Common Stock are issued
and delivered to him.
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<PAGE>
12. Right to Terminate Employment. Nothing contained in the Plan or in
any option agreement entered into pursuant to the Plan shall confer upon any
optionee the right to continue in the employment of the Company or any
subsidiary of the Company or affect any right that the Company or any subsidiary
of the Company may have to terminate the employment of such optionee.
13. Withholding. Whenever the Company proposes or is required to issue
or transfer shares of Common Stock under the Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If and to the
extent authorized by the Committee, in its sole discretion, an optionee may make
an election, by means of a form of election to be prescribed by the Committee,
to have shares of Common Stock that are acquired upon exercise of an Option
withheld by the Company or to tender other shares of Common Stock or other
securities of the Company owned by the optionee to the Company at the time of
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company as a result of any exercise of an Option.
Any such election shall be irrevocable and shall be subject to termination by
the Committee, in its sole discretion, at any time. Any securities so withheld
or tendered will be valued by the Committee as of the date of exercise.
14. Non-Assignability. No Option under the Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee may approve. During the
life of the recipient, such Option shall be exercisable only by such person or
by such person's guardian or legal representative.
15. Non-Uniform Determinations. The Committee's determinations under
the Plan (including without limitation determinations of the persons to receive
Options, the form, amount and timing of such grants, the terms and provisions of
Options, and the agreements evidencing same) need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, grants of
Options under the Plan whether or not such persons are similarly situated.
16. Adjustments.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and the number of shares of Common Stock that have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such
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<PAGE>
adjustment shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee. The Committee may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as of
a date fixed by the Committee and give each Option holder the right to exercise
his Option as to all or any part of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable.
(c) Sale or Merger. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Committee, in the exercise of its sole
discretion, may take such action as it deems desirable, including, but not
limited to: (i) causing an Option to be assumed or an equivalent option to be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that each Option holder shall have the
right to exercise his Option as to all of the shares of Common Stock covered by
the Option, including shares as to which the Option would not otherwise be
exercisable, or (iii) declare that an Option shall terminate at a date fixed by
the Committee provided that the Option holder is given notice and opportunity to
exercise his Option prior to such date.
17. Amendment. The Committee may terminate or amend the Plan at any
time, except that without stockholder approval the Committee may not (i)
materially increase the maximum number of shares that may be issued under the
Plan (other than increases pursuant to Section 16 hereof), (ii) materially
increase the benefits accruing to participants under the Plan or (iii)
materially modify the requirements as to eligibility for participation in the
Plan. The termination or any modification or amendment of the Plan shall not,
without the consent of a participant, affect his rights under an Option
previously granted.
18. Reservation of Shares. The Company, during the term of the Plan,
will at all times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares hereunder, shall relieve the Company of any liability for the
failure to issue or sell such shares as to which such requisite authority shall
not have been obtained.
19. Effect on Other Plans. Participation in the Plan shall not affect
an employee's eligibility to participate in any other benefit or incentive plan
of the Company or any subsidiary of the Company. Any Options granted pursuant to
the Plan shall not be used in determining the benefits provided under any other
plan of the Company or any subsidiary of the Company unless specifically
provided.
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<PAGE>
20. Duration of the Plan. The Plan shall remain in effect until all
Options granted under the Plan have been satisfied by the issuance of shares,
but no Option shall be granted more than ten years after the earlier of the date
the Plan is adopted by the Company or is approved by the Company's stockholders.
21. Forfeiture for Dishonesty. Notwithstanding anything to the contrary
in the Plan, if the Committee finds, by a majority vote, after full
consideration of the facts presented on behalf of both the Company and any
optionee, that the optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or dishonest conduct in the course of his employment or
retention by the Company or any subsidiary of the Company that damaged the
Company or any subsidiary of the Company or that the optionee has disclosed
confidential information of the Company or any subsidiary of the Company, the
optionee shall forfeit all unexercised Options and all exercised Options under
which the Company has not yet delivered the certificates. The decision of the
Committee in interpreting and applying the provisions of this Section 21 shall
be final. No decision of the Committee, however, shall affect the finality of
the discharge or termination of such optionee by the Company or any subsidiary
of the Company in any manner.
22. No Prohibition on Corporate Action. No provision of the Plan shall
be construed to prevent the Company or any officer or director thereof from
taking any action deemed by the Company or such officer or director to be
appropriate or in the Company's best interest, whether or not such action could
have an adverse effect on the Plan or any Options granted hereunder, and no
optionee or optionee's estate, personal representative or beneficiary shall have
any claim against the Company or any officer or director thereof as a result of
the taking of such action.
23. Indemnification. With respect to the administration of the Plan,
the Company shall indemnify each present and future member of the Committee and
the Board of Directors against, and each member of the Committee and the Board
of Directors shall be entitled without further action on his part to indemnity
from the Company for, all expenses (including the amount of judgments and the
amount of approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to the Company itself) reasonably incurred
by him in connection with or arising out of, any action, suit or proceeding in
which he may be involved by reason of his being or having been a member of the
Committee or the Board of Directors, whether or not he continues to be such
member at the time of incurring such expenses; provided, however, that such
indemnity shall not include any expenses incurred by any such member of the
Committee or the Board of Directors (i) in respect of matters as to which he
shall be finally adjudged in any such action, suit or proceeding to have been
guilty of gross negligence or willful misconduct in the performance of his duty
as such member of the Committee or the Board of Directors; or (ii) in respect of
any matter in which any settlement is effected for an amount in excess of the
amount approved by the Company on the advice of its legal counsel; and provided
further that no right of indemnification under the provisions set forth herein
shall be available to or enforceable by any such member of the Committee or the
Board of Directors unless, within 60 days after institution of any such action,
suit or proceeding, he shall have offered the Company in writing the opportunity
to handle and defend same at its own expense. The foregoing right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each such
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<PAGE>
member of the Committee or the Board of Directors and shall be in addition to
all other rights to which such member may be entitled as a matter of law,
contract or otherwise.
24. Miscellaneous Provisions.
(a) Compliance with Plan Provisions. No optionee or other
person shall have any right with respect to the Plan, the Common Stock reserved
for issuance under the Plan or in any Option until a written option agreement
shall have been executed by the Company and the optionee and all the terms,
conditions and provisions of the Plan and the Option applicable to such optionee
(and each person claiming under or through him) have been met.
(b) Approval of Counsel. In the discretion of the Committee,
no shares of Common Stock, other securities or property of the Company or other
forms of payment shall be issued hereunder with respect to any Option unless
counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal, state, local and foreign legal, securities
exchange and other applicable requirements.
(c) Compliance with Rule 16b-3. To the extent that Rule 16b-3
under the Exchange Act applies to Options granted under the Plan, it is the
intent of the Company that the Plan comply in all respects with the requirements
of Rule 16b-3, that any ambiguities or inconsistencies in construction of the
Plan be interpreted to give effect to such intention and that if the Plan shall
not so comply, whether on the date of adoption or by reason of any later
amendment to or interpretation of Rule 16b-3, the provisions of the Plan shall
be deemed to be automatically amended so as to bring them into full compliance
with such rule.
(d) Effects of Acceptance of Option. By accepting any Option
or other benefit under the Plan, each optionee and each person claiming under or
through him shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan by the Company,
the Board of Directors and/or the Committee or its delegates.
(e) Construction. The masculine pronoun shall include the
feminine and neuter, and the singular shall include the plural, where the
context so indicates.
25. Stockholder Approval. The exercise of any Option granted under the
Plan shall be subject to the approval of the Plan by the affirmative vote of the
holders of a majority of the outstanding shares of the Common Stock present, or
represented, and entitled to vote at a meeting duly held.
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APPENDIX B
PENN ENGINEERING & MANUFACTURING CORP.
1996 EMPLOYEE STOCK PURCHASE PLAN
As Adopted as of April 17, 1996
Section 1. Purpose.
The Penn Engineering & Manufacturing Corp. 1996 Employee Stock Purchase
Plan has been established by Penn Engineering & Manufacturing Corp. (the
"Company") for the benefit of the eligible employees of the Company and
participating subsidiaries of the Company. The purpose of this Plan is to
provide each eligible employee with an opportunity to acquire or increase his
proprietary interest in the Company through the purchase of shares of the
Company's nonvoting Common Stock, par value $.01 per share (the "Common Stock"),
at a discount from current market prices. This Plan is intended to meet the
requirements of Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
Section 2. Eligible Employees.
(a) Employees eligible to participate in this Plan ("Eligible
Employees") shall consist of all individuals: (i) who are full-time employees
(as defined in Section 2(b) of this Plan) of the Company or any subsidiary (as
defined in Section 425 of the Code) of the Company (a "Participating
Subsidiary"), and (ii) who have completed one month of employment on or prior to
the date on which an Enrollment Period (as hereinafter defined) begins.
(b) A "full-time employee" is an employee of the Company or any
Participating Subsidiary who works or is scheduled to work at least 1,000 hours
during any calendar year. An employee who is not scheduled to work at least
1,000 hours during a calendar year, but who in fact works at least 1,000 hours
during a calendar year, shall be considered a "full-time employee" once the
employee works for 1,000 hours during such year.
(c) A person who is otherwise an Eligible Employee shall not be granted
any right to purchase shares of the Company's Common Stock under this Plan to
the extent that: (i) based on such person's ownership of the Company's Common
Stock at the time the right is granted, such right, if exercised, would cause
the person to own shares of Common Stock (including shares that would be owned
if all outstanding options to purchase Common Stock held by such person were
exercised) that possess 5% or more of the total combined voting power or value
of all classes of stock of the Company, or any subsidiary of the Company, or
(ii) such right would cause such
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person to have purchase rights under this Plan and all other stock purchase
plans of the Company or any subsidiary of the Company that meet the requirements
of Section 423 of the Code that accrue at a rate that exceeds $25,000 of fair
market value of the Common Stock of the Company or any subsidiary of the Company
(determined at the time the right to purchase Common Stock under this Plan is
granted) for each calendar year in which such right is outstanding. For this
purpose, a right to purchase Common Stock accrues when such right first becomes
exercisable during the calendar year (but the rate of accrual for any calendar
year may in no event exceed $25,000 of the fair market value of the Common Stock
subject to the right), and the number of shares of Common Stock under one right
may not be carried over to any other right.
(d) Notwithstanding anything to the contrary set forth in this Plan,
officers of the Company or any Participating Subsidiary who are subject to
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") with
respect to their ownership of shares of the Company's Common Stock ("Section 16
Officers") shall be subject to the restrictions and conditions set forth in
Sections 7(b) and 9 of this Plan.
Section 3. Duration of Plan and Subscription Periods.
This Plan shall be in effect from July 1, 1996 through and including
June 30, 2006. During the term of this Plan, there shall be 20 semi-annual
"Subscription Periods." Each Subscription Period shall extend from January 1
through June 30 or from July 1 through December 31, respectively, with the first
Subscription Period beginning on July 1, 1996 and the last Subscription Period
ending on June 30, 2006.
Section 4. Enrollment and Enrollment Period.
Enrollment for participation in this Plan shall take place during the
"Enrollment Period" preceding each Subscription Period, which shall be either
the period from the 1st through the 31st day of December or the period from the
1st through the 30th day of June of each year. Any person who is an Eligible
Employee and who desires to subscribe for the purchase of Common Stock must file
a subscription agreement during an Enrollment Period, and such employee's
participation in this Plan shall commence at the outset of the next Subscription
Period. Once enrolled, an Eligible Employee shall continue to participate in
this Plan for each succeeding Subscription Period until such Eligible Employee
terminates his participation or ceases to be an Eligible Employee. An Eligible
Employee who desires to change his rate of contribution may do so effective as
of the beginning of the next Subscription Period during the Enrollment Period
for the next Subscription Period. An Eligible Employee who is not a Section 16
Officer may also change his rate of contribution during a Subscription Period
only pursuant to Section 7(b) of this Plan.
Section 5. Number of Shares To Be Offered.
The total number of shares to be made available under this Plan is
150,000 shares of the Company's Common Stock. Such Common Stock may be
authorized and
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unissued shares or shares issued and thereafter acquired by the Company. In the
event the total number of shares available for purchase under this Plan are
purchased prior to the expiration of this Plan, this Plan may be terminated in
accordance with Section 13 of this Plan.
Section 6. Subscription Price.
The "Subscription Price" for each share of Common Stock subscribed for
under this Plan during each Subscription Period shall be the lesser of 90% of
the fair market value of such share on the last trading day before the first day
of the Enrollment Period with respect to such Subscription Period or 90% of the
fair market value of such share on the last trading day of such Subscription
Period. The fair market value of a share shall be the closing price reported by
the American Stock Exchange or the New York Stock Exchange, or such other
exchange or quotation system, as the case may be, on which the shares of Common
Stock are then traded, on the applicable date; provided, however, that the
Subscription Price shall never be less than $.01 per share.
Section 7. Amount of Contribution and Method of Payment.
(a) The Subscription Price shall be payable by the Eligible Employee by
means of payroll deduction. The maximum payroll deduction shall be no more than
10% of an Eligible Employee's Base Pay (as hereinafter defined). The minimum
payroll deduction an Eligible Employee must authorize is a payroll deduction,
based on such employee's rate of Base Pay at the time of such authorization,
that will enable such employee to accumulate by the end of the Subscription
Period an amount sufficient to purchase at least ten shares of Common Stock. An
Eligible Employee may not make separate cash deposits toward the payment of the
Subscription Price.
(b) An Eligible Employee who is not a Section 16 Officer may at any
time during a Subscription Period reduce the amount previously authorized to be
deducted from his Base Pay, provided the reduction conforms with the minimum
payroll deduction set forth in Section 7(a) of this Plan, by forwarding to the
Company a written notice setting forth the reduction in his payroll deduction.
The change shall become effective on a prospective basis as soon as practicable
after receipt by the Company of the change notice. A payroll deduction may be
changed under this Section 7(b) of this Plan, by forwarding to the Company a
written notice setting forth the reduction in his payroll deduction only once
during any Subscription Period and shall remain in effect for subsequent
Subscription Periods, subject to compliance with Section 7(a) of this Plan,
until such Eligible Employee terminates his participation or ceases to be an
Eligible Employee. A Section 16 Officer may not change his rate of contribution
during a Subscription Period.
(c) "Base Pay" means the straight-time earnings or regular salary paid
to an Eligible Employee. Base Pay shall not include overtime, bonuses or other
items that are not considered to be regular compensation by the committee
administering
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this Plan pursuant to Section 14 of this Plan. Payroll deductions shall commence
with the first paycheck issued during the Subscription Period and shall continue
with each paycheck throughout the entire Subscription Period, except for pay
periods for which the Eligible Employee receives no compensation (i.e.,
uncompensated personal leave, leave of absence, etc.).
Section 8. Purchase of Shares.
The Company shall maintain on its books a "Plan Account" in the name of
each Eligible Employee who authorized a payroll deduction (a "participant"). At
the close of each pay period, the amount deducted from the participant's Base
Pay shall be credited to the participant's Plan Account. No interest shall be
paid by the Company on any Plan Account balance. As of the last day of each
Subscription Period, the amount then in the participant's Plan Account shall be
divided by the Subscription Price for such Subscription Period and the
participant's Plan Account shall be credited with the number of whole shares
that results. Share certificates shall be issued and delivered to each
participant within a reasonable time thereafter. Any amount remaining in a
participant's Plan Account shall be carried forward to the next Subscription
Period, but shall not otherwise reduce the amount a participant may contribute
pursuant to Section 7 of this Plan during the next Subscription Period. If a
participant does not accumulate sufficient funds in his Plan Account to purchase
at least ten shares of Common Stock during a Subscription Period, such
participant shall be deemed to have withdrawn from this Plan pursuant to Section
9 of this Plan.
If the number of shares subscribed for during any Subscription Period
exceeds the number of shares available for purchase under this Plan, the
remaining shares available for purchase shall be allocated among all
participants in proportion to their Plan Account balances, exclusive of any
amounts carried forward pursuant to the preceding paragraph. If the number of
shares that would be credited to any participant's Plan Account in either or
both of the Subscription Periods occurring during any calendar year exceeds the
limit specified in Section 2(c) of this Plan, the participant's Plan Account
shall be credited with the maximum number of shares permissible, and the
remaining amounts shall be refunded in cash without interest thereon.
Section 9. Withdrawal from this Plan.
A participant other than a Section 16 Officer (unless the withdrawal
occurs pursuant to Section 10 of this Plan) may withdraw from this Plan at any
time by giving written notice of withdrawal to the Company. As soon as
practicable following receipt of a notice of withdrawal, the amount credited to
the participant's Plan Account shall be refunded in cash without interest
thereon. No further payroll deductions shall be made with respect to such
participant except in accordance with an authorization for a new payroll
deduction filed during a subsequent Enrollment Period in accordance with Section
4 of this Plan. A participant's withdrawal shall not affect
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his eligibility to participate during any succeeding Subscription Period. A
withdrawal by a Section 16 Officer, other than a withdrawal under Section 10 of
this Plan, shall not become effective until the Subscription Period that
commences after the date written notice of such withdrawal is received by the
Company.
Section 10. Separation from Employment.
Separation from employment for any reason, including death, disability
or retirement (as hereinafter defined) shall be treated as an automatic
withdrawal pursuant to Section 9 of this Plan. However, at the election of a
participant who retires, or in the event of a participant's death at the
election of his beneficiary, any cash balance in such participant's Plan Account
may be used to purchase the appropriate number of whole shares of Common Stock
at a Subscription Price determined in accordance with Section 6 of this Plan
using the date of his retirement or death as though it was the last day of the
Subscription Period. Any cash balance in the Plan Account after such purchase
shall be refunded in cash to the participant, or in the event of his death to
his beneficiary without interest thereon. A transfer of employment among the
Company or any Participating Subsidiary shall not be treated as a separation
from employment. As used in this Section 10, "retirement" means a termination of
employment by reason of a participant's retirement at or after his earliest
permissible retirement date pursuant to and in accordance with his employer's
regular retirement plan or practice.
Section 11. Assignment and Transfer Prohibited.
No participant may assign, pledge, hypothecate or otherwise dispose of
his subscription or rights to subscribe under this Plan to any other person, and
any attempted assignment, pledge, hypothecation or disposition shall be void,
provided that a participant may acquire the shares of Common Stock subscribed to
under this Plan in the name of the participant and another person jointly with
the right of survivorship upon appropriate written notice to the Company. No
subscription or right to subscribe granted to a participant under this Plan
shall be transferable by him otherwise than by will or by the laws of descent
and distribution, and such subscription rights shall be exercisable, during his
lifetime, only by the participant.
Section 12. Adjustment of and Changes in the Common Stock.
In the event that the outstanding shares of Common Stock of the Company
are hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company, or of
another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend (either in
shares of the Company's Common Stock or of another class of the Company's
stock), spin-off or combination of shares, appropriate adjustments shall be made
by the Committee appointed pursuant to Section 14 of this
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Plan in the aggregate number and kind of shares that are reserved for sale under
this Plan.
Section 13. Amendment or Discontinuance of this Plan.
The Board of Directors of the Company (the "Board") shall have the
right to amend, modify or terminate this Plan at any time without notice,
provided that no participant's existing rights are adversely affected thereby
and provided further that, without the approval of the holders of a majority of
the shares of the Company's Class B Common Stock present or represented and
entitled to vote at a duly convened meeting of stockholders, no such amendment
shall increase the benefits accruing to participants under this Plan, increase
the total number of shares subject to this Plan, change the formula by which the
price at which the shares shall be sold is determined, or change the class of
employees eligible to participate in this Plan.
Section 14. Administration.
This Plan shall be administered by a committee to be appointed by the
Board consisting of three employees of the Company. The committee may from time
to time adopt rules and regulations for carrying out this Plan. Any
interpretation or construction of any provision of this Plan by the Board shall
be final and conclusive on all persons. Any interpretation or construction of
any provision of this Plan by the committee shall be final and conclusive on all
persons absent contrary action by the Board.
Section 15. Designation of Beneficiary.
A participant may file a written designation of a beneficiary who is to
receive any cash credited to the participant under this Plan in the event of
such participant's death prior to the delivery to him of such cash. Such
designation of a beneficiary may be changed by the participant at any time upon
written notice. Upon the death of a participant and upon receipt by the
committee of proof of the participant's death and of the identity and existence
of a beneficiary validly designated by him under this Plan, the Company shall
deliver such cash to such beneficiary. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver such
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent, or relative is known to the Company,
then to such other person as the Company may designate. No designated
beneficiary shall, prior to the death of the participant by whom he has been
designated, acquire any interest in the shares or cash credited to the
participant under this Plan.
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Section 16. Employees' Rights.
Nothing contained in this Plan shall prevent the Company or any
Participating Subsidiary from terminating any employee's employment. No employee
shall have any rights as a stockholder of the Company by reason of participation
in this Plan unless and until certificates representing the shares of Common
Stock for which he has subscribed shall have been issued and delivered by the
Company.
Section 17. Use of Funds.
All payroll deductions received or held by the Company under this Plan
may be used by the Company for any corporate purpose, and the Company shall not
be obligated to segregate such payroll deductions.
Section 18. Government Regulations.
The Company's obligation to sell and deliver Common Stock under this
Plan is subject to any prior approval or compliance that may be required to be
obtained or made from or with any governmental or regulatory authority in
connection with the authorization, issuance or sale of such Common Stock.
Section 19. Titles.
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of this Agreement.
Section 20. Applicable Law.
This Plan shall be construed, administered and governed in all respects
under the laws of the Commonwealth of Pennsylvania and the United States of
America.
Section 21. Compliance with Rule 16b-3.
To the extent that Rule 16b-3 under the Exchange Act applies to
purchases made under this Plan, it is the intent of the Company that this Plan
comply in all respects with the requirements of Rule 16b-3, that any ambiguities
or inconsistencies in the construction of this Plan be interpreted to give
effect to such intention and that if this Plan shall not so comply, whether on
the date of adoption or by reason of any later amendment to or interpretation of
Rule 16b-3, the provisions of this Plan shall be deemed to be automatically
amended so as to bring them into full compliance with such rule.
Section 22. Approval of Stockholders.
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Prior to January 1, 1997, this Plan shall be submitted for approval by
the affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present or represented and entitled to vote at a duly convened
meeting of stockholders. Subscriptions for the purchase of shares under this
Plan shall be subject to the condition that this Plan shall be approved by the
stockholders of the Company prior to such date in the manner contemplated by
Section 423(b)(2) of the Code. If not so approved prior to such date, this Plan
shall terminate, all subscriptions hereunder shall be cancelled and be of no
further force or effect and all participants shall be entitled to the prompt
refund in cash, without interest, of all sums previously deducted from their
compensation pursuant to this Plan.
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