SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PENN ENGINEERING & MANUFACTURING CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee Required.
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:*
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
2) Form, Schedule or Registration No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
___________
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
<PAGE>
PENN ENGINEERING & MANUFACTURING CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, MAY 1, 1998
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 Friday, May 1, 1998 at
2:00 p.m., local time, at the offices of the Company, Building 3, Old Easton
Road, Danboro, Pennsylvania 18916, for the following purposes:
1. To elect two Class A Directors of the Company to hold office until
the Annual Meeting of Stockholders to be held in 2001 and until their
successors are duly elected;
2. To consider and vote upon a proposal to elect Ernst & Young LLP as
auditors for the Company for its 1998 fiscal year;
3. 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 March 16, 1998 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 the year ended December 31, 1997
is being mailed to the stockholders together with this Notice.
If you do not expect to attend the Annual Meeting in person, please fill
in, sign, date, and return the enclosed form of proxy in the enclosed envelope
to American Stock Transfer & Trust Company.
By Order of the Board of Directors,
Kenneth A. Swanstrom
Chairman of the Board
Date: March 31, 1998
<PAGE>
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 March 31, 1998, 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 Friday, May 1, 1998 at 2:00
p.m., local time, and at any adjournment, postponement, or continuation thereof,
at the offices of the Company, Building 3, Old Easton Road, Danboro,
Pennsylvania 18916. The Company's principal executive offices are located at
Building 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 the Class A Directors named below and in favor
of the election of Ernst & Young LLP as auditors of the Company for its 1998
fiscal year. 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.
The Company has two classes of common stock: Common Stock, par value $.01
per share ("Common Stock"), and Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"). Holders of record of both classes at the close of
business on March 16, 1998 will be entitled to notice of the Annual Meeting, but
only holders of Class A Common Stock of record at the close of business on March
16, 1998 will be entitled to vote at the Annual Meeting. As of March 16, 1998,
the Company had outstanding 1,707,082 shares of Class A Common Stock, each of
which is entitled to one vote. Cumulative voting rights do not exist with
respect to the election of directors. The holders of Common Stock will have no
voting rights at the Annual Meeting. For purposes of the Annual Meeting, a
quorum means a majority of the outstanding shares of Class A Common Stock
represented in person or by proxy at the Annual Meeting.
As of March 16, 1998, certain stockholders, listed in the table herein
under "Beneficial Ownership of Common Stock and Class A Common Stock,"
beneficially owned in the aggregate 894,890 shares, or approximately 52.4%, of
the Company's outstanding Class A Common Stock. Such stockholders have advised
the Company that they will vote their shares for the election of Maurice D. Oaks
and Charles R. Smith as Class A Directors and for the election of Ernst & Young
LLP as the Company's auditors for 1998. Accordingly, Mr. Oaks and Prof. Smith
will be elected as Class A Directors, and Ernst & Young LLP will be elected as
auditors for the Company for 1998 regardless of the votes of the Company's
stockholders other than those listed in such table.
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK AND
CLASS A COMMON STOCK
The following table sets forth, as of February 28, 1998, the amount and
percentage of the Company's outstanding Common Stock and Class A 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 or Class A 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>
NUMBER OF
TITLE OF SHARES PERCENT
CLASS OF BENEFICIALLY OF
NAME OF INDIVIDUAL OR IDENTITY OF GROUP CAPITAL STOCK OWNED(1) CLASS
- --------------------------------------- ------------- ------------ -------
<S> <C> <C> <C>
5% HOLDERS:
Kenneth A. Swanstrom
P.O. Box 1000
Danboro, PA 18916
Individually (2) Common 637,673 9.2%
Class A 244,641 14.3%
Trust under the Will of Gladys Swanstrom (2) Common 91,425 1.3%
Class A 62,975 3.7%
Trusts under the Will of Klas A. Swanstrom (3) Common 197,916 2.9%
Class A 98,472 5.8%
Daryl L. Swanstrom
P.O. Box 2309
Peachtree City, GA 30269
Individually (4) Common 232,043 3.3%
Class A 209,448 12.3%
Trust under Item Fourth of the Will of Common 62,720 *
Lawrence W. Swanstrom (5) Class A 54,240 3.2%
Trust under Item Fifth of the Will of Common 216,649 3.1%
Lawrence W. Swanstrom (5) Class A 111,794 6.5%
Thomas M. Hyndman, Jr. (6)
c/o Duane, Morris & Heckscher LLP
4200 One Liberty Place
Philadelphia, PA 19103-7396
Individually Common 2,110 *
Class A 570 *
Trust under the Will of Gladys Swanstrom (3) Common 91,425 1.3%
Class A 62,975 3.7%
Trusts under the Will of Klas A. Swanstrom (3) Common 197,916 2.9%
Class A 98,472 5.8%
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SHARES PERCENT
CLASS OF BENEFICIALLY OF
NAME OF INDIVIDUAL OR IDENTITY OF GROUP CAPITAL STOCK OWNED(1) CLASS
- --------------------------------------- ------------- ------------ -------
<S> <C> <C> <C>
Trust under Item Fourth of the Will of Common 62,720 *
Lawrence W. Swanstrom (5) Class A 54,240 3.2%
Trust under Item Fifth of the Will of Common 216,649 3.1%
Lawrence W. Swanstrom (5) Class A 111,794 6.5%
Trust under Deed of Klas A. Swanstrom dated 1/12/73 Common 95,750 1.4%
(7) Class A 57,750 3.4%
PNC Bank, National Association (8)
398 North Main Street
Doylestown, PA 18901
Trust under the Will of Gladys Swanstrom (3) Common 91,425 1.3%
Class A 62,975 3.7%
Trusts under the Will of Klas A. Swanstrom (3) Common 197,916 2.9%
Class A 98,472 5.8%
Trust under Deed of Klas A. Swanstrom dated 1/12/73 Common 95,750 1.4%
(7) Class A 57,750 3.4%
Trust under Deed of Klas A. Swanstrom dated 9/26/66 Common 61,250 *
(8) Class A 38,500 2.3%
Trust under Deed of Gladys Swanstrom dated 9/26/66 Common 26,250 *
(8) Class A 16,500 *
NationsBank, N.A. (9)
110 South Tryon Street
NationsBank Plaza
Charlotte, NC 28255
Trust under Item Fourth of the Will of Lawrence W. Common 62,720 *
Swamstrom (5) Class A 54,240 3.2%
Trust under Item Fifth of the Will of Lawrence W. Common 216,649 3.1%
Swamstrom (5) Class A 111,794 6.5%
Other Common -- --
Class A 1,200 *
Royce & Associates, Inc. (10) Common 596,150 8.4%
Royce Management Company Class A 142,950 8.4%
1414 Avenue of the Americas
New York, NY 10019
Sanford C. Bernstein & Co., Inc. (11) Common 630,650 9.1%
767 Fifth Avenue Class A -- --
New York, NY 10153-0185
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SHARES PERCENT
CLASS OF BENEFICIALLY OF
NAME OF INDIVIDUAL OR IDENTITY OF GROUP CAPITAL STOCK OWNED(1) CLASS
- --------------------------------------- ------------- ------------ -------
<S> <C> <C> <C>
TCW Group, Inc. Common 397,000 5.7%
200 Park Avenue Class A -- --
New York, NY 10166
DIRECTORS: (12)
Willard S. Boothby, Jr. Common 1,200 *
Class A 400 *
Lewis W. Hull (13) Common 6,000 *
Class A 2,000 *
Maurice D. Oaks Common 500 *
Class A -- *
Mark W. Simon (14) Common 3,541 *
Class A 100 *
Charles R. Smith Common -- *
Class A -- *
EXECUTIVE OFFICERS: (15)
Martin Bidart (16) Common 2,900 *
Class A 100 *
Raymond L. Bievenour (17) Common 3,050 *
Class A 100 *
Kent R. Fretz (17) Common 2,800 *
Class A 100 *
All Executive Officers and Directors as a Group Common 1,646,377 23.7%
(12 persons) (18) Class A 897,690 52.6%
</TABLE>
- ------------------
* Less than 1%.
(1) Under the rules of 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 and Class
A Common Stock of the Company over which the above-named persons
individually or together share voting power or investment power.
(2) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Class A Common Stock which Kenneth A. Swanstrom could
be deemed to have is 23.8%. Of these shares, Mr. Swanstrom has sole voting
and dispositive power with respect to 637,673 shares of Common Stock and
244,641 shares of Class A Common Stock, of which totals 11,301 shares of
Common Stock and 3,767 shares of Class A Common Stock are owned by Mr.
Swanstrom's wife and 2,100 shares of Common Stock and 700 shares of Class A
Common Stock are owned by their daughters. Mr. Swanstrom disclaims
beneficial ownership of the shares held by his wife and daughters. Mr.
Swanstrom has shared voting and
4
<PAGE>
dispositive power with respect to 91,425 shares of Common Stock and 62,975
shares of Class A Common Stock held by the Trust under the Will of Gladys
Swanstrom and 197,916 shares of Common Stock and 98,472 shares of Class A
Common Stock held by the Trusts under the Will of Klas A. Swanstrom. This
total also includes currently exercisable stock options to purchase 3,750
shares of Common Stock.
(3) The Trustees are Kenneth A. Swanstrom, Thomas M. Hyndman, Jr., and PNC
Bank, N.A. ("PNC").
(4) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Class A Common Stock which Daryl L. Swanstrom could
be deemed to have is 22.0%. Of this total, Mrs. Swanstrom has sole voting
and dispositive power with respect to 232,043 shares of Common Stock and
209,448 shares of Class A Common Stock and shared voting and dispositive
power with respect to 62,720 shares of Common Stock and 54,240 shares of
Class A Common Stock held by the Trust under Item Fourth of the Will of
Lawrence W. Swanstrom and 216,649 shares of Common Stock and 111,794 shares
of Class A Common Stock held by the Trust under Item Fifth of the Will of
Lawrence W. Swanstrom. 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
Class A 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 Company's option to purchase such shares is the higher of
the market price of such shares 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, N.A.
(6) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Class A Common Stock which Thomas M. Hyndman, Jr.
could be deemed to have is 22.6%. Of these shares, Mr. Hyndman has sole
voting and dispositive power with respect to 2,110 shares of Common Stock
and 570 shares of Class A Common Stock, of which totals 400 shares of
Common Stock are owned by Mr. Hyndman's wife. Mr. Hyndman disclaims
beneficial ownership of the shares held by his wife. Mr. Hyndman has shared
voting and dispositive power with respect to the 62,720 shares of Common
Stock and 54,240 shares of Class A Common Stock held by the Trust under
Item Fourth of the Will of Lawrence W. Swanstrom, 216,649 shares of Common
Stock and 111,794 shares of Class A Common Stock held by the Trust under
Item Fifth of the Will of Lawrence W. Swanstrom, 91,425 shares of Common
Stock and 62,975 shares of Class A Common Stock held by the Trust under the
Will of Gladys Swanstrom, 95,750 shares of Common Stock and 57,750 shares
of Class A Common Stock held by the Trust under the Deed of Klas A.
Swanstrom dated 1/12/73, and 197,916 shares of Common Stock and 98,472
shares of Class A Common Stock held by the Trusts under the Will of Klas A.
Swanstrom.
(7) The Trustees are Thomas M. Hyndman, Jr. and PNC.
(8) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Class A Common Stock which PNC could be deemed to
have is 16.1%. Of these shares, 91,425 shares of Common Stock and 62,975
shares of Class A Common Stock are held by the Trust under the Will of
Gladys Swanstrom and 197,916 shares of Common Stock; 98,472 shares of Class
A Common Stock are held by the Trusts under the Will of Klas A. Swanstrom;
95,750 shares of Common Stock and 57,750 shares of Class A Common Stock are
held by the Trust under the Deed of Klas A. Swanstrom dated 1/12/73; and
61,250 shares of Common Stock and 38,500 shares of Class A Common Stock are
held by the Trust under Deed of Klas A. Swanstrom dated 9/26/66 and 26,250
shares of Common Stock and 16,500 shares of Class A Common Stock are held
by the Trust under Deed of Gladys Swanstrom dated 9/26/66, with voting
power shared with Stephen D. Teaford.
5
<PAGE>
(9) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Class A Common Stock which NationsBank, N.A. could be
deemed to have is 9.8%. Of these shares, NationsBank, N.A. has shared
voting and dispositive power with respect to the 62,720 shares of Common
Stock and 54,240 shares of Class A Common Stock held by the Trust under
Item Fourth of the Will of Lawrence W. Swanstrom, 216,649 shares of Common
Stock and 111,794 shares of Class A Common Stock held by the Trust under
Item Fifth of the Will of Lawrence W. Swanstrom. Also, 1,200 shares of
Class A Common Stock are held by NationsBank Texas Bancorporation, Inc., an
affiliate of NationsBank, N.A.
(10) According to Amendment No. 8 to a Schedule 13G dated February 13, 1998,
filed by Royce & Associates, Inc., a New York corporation ("Royce"), Royce
Management Company ("RMC"), and Charles M. Royce. Royce, RMC, 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, Royce has sole voting and dispositive power
with respect to 578,550 shares of Common Stock and 142,950 shares of Class
A Common Stock, and RMC has sole voting and dispositive power with respect
to 17,600 shares of Common Stock. Mr. Royce may be deemed to be a
controlling person of Royce and RMC and as such may be deemed to
beneficially own the shares of capital stock beneficially owned by Royce
and RMC. Mr. Royce does not own any shares outside of Royce and RMC and
disclaims beneficial ownership of the shares held by Royce and RMC.
(11) According to a Schedule 13G dated February 9, 1998, filed by Sanford C.
Bernstein & Co., Inc. ("Sanford"), Sanford may be deemed the beneficial
owner of an aggregate of 630,650 shares of Common Stock held in accounts
managed on a discretionary basis, of which Sanford has sole voting power
with respect to 530,100, sole voting power with an independent voting agent
with respect to 9,450 shares and sole dispositive power with respect to all
of such shares.
(12) Excludes directors listed under "5% Holders."
(13) Of these shares, 3,000 shares of Common Stock and 1,000 shares of Class A
Common Stock are owned by Mr. Hull's wife. Mr. Hull disclaims beneficial
ownership of the shares held by his wife.
(14) Of these shares, 61 shares of Common Stock are owned by Mr. Simon's
daughter. Mr. Simon disclaims beneficial ownership of the shares held by
his daughter. These shares also include currently exercisable stock options
to purchase 2,500 shares of Common Stock.
(15) Excludes executive officers listed under "5% Holders" and executive
officers listed under "Directors."
(16) Of these shares, 100 shares of Common Stock are owned by Mr. Bidart's wife
and 100 shares of Class A Common Stock and 300 shares of Common Stock are
owned jointly with Mr. Bidart's wife. Mr. Bidart disclaims beneficial
ownership of the 100 shares of Common Stock owned by his wife. These shares
also include currently exercisable stock options to purchase 2,500 shares
of Common Stock.
(17) These shares include currently exercisable stock options to purchase 2,500
of Common Stock.
(18) These shares include currently exercisable stock options to purchase an
aggregate of 16,250 shares of Common Stock.
6
<PAGE>
ELECTION OF DIRECTORS
At the Annual Meeting, two Class A Directors will be elected for a term
expiring at the 2001 Annual Meeting of Stockholders and when their successors
have been duly elected. The Class B Directors 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 two nominees for Class A Directors
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 two nominees 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 each nominee for Class A Director, and
each Class B Director and Class C Director continuing in office following the
Annual Meeting is as follows:
NOMINEES FOR CLASS A DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE FOR PAST FIVE YEARS SINCE CLASS
- ---- --- -------------------- -------- -----
<S> <C> <C> <C> <C>
Maurice D. Oaks (1)................... 64 Former Vice President of 1994 Class A; Term expires 2001*
Worldwide Operations
Planning of Bristol-Myers
Squibb
Charles R. Smith...................... 53 Professor and Chairman of 1997 Class A; Term expires 2001*
the Mechanical Engineering
Department of Lehigh
University
</TABLE>
- ------------------
* If elected at the Annual Meeting
7
<PAGE>
DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE FOR PAST FIVE YEARS SINCE CLASS
- ---- --- -------------------- -------- -----
<S> <C> <C> <C> <C>
CLASS B DIRECTORS
Kenneth A. Swanstrom.................. 58 Chairman, President, and 1970 Class B; Term expires 1999
Chief Executive Officer of
the Company since August
1993; President and Chief
Operating Officer of the
Company from 1979 until
August 1993
Lewis W. Hull (1)(2)(3)............... 81 Chairman, Hull Corporation, 1974 Class B; Term expires 1999
manufacturer of injection
molding equipment
Mark W. Simon......................... 59 Vice President-Finance, 1983 Class B; Term expires 1999
Chief Financial Officer and
Corporate Secretary of the
Company
CLASS C DIRECTORS
Willard S. Boothby, Jr. (1)(2)(4)..... 76 Former Managing Director, 1984 Class C; Term expires 2000
PaineWebber Incorporated,
brokerage services
Thomas M. Hyndman, Jr. (1)(2)(5)...... 73 Of Counsel since 1993, 1974 Class C; Term expires 2000
Partner, from 1957 to
1992, Duane, Morris &
Heckscher, LLP, Attorneys
and Counsel to the Company
Daryl L. Swanstrom (2)(6)............. 51 President, Spyraflo, Inc., 1987 Class C; Term expires 2000
manufacturer of miniature
self-aligning sleeve
bearings and linear
slides; formerly President
of Engineered Components,
Inc., distributor of
mechanical 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 1997, the Audit Committee held three meetings.
8
<PAGE>
(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, and related matters. The
Compensation Committee also administers the Company's 1996 Equity Incentive
Plan and the Company's 1996 Employee Stock Purchase Plan. During 1997, the
Compensation Committee held one meeting.
(3) Mr. Hull is also a director of Willow Grove Bank.
(4) Mr. Boothby is also a director of The Glenmede Fund, Inc.
(5) Mr. Hyndman is also a director of Rochester & Pittsburgh Coal Company.
(6) Mrs. Swanstrom is the widow of Kenneth A. Swanstrom's brother, Lawrence W.
Swanstrom.
During 1997, the Company's Board of Directors held eight 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 during 1997.
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>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION (1)
- --------------------------------------------- ---- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Kenneth A. Swanstrom, Chairman, President, 1997 $310,000 $123,917 15,000 $18,550
and Chief Executive Officer................ 1996 280,000 104,142 15,000 18,300
1995 270,000 129,416 -- 17,680
Mark W. Simon, Vice President -- Finance, 1997 $185,000 $ 46,219 10,000 $18,350
Chief Financial Officer and Corporate 1996 164,320 38,198 10,000 18,300
Secretary.................................. 1995 158,000 47,281 -- 16,672
Martin Bidart, Vice President -- 1997 $153,000 $ 38,224 10,000 $15,300
Manufacturing.............................. 1996 145,600 33,846 10,000 14,560
1995 140,000 41,825 -- 14,810
Raymond L. Bievenour, Vice President -- 1997 $153,000 $ 38,224 10,000 $15,300
Marketing/Sales............................ 1996 145,600 33,846 10,000 14,560
1995 140,000 41,825 -- 14,518
Kent R. Fretz, Vice President and 1997 $129,168 $ 32,270 10,000 $12,917
General Manager -- Pittman................. 1996 124,800 29,011 10,000 12,480
1995 120,000 34,348 -- 12,000
</TABLE>
9
<PAGE>
- ------------------
(1) Includes amounts of Company contributions for 1997 to the Company's
Profit-Sharing Plan, as follows: Kenneth A. Swanstrom, $16,000; Mark W.
Simon, $16,000; Martin Bidart, $15,300; Raymond L. Bievenour, $15,300; and
Kent R. Fretz, $12,917. The amounts set forth were expended during the
Company's 1997 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 directors
fees of $2,550 paid to Mr. Swanstrom and $2,350 paid to Mr. Simon for
meetings attended during 1997.
The following table sets forth information with respect to options granted
to the persons named in the Summary Compensation Table above during the fiscal
year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR EXPIRATION GRANT DATE
NAME GRANTED(#)(1) IN FISCAL YEAR BASE PRICE ($/SH) DATE PRESENT VALUE($)(2)
- ---- -------------------- -------------------- ----------------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Kenneth A. Swanstrom.... 15,000 10.61% $25.625 12/16/07 $121,650
Mark W. Simon........... 10,000 7.07 25.625 12/16/07 81,100
Martin Bidart........... 10,000 7.07 25.625 12/16/07 81,100
Raymond L. Bievenour.... 10,000 7.07 25.625 12/16/07 81,100
Kent R. Fretz........... 10,000 7.07 25.625 12/16/07 81,100
</TABLE>
- ------------------
(1) All shares underlying options are shares of Common Stock. Each option
becomes exercisable in increments of 25% of the shares underlying such
options commencing on the first, second, third, and fourth anniversaries of
the date of the option grant.
(2) The Black-Scholes model, a widely used and accepted formula for valuing
traded stock options, was used to determine the grant date present value of
the executive stock options. The Black-Scholes value used in this table is
the same value used to report the expense associated with stock options in
the Company's audited financial statements in accordance with FAS 123. The
following assumptions were used to calculate the Black-Scholes value: a
six-year option term, 30% stock price volatility, 5.75% risk-free rate of
return, annual dividend yield of 2.25%, and an exercise price equal to stock
price on the date of grant. The Company has used the historical annual
dividend yield and stock price volatility rate as assumptions for the
Black-Scholes model. These are not projections, and therefore there is no
guarantee that these assumptions will be the actual annual dividend yield or
stock price volatility rate over the next six years. There is no gain to
executives, however, if the per share market price of the Company's Common
Stock does not increase or declines.
10
<PAGE>
The following table sets forth information with respect to options held at
December 31, 1997 by the persons named in the Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth A. Swanstrom........................... 3,750 26,250 $21,094 $63,281
Mark W. Simon.................................. 2,500 17,500 14,062 42,188
Martin Bidart.................................. 2,500 17,500 14,062 42,188
Raymond L. Bievenour........................... 2,500 17,500 14,062 42,188
Kent R. Fretz.................................. 2,500 17,500 14,062 42,188
</TABLE>
- ------------------
(1) No options were exercised by the named executive officers during the year
ended December 31, 1997.
(2) Represents the difference between the aggregate exercise price and the
aggregate market value of the Company's Common Stock as of December 31,
1997.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Company's executive compensation policies are intended 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
compensation package that is competitive with the market for similar talent, and
create a feeling of shared destiny between the executives, all the other
employees, and the Company's stockholders.
The Compensation paid 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, an annual bonus determined in
accordance with the provisions of a formal incentive plan (the "Management
Incentive Plan") originally adopted for the year 1992 and amended thereafter
from time to time, and non-qualified stock options as part of the 1996 Equity
Incentive Plan. The 1996 Equity Incentive Plan covers all employees and officers
of the Company, including the Named Executive Officers. The executive officers
also are participants in the Company's profit sharing plan, its pension plan,
the 1996 Employee Stock Purchase Plan, and its various fringe benefit programs.
The annual salaries of the Named Executive Officers for fiscal year 1997
were determined in the month of December 1996. 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 their
performance by the Chief Executive Officer 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.
11
<PAGE>
The same considerations were taken into account in fixing the Chief
Executive Officer's salary for 1997, 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 and the Vice President-Finance, for 1997 approximated 5%. The
Chief Executive Officer's salary increase for 1997 was approximately 10.7% and
the Vice President of Finance's salary increase for 1997 was approximately
12.6%.
Payments to the Named Executive Officers under the Management Incentive
Plan are determined by five factors, which combined are used to determine the
amount of the annual bonus. The first and second factors, each with a weighting
factor of 25%, compared the Company's 1997 consolidated net income with 1996
consolidated net income and the 1997 Business Plan consolidated net income. The
third and fourth factors, each with a weighting factor of 10%, compared the
Company's 1997 consolidated net sales with 1996 consolidated net sales and the
1997 Business Plan consolidated net sales. The fifth factor, with a weighting
factor of 30%, compared 1997 return on equity with 1996 return on equity. The
target bonus for each officer, other than the Chief Executive Officer, the
Treasurer, and the Corporate Controller, is 25% of the individual's base salary.
The target bonus for the Chief Executive Officer is 40% of base salary, and for
the Treasurer, and Corporate Controller, is 20% of base salary. The relationship
of the Company's 1997 actual results for each factor to the prior year or the
1997 Business Plan targets, as approved by the Board of Directors, can cause the
annual bonus to range from zero to 150% of the targeted amount. The
consideration of earnings before interest and taxes is the most significant
factor in determining the annual bonuses paid to all other salaried and hourly
workers under the employee incentive plan. Consolidated net income is the most
significant factor in determining the annual bonuses paid to the executive
officers. These two measures of earnings extend a common thread in the standard
of measure for both executive officers' and other employees' annual bonuses.
Both the fastener and motor operations achieved their overall targets
established by the Board of Directors for 1997, and, therefore, the bonuses
under the incentive plans approximated the targeted awards for all participants.
The bonus paid to the Chief Executive Officer for the year 1997 was
determined in accordance with the current provisions of the Management Incentive
Plan and reflects, in the opinion of the Committee, appropriate rewards for the
Company's current performance. The portion of the Chief Executive Officer's
bonus as compared to his 1997 target bonus for each factor was as follows: 1997
consolidated net income as compared to 1996 consolidated net income was 104.6%
of target; 1997 consolidated net income as compared to the 1997 Business Plan
consolidated net income was 94.2% of target; 1997 consolidated net sales as
compared to 1996 consolidated net sales was 104.6% of target; 1997 consolidated
net sales as compared to 1997 Business Plan net sales was 93.8% of target and
1997 return on equity as compared to 1996 return on equity was 101.3% of target.
Therefore, the bonus paid to the Chief Executive Officer for 1997 was $123,917.
This bonus was 99.93% of the target amount.
In determining the 1997 grants of stock options under the 1996 Equity
Incentive Plan, the Compensation Committee took into account the various factors
(described above) considered in determining the annual salaries of the Named
Executive Officers, as well as the recommendations of the independent consultant
which assisted in the creation of the Plan. In 1997, the Chief Executive Officer
was granted non-qualified options to purchase up to 15,000 shares of the
Company's Non-Voting Common Stock and each of the other Named Executive Officers
was granted non-qualified options to purchase up to 10,000 shares of the
Company's Non-Voting Common Stock.
12
<PAGE>
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a public company for compensation over $1 million paid to each of
the company's chief executive officer and the four other most highly compensated
executive officers. Qualifying performance-based compensation will not be
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 necessary steps to conform the Company's policies with
respect to the 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
13
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return on the Company's Common Stock with the S&P 600(Registered) SmallCap 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]
In the printed version of the document, a line graph
appears which depicts the following plot points:
<TABLE>
<CAPTION>
BASE INDEXED RETURNS
PERIOD YEARS ENDING
COMPANY NAME/INDEX DEC 92 DEC 93 DEC 94 DEC 95 DEC 96 DEC 97
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Penn Engineering & Manufacturing Corp.-
PNNA/PNN.................................. 100 130.35 120.92 285.73 248.94 304.90
S&P 600(Registered) SmallCap Index........ 100 118.79 113.12 147.01 178.35 223.98
S&P Indices............................... 100 119.73 137.00 199.38 265.97 337.10
</TABLE>
- ------------------
(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, 1992 in each of the Company's Common Stock, the
S&P 600(Registered) SmallCap Index, and the S&P Indices with the investment
weighted on the basis of market capitalization.
14
<PAGE>
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.
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
160,000.............................. 19,760 39,340 59,010 78,680
175,000.............................. 19,760 39,340 59,010 78,680
200,000.............................. 19,760 39,340 59,010 78,680
300,000.............................. 19,760 39,340 59,010 78,680
400,000.............................. 19,760 36,340 59,010 78,680
500,000.............................. 19,760 39,340 59,010 78,680
</TABLE>
Credited full years of service of the five officers listed in the Summary
Compensation Table are as follows: Kenneth A. Swanstrom, 37 years; Mark W.
Simon, 21 years; Martin Bidart, 7 years; Raymond L. Bievenour, 7 years; and Kent
R. Fretz, 22 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. Therefore, with
regard to 1997, the maximum salary that can be recognized under the plan is
$160,000 and the maximum annual benefit at age 65 is limited to $125,000. 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, is $107,479.
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 for
travel expenses. Employees who are directors of the Company each received a fee
of $250 for each meeting attended in 1997. Members of the Audit Committee and
the Compensation Committee each receive a fee of $500 for each meeting attended
plus reimbursement for travel expenses.
15
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, file reports of ownership and changes in ownership
with the Commission. Based solely on the Company's 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, 1997 through December 31, 1997, all filing
requirements applicable to its officers and directors were complied with, except
that Charles R. Smith filed his initial report on Form 3 late and Frank P.
Wilson reported certain holdings of Common Stock on amended Form 3 and Form 5
reports late.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Spyraflo, Inc., which is engaged in the manufacture and sale of various
products, had sales to the Company in the amount of $328,000 in 1997. Daryl L.
Swanstrom, a director of the Company and a member of the Compensation Committee,
is President and sole stockholder of Spyraflo, Inc.
Thomas M. Hyndman, Jr., a director of the Company and a member of the
Compensation Committee, is Of Counsel to Duane, Morris & Heckscher LLP, a law
firm that performed legal services for the Company during 1997.
ELECTION OF AUDITORS
Ernst & Young LLP served as the Company's auditors for the Company's year
ended December 31, 1997. Unless instructed to the contrary, it is intended that
votes will be cast pursuant to the proxies for the election of Ernst & Young LLP
as auditors for the Company for its 1998 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 Ernst & Young 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 Ernst & Young 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.
Deloitte & Touche LLP served as the Company's auditors for the Company's
1996 fiscal year. On September 26, 1997, upon approval of the Company's Board of
Directors and the audit committee of the Board of Directors, the Company
notified its independent auditors, Deloitte & Touche LLP, in writing that it
would not be retaining Deloitte & Touche LLP as the Company's independent
auditors.
Deloitte & Touche LLP's reports on the financial statements of the Company
for the fiscal years ended December 31, 1995 and December 31, 1996 did not
contain any adverse opinion or any disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope, or accounting principles.
During the fiscal years ended December 31, 1995 and December 31, 1996 and
the subsequent interim periods preceding the notice, there were no disagreements
between the Company and Deloitte & Touche LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused Deloitte & Touche LLP to make a reference to the subject
matter thereof in connection with its reports.
On September 29, 1997, the Company's Board of Directors, with the approval
of the Company's audit committee, retained Ernst & Young LLP to serve as the
Company's certifying accountant for the fiscal year ended December 31, 1997.
16
<PAGE>
ANNUAL REPORT
A copy of the Company's Annual Report for its fiscal year ended December
31, 1997 is being mailed to the Company's stockholders with this Proxy
Statement.
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 1999 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 1,
1998.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration at the Annual Meeting 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
March 31, 1998
17
PENN ENGINEERING & MANUFACTURING CORP.
Annual Meeting of Stockholders to be held on May 1, 1998
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 of them, proxies of the undersigned, with
full power of substitution, to vote all shares of the Class A Common Stock 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, Building #3, Old Easton Road, Danboro,
Pennsylvania, on Friday, May 1, 1998, at 2:00 P.M., and at any adjournment,
postponement or continuation thereof, as follows:
(Continued and to be signed on reverse side)
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
PENN ENGINEERING & MANUFACTURING CORP.
May 1, 1998
Please Detach and Mail in the Envelope Provided
A /X/ Please mark your votes as in this example.
1. Election of Class A Directors
FOR / /
WITHHOLD AUTHORITY / /
Nominees: Maurice D. Oaks
Prof. Charles R. Smith
INSTRUCTIONS: To withhold authority, write the name of the nominee(s) in the
space provided.
- ------------------------------------------
2. Approval of Auditors
Proposal to elect Ernst & Young LLP as the Company's independent public
accountants for 1996;
FOR / /
AGAINST / /
ABSTAIN / /
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
This proxy when properly executed will be voted as directed herein by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
the nominees for Class A Directors set forth in proposal 1 and FOR proposal 2.
Please sign, date and return this proxy promptly in the enclosed postage paid
envelope.
Please Mark If You Plan to Attend Annual Meeting / /
Signature of Stockholder __________________________________ Signature(s)
____________________________________ DATE ____________, 1998
Important: 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.
