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
- --------------------------------------------------------------------------------
(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):
/_/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
/_/ $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(1)(3).
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
/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 6, 1999
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 Thursday, May 6, 1999
at 2:00 p.m., local time, at the offices of the Company, Building 3, 5190 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 2002 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 1999 fiscal year;
3. To consider and vote upon a proposal to approve the Penn
Engineering & Manufacturing Corp. 1999 Employee Stock Option Plan;
4. To consider and vote upon a proposal to approve the Penn
Engineering & Manufacturing Corp. 1998 Stock Option Plan for Non-Employee
Directors; and
5. 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 25, 1999 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, 1998
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 First Union National Bank.
By Order of the Board of Directors,
Kenneth A. Swanstrom
Chairman of the Board
Date: April 6, 1999
<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 April 6, 1999, 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 Thursday, May 6, 1999 at
2:00 p.m., local time, and at any adjournment, postponement, or continuation
thereof, at the offices of the Company, Building 3, 5190 Old Easton Road,
Danboro, Pennsylvania 18916. The Company's principal executive offices are
located at 5190 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 B Directors named below, in favor the
election of Ernst & Young LLP as auditors of the Company for its 1999 fiscal
year, in favor of the proposal to approve the Company's 1999 Employee Stock
Option Plan, and in favor of the proposal to approve the Company's 1998 Stock
Option Plan for Non-Employee Directors. 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 25, 1999 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
25, 1999 will be entitled to vote at the Annual Meeting. As of March 25, 1999,
the Company had outstanding 1,675,082 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 25, 1999, 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 53.4%, 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 Kenneth A.
Swanstrom, Lewis W. Hull, and Mark W. Simon as Class B Directors, for the
election of Ernst & Young LLP as the Company's auditors for its 1999 fiscal
year, for the approval of the Company's 1999 Employee Stock Option Plan, and for
the approval of the Company's 1998 Stock Option Plan for Non-Employee Directors.
Accordingly, Mr. Swanstrom, Mr. Hull, and Mr. Simon will be elected as Class B
Directors, Ernst & Young LLP will be elected as auditors for the Company for its
1999 fiscal year, the Company's 1999 Employee Stock Option Plan will be
approved, and the Company's
<PAGE>
1998 Stock Option Plan for Non-Employee Directors will be approved regardless of
the votes of the Company's stockholders other than those listed in such table.
BENEFICIAL OWNERSHIP OF COMMON STOCK AND
CLASS A COMMON STOCK
The following table sets forth, as of February 28, 1999, 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 645,173 9.3%
Class A 244,641 14.6%
Trust under the Will of Gladys Swanstrom (2) Common 91,425 1.3%
Class A 62,975 3.8%
Trusts under the Will of Klas A. Swanstrom (3) Common 197,916 2.8%
Class A 98,472 5.9%
Daryl L. Swanstrom
P.O. Box 2309
Peachtree City, GA 30269
Individually (4) Common 182,043 2.6%
Class A 231,250 13.8%
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 89,992 5.4%
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 3.8%
</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>
Trusts under the Will of Klas A. Swanstrom (3) Common 197,916 2.8%
Class A 98,472 5.9%
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 89,992 5.4%
Trust under Deed of Klas A. Swanstrom dated 1/12/73 (7) Common 95,750 1.4%
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 3.8%
Trusts under the Will of Klas A. Swanstrom (3) Common 197,916 2.8%
Class A 98,472 5.9%
Trust under Deed of Klas A. Swanstrom dated 1/12/73 (7) Common 95,750 1.4%
Class A 57,750 3.4%
Trust under Deed of Klas A. Swanstrom dated 9/26/66 (8) Common 61,250 *
Class A 38,500 2.3%
Trust under Deed of Gladys Swanstrom dated 9/26/66 (8) Common 26,250 *
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 Common 62,720 *
Lawrence W. Swamstrom (5) Class A 54,240 3.2%
Trust under Item Fifth of the Will of Common 216,649 3.1%
Lawrence W. Swamstrom (5) Class A 89,992 5.4%
Private Capital Management, Inc. (11) Common 850,150 12.2%
3003 Tamiami Trail North Class A -- *
3rd Floor
Naples, FL 34103
</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>
Royce & Associates, Inc. (10) Common 525,450 7.6%
Royce Management Company Class A 192,450 11.5%
1414 Avenue of the Americas
New York, NY 10019
Sanford C. Bernstein & Co., Inc. (12) Common 659,035 9.6%
767 Fifth Avenue Class A -- *
New York, NY 10153-0185
TCW Group, Inc. Common 280,700 4.1%
200 Park Avenue Class A -- *
New York, NY 10166
DIRECTORS: (14)
Willard S. Boothby, Jr. Common 1,200 *
Class A 400 *
Lewis W. Hull (15) Common 6,000 *
Class A 2,000 *
Maurice D. Oaks Common 500 *
Class A -- *
Martin Bidart (16) Common 7,900 *
Class A 100 *
Mark W. Simon (17) Common 9,164 *
Class A 100 *
Charles R. Smith Common -- *
Class A -- *
EXECUTIVE OFFICERS: (15)
Raymond L. Bievenour (19) Common 8,050 *
Class A 100 *
Francis P. Wilson (19) Common 2,789 *
Class A 100 *
All Executive Officers and Directors as a Group Common 1,624,689 23.2%
(12 persons) (20) Class A 897,940 53.6%
</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.
4
<PAGE>
(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 24.3%. Of these shares, Mr. Swanstrom has sole voting
and dispositive power with respect to 645,173 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 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 11,250 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 22.4%. Of this total, Mrs. Swanstrom has sole voting
and dispositive power with respect to 182,043 shares of Common Stock and
231,250 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 89,992 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 21.7%. 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 89,992 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 16.4%. 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, 197,916 shares of Common Stock and 98,472 shares of Class
A Common Stock are held by the
5
<PAGE>
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, 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.
(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 8.6%. 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, and 216,649 shares of
Common Stock and 89,992 shares of Class A Common Stock held by the Trust
under Item Fifth of the Will of Lawrence W. Swanstrom.
(10) According to Amendment No. 8 to a Schedule 13G dated February 9, 1999,
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. 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) Information provided by Private Capital Management, Inc. as of February 28,
1999.
(12) According to a Schedule 13G dated February 8, 1999, filed by Sanford C.
Bernstein & Co., Inc. ("Sanford"), Sanford may be deemed the beneficial
owner of an aggregate of 659,030 shares of Common Stock held in accounts
managed on a discretionary basis, of which Sanford has sole dispositive
power with respect to such shares.
(13) Information provided by TCW Group, Inc. and Roland Day as of February 28,
1999.
(14) Excludes directors listed under "5% Holders."
(15) 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.
(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 7,500 shares
of Common Stock.
(17) Of these shares, 107 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 7,500 shares of Common Stock held by Mr. Simon and currently
exercisable stock options to purchase 10 shares of Common Stock held by his
daughter.
(18) Excludes executive officers listed under "5% Holders" and executive
officers listed under "Directors."
(19) These shares include currently exercisable stock options to purchase 7,500
shares of Common Stock held by Mr. Bievenour and currently exercisable
stock options to purchase 2,500 shares of Common Stock held by Mr. Wilson.
(20) These shares include currently exercisable stock options to purchase an
aggregate of 48,760 shares of Common Stock.
6
<PAGE>
ELECTION OF DIRECTORS
At the Annual Meeting, three Class B Directors will be elected for a term
expiring at the 2002 Annual Meeting of Stockholders and when their successors
have been duly elected. The Class A 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 nine.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the election of the three nominees for Class B 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 three nominees for
Class B 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 B Director, and
each Class A Director and Class C Director continuing in office following the
Annual Meeting, is as follows:
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.................. 59 Chairman of the Board and 1970 Class B; Term expires 2002*
Chief Executive Officer of
the Company since 1993;
President and Chief
Operating Officer of the
Company from 1979 until
1998
Lewis W. Hull (1)(2)(3)............... 82 Chairman, Hull Corporation, 1974 Class B; Term expires 2002*
manufacturer of injection
molding equipment
Mark W. Simon......................... 60 Vice President-Finance, 1983 Class B; Term expires 2002*
Chief Financial Officer and
Corporate Secretary of the
Company
</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 A DIRECTORS
Martin Bidart......................... 62 President and Chief 1998 Class A; Term expires 2001
Operating Officer of the
Company since August 1998;
Vice President-
Manufacturing of the
Company from August 1990
to July 1998
Maurice D. Oaks (1)................... 65 Former Vice President of 1994 Class A; Term expires 2001
Worldwide Operations
Planning of Bristol-Myers
Squibb
Charles R. Smith (1).................. 54 Professor and Chairman of 1997 Class A; Term expires 2001
the Mechanical Engineering
Department of Lehigh
University
CLASS C DIRECTORS
Willard S. Boothby, Jr. (1)(2)(4)..... 77 Former Managing Director, 1984 Class C; Term expires 2000
PaineWebber Incorporated,
brokerage services
Thomas M. Hyndman, Jr. (1)(2)......... 74 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)(5)............. 52 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 1998, the Audit Committee held two 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, the Company's 1996 Employee Stock Purchase Plan, the Company's 1999
Employee Stock Option Plan, and the Company's 1998 Stock Option Plan for
Non-Employee Directors. During 1998, 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) Mrs. Swanstrom is the widow of Kenneth A. Swanstrom's brother, Lawrence W.
Swanstrom.
During 1998, the Company's Board of Directors held seven 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 1998.
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
------------
<S> <C> <C> <C> <C> <C>
AWARDS
------------
<CAPTION>
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 1998 $321,000 $150,518 15,000 $18,425
Chief Executive Officer.................... 1997 310,000 123,917 15,000 18,550
1996 280,000 104,142 15,000 18,300
Martin Bidart, President and 1998 $175,792 $ 64,112 10,000 $16,500
Chief Operating Officer.................... 1997 153,000 38,224 10,000 15,300
1996 145,600 33,846 10,000 14,560
Mark W. Simon, Vice President -- Finance, 1998 $191,500 $ 69,841 10,000 $18,425
Chief Financial Officer and Corporate 1997 185,000 46,219 10,000 18,350
Secretary.................................. 1996 164,320 38,198 10,000 18,300
Raymond L. Bievenour, Vice President -- 1998 $161,375 $ 50,446 10,000 $16,000
Sales/Marketing............................ 1997 153,000 38,224 10,000 15,300
1996 145,600 33,846 10,000 14,560
Francis P. Wilson, Vice President -- 1998 $153,667 $ 48,037 10,000 $16,000
Operations................................. 1997 70,096 17,512 10,000 --
</TABLE>
9
<PAGE>
- ------------------
(1) Includes amounts of Company contributions for 1998 to the Company's
Profit-Sharing Plan, as follows: Kenneth A. Swanstrom, $16,000; Martin
Bidart, $16,000; Mark W. Simon, $16,000; Raymond L. Bievenour, $16,000; and
Frank P. Wilson $16,000. The amounts set forth were expended during the
Company's 1998 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 $2,425 paid to Mr. Swanstrom, $500 paid to Mr. Bidart, and $2,425
paid to Mr. Simon for meetings attended during 1998.
The following table sets forth information with respect to options granted
to the persons named in the Summary Compensation Table above during the fiscal
year ended December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR EXPIRATION GRANT DATE
NAME GRANTED(#)(1) IN FISCAL YEAR BASE PRICE ($/SH) DATE PRESENT VALUE($)(2)
- ---- -------------------- -------------------- ----------------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Kenneth A. Swanstrom.... 15,000 9.69% $22.00 12/16/08 $122,700
Martin Bidart........... 10,000 6.46 22.00 12/16/08 81,800
Mark W. Simon........... 10,000 6.46 22.00 12/16/08 81,800
Raymond L. Bievenour.... 10,000 6.46 22.00 12/16/08 81,800
Francis P. Wilson....... 10,000 6.46 22.00 12/16/08 81,800
</TABLE>
- ------------------
(1) All shares underlying options are shares of Common Stock. Each option
becomes exercisable in increments of 25% of the shares underlying such
options commencing on the first, second, third, and fourth anniversaries of
the date of the option grant.
(2) The Black-Scholes model, a widely used and accepted formula for valuing
traded stock options, was used to determine the grant date present value of
the executive stock options. The Black-Scholes value used in this table is
the same value used to report the expense associated with stock options in
the Company's audited financial statements in accordance with FAS 123. The
following assumptions were used to calculate the Black-Scholes value: an
expected life of six years, 30% stock price volatility, 5.78% risk-free rate
of return, annual dividend yield of 2.25%, and an exercise price equal to
stock price on the date of grant. The Company has used the historical annual
dividend yield and stock price volatility rate as assumptions for the Black-
Scholes model. These are not projections, and therefore there is no
guarantee that these assumptions will be the actual annual dividend yield or
stock price volatility rate over the next six years. There is no gain to
executives, however, if the per share market price of the Company's Common
Stock does not increase, or declines.
10
<PAGE>
The following table sets forth information with respect to options held at
December 31, 1998 by the persons named in the Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth A. Swanstrom........................... 11,250 33,750 $30,000 $35,625
Martin Bidart.................................. 7,500 22,500 20,000 23,750
Mark W. Simon.................................. 7,500 22,500 20,000 23,750
Raymond L. Bievenour........................... 7,500 22,500 20,000 23,750
Francis P. Wilson.............................. 7,500 22,500 20,000 23,750
</TABLE>
- ------------------
(1) No options were exercised by the named executive officers during the year
ended December 31, 1998.
(2) Represents the difference between the aggregate exercise price and the
aggregate market value of the Company's Common Stock as of December 31,
1998.
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 1998
were determined in the month of December 1997. The salaries of the Named
Executive Officers were reviewed by a compensation consulting firm in 1998 after
the promotion of Mr. Bidart to President of the Company and Mr. Wilson to Vice
President of Operations. Duties of other executive officers were also affected
by these promotions. 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
11
<PAGE>
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 1998, except that the Committee did not have the
recommendation of the Chief Executive Officer.
The salary increases approved by the Board of Directors in December 1997
for the Named Executive Officers, other than the Vice President of Operations,
approximated 3.5%. The Vice President of Operations' initial salary increase for
1998 was approximately 5.2%. After the appointment of Mr. Bidart to President
and Chief Operating Officer and Mr. Wilson to Vice President of Operations, and
the changes in responsibilities of the other executive officers, the Board of
Directors approved additional increases for the President and Chief Operating
Officer of 26.2%, the Vice President of Operations of 19.7%, and the Vice
President of Sales/Marketing of 7.3%.
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 1998 consolidated net income with 1997
consolidated net income and the 1998 Business Plan consolidated net income. The
third and fourth factors, each with a weighting factor of 10%, compared the
Company's 1998 consolidated net sales with 1997 consolidated net sales and the
1998 Business Plan consolidated net sales. The fifth factor, with a weighting
factor of 30%, compared 1998 return on equity with 1997 return on equity. The
target bonus for the Chief Executive Officer is 45% of base salary. The target
bonus for the Chief Operating Officer and the Chief Financial Officer is 35% of
their respective base salaries. The other executive officers have a target of
30% of their respective base salaries. The relationship of the Company's 1998
actual results to the prior year or the 1998 Business Plan targets 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.
The fastener operations and the motor operations achieved 96.7% and 97.2%,
respectively, of their overall targets established by the Board of Directors for
1998, and, therefore, the bonuses under the incentive plans were 96.7% and
97.2%, respectively, of the targeted awards for all participants.
The bonus paid to the Chief Executive Officer for the year 1998 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 1998 target bonus for each factor was as follows: 1998
consolidated net income as compared to 1997 consolidated net income was 114.3%
of target; 1998 consolidated net income as compared to the 1998 Business Plan
consolidated net income was 89.2% of target; 1998 consolidated net sales as
compared to 1997 consolidated net sales was 107.1% of target; 1998 consolidated
net sales as compared to 1998 Business Plan net sales was 99.3% of target; and
1998 return on equity as compared to 1997 return on equity was 100.6% of target.
Therefore, the bonus paid to the Chief Executive Officer for 1998 was $150,518.
This bonus was 104.2% of the target amount.
12
<PAGE>
In determining the 1998 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 1998, 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.
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.
<TABLE>
<CAPTION>
BASE INDEXED RETURNS
PERIOD YEARS ENDING
COMPANY NAME/INDEX DEC 93 DEC 94 DEC 95 DEC 96 DEC 97 DEC 98
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Penn Engineering & Manufacturing Corp.-
PNNA/PNN.................................. 100 92.77 219.21 190.98 233.91 189.30
S&P 600(Registered) SmallCap Index........ 100 95.23 123.76 150.14 188.58 186.10
S&P Indices............................... 100 114.43 166.52 222.14 281.55 426.01
</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, 1993 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>
$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, 38 years; Mark W.
Simon, 22 years; Martin Bidart, 8 years; Raymond L. Bievenour, 8 years; and
Francis P. Wilson, 1 year. 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 1998, the maximum salary that can be recognized under
the plan is $160,000 and the maximum annual benefit at age 65 is limited to
$130,000. 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 received 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 1998. Members of the Audit Committee and
the Compensation Committee each receive a fee of $500 for each meeting attended
plus reimbursement for travel expenses. For 1999, (i) the Company's non-employee
directors are each entitled to receive an annual retainer of $15,000 plus a fee
of $1,000 for each meeting attended and reimbursement for travel expenses; (ii)
employees who are directors of the Company are each entitled to receive a fee of
$250 for each meeting attended; and (iii) members of the Audit Committee and the
Compensation Committee are each entitled to receive a fee of $750 for each
meeting attended plus reimbursement for travel expenses. For information
concerning grants under the 1998 Stock Option Plan for Non-Employee Directors
see "Approval of the 1998 Stock Option Plan for Non-Employee Directors -- New
Plan Benefits."
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, 1998 through December 31, 1998, all filing
requirements applicable to its officers and directors were complied with, except
that Francis P. Wilson reported late on his initial report his holdings of 100
shares of Class A Common Stock held in an individual retirement account.
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 $252,000 in 1998. 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 1998.
ELECTION OF AUDITORS
Ernst & Young LLP ("E&Y") served as the Company's auditors for the
Company's year ended December 31, 1998. Unless instructed to the contrary, it is
intended that votes will be cast pursuant to the proxies for the election of E&Y
as auditors for the Company for its 1999 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 E&Y 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 E&Y 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 ("Deloitte") 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, in writing that it
would not be retaining Deloitte as the Company's independent auditors.
Deloitte'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 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, would have caused Deloitte 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 E&Y to serve as the Company's
certifying accountant for the fiscal year ended December 31, 1997.
16
<PAGE>
APPROVAL OF THE
1999 EMPLOYEE STOCK OPTION PLAN
PURPOSE OF THE 1999 EMPLOYEE STOCK OPTION PLAN
The 1999 Employee Stock Option Plan (the "1999 Plan") was adopted by the
Board of Directors on January 27, 1999, subject to shareholder approval of the
1999 Plan. The objective of the 1999 Plan is to provide additional incentives to
employees 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 employees of high caliber and potential.
SUMMARY DESCRIPTION OF THE 1999 PLAN
Options granted under the 1999 Plan may be options that are not intended to
qualify as incentive stock options within the meaning of Section 422 of the Code
("Nonqualified Options"). The 1999 Plan authorizes the grant of options for a
maximum of 1,000,000 shares of the Company's non-voting Common Stock. The
aggregate number of shares subject to options that may be granted during any
calendar year to any individual is limited to 100,000 shares of Common Stock.
Options may be granted under the 1999 Plan to officers and employees of the
Company and any subsidiary corporation who are regularly scheduled to work 40 or
more hours per week and who have completed 60 days of employment. Directors who
are not also officers or employees of the Company or any subsidiary of the
Company shall not be eligible to participate in the 1999 Plan. On March 25,
1999, the closing price for a share of the Company's Common Stock, as reported
on the New York Stock Exchange, was $19.6875.
The 1999 Plan is administered by a Committee of the Board of Directors (the
"Committee"), which has full and final authority, subject to the terms of the
1999 Plan: to interpret the provisions of the 1999 Plan and to decide all
questions of fact arising in its application; to determine the employees to whom
awards shall be made and the number of shares, exercise price and other terms of
each such award; to determine the time when awards shall be granted; and to make
all other determinations necessary and advisable for the administration of the
1999 Plan. All decisions, determinations, and interpretations of the Committee
shall be final and binding on all holders of options granted under the 1999
Plan. The current members of the Committee consist of the members of the
Company's Compensation Committee.
The exercise price of each option granted under the 1999 Plan may not be
less than 100% of the fair market value of the Company's Common Stock on the
date of grant. The exercise 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 at the time of exercise, 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.
In the event that an optionee ceases to be an employee of the Company or
any subsidiary, for any reason other than death, retirement, or disability
(within the meaning of Section 22(e)(3) of the Code), the optionee has the right
to exercise the option during its term within a period of three months after
such termination to the extent such option was exercisable at the time of
termination, or within such other period, and subject to the terms and
conditions, as may be specified by the Board of Directors. If termination
results from the death, retirement, or disability of an optionee, an option
exercisable at the time of such termination may be exercised by him or his
successor within a period of one year after the date of termination to the
extent of the full number of options granted to the optionee at the time of the
optionee's death, retirement, or disability, or within such other period, and
subject to such terms and conditions, as may be specified by the Board of
Directors. Under the 1999 Plan, the term "retirement" means a termination of
employment by reason of an optionee's retirement at or after the optionee's
normal retirement date pursuant to and in accordance with the Company's regular
retirement plan or personnel practices. No option may be exercisable after ten
years from the date of grant thereof. Options are not
17
<PAGE>
assignable other than by will or by the laws of descent and distribution and are
exercisable, during the lifetime of the participant, only by the participant or
the optionee's guardian or legal representative
The Committee may terminate or amend the 1999 Plan at any time, subject to
the approval by stockholders of any amendment that is required under any
applicable law or under the rules of the New York Stock Exchange. The
termination or any modification or amendment of the 1999 Plan will not, without
the consent of a participant, affect his rights under an option previously
granted.
Federal Income Tax Consequences
Based on the advice of counsel, the Company believes that the normal
operation of the 1999 Plan should generally have, under the Code and the
regulations thereunder, all as in effect on the date of this Proxy Statement,
the principal federal income tax consequences described below. The tax treatment
described below does not take into account any changes in the Code or the
regulations thereunder which may occur after the date of this Proxy Statement.
The following discussion is only a summary; it is not intended to be all
inclusive or to constitute tax advice, and, among other things, does not cover
possible state or local tax consequences.
An optionee will not recognize taxable income and the Company will not be
entitled to a deduction upon the grant of an option.
In the case of Nonqualified Options, an optionee will generally recognize
ordinary income upon exercise of an option in an amount equal to the excess of
the fair market value of the stock acquired on the date of exercise over the
aggregate price paid pursuant to the option for such stock (the "exercise
price"), and the Company will generally be entitled to a deduction to the extent
of the ordinary income recognized by the optionee in accordance with the rules
of Section 83 of the Code (and Code Section 162(m) to the extent applicable). An
optionee exercising a Nonqualified Option is subject to federal income tax
withholding on the income recognized as a result of the exercise of the
Nonqualified Option. Such income will include any income attributable to any
shares issuable upon exercise that are surrendered, if permitted under the
applicable stock option agreement, in order to satisfy the federal income tax
withholding requirements.
Except as provided below, the basis of the shares received by the optionee
upon the exercise of a Nonqualified Option will be the fair market value of the
shares on the date of exercise. The optionee's holding period will begin on the
day after the date on which the optionee recognizes income with respect to the
transfer of such shares, i.e., generally the day after the exercise date. When
the optionee disposes of such shares, the optionee will recognize capital gain
or loss equal to the difference between (i) the selling price of the shares and
(ii) optionee's basis in such shares under the Code rules which govern stock
dispositions. Any net capital gain (i.e., the excess of the net long-term
capital gains for the taxable year over net short-term capital losses for such
taxable year) will be taxed at a capital gains rate that depends on how long the
shares were held and the optionee's tax bracket. Any net capital loss can only
be used to offset up to $3,000 per year of ordinary income (reduced to $1,500 in
the case of a married individual filing separately) or carried forward to a
subsequent year. The use of shares to pay the exercise price of a Nonqualified
Option, if permitted under the applicable stock option agreement, will be
treated as a like-kind exchange under the Code to the extent that the number of
shares received on the exercise does not exceed the number of shares
surrendered. The optionee will therefore recognize no gain or loss with respect
to the surrendered shares, and will have the same basis and holding period with
respect to the newly acquired shares (up to the number of shares surrendered) as
with respect to the surrendered shares. To the extent the number of shares
received exceeds the number surrendered, the fair market value of such excess
shares on the date of exercise, reduced by any cash paid by the optionee upon
such exercise, will be includible in the gross income of the optionee. The
optionee's basis in such excess shares will equal the fair market value of such
shares on the date of exercise, and the optionee's holding period with respect
to such excess shares will begin on the day following the date of exercise.
18
<PAGE>
Under current law, any gain realized by an optionee, other than long-term
gain, is taxable at a maximum federal income tax rate of 39.6%. Under current
law, long-term capital gain is taxed at a maximum federal income tax rate of
20%.
VOTE REQUIREMENT
Approval of the 1999 Plan will require the affirmative vote of the holders
of a majority of the outstanding shares of the Company's Class A 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 such majority. An abstention will
therefore have the practical effect of voting against adoption of the 1999 Plan
because it represents one fewer vote for adoption of the 1999 Plan. Broker
non-votes are not considered shares present in person or represented by proxy
and entitled to vote on the 1999 Plan and will have no effect on the vote. The
Board of Directors recommends that the stockholders vote FOR the approval of the
1999 Plan.
APPROVAL OF THE
1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
THE DIRECTOR PLAN
The Company's 1998 Stock Option Plan for Non-Employee Directors ("Director
Plan") provides for the grant of non-qualified options ("Director Options") to
non-employee directors of the Company who are not officers or employees of the
Company directors ("Outside Directors") of the Company at the discretion of the
Board of Directors.
The total number of shares of Common Stock that may be the subject of
grants of Director Options under the Director Plan may not exceed 100,000 shares
in the aggregate.
The purpose of the Director Plan is to enhance the ability of the Company
to attract and retain highly qualified directors, to compensate them for their
services to the Company, and, in so doing, to strengthen the alignment of the
interests of the Outside Directors with the interests of the stockholders by
ensuring ongoing ownership of the Company's Common Stock.
The Director Plan is administered by the Board of Directors. The Board has
the power to interpret the Director Plan, the Director Options, and, subject to
the terms of the Director Plan, to determine who will be granted Director
Options, the number of Director Options to be granted to any Outside Director,
the exercise price, the timing of such grant, and the terms of exercise. The
Board also has the power to adopt rules for the administration, interpretation,
and application of the Director Plan.
NON-QUALIFIED STOCK OPTIONS
The exercise price of Director Options granted under the Director Plan will
be set by the Board and may not be less than 100% of the fair market value per
share of the Common Stock on the date that the Director Option is granted.
Director Options are evidenced by written agreements in such form not
inconsistent with the Director Plan as the Board shall approve from time to
time. Each agreement will state the period or periods of time within which the
Director Option may be exercised. The Board may accelerate the exercisability of
any Director Options upon such circumstances and subject to such terms and
conditions as the Board deems appropriate. In the event that an optionee ceases
to be a director of the Company (for any reason other than removal for cause in
accordance with the Company's By-laws), the optionee will immediately vest in
all outstanding options. In the event of removal of an optionee from the Board
of Director for cause, the Director Options of that optionee shall terminate
immediately upon the date of such termination. No Director Option may be
exercised after ten years
19
<PAGE>
from the date of grant. If a Director Option expires or is canceled for any
reason without having been fully exercised or vested, the number of shares
subject to such Director Option that had not been purchased or become vested may
again be made subject to a Director Option under the Director Plan.
The option price must be paid in full at the time of exercise unless
otherwise determined by the Board. Payment must be made in cash, in shares of
Common Stock valued at their then fair market value, or a combination thereof,
as determined in the discretion of the Board. It is the policy of the Board that
any taxes required to be withheld must also be paid at the time of exercise. The
Board may, in its discretion, allow an optionee to enter into an agreement with
the Company's transfer agent or a brokerage firm of national standing whereby
the optionee will simultaneously exercise the Director Option and sell the
shares acquired thereby and either the Company's transfer agent or the brokerage
firm executing the sale will remit to the Company from the proceeds of sale the
exercise price of the shares as to which the Director Option has been exercised
as well as the required amount of withholding.
An outstanding Director Option that has become exercisable generally
terminates one year after termination of a Director's service as a Director for
any reason, other than removal of the Director for cause in accordance with the
Company's By-laws. A Director Option granted under the Director Plan may be
exercised during the lifetime of the optionee only by the optionee.
Appropriate adjustments to outstanding Director Options and to the number
or kind of shares subject to the Director Plan are provided for in the event of
a stock 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.
AMENDMENT OR TERMINATION
The Director Plan will remain in effect until all Director Options granted
under the Director Plan have been satisfied by the issuance of shares, except
that no Director Option may be granted under the Director Plan after December
14, 2008. The Board may terminate, modify, suspend, or amend the Director Plan
at any time, subject to any required stockholder approval or any stockholder
approval that the Board may deem to be advisable for any reason, such as for the
purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities, or other laws, or satisfying any applicable stock exchange
listing requirements. No modification, amendment, or termination of the Director
Plan will alter or impair any rights or obligations under any outstanding
Director Option without the consent of the optionee. No Director Option may be
granted during any period of suspension nor after termination of the Director
Plan.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences to the Company and to the optionees
under the Director Plan will be substantially the same as those described in
this Proxy Statement under "Approval of the 1999 Employee Stock Option Plan --
Federal Income Tax Consequences."
NEW PLAN BENEFITS
NAME OF GROUP NUMBER OF SHARES
- ------------- ----------------
Non-Executive Director Group......................... 15,000(1)
- ------------------
(1) Under the Director Plan, each of the Company's six Outside Directors
received a Director Option to purchase 2,500 shares of the Company's Common
Stock at an exercise price of $22 per share.
20
<PAGE>
VOTE REQUIRED
Approval of the Director Plan will require the affirmative vote of the
holders of a majority of the outstanding shares of the Company's Class A 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 such majority. An abstention will
therefore have the practical effect of voting against adoption of the Director
Plan because it represents one fewer vote for adoption of the Director Plan.
Broker non-votes are not considered shares present in person or represented by
proxy and entitled to vote on the Director Plan and will have no effect on the
vote. The Board of Directors recommends that the stockholders vote FOR the
approval of the Director Plan.
ANNUAL REPORT
A copy of the Company's Annual Report for its fiscal year ended December
31, 1998 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 2000 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 8,
1999.
Pursuant to new amendments to Rule 14a-4(c) of the Exchange Act, if a
stockholder who intends to present a proposal at the 2000 Annual Meeting of
Stockholders does not notify the Company of such proposal on or before February
21, 2000, then management proxies will be allowed to use their discretionary
voting authority to vote on the proposal when the proposal is raised at the
Annual Meeting, even though there is no discussion of the proposal in the 2000
proxy statement.
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
April 6, 1999
21
<PAGE>
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
PENN ENGINEERING & MANUFACTURING CORP.
Annual Meeting of Stockholders to be held May 6, 1999
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, Building 3, 5190 Old Easton Road, Danboro,
Pennsylvania 18916, on Thursday, May 6, 1999, at 2:00 p.m., and at any
adjournment, postponement, or continuation thereof, as follows:
(Continued and to be signed on reverse side)
Please mark /x/
your votes like
this in blue or
black ink
1. ELECTION OF CLASS B DIRECTORS WITHHOLD
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:
- -------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of Auditors / / / / / /
Proposal to elect Ernst & Young
LLP as the Company's auditors
for 1999
FOR AGAINST ABSTAIN
3. Approval of the Company's 1999 / / / / / /
Employee Stock Option Plan
<PAGE>
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
MARK IF YOU PLAN TO ATTEND THE ANNUAL MEETING |_|
- ---------------------------------------------------------------------------
Class A Common
FOR AGAINST ABSTAIN
4. Approval of the Company's 1998 |_| |_| |_|
Stock Option Plan for Non-
Employee Directors
5. In their discretion the proxies are authorized to vote upon such other
matters as may properly come before the meeting and any adjournment,
postponement, or continuation 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 and FOR proposals 2, 3, and 4.
- --------------------------------------------------------
Signature of Stockholder
- --------------------------------------------------------
Signature of Stockholder
Date: _________________________________, 1999
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.
