SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[_] Confidential, For Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
Espey Mfg. & Electronics Corp.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[_] Fee paid previously with preliminary materials:
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[_] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<page>
ESPEY MFG. & ELECTRONICS CORP.
---------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 30, 2007
---------------------------
October 23, 2007
To the Shareholders of
ESPEY MFG. & ELECTRONICS CORP.:
You are cordially invited to attend the Annual Meeting of Shareholders of
Espey Mfg. & Electronics Corp., which will be held at The Saratoga, 534
Broadway, Saratoga Springs, New York, on November 30, 2007, at 9:00 a.m.,
Eastern Standard Time, for the following purposes:
1. To elect two Class B Directors to serve for a three year term
expiring at the 2010 Annual Meeting or until their respective
successors are duly elected and qualify; and
2. To ratify the appointment of Rotenberg & Company, LLP as the
Company's independent public accountants for the fiscal year
ending June 30, 2008; and
3. To approve the adoption of the Espey Mfg. & Electronics Corp.
2007 Stock Option and Restricted Stock Plan.
No other business may be transacted at the meeting.
The Board of Directors has fixed the close of business on October 9, 2007,
as the record date for the purpose of determining shareholders entitled to
notice of, and to vote at, said meeting or any adjournment thereof. The books
for transfer of the Company's capital stock will not be closed.
Even if you expect to attend the meeting in person, it is urged by the
Company that you mark, sign, date and return the enclosed proxy. The proxy may
be revoked at any time before it is voted and shareholders who execute proxies
may nevertheless attend the meeting and vote their shares in person. Every
properly signed proxy will be voted as specified unless previously revoked.
By Order of the Board of Directors,
/S/ PEGGY A. MURPHY
PEGGY A. MURPHY
Corporate Secretary
Please make your specification and sign and date the enclosed proxy and
mail it promptly in the accompanying pre-addressed, postage-free envelope.
<page>
ESPEY MFG. & ELECTRONICS CORP.
233 Ballston Avenue
Saratoga Springs, New York 12866
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Espey Mfg. &
Electronics Corp. (the "Company") for use in voting at the Annual Meeting of the
Shareholders of the Company to be held at The Saratoga, 534 Broadway, Saratoga
Springs, New York, on November 30, 2007, at 9:00 a.m., Eastern Standard Time,
and at any postponement or adjournment thereof, for the purposes set forth in
the attached Notice of Meeting. It is anticipated that the Notice of Annual
Meeting of Shareholders, this Proxy Statement and the form of proxy will be
mailed on or about October 23, 2007.
VOTING AND REVOCABILITY OF PROXIES
Every properly dated, executed and returned proxy will be voted at the
Annual Meeting in accordance with the instructions of the shareholder. If no
specific instructions are given, the shares represented by such proxy will be
voted (i) For the election of the Class B Directors nominated by the Board of
Directors, (ii) For ratification of the appointment of Rotenberg & Company, LLP
as the Company's independent public accountants for the fiscal year ending June
30, 2008 and (iii) For approval of the adoption of the Espey Mfg. & Electronics
Corp. 2007 Stock Option and Restricted Stock Plan. Any shareholder giving a
proxy has the power to revoke it at any time prior to the voting thereof by
voting in person at the Annual Meeting, by giving written notice to the
Secretary prior to the Annual Meeting, or by signing and delivering a new proxy
card bearing a later date.
The Company's only class of voting securities is its Common Stock, par
value $.33-1/3 per share (the "Common Stock"). Each share of Common Stock
outstanding on the record date will be entitled to one vote on all matters. In
accordance with the Company's By-Laws and applicable state law, the election of
directors will be determined by a plurality of the votes cast by the holders of
shares of Common Stock present and entitled to vote thereon, in person or by
proxy, at the Annual Meeting. Shares present which are properly withheld as to
voting with respect to any one or more nominees, and shares present with respect
to which a broker indicates that it does not have authority to vote ("broker
non-vote") will not be counted. Cumulative voting in connection with the
election of directors is not permitted. The affirmative vote of shares
representing a majority of the votes cast by the holders of shares present and
entitled to vote is required to approve the other matters to be voted on at the
Annual Meeting. Shares, which are voted to abstain and broker non-votes, are not
counted as votes cast on any matter to which they relate.
The By-Laws of the Company provide that the majority of the shares of the
Common Stock of the Company issued and outstanding and entitled to vote, present
in person or by proxy, shall constitute a quorum at the Annual Meeting. Shares,
which are voted to abstain, are considered as present at the Annual Meeting for
the purposes of determining a quorum. Broker non-votes are considered as present
at the Annual Meeting for the purposes of determining a quorum.
RECORD DATE AND SHARE OWNERSHIP
Only holders of Common Stock of record on the books of the Company at the
close of business on October 9, 2007 will be entitled to vote at the meeting.
There were outstanding and entitled to vote on October 9, 2007, 2,317,750 shares
of Common Stock.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation, as amended, provides that the
Board of Directors shall consist of not less than three nor more than nine
persons with the actual number determined in accordance with the Company's
bylaws. The Certificate of Incorporation further provides that there shall be
three classes of directors (Class A, Class B and Class C) with overlapping
three-year terms and that all classes shall be as nearly equal in number as
possible.
The Board of Directors fixed the present number of directors at seven. The
terms of two Class B Directors expire at the Annual Meeting. There are presently
two Class C Directors, whose terms expire at the 2008 Annual Meeting, and three
Class A Directors, whose terms expire at the 2009 Annual Meeting.
The Board of Directors has nominated two persons to stand for election as
Class B Directors.
The votes will be cast pursuant to the enclosed proxy for the election of
each of the Class B nominees named unless specification is made withholding such
authority. Each of the nominees is presently a director of the Company. Should
any of said nominees for Class B Directors become unavailable, which is not
anticipated, the proxies named in the enclosed proxy will vote for the election
of such other persons as the Board of Directors may recommend. Proxies may not
be voted for a greater number of persons than the nominees named.
<page>
The names and business experience for the past five years of the two
persons who have been nominated by the Board of Directors to stand for election
as Class B Directors at the Annual Meeting and the remaining directors whose
terms are continuing until the 2008 or 2009 Annual Meeting appear below.
The Board has determined that the Board members with the exception of
Howard Pinsley and Barry Pinsley are independent in accordance with the listing
standards of the American Stock Exchange and the Bylaws of the Company.
The Board determined that the payments for miscellaneous legal services
made to the law firm Langrock, Sperry & Wool, of which Michael W. Wool is a
Senior Partner, and described under the heading "Certain Relationship and
Related Transactions", did not prevent it from concluding that Mr. Wool is
independent, because the amount of the payments constituting legal fees have not
exceeded $60,000 during any of the three previous years.
The independent members of the Board met one time during the fiscal year
ended June 30, 2007 with no members of management present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOLLOWING
NOMINEES FOR CLASS B DIRECTORS.
NOMINEES FOR CLASS B DIRECTORS -- SERVING FOR
A THREE YEAR TERM EXPIRING AT THE 2010 ANNUAL MEETING
<table>
<caption>
Period to
Offices and Date
Positions Held Served as
Name Age with Company Principal Occupation or Employment Director
---- --- ------------ ---------------------------------- --------
<s> <c> <c> <c> <c>
Barry Pinsley (1) .... 66 -- Certified Public Accountant who for five 1994
years acted as a consultant to the Company
prior to his election as a Vice President-
Special Projects on March 25, 1994. On
December 6, 1997, Mr. Pinsley was elected
to the position of Vice President-Investor
Relations and Human Resources, from which
he resigned on June 9, 1998. He continued as
a non-executive officer through December 31,
2005. Mr. Pinsley was a practicing
Certified Public Accountant in Saratoga
Springs, New York since 1975, and is
currently semi-retired.
Seymour Saslow ....... 86 -- Mr. Saslow was Senior Vice President from 1992
1992 until December 31, 1999. From 1973
until being elected Senior Vice President, he
served as Vice President. He joined the Company
on July 22, 1952. Mr. Saslow graduated from the
City College of New York in 1944 with a degree
in electrical engineering and is a senior member
of the Institute of Electrical and Electronics
Engineers Inc. He holds many patents and serves
on the board of several charitable
organizations.
<caption>
CONTINUING CLASS C DIRECTORS -- SERVING FOR A
THREE YEAR TERM EXPIRING AT THE 2008 ANNUAL MEETING
Period to
Offices and Date
Positions Held Served as
Name Age with Company Principal Occupation or Employment Director
---- --- ------------ ---------------------------------- --------
<s> <c> <c> <c> <c>
Paul J. Corr ......... 63 -- Certified Public Accountant who has been a 1992
Principal, at Capital Financial Advisors of
New York, LLC, Clifton Park, NY, since 2003.
Mr. Corr is also a shareholder in the Clifton
Park, NY accounting firm of Rutnik & Corr, P.C.
In May 2007 he retired from Skidmore College
where he had been a Professor of Management
and Business since 1981.
</table>
2
<page>
CONTINUING CLASS C DIRECTORS -- SERVING FOR A
THREE YEAR TERM EXPIRING AT THE 2008 ANNUAL MEETING
<table>
<caption>
Period to
Offices and Date
Positions Held Served as
Name Age with Company Principal Occupation or Employment Director
---- --- ------------ ---------------------------------- --------
<s> <c> <c> <c> <c>
Michael W. Wool 61 -- Attorney engaged in private practice 1990
of law and Senior Partner since 1982 in
the law firm of Langrock, Sperry & Wool,
with offices in Burlington, VT and
Middlebury, VT. Mr. Wool also serves on
the board of the New England Board of
Higher Education and the Burlington Boys
and Girls Club.
<caption>
CONTINUING CLASS A DIRECTORS -- SERVING FOR A
THREE YEAR TERM EXPIRING AT THE 2009 ANNUAL MEETING
Period to
Offices and Date
Positions Held Served as
Name Age with Company Principal Occupation or Employment Director
---- --- ------------ ---------------------------------- --------
<s> <c> <c> <c> <c>
Howard Pinsley (1) 67 President, Chief Howard Pinsley has spent his entire career 1992
Executive Officer with the Company. He served as Program
and Chairman of Director prior to being elected Vice President
the Board -Special Power Supplies on April 3, 1992.
On December 6, 1996, Mr. Pinsley was
elected to the position of Executive Vice
President. On June 9,1998 he was elected to
the positions of President and Chief Operating
Officer. Subsequently he became Chief
Executive Officer and Chairman of the Board.
Alvin O. Sabo 64 -- Attorney engaged in private practice of law 1999
and Of Counsel to the law firm of Donohue,
Sabo, Varley & Huttner, LLP in Albany, NY.
He was a partner with a predecessor firm
begining in 1980. Prior to that position, he was
Assistant Attorney General, State of New York,
Department of Law for eleven years.
Carl Helmetag 59 -- President and CEO of UVEX Sports Inc. in 1999
Cranston, RI. From 1996 to 1999, he was
President and CEO of HEAD USA Inc.
Prior to that position, Mr. Helmetag was
Executive Vice President and then President
at Dynastar Inc. from 1978 to 1996. He is a
MBA graduate from The Wharton School
of Business, University of Pennsylvania.
</table>
- ----------
(1) Barry Pinsley and Howard Pinsley are cousins.
None of the directors holds a directorship in any other company with a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or subject to the requirements of Section 15(d) of the Securities
Act of 1933 or any company registered as an Investment Company under the
Investment Company Act of 1940.
3
<page>
The only individuals currently considered executive officers of the Company
not identified previously are:
James Clemens, 58, Vice President of Sales and Marketing of the Company
since March 1, 2004. He was elected as an executive officer on May 19, 2006. Mr.
Clemens held various positions in the power systems industry for seven years
prior to joining the Company. From 1997 to 1999, he was President and Chief
Executive Officer of Ling Electronics, Inc., which was acquired by SatCon Power
Systems. He then served as Transition Manager and consultant to SatCon until
2003.
Katrina L. Sparano, 36, Assistant Treasurer and Principal Accounting
Officer of the Company since November 12, 2004. Ms. Sparano is a Certified
Public Accountant. Prior to joining the Company on July 29, 2004, she was the
Assistant Controller for Cambridge Heart, Inc.
Peggy A. Murphy, 49, Secretary of the Company since December 11, 1998. She
has been employed by the Company as Director of Human Resources since October
1998.
David A. O'Neil, 42, Treasurer and Principal Financial Officer since
January 4, 2000. Mr. O'Neil is a Certified Public Accountant who, prior to
joining the Company, was a Senior Manager at the accounting firm of KPMG LLP.
The terms of office of all executive officers are until the next annual
meeting of the Board of Directors unless successors are sooner appointed by the
Board of Directors.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the Company's fiscal year ended June 30, 2007, the Board of
Directors held a total of four meetings, and each director then in office
attended at least 75% of such meetings. Under the policies of the Board,
Directors are expected to attend regular Board meetings, Board committee
meetings, as applicable, and the annual stockholder meeting. All of the
Company's directors attended the 2006 Annual Meeting.
The Board has a standing Audit Committee whose members are Paul J. Corr,
Chairman, Alvin O. Sabo and Carl Helmetag. The functions of this Committee
include reviewing the engagement of the independent accountants, the scope and
timing of the audit and any non-audit services to be rendered by the independent
accountants, reviewing with the independent accountants and management the
Company's policies and procedures with respect to internal auditing, accounting
and financial controls, and reviewing the report of the independent accountants
upon completion of its audit. During the fiscal year ended June 30, 2007, the
Audit Committee held four meetings, and each Committee member attended at least
75% of such meetings.
The Board has a standing Nominating Committee whose members are Carl
Helmetag, Chairman, Michael Wool, and Paul J. Corr. The function of this
Committee is to identify and recommend to the Board individuals for nomination
to fill vacancies in, and for renomination to, positions as Directors of the
Corporation. During fiscal year ended June 30, 2007, the Nominating Committee
held one meeting and each Committee member attended the meeting.
The Board has determined that all of the members of the Audit Committee and
the Nominating Committee meet the independence criteria for audit committee and
nominating committee members as set forth in the listing standards of the
American Stock Exchange. The Board has further determined that Mr. Corr
qualifies as an audit committee financial expert in accordance with the rules of
the United States Securities and Exchange Commission ("SEC").
The Board of Directors does not have a standing compensation committee and
believes that it is not necessary to have such a committee because all directors
participate in the consideration of executive officer and director compensation.
Howard Pinsley, President and Chief Executive Officer, makes recommendations to
the full Board as to salary increases and bonuses for the other executive
officers and also advises the other directors as to salary increases and bonuses
to which he believes he is entitled based upon performance. Mr. Pinsley does not
participate in the Board's deliberations regarding his own compensation.
The Board has a standing Stock Option Committee whose current members are
Paul J. Corr, Chairman, Howard Pinsley, and Barry Pinsley. The functions of this
Committee include recommending to the full Board to whom, and the time or times
at which, options will be granted, the number of shares of common stock that
underlie each option and the exercise price and vesting schedule for options
granted pursuant to the Company's 2000 Stock Option Plan. The Committee will
perform the same function with respect to the Espey Mfg. & Electronic's Corp.
2007 Stock Option and Restricted Stock Plan if it is approved by the
shareholders at the Annual Meeting. During the fiscal year ended June 30, 2007,
the Stock Option Committee held one meeting and each Committee member attended
such meetings.
The Board also has a Succession Committee, members of which are Paul J.
Corr, Howard Pinsley, Alvin O. Sabo and Michael Wool and a Mergers and
Acquisition Committee, members of which are Howard Pinsley, Barry Pinsley and
Michael Wool.
NON-EMPLOYEE DIRECTOR COMPENSATION
Company employees who also serve on the Company's Board of Directors do not
receive director's fees. The non-employee Directors receive an annual fee of
$21,000 for being a member of the Board of Directors. Each Director who also
serves as a member of the Audit Committee is compensated an additional annual
fee of $5,000. Each Director who serves as a member of the Succession Committee
or the Mergers and Acquisition Committee is compensated an additional $2,500 for
each committee. These fees are paid in monthly installments to the Directors.
4
<page>
The following table sets forth the compensation of the Company's
non-employee Directors for the fiscal year ending June 30, 2007:
Fees Earned or Option All Other
Paid in Cash Awards Compensation Total
Name ($) ($)(a),(c) ($)(b) ($)
---- ------------ ---------- ------------ -------
Seymour Saslow $21,000 $3,890 $5,752 $30,642
Barry Pinsley $23,500 $5,446 $7,566 $36,512
Michael W. Wool $26,000 $6,224 $5,824 $38,048
Paul J. Corr $28,500 $7,780 -- $36,280
Alvin O. Sabo $28,500 $5,446 -- $33,946
Carl Helmetag $26,000 $5,446 -- $31,446
-------------------
(a) Represents the dollar amount recognized for financial statement
reporting purposes with respect to the fiscal year ended June 30, 2007
in accordance with FAS 123(R). For information concerning the
assumptions made in the valuation of awards, see Note 12 of our
financial statements for the fiscal year ended June 30, 2007.
(b) Represents the amount reported to Directors as income in respect of
Company provided health insurance for fiscal year ended June 30, 2007
and in the case of Mr. Barry Pinsley this amount includes earned
income on his account in the Company's ESOP.
(c) The non-employee Directors held the following unexercised options at
fiscal year end 2007:
Number of Number of
Securities Securities
Underlying Underlying Option Option
Unexercised Unexercised Exercise Expiration
Options Options Price Date
# # $
Name Exercisable Unexercisable
---- ----------- ------------- -------- ----------
Paul J. Corr 1200 $11.25 8/20/2014
2000 $17.36 10/13/2015
2000 $17.80 5/19/2016
2000 $18.29 2/21/2017
Carl Helmetag 800 $ 9.93 3/1/2012
800 $ 9.25 3/4/2013
800 $11.25 8/20/2014
1400 $17.36 10/13/2015
1400 $17.80 5/19/2016
1400 $18.29 2/21/2017
Barry Pinsley 1400 $17.36 10/13/2015
1400 $17.80 5/19/2016
1400 $18.29 2/21/2017
Alvin O. Sabo 1000 $11.25 8/20/2014
1800 $17.36 10/13/2015
1400 $17.80 5/19/2016
1400 $18.29 2/21/2017
Seymour Saslow 1000 $ 9.25 3/4/2013
1000 $11.25 8/20/2014
1000 $17.36 10/13/2015
1000 $17.80 5/19/2016
1000 $18.29 2/21/2017
5
<page>
Option Awards
Number of Number of
Securities Securities
Underlying Underlying Option Option
Unexercised Unexercised Exercise Expiration
Options Options Price Date
# # $
Name Exercisable Unexercisable
---- ----------- ------------- -------- ----------
Michael W. Wool 1000 $ 8.98 3/1/2011
1000 $ 9.93 3/1/2012
1000 $ 9.25 3/4/2013
1000 $11.25 8/20/2014
1600 $17.36 10/13/2015
1600 $17.80 5/19/2016
1600 $18.29 2/21/2017
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes the annual compensation for each of the
fiscal years ended June 30, 2007 and June 30, 2006 received by the Company's
principal executive officer and the Company's two most highly compensated
executive officers other than the principal executive officer who received over
$100,000 in total compensation for the fiscal year ended June 30, 2007
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<table>
<caption>
Option All Other
Name and Salary Bonus Awards (a) Compensation (b) Total
Principal Position Year $ $ $ $ $
------------------ ---- -------- ------- ------- --------------- --------
<s> <c> <c> <c> <c> <c> <c>
Howard Pinsley 2007 $206,048 $40,000 $15,560 $40,175 $301,783
2006 $198,024 $30,000 $32,932 $27,237 $288,193
David A. O'Neil 2007 $123,924 $20,000 $ 7,780 $22,869 $174,573
2006 $119,082 $15,000 $14,778 $15,568 $164,428
James Clemens 2007 $139,897 $10,000 $ 7,780 $ 3,834 $161,511
2006 $132,540 $ 5,000 $14,778 $ 0.00 $152,318
</table>
- ---------------
(a) Represents the dollar amount recognized for financial statement
reporting purposes with respect to the fiscal year ended June 30, 2007
in accordance with FAS 123(R). For information concerning the
assumptions made in the valuation of awards, see Note 12 of our
financial statements for the fiscal year ended June 30, 2007.
(b) All other compensation for fiscal years 2007 and 2006 was as follows:.
Value of
vested shares Company
and cash in Contributions
Company to 401(k)
Name Year ESOP ($) Plan ($) Total
---- ---- -------- -------- -----
Howard Pinsley 2007 $38,907 $1,268 $40,175
2006 $26,329 $ 908 $27,237
David A. O'Neil 2007 $21,347 $1,522 $22,869
2006 $14,034 $1,534 $15,568
James Clemens 2007 $3,834 -- $ 3,834
2006 -- -- --
6
<page>
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth information concerning outstanding equity
awards held by the Company's Named Executive Officers at fiscal year end:
Number of Number of
Securities Securities
Underlying Underlying Option Option
Unexercised Unexercised Exercise Expiration
Options Options Price Date
# # $
Name Exercisable Unexercisable
---- ----------- ------------- -------- ----------
Howard Pinsley 4000 $11.25 8/20/2014
4000 $17.36 10/13/2015
4000 $17.80 5/19/2016
4000 $18.29 2/21/2017
David O'Neil 1600 $ 9.93 3/1/2012
1600 $ 9.25 3/4/2013
1600 $11.25 8/20/2014
1600 $17.36 10/13/2015
2000 $17.80 5/19/2016
2000 $18.29 2/21/2017
James Clemens 800 $11.25 8/20/2014
1600 $17.36 10/13/2015
2000 $17.80 5/19/2016
2000 $18.29 2/21/2017
<table>
<caption>
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Number of securities to Weighted-average Number of Securities remaining
be issued upon exercise exercise price of available for future issuance under
of outstanding options, outstanding options, equity compensation plan (excluding
Plan Category warrants and rights warrants and rights securities reflected in column (a))
- ----------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ----------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c>
Equity compensation
plans approved by
security holders 138,800 $15.77 75,400
Equity compensation
plans not approved
by security holders -- -- --
------- ------
Total 138,800 75,400
======= ======
</table>
INSURANCE
The executive officers and directors of the Company can elect to be covered
under the company-sponsored health plans, which do not discriminate in favor of
the officers, or directors of the Company and which are available generally to
all employees. In addition, the executive officers are covered under a group
life plan, which does not discriminate, and is available to all employees.
The Company maintains insurance coverage, as authorized by Section 726 of
the New York Business Corporation Law, providing for (a) reimbursement of the
Company for payments it makes to indemnify officers and directors of the
Company, and (b) payment on behalf of officers and directors of the Company for
losses, costs and expenses incurred by such individuals in any actions.
EMPLOYEE RETIREMENT PLAN AND TRUST
Under the Company's ESOP, approved by the Board of Directors on June 2,
1989, effective July 1, 1988, all non-union employees of the Company, including
the Company's executive and non-executive officers are eligible to participate.
7
<page>
The ESOP is a non-contributory plan, which is designed to invest primarily in
shares of common stock of the Company. Certain technical amendments not
considered material were adopted effective as of June 10, 1994, July 1, 2003,
and July 1, 2005.
Of the 446,418 shares of common stock of the Company allocated to
participants of the ESOP as of June 30, 2007, 24,928 shares were allocated to
Howard Pinsley, 6,539 shares were allocated to David A. O'Neil, 5,301 shares
were allocated toBarry Pinsley and 1,549 shares were allocated to James Clemens.
The ESOP's purchase of common stock from the Company has been financed by
loans from the Company to the ESOP. Each year the Company makes contributions to
the ESOP which are used to make loan interest and principal payments to the
Company. Following each payment of principal on the loan, a portion of the
unallocated shares held by the ESOP is allocated to participants.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
None of the Company's executive officers has a written employment
agreement. The Company has an agreement with Howard Pinsley, President and Chief
Executive Officer, most recently amended and restated as of August 17, 2007,
under which upon Mr. Pinsley's termination or resignation as chief executive
officer, he becomes a non-executive officer of the Company for a period of 36
months. In consideration for the performance of services to be provided by Mr.
Pinsley for the equivalent of nine days per month, he will receive full benefits
plus $15,000 per month for the first three months and $4,333 per month for the
next 33 months. The agreement expires on December 31, 2009
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (the "Committee") is
comprised of three independent directors and operates under a written charter,
revised most recently by the Board on February 16, 2007 which is attached as
Appendix A to this Proxy Statement.
In fulfilling its responsibilities, the Committee has reviewed and
discussed the Company's audited consolidated financial statements for the fiscal
year ended June 30, 2007 with management and the independent auditors.
The Committee has discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61, as amended
Communication with Audit Committees. In addition, the Committee has received and
reviewed the written disclosures and the letter from the independent auditors
required by Independence Standard No.1, (Independence Discussions with Audit
Committees), and has discussed with the auditors the auditors' independence.
The Committee considered and concluded that the provision of non-audit
services by the independent auditors was compatible with maintaining their
independence.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors that the audited consolidated financial
statements referred to above be included in the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 2007.
The Audit Committee Charter is available on our website at www.espey.com,
-------------
under the tab "Investors".
Audit Committee:
Paul J. Corr, Chairman
Carl Helmetag
Alvin O. Sabo
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Nominating Committee of the Board of Directors (the "Nominating
Committee") is comprised of three independent directors and operates under a
written charter, which was most recently filed with the SEC as Exhibit B to the
Company's Proxy Statement for its Annual Meeting held on November 12, 2004. A
copy of the charter is available on the Company's website, www.espey.com, under
the tab "Investors".
The Nominating Committee will review the present needs of the Board and
establish criteria as to particular qualifications in terms of background and
experience that could meet such needs. At a minimum, the Nominating Committee
believes that nominees for Directors should have either experience in the
industry in which the Company engages or professional, business or academic
qualifications that differ from existing members of the Board and could augment
the aggregate expertise possessed by Board members. The Company further believes
that all nominees should be able to make a contribution to the Board that will
enhance the development and growth of the Company business and shareholder
value; devote adequate time to service as a Director; and work well with other
Board members in a collegial manner.
8
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The Nominating Committee evaluates prospective nominees identified on its
own initiative or referred to it by other Board members, management,
shareholders or external sources and all self nominated candidates. The
Nominating Committee uses the same criteria for evaluating candidates nominated
by shareholders and self nominated as it does for those proposed by other Board
members, management and search companies.
The Nominating Committee will consider bona fide recommendations by
shareholders as to potential Director nominees, who meet the above standards. A
shareholder wishing to submit such a recommendation should send a letter,
postmarked no later than 120 days prior to the date on which the Company's
annual meeting was held during the prior year, to the Secretary of the Company.
The letter must identify its writer as a shareholder of the Company, provide
evidence of the writer's stock ownership and provide:
o The name, address, telephone number and social security number of the
candidate to be considered;
o A description of understandings, contractual, business or familial
relationships between the shareholder and the candidate, if any, and
an unexecuted written consent of the candidate to serve as a director
of the Company, if nominated and elected;
o The candidate's resume and at least three references;
o A statement of the candidate's qualifications to serve on the Board of
Directors and specified Board committees which shall include an
explanation as to how elements of the candidate's background and
experience would be a benefit to the Company and its business.
All candidates recommended to the Nominating Committee must meet the
independence standards of the American Stock Exchange and the definition of
"independent director" in the Company by-laws.
All nominees for election at this Annual Meeting were previously elected by
the shareholders and are standing for re-election.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD
Mail can be addressed to Directors in care of the Office of the Secretary,
Espey Mfg. & Electronics Corp. 233 Ballston Avenue, Saratoga Springs, New York
12866. At the direction of the Board of Directors, all mail received will be
opened and screened for security purposes. The mail will then be logged in. All
mail, other than trivial or obscene items, will be forwarded. Trivial items will
be delivered to the Directors at the next scheduled Board meeting. Mail
addressed to a particular Director will be forwarded or delivered to that
Director. Mail addressed to "Outside Directors" or "Non-Management Directors"
will be forwarded or delivered to the Chairman of the Audit Committee. Mail
addressed to the "Board of Directors" will be forwarded or delivered to the
Chairman of the Board.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding ownership of the
Company's outstanding Common Stock as of October 9, 2007, by each person or
group who is known to the Company to be the beneficial owner of more than five
percent of the outstanding shares of Common Stock.
<table>
<caption>
Title Name and Address of Amount and Nature Percent
Class Beneficial Owner of Beneficial Ownership of Class
- ----- ------------------- ----------------------- --------
<s> <c> <c> <c>
Common Stock Franklin Resources, Inc. 156,000 - Direct (1) 6.7%
One Franklin Parkway
San Mateo, CA 94403-1906
Common Stock Espey Mfg. & Electronics Corp. 683,720 - Direct (2) 29.5%
Employee Retirement Plan and Trust
233 Ballston Ave
Saratoga Springs, NY 12866
Common Stock Advisory Research, Inc. 219,640 - Direct (3) 9.5%
180 North Stetson St.
Suite 5500
Chicago, IL 60601
Common Stock Howard Pinsley, 103,768 - Direct (4) 5.4%
233 Ballston Avenue 24,928 - Indirect (4)
Saratoga Springs, NY 12866
</table>
9
<page>
- ------------------
(1) The information as to the number of shares of Common Stock and the percent
of class ownership of the Company that may be deemed beneficially owned by
Franklin Advisory Services, LLC ("Franklin") is from the Schedule 13G,
dated October 12, 2006 filed with the Securities and Exchange
Commission(the "SEC"). The Franklin statement indicated that Franklin's
investment "management subsidiaries," have sole voting and dispositive
power with respect to all of the shares of Common Stock shown in the table
above for Franklin. The Franklin statement indicates that the Common Stock
set forth in the table is beneficially owned by one or more open or
closed-end investment companies or other managed accounts which are advised
by direct and indirect Franklin investment management subsidiaries. The
statement also indicated that it filed the Schedule 13G on behalf of itself
and Franklin's principal shareholders, Charles B. Johnson and Rupert H.
Johnson, Jr. (the "Principal Shareholders"), all of which are deemed
beneficial owners of the shares of Common Stock shown in the above table
for Franklin. Franklin and the Principal Shareholders disclaim any economic
interest or beneficial ownership in any of the Common Stock shown in the
table for Franklin.
(2) The shares of common stock owned by the ESOP Trust are voted by the
Trustees in the manner directed by the ESOP Committee. The Trustees, Howard
Pinsley and Peggy A. Murphy, are the Chairman of the Board, Chief Executive
Officer and President of the Company and Secretary of the Company,
respectfully. The ESOP Committee, which is appointed by the Board of
Directors, is comprised of Mr. Howard Pinsley, Ms. Murphy, Director Michael
W. Wool and David A. O'Neil, the Treasurer and Principal Financial Officer
of the Company. As to shares that have been allocated to the accounts of
participants in the ESOP, the Trustees are directed by the Committee to
vote such shares in accordance with instructions of the participants. As to
unallocated shares and allocated shares for which voting instructions have
not been received from participants, the Committee instructs the Trustee to
vote such votes proportionately to the shares as to which voting
instructions have been received. As of October 9, 2007, 434,553 shares were
allocated to the accounts of participants and 249,167 shares were
unallocated.
(3) The information as to the number of shares of Common Stock and the percent
of class ownership of the Company that may be deemed beneficially owned by
advisory clients of Advisory Research, Inc. ("Advisory") is from the
Schedule 13G dated February 25, 2007 filed with the SEC. Advisory, a
registered investment advisor, is deemed to have beneficial ownership of
219,640 shares of the Company's Common Stock as of February 20, 2007, all
of which shares are held in Advisory investment companies, trusts and
accounts. Advisory, in its role as investment advisor and/or manager,
reported sole voting power with respect to 219,640 shares.
(4) This information is from Form 4 dated August 27, 2007 filed with the SEC.
Indirect shares represent stock being held in the Company ESOP. Direct
shares include options to acquire 8,000 shares of Common Stock which are
exercisable within 60 days.
SECURITY OWNERSHIP OF MANAGEMENT
The following information is furnished as of October 9, 2007 (unless
otherwise indicated), as to each class of equity securities of the Company
beneficially owned by all Directors and Executive Officers and by Directors and
Executive Officers of the Company as a Group:
Title Name and Address of Amount and Nature Percent
Class Beneficial Owner of Beneficial Ownership of Class
- ----- ------------------- ----------------------- --------
Common Stock James Clemens........... 1,600-Direct *
1,549-Indirect (2)
Common Stock Paul J. Corr ........... 8,439-Direct (1) *
Common Stock Carl Helmetag .......... 12,300-Direct (1) *
Common Stock Peggy A. Murphy ........ 2,400-Direct (1) *
8,425-Indirect (2)
Common Stock David A. O'Neil ........ 11,200-Direct (1) *
6,539-Indirect (2)
Common Stock Barry Pinsley 56,260-Direct (1) 2.4%
Common Stock Howard Pinsley ......... 103,768-Direct (1) 5.5%
24,928-Indirect (2)
Common Stock Alvin O. Sabo .......... 9,300-Direct (1) *
Common Stock Seymour Saslow ......... 12,016-Direct (1) *
10
<page>
Title Name and Address of Amount and Nature Percent
Class Beneficial Owner of Beneficial Ownership of Class
- ----- ------------------- ----------------------- --------
Common Stock Katrina Sparano........... 600-Direct (1) *
827-Indirect (2)
Common Stock Michael W. Wool........... 6,300-Direct (1) *
Common Stock Officers and Directors.... 224,183-Direct (1) 11.3%
as a Group (13 persons) 42,268-Indirect (2)
- ------------------
* Less than one percent
(1) Direct shares include options to acquire shares which are exercisable
within 60 days as follows:
Name of Exercisable Name of Exercisable
Beneficial Owner Options Beneficial Owner Options
---------------- ----------- ---------------- -----------
James Clemens 1,600 Howard Pinsley 8,000
Paul Corr 2,000 Alvin O. Sabo 1,800
Carl Helmetag 3,000 Seymour Saslow 1,000
Peggy A. Murphy 2,400 Katrina Sparano 600
David A. O'Neil 3,200 Michael W. Wool 3,600
Barry Pinsley 1,400
(2) Includes shares allocated to named director or officer as of June 30, 2007
as a participant in the Company's ESOP. Each such person has the right to
direct the manner in which such shares allocated to him or her are to be
voted by the ESOP Trustee.
There are no arrangements known to the Company, the operation of which may
at a subsequent date, result in change of control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company paid the law firm of Langrock, Sperry & Wool, of which Michael
W. Wool, a director of the Company, is a partner, a total of $19,658 and
$72,979, for legal services during fiscal years ended June 30, 2006 and 2005,
respectively. Included in the payment of $19,658 and $72,979 for fiscal year
ended June 30, 2006 and 2005, was $9,085 and $23,750, respectively, held in
trust by the firm and paid to other service providers relating to the ESOP
transaction described above.
CODE OF ETHICS
The Company has adopted a Code of Ethics which is available on our website
at www.espey.com, under the tab "Investors".
-------------
11
<page>
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has selected Rotenberg & Company, LLP as the Company's
independent public accountants for the fiscal year ending June 30, 2008.
Rotenberg & Company, LLP was first selected by the Audit Committee as the
Company's independent public accountants for the fiscal year ending June 30,
2006.
Unless otherwise specified by the shareholders, the shares represented by
their properly executed proxies will be voted for ratification of the
appointment of Rotenberg & Company, LLP as independent accountants for the
fiscal year ending June 30, 2008. The Company is advised by said firm that
neither the firm nor any of its partners now has, or during the past three years
had, any direct financial interest or material indirect financial interest or
any connection with the Company.
A representative of Rotenberg & Company, LLP is expected to be present at
the Annual Meeting with the opportunity to make a statement if he or she desires
to do so and to be available to respond to appropriate questions from the
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ROTENBERG & COMPANY, LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR
THE COMPANY FOR FISCAL YEAR ENDING JUNE 30, 2008.
The Company's Audit Committee has had policies and procedures for
pre-approving all audit and non-audit work performed by Rotenberg & Company LLP
for the fiscal year ended June 30, 2006 and 2007 respectively. Specifically, the
Audit Committee has pre-approved the use of Rotenberg & Company LLP for
performance of audit services and detailed, specific types of services within
the following categories of audit-related and tax services. In each other case,
the Audit Committee requires management to obtain specific pre-approval from the
Audit Committee for any other work to be performed by its outside auditors.
The aggregate fees billed for professional services by Rotenberg & Company
LLP, and its predecessor auditor KPMG LLP, in the fiscal years ended June 30,
2006 and 2007, respectively, for these various services were:
TYPES OF FEES 2007 2006
---- ----
Amount Billed Amount Billed
------------- -------------
(1) Audit Fees $ 52,500 $ 77,500
(2) Audit Related Fees None None
(3) Tax Fees 8,000 12,900
(4) All Other Fees None 10,750
-------- --------
Total $ 60,500 $101,150
======== ========
In the above table, in accordance with the Securities and Exchange
Commission's definitions and rules, "audit fees" are fees the Company paid for
professional services rendered by the principal accountant for the audit of the
Company's annual financial statements included in Form 10-KSB and review of
financial statements included in Form 10-QSBs, and for services that are
normally provided by the principal accountant in connection with statutory and
regulatory filings or engagements; "audit-related fees" are fees for assurance
and related services by the principal accountant that are reasonably related to
the performance of the audit or review of the Company's financial statements;
"tax fees" are fees for tax compliance, tax advice and tax planning rendered by
the principal accountant; and "all other fees" are fees paid to KPMG LLP for
services rendered in connection with the review of Form S-8 with respect to the
Espey Mfg. & Electronics Corp. 2000 Stock Option Plan and a consent to the
incorporation of its report on the Company's financial statements for the years
ended June 30, 2004 and June 30, 2005 in connection therewith. 100% of the
services set forth in sections (1) through (4) above were approved by the Audit
Committee in accordance with its charter.
12
<page>
PROPOSAL NO. 3
APPROVAL OF 2007 STOCK OPTION AND RESTRICTED STOCK PLAN
At the Annual Meeting, the shareholders are being asked to approve the
Espey Mfg. & Electronics Corp. 2007 Stock Option and Restricted Stock Plan (the
"2007 Plan"). Unless otherwise specified by the shareholders, the shares
represented by their properly executed proxies will be voted for the approval of
the adoption of the 2007 Plan.
The following is a summary description of the 2007 Plan and is qualified in
its entirety by reference to the text of the 2007 Plan which is set forth as
Appendix B to this proxy statement.
Description of The Plan
The purpose of the 2007 Plan is to provide an equity interest in the
Company to the Company's directors, officers, employees, advisors and
consultants so as to increase their interest in the economic well-being of the
Company.
Under the 2007 Plan, the Company may grant options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended ("incentive stock options"), other options which are not intended to
so qualify ("nonqualified stock options") and awards of common stock without
payment therefore ("award shares"). Incentive stock options may only be granted
to persons who are key employees of the Company at the time of grant, which may
include officers and directors who are also employees. Nonqualified stock
options and award shares may be granted to persons who are officers, directors
or employees of or consultants or advisors to the Company at the time of grant.
The 2007 Plan will be administered by the Company's Board unless the Board
appoints a compensation committee or other committee of the Board charged with
the responsibility for administering the 2007 Plan. At present, the Board's
Stock Option Committee makes recommendations to the full Board regarding the
award of equity incentives. Subject to the terms of the 2007 Plan, the Stock
Option Committee will recommend the persons to whom options or award shares are
granted, the number of shares covered by an option or award, the term of any
option, the terms of agreements with respect to award shares and the time during
which any option is excercisable or any restrictions on any award shares
continue.
If the 2007 Plan is approved, a total of 400,000 shares of Common Stock
will be reserved for issuance under the plan. The shares issued may include
treasury shares, authorized but unissued shares and shares previously reserved
for issuance upon exercise of options which have expired or terminated or shares
awarded which have been forfeited. Shares subject to options that cease to be
exercisable for any reason or shares awarded which have been forfeited will be
available for subsequent grant under the plan.
As of the date of this proxy statement, no options have been granted or
awards made under the 2007 Plan.
Nonqualified stock options may be granted at an exercise price greater than
or lesser than the fair market value of the Common Stock on the date of grant,
in the discretion of the Board. Incentive stock options, however, may not be
granted at less than the fair market value of the Common Stock and may be
granted to holders of more than 10% of the Common Stock only at an exercise
price of at least 110% of the fair market value of the Common Stock on the date
of grant. The exercise price may be paid in cash or, in the discretion of the
Board, (i) in shares of Common Stock, (ii) by delivery of any other property or
(iii) by any combination of cash, Common Stock and other property. The Board may
also grant awards entitling recipients to receive shares of Common Stock without
payment therefor, upon such terms and conditions as the Board may determine,
including, without limitation, restrictions or risks of forfeiture upon the
happening of specified events vesting schedules and the attainment of
performance objectives, all of which shall be set forth in a restricted stock
award agreement. Recipients of award shares subject to a vesting schedule will
become fully vested in such shares upon a "change of control" as defined in the
2007 Plan.
With respect to incentive stock options, to the extent that the aggregate
fair market value of the Common Stock (measured at the time of grant) with
respect to which incentive stock options are first exercisable by an employee
during any calendar year under the 2007 Plan and any other plan of the Company
providing incentive stock options exceeds $100,000, such incentive stock options
shall be treated as nonqualified options.
Options and awards under the 2007 Plan may not be granted after ten years
from the date of shareholder approval of the 2007 Plan. No option under the 2007
Plan may be exercised subsequent to ten years from the date of grant (five years
after the date of grant for incentive stock options granted to holders of more
than 10% of the Common Stock). No incentive stock option granted pursuant to the
2007 Plan may be exercised more than three months after the option holder ceases
to be an employee of the Company, except that in the event of death or permanent
and total disability of the option holder, the option may be exercised by the
holder of his estate for a period of up to one year after the date of such death
or permanent total disability. Options granted under the 2007 Plan may not be
assigned or transferred except as permitted in the discretion of the Board.
13
<page>
The employment relationship is treated as continuing intact while an option
or award holder is on military leave, sick leave or other bona fide leave of
absence if the period of leave does not exceed six months or, if by statute or
contract.
The 2007 Plan may be amended by the Board subject to shareholder approval
to the extent required by applicable law, regulation or rule of any stock market
on which the Company's stock is traded. No amendment, suspension or termination
of the 2007 Plan, except as described in the 2007 Plan, may adversely affect the
rights of an option or award holder under the 2007 Plan without the holder's
consent.
If approved, the 2007 Plan will replace the Company's 2000 Stock Option
Plan and no further options would be granted under that plan. Options to
purchase an aggregate of 121,200 shares of Common Stock at prices ranging from
$6.63 to $18.29 per share remain outstanding under the 2000 Stock Option Plan.
Federal Income Tax Consequences of the Plan
The following general summary of the U.S. Federal income tax consequences
of the issuance and exercise of options granted under the 2007 Plan and the
grant of award shares under the 2007 Plan is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), current regulations
promulgated and proposed thereunder, and existing administrative rulings of the
Internal Revenue Service, all of which are subject to change (possibly with
retroactive effect). It is not intended to be a complete discussion of all of
the Federal income tax consequences of the plan or of all of the requirements
that must be met in order to qualify for the described tax treatment.
Nonqualified Options. A recipient of a nonqualified option generally will
not recognize any taxable income until the option is exercised. At that time,
subject to certain limited exceptions, the recipient will recognize ordinary
income in an amount equal to the excess of the fair market value of the shares
on the date of exercise over the option exercise price.
Upon a subsequent sale of shares acquired by the exercise of a nonqualified
stock option, a recipient will recognize gain or loss equal to the difference
between the selling price of the shares and their fair market value on the date
of exercise. The gain or loss will be short-term or long-term depending upon how
long the shares were held.
The Company generally will be entitled to a compensation deduction for
Federal income tax purposes in an amount equal to, and at the same time as, the
ordinary income recognized by option holders, provided that the Company reports
the income on a Form W-2 or 1099 (whichever is applicable) that is both timely
provided to the option holder and timely filed with the IRS, and further
provided that such deduction is reasonable and is not limited by applicable
provisions of the Code, such as Sections 162(m), 212, or 280G.
Incentive Stock Options. Incentive stock options granted under the 2007
Plan are intended to qualify as incentive stock options under Section 422 of the
Code.
A participant generally will not recognize taxable income upon the grant or
exercise of an incentive stock option. If an option holder does not make a
"disqualifying disposition" (as defined below), then the option holder will not
recognize any taxable income until the shares are sold or exchanged, and any
gain recognized upon such sale or exchange will be taxable as long-term capital
gain. A "disqualifying disposition" means any disposition of shares acquired on
the exercise of an incentive stock option where such disposition occurs within
two years of the date the option was granted or within one year of the date the
shares were transferred to the option holder.
If the option holder makes a disqualifying disposition, then the difference
between (a) the option exercise price and (b) the lesser of (i) the fair market
value of the shares on the date of exercise or (ii) the price received upon
disposition of the shares, will be taxable to the option holder as ordinary
income. In the case of a gift or certain other transfers, the amount of taxable
ordinary income is not limited to the gain that would have resulted from a sale.
Instead, it is equal to the excess of the fair market value of the shares on the
date of exercise over the option exercise price.
In the case of a disqualifying disposition, if the amount realized on
disposition of the shares exceeds the fair market value of the shares on the
date of exercise, the excess will be taxed as either long-term or short-term
capital gain depending on the option holder's holding period of the shares.
The Company will not be entitled to any deduction with respect to the grant
or exercise of incentive stock options. In addition, no deduction will be
allowed to the Company upon the disposition of stock acquired upon the exercise
of an incentive stock option, unless the disposition is a disqualifying
disposition. In the case of a disqualifying disposition, the Company generally
will be entitled to a deduction at that time equal to the amount of compensation
income that is recognized by the employee as a result of the disqualifying
disposition, provided that the Company reports the income on a Form W-2 or 1099
(whichever is applicable) that is both timely provided to the option holder and
timely filed with the IRS, and further provided that such deduction is
reasonable and is not limited by applicable provisions of the Code including
Section 162(m), 212, or 280G.
14
<page>
Award Shares. Since award shares will be granted subject to a substantial
risk of forfeiture, requiring the recipient to perform substantial services for
a period of time specified in the grant, and may be subject to other terms and
conditions, the recipient will not recognize income at the time such award
shares are issued (absent a Section 83(b) election, described below).
Unless the recipient makes a Section 83(b) election at the time of the
grant of award shares, the recipient will recognize ordinary compensation income
at the time such shares vest in an amount equal to the then fair market value of
the shares. The recipient will have a tax basis in shares that vest equal to the
amount of ordinary compensation income recognized with respect to those shares.
The recipient's holding period would begin just after the shares vest.
A recipient may make a Section 83(b) election with respect to shares
subject to a substantial risk of forfeiture. A recipient of award shares who
makes a Section 83(b) election will recognize ordinary compensation income at
the time the shares are issued and not when they vest. The amount of such income
would equal to the fair market value of the shares at the time of issuance. In
that event, the recipient's tax basis in the shares would equal the fair market
value of the award shares on the date issued, and the holding period would begin
just after such date. Any subsequent appreciation that is recognized would
constitute capital gain rather than ordinary compensation income, and would be
long-term capital gain to the extent the holding period was longer than twelve
months at the time of the sale or exchange.
The Company generally will be entitled to a compensation deduction for
Federal income tax purposes in an amount equal to, and at the same time as, the
ordinary compensation income recognized by recipients of award shares, provided
that the Company reports the income on a Form W-2 or 1099 (whichever is
applicable) that is both timely provided to the recipient and timely filed with
the IRS, and further provided that the deduction is reasonable and is not
limited by applicable provisions of the Code, including Section 162(m), 212, or
280G. Accordingly, the amount and timing of the Company's deductions with
respect to award shares granted will depend upon the extent to which such shares
are (and remain) subject to a substantial risk of forfeiture and the extent to
which Section 83(b) elections are made by recipients with respect to award
shares that are not vested at the time of grant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 2007 PLAN.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of beneficial ownership and changes in beneficial ownership with the
Securities and Exchange Commission. Based solely upon its review of copies of
such reports received by it, or upon written representations obtained from
certain reporting persons, the Company believes that its officers, directors,
and stockholders who own more than ten percent of the Company's equity
securities complied with all Section 16(a) filing requirements for the fiscal
year ended June 30, 2007 except that Director Paul J. Corr did not file on a
timely basis Form 4 with respect to the purchase of 39.416 shares on March 26,
2007, ultimately reported on Form 4 filed June 1, 2007 and Director Alvin O.
Sabo did not file on a timely basis Form 4 with respect to 200 shares purchased
on September 25, 2006, 250 shares purchased on October 4, 2006, and 750 shares
purchased on October 5, 2006, ultimately reported on Form 4 filed October 10,
2006.
ANNUAL REPORTS
The Company's Annual Report on Form 10-KSB for the fiscal year ended June
30, 2007, including financial statements as filed with the Securities and
Exchange Commission, accompanies this Proxy Statement. Such financial statements
are not incorporated herein by reference.
A copy of the Company's Annual Report on Form 10-KSB (including financial
statements and schedules thereto) for the fiscal year ended June 30, 2007 filed
with the Securities and Exchange Commission will be provided without charge upon
the written request of shareholders to Espey Mfg. & Electronics Corp.,
attention: Investor Relations, 233 Ballston Avenue, Saratoga Springs, New York
12866. The Company's Form 10-KSB for the fiscal year ended June 30, 2007 can
also be viewed electronically through a link at the Company's website at
www.espey.com.
- -------------
15
<page>
SHAREHOLDER PROPOSALS
Any shareholder proposal which may be a proper subject for inclusion in the
proxy statement and for consideration at the 2008 Annual Meeting must be
received by the Company at its principal executive office no later than June 25,
2008, if it is to be included in the Company's 2008 proxy statement and proxy
form. In addition, the Company's bylaws outline procedures that a shareholder
must follow to nominate directors or to bring other business before
shareholders' meetings.
PROXY SOLICITATION
The solicitation of the enclosed proxy is being made on behalf of the Board
of Directors and the cost of preparing and mailing the Notice of Meeting, Proxy
Statement and form of proxy to shareholders is to be borne by the Company.
By Order of the Board of Directors,
/S/ HOWARD PINSLEY
HOWARD PINSLEY
President, Chief Executive Officer
and Chairman of the Board
October 23, 2007
Saratoga Springs, New York
16
<page>
APPENDIX A
ESPEY MFG. & ELECTRONICS CORP.
AUDIT COMMITTEE CHARTER
Purpose
The primary purpose of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") of Espey Mfg. & Electronics Corp. (the
"Company") in fulfilling its oversight responsibilities by
o Overseeing management's conduct of the Company's financial reporting
process and systems of internal accounting and financial controls;
o Monitoring the independence and performance of the Company's outside
auditors; and
o Providing an avenue of communication among the outside auditors,
management and the Board.
The Committee is empowered to investigate any matter related to its
oversight role brought to its attention with full access to all books, records,
facilities and personnel of the Company and the power to retain outside counsel,
auditors and other experts, as appropriate, for this purpose. The Company shall
ensure that the Committee is provided with adequate funding in order to pay
compensation to any advisers so retained and to pay the ordinary administrative
expenses of the Committee that are necessary or appropriate in carrying out its
duties.
The Committee shall review the adequacy of this Charter on an annual basis,
and recommend to the Board any necessary amendments.
Membership and Meetings
The Committee is appointed by the Board and shall be comprised of not less
than three members at all times, each of whom must be independent of management
and the Company and otherwise meet the requirements of applicable American Stock
Exchange rules and regulations.
Accordingly, all of the members will be directors:
1. Who have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company; and
2. Who are financially literate or who become financially literate within
a reasonable period of time after appointment to the Committee. In
addition, at least one member of the Committee will have such
accounting or related financial management expertise in order to
qualify as an "audit committee financial expert" in compliance with
the criteria established by the SEC.
The Board shall name a chair of the Committee, who shall be responsible for
preparing an agenda in advance of each meeting. A majority of the members of the
Committee shall constitute a quorum. The Committee shall maintain minutes or
other records of its activities, and shall report to the full Board concerning
its activities.
The Committee shall meet as frequently as circumstances dictate, but no
less than four times annually. As part of its job to foster open communication,
the Committee should meet at least annually separately with each of management
and the outside auditors to discuss any matters that the Committee believes
should be discussed privately.
Key Responsibilities
The Committee's job is one of oversight and it recognizes that the
Company's management is responsible for preparing the Company's financial
statements and that the outside auditors are responsible for auditing those
financial statements. Additionally, the Committee recognizes that financial
management, including the internal accounting and audit staff, as well as the
outside auditors, have more time, knowledge and more detailed information on the
Company than do Committee members; consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special assurance
as to the Company's financial statements or any professional certification as to
the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function.
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The Committee shall:
o Review with management and the outside auditors the Company's audited
financial statements, review and consider with the outside auditors
the matters required to be discussed by Statement of Auditing
Standards ("SAS") No. 61, and determine whether to recommend to the
Board that the financial statements be included in the Company's
Annual Report on Form 10-K to be filed with the SEC (or the Annual
Report to Shareholders if distributed prior to the filing of Form
10-K) .
o Review with management and the outside auditors the Company's interim
financial results to be included in the Company's quarterly reports on
Form 10-Q, prior to their filing with the SEC, and the matters
required to be discussed by SAS No. 61.
o Review the independence of the outside auditors and in connection
therewith:
(i) request from the outside auditors annually, a formal written
statement delineating all relationships between the auditor and
the Company consistent with Independence Standards Board Standard
Number 1;
(ii) discuss with the outside auditors any such disclosed
relationships and their impact on the outside auditors
independence; and
(iii)recommend that the Board take appropriate action, if necessary,
to oversee the independence of the outside auditors.
o Review and evaluate the proposals submitted by prospective auditors
and recommend appointment of the Company's outside auditors and the
Board's submission of their appointment to the shareholders for
ratification.
o Oversee the work performed by the Company's outside auditors, evaluate
the performance of such auditors and discharge such auditors if
circumstances warrant.
o Review and pre-approve any non-audit services to be performed by the
independent outside auditors.
o In consultation with management and the outside auditors, review the
integrity of the Company's financial reporting processes and the
internal control structure (including disclosure controls and internal
control over financial reporting).
o Review potential conflicts of interest involving members of the Board
and management and review and approve all related-party transactions,
defined as those transactions required to be disclosed under Item 404
of Regulation S-K.
o Establish procedures for the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls or
auditing matters and procedures for the confidential, anonymous
submission by Company employees of any concerns related to the
Company's ethics policies, legal issues and accounting or audit
matters.
o Prepare an annual report containing the information prescribed by the
SEC for inclusion in the Company's proxy statement in connection with
the annual meeting of shareholders.
February 18, 2005
(revised February 16, 2007)
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APPENDIX B
ESPEY MFG. & ELECTRONICS CORP.
2007 STOCK OPTION AND RESTRICTED STOCK PLAN
1. Purpose
This Plan authorizes the Corporation to provide directors, officers,
employees, and consultants of the Corporation and its Subsidiaries who are in a
position to contribute to the long term success of the Corporation and its
Subsidiaries with Options to acquire Common Stock and Restricted Stock Awards
for Common Stock. The Corporation believes that this incentive program will
cause these persons to increase their interest in the economic well-being of the
Corporation and its Subsidiaries, and aid in attracting and retaining directors,
officers, employees, and consultants of outstanding ability.
2. Definitions
Unless the context clearly shows otherwise, the following terms have the
meanings set forth in this section:
(a) "Affiliate" means a person or entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the person or entity specified.
(b) "Board" means the Board of Directors of Espey Mfg. & Electronics Corp.,
a New York corporation, or the governing body of any entity that succeeds to the
rights and obligations of Espey Mfg. & Electronics Corp. under this Plan.
(c) "Cause" means, with respect to any Grantee, any of the following: (i)
that person's material dishonesty (including, without limitation, embezzlement,
financial misrepresentation, fraud, theft, or other similar action) in his or
her dealings with the Corporation or its Subsidiaries or with any other entity
that the Corporation or its Subsidiaries are engaged in commerce; (ii) that
person's conviction of, or entry of a plea of nolo contendere to, the commission
of a felony; (iii) any act or omission by that person that actually has, and
which either that person intends to have or that person or a reasonable person
would expect to have, a material adverse effect on the Corporation or any
Subsidiary; or (iv) if any Grantee is party to an employment or consulting
agreement governing the terms of his or her employment or consultancy with the
Corporation or its Subsidiaries, and the agreement includes a definition of
termination for cause, then for purposes hereof Cause also includes those
grounds not inconsistent with the foregoing provisions. If the provisions of the
agreement and this Plan are inconsistent, the provisions of this Plan shall
control.
(d) "Change in Control" means any one of the following:
(i) any one person or entity or more than one person or entity acting
as a group acquires ownership of stock of the Corporation that, together
with stock held by such person or group, constitutes more than fifty (50%)
percent of the total fair market value or total voting power of the stock
of the Corporation. However, if any one person or entity, or more than one
person or entity acting as a group, is considered to own more than fifty
(50%) percent of the total fair market value or total voting power of the
stock of the Corporation, the acquisition of additional stock by the same
person or entity or persons or entities does not cause a change in the
ownership of the Corporation. An increase in the percentage of stock owned
by any one person or entity, or persons or entities acting as a group, as a
result of a transaction in which the Corporation acquires its stock in
exchange for property is treated as an acquisition of stock;
(ii) any one person or entity, or more than one person acting as a
group acquires (or has acquired during the twelve (12) month period ending
on the date of the most recent acquisition by such person or entity or
persons or entities) ownership of stock of the Corporation possessing
thirty (30%) percent or more of the total voting power of the stock;
(iii) a majority of members of the Corporation's board of directors is
replaced during any twelve (12) month period by directors whose appointment
or election is not endorsed by a majority of the members of the
Corporation's board of directors prior to the date of the appointment or
election; or
(iv) one person or entity, or more than one person or entity acting as
a group acquires (or has acquired during the twelve (12) month period
ending on the date of the most recent acquisition by such person or entity
or persons or entities) assets from the Corporation that have a total gross
fair market value equal to or more than forty (40%) percent of the total
gross fair market value of all the assets of the Corporation immediately
prior to such acquisition or acquisitions. Gross fair market value means
the value of the assets of the Corporation, or the value of the assets
being disposed of, determined without regard to any liabilities associated
with such assets.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the Compensation Committee of the Board, if there is
one, or such other committee of the Board appointed by the Board, and charged
with the responsibility for administering this Plan, or if no such committee has
been appointed, the Board. As used in this Plan the term "Committee" shall not
mean an advisory committee which the Board may appoint under Section 4(b) of
this Plan.
(g) "Common Stock" means the common stock, $0.33 1/3 par value per share,
of the Corporation.
(h) "Consultant" means any person or entity that is engaged to perform
services for the Corporation or any of its Subsidiaries, or has agreed to
perform services for the Corporation or any of its Subsidiaries, other than as
an Employee or Director.
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(i) "Corporation" means Espey Mfg. & Electronics Corp.
(j) "Director" means any member of the Board.
(k) "Disability" means (i) the Grantee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or can be expected to
last for a continuous period of not less than twelve (12) months; or (ii) the
Grantee is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months, receiving income
replacement benefits for a period of not less than three (3) months under an
accident and health plan covering Employees of the Corporation or any of its
Subsidiaries.
(l) "Employee" means any common law employee of the Corporation or any of
its Subsidiaries, or any person who has agreed to become a common law employee
of the Corporation or any of its Subsidiaries. The term Employee includes
members of the Board who are common law employees of the Corporation or any of
its Subsidiaries.
(m) "Exchange Act" means the Securities Exchange Act of 1934 as amended,
and the rules and regulations thereunder.
(n) "Fair Market Value" means for a share of Common Stock on a specified
date:
(i) the final reported sales price on the specified date (or if there
is no reported sale on that date, on the last preceding date on which any
reported sale occurred) as reported in the principal consolidated reporting
system with respect to securities listed or admitted to trading on the
principal United States securities exchange (including but not limited to
the American Stock Exchange) on which the Common Stock is listed or
admitted to trading; or
(ii) if the Common Stock is not listed or admitted to trading on any
such exchange, the closing bid quotation with respect to a share on that
date on the National Association of Securities Dealers Automated Quotations
System, or, if no such quotation is provided, on another similar system
then in use as selected by the Committee; or
(iii) if, in the opinion of the Committee, paragraphs (i) and (ii) are
not applicable or reasonable, the fair market value of a share of Common
Stock as determined by an independent appraisal that satisfies the
requirements of Code Section 401(a)(28)(C) and the regulations thereunder
as of a date that is no more than twelve (12) months before the transaction
to which the valuation is applied.
(o) "Grantee" means a person granted an Option or Restricted Stock Award
under this Plan.
(p) "Incentive Stock Option" means an Option designated by the Committee as
an incentive stock option under Code Section 422(b).
(q) "Nonqualified Stock Option" means an Option that is not an Incentive
Stock Option, or an Incentive Stock Option that, subsequent to the date of grant
thereof, fails to satisfy the requirements of Code Section 422(b) or (d).
(r) "Option" means an option granted pursuant to this Plan to purchase
shares of Common Stock.
(s) "Plan" means the Espey Mfg. & Electronics Corp. 2007 Stock Option and
Restricted Stock Plan as set forth herein and as amended from time to time. This
Plan may be referred to as the "Espey Mfg. & Electronics Corp. 2007 Stock Option
and Restricted Stock Plan."
(t) "Restricted Stock Agreement" means a written agreement between the
Corporation and the Grantee, or a certificate accepted by the Grantee,
evidencing the grant of a Restricted Stock Award and containing the terms and
conditions, not inconsistent with this Plan, as the Committee and Grantee agree.
(u) "Restricted Stock Award" means an award of shares of Common Stock
(v) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
(w) "Stock Option Agreement" means a written agreement between the
Corporation and the Grantee, or a certificate accepted by the Grantee,
evidencing the grant of an Option and containing the terms and conditions, not
inconsistent with this Plan, as the Committee and Grantee agree.
(x) "Subsidiary" means (i) any corporation that the Corporation owns,
directly or indirectly, fifty (50%) percent or more of the total combined voting
power of all classes of stock, and (ii) any entity that the Committee reasonably
expects to become a Subsidiary under clause (i).
3. Shares of Common Stock Subject to Plan
Subject to adjustment as provided in Section 8, the Common Stock that may
be issued pursuant to Options and Restricted Stock Awards granted under this
Plan shall not exceed four hundred thousand (400,000) shares in the aggregate,
and the maximum number of aggregate shares of Common Stock that may be issued
pursuant to Incentive Stock Options is four hundred thousand (400,000). Common
Stock issuable under this Plan may be authorized but unissued shares or
reacquired shares of Common Stock held as treasury shares. Common Stock subject
to Options and Restricted Stock Awards that are forfeited, lapse, or terminate
in whole or in part shall be available for issuance pursuant to other Options
and Restricted Stock Awards.
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4. Administration of Plan
(a) The Committee shall administer this Plan. The Committee has the
exclusive authority and discretion to take the following actions, in each case
subject to and consistent with the provisions of this Plan:
(i) to select the Directors, Employees, and Consultants to whom
Options and Restricted Stock Awards are granted;
(ii) to determine the number of shares of Common Stock subject to each
Option and Restricted Stock Award;
(iii) to determine whether an Option is an Incentive Stock Option or a
Nonqualified Stock Option;
(iv) to determine the terms and conditions of any Option and
Restricted Stock Award, including, without limitation, the exercise price,
the period, if any, over which Options vest and become exercisable, the
period, if any, over which Restricted Stock Awards vest;
(v) to determine whether any successor to the Corporation or its
business shall assume the Plan and the Options and Restricted Stock Awards
previously granted and the terms and conditions of this assumption;
(vi) to determine whether, to what extent, and under what
circumstances the exercise price of an Option may be paid in cash, Common
Stock, or other securities or property, and when an Option or Restricted
Stock Award expires or is cancelled, forfeited, or surrendered;
(vii) to determine the restrictions or conditions related to the
delivery, holding, and disposition of shares of Common Stock received upon
exercise of an Option, and upon the grant or vesting of a Restricted Stock
Award;
(viii) to prescribe the form and content of each Stock Option
Agreement and Restricted Stock Award Agreement, which need not be the same
for each Grantee;
(ix) to adopt, amend, rescind, suspend, and waive such rules and
regulations and appoint agents as the Committee determines appropriate for
the administration of this Plan;
(x) to correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, and to construe and interpret this Plan and any
Option, Stock Option Agreement, Restricted Stock Award, Restricted Stock
Award Agreement, or other document;
(xi) to construe and interpret the provisions of this Plan; and
(xii) to make all other determinations as may be required under this
Plan, or as the Committee determines appropriate for the administration of
this Plan.
The Committee may, at any time and from time to time, grant new or
additional Options and Restricted Stock Awards to any eligible Director,
Employee, or Consultant who has previously received Options and Restricted Stock
Awards under this Plan, or options and restricted stock awards under other
plans, regardless of whether the prior Options and Restricted Stock Awards or
other options and restricted stock awards are still outstanding, have been
exercised previously in whole or in part, or have been cancelled. The exercise
price of the new or additional Options and Restricted Stock Awards may be
established by the Committee without regard to the previously granted Options,
other options, Restricted Stock Awards, and other restricted stock awards.
Notwithstanding any other provision of this Plan, the Board may perform any
function of the Committee under this Plan, including without limitation to
ensure that transactions under this Plan by Grantees who are then subject to
Section 16 of the Securities Exchange Act of 1934 in respect of the Corporation
are exempt under Rule 16b 3 thereunder. In any case in which the Board is
performing a function of the Committee, each reference to the Committee in this
Plan is deemed to refer to the Board.
(b) In lieu of a broad delegation of authority to a Committee, the Board
may appoint from among its members an advisory committee charged with the
responsibility of making recommendations to the Board on all matters pertaining
to the administration of this Plan. In such a case no action of the advisory
committee shall be final, conclusive and binding until confirmed by the Board.
(c) Any action of the Committee with respect to this Plan is final,
conclusive, and binding on all persons and entities, including without
limitation the Corporation, Subsidiaries, Grantees, any person or entity
claiming any rights under this Plan from or through any Grantee, and
shareholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
this Plan, the time at which the Committee must or may make any determination is
to be determined by the Committee, and subject to Section 11, any determination
may thereafter by modified by the Committee. The express grant of any authority
and discretion to the Committee, and the taking of any action by the Committee,
is not to be construed as limiting any authority and discretion of the
Committee. The Committee may delegate to officers of the Corporation or any
Subsidiary the authority and discretion, subject to such terms as the Committee
determines, to perform those functions as the Committee determines to the
fullest extent permitted by law.
(d) Each member of the Committee is entitled to, in good faith, rely or act
on any report or other information furnished to him or her by any Director,
officer, or other Employee of the Corporation or any Subsidiary, the
Corporation's independent certified public accountants, or any executive
compensation consultant, legal counsel, or other professional retained by the
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Corporation. To the fullest extent permitted by law, no member of the Committee,
nor any Director, officer, or Employee of the Corporation or any Subsidiary
acting on behalf of the Committee, shall be personally liable for any act or
omission taken or made in good faith with respect to this Plan. All members of
the Committee and any Director, officer, or Employee of the Corporation or any
Subsidiary acting on its behalf shall be fully indemnified and protected by the
Corporation for any such act or omission to the fullest extent permitted by law.
5. Option Terms
Unless as otherwise determined by the Committee and set forth in a Stock
Option Agreement, Options granted under this Plan shall contain the following
terms and conditions:
(a) Each Option granted to an Employee shall be an Incentive Stock Option
to the maximum extent permitted by Code Section 422(d), and any excess over such
maximum shall be a Nonqualified Stock Option. Each Option granted to non
Employee Grantees shall be a Nonqualified Stock Option.
(b) The exercise price per share of Common Stock subject to each Option
shall equal the Fair Market Value on the date the Option is granted.
Notwithstanding the foregoing, the exercise price of an Incentive Stock Option
for a Grantee who owns more than ten (10%) percent of the total combined voting
power of all classes of stock of the Corporation or any of its Subsidiaries
shall not be less than one hundred and ten (110%) percent of the Fair Market
Value of the Common Stock on the date the Option is granted. In the case of such
Grantee, the Incentive Stock Option may be exercised no later than five (5)
years after the date of grant.
(c) Each Grantee shall vest in an Option (meaning that the Grantee shall
have the right to exercise the option) in accordance with the terms of the Stock
Option Agreement between the Corporation and that Grantee. In addition, all
Grantees shall become fully vested in their Options on a Change in Control,
death and Disability.
(d) The aggregate Fair Market Value (determined at the time the Option is
granted) of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any individual during any calendar year under
all plans of the individual's employer corporation and its parent and subsidiary
corporations shall not exceed One Hundred Thousand ($100,000) Dollars. Except as
otherwise provided in Section 5(e), no Incentive Stock Option may be exercised
at any time unless the Grantee has been an Employee at all times during the
period beginning on the date of grant and ending three (3) months before the
exercise date.
(e) Options held by any Grantee shall terminate upon the earliest of:
(i) as to unvested Options, immediately upon the termination of all
the Grantee's employment, directorship, and consultancy relationships with
the Corporation and its Subsidiaries, and if such termination is for Cause,
as to all Options outstanding and unexercised, whether or not vested;
(ii) as to vested Options, ninety (90) days after the termination of
all the Grantee's employment, directorship, and consultancy relationships
with the Corporation and its Subsidiaries (which is deemed to include the
sale of any Subsidiary that employs the Grantee) for any reason other than
Cause, death, or Disability;
(iii) one year after the termination of all the Grantee's employment,
directorship, and consultancy relationships with the Corporation and its
Subsidiaries by reason of death or Disability; and
(iv) the tenth (10th) anniversary of the date of grant.
For purposes of this Section 5(e), the employment relationship is treated
as continuing intact while the Grantee is on military leave, sick leave, or
other bona fide leave of absence if the period of leave does not exceed six (6)
months or, if longer, so long as the Grantee's right to reemployment is provided
by statute or contract. If the period of leave exceeds six (6) months and the
Grantee's right to reemployment is not provided by statute or contract, the
employment relationship is deemed to terminate on the first date immediately
following the six (6) month period.
(f) The Committee may, in its exclusive discretion, extend the exercise
period of an Option to a date no later than the earlier of the latest date upon
which the Option could have expired by its original terms, or the tenth (10th)
anniversary of the date of grant.
6. Exercise of Options
(a) A Grantee shall exercise an Option by delivery of written notice to the
Corporation setting forth the number of shares with respect to which the Option
is to be exercised, together with bank cashier's check, certified check, wire
transfer, or postal or express money order payable to the order of the
Corporation for an amount equal to the exercise price of the shares and all
employment, excise, income, and payroll taxes required to be withheld as
determined by the Committee. The Committee may, in its exclusive discretion,
permit a Grantee to pay all or a portion of the exercise price and the tax
withholding obligations by delivery of Common Stock or other securities or
property (including notes or other contractual obligations of the Grantee to
make payment on a deferred basis, and through cashless exercise arrangements),
and determine the methods by which Common Stock will be delivered or deemed to
be delivered to the Grantee.
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(b) Notwithstanding anything in Section 6 to the contrary, if the Common
Stock is publicly traded (i) the Committee shall cooperate with each Grantee and
his or her designated broker to facilitate the exercise of the Grantee's Options
using a "cashless exercise" procedure in which the broker advances funds to the
Grantee to pay the option exercise price and effect an immediate resale of all
or part of the option shares to obtain funds for repayment of the advance;
provided, however, that the Grantee shall bear the brokerage and other costs
associated with this procedure; and (ii) the Committee shall not unreasonably
exercise its discretion to prevent the payment of the exercise price of Options
using Common Stock already owned by the Grantee.
7. Restricted Stock Awards.
(a) Restricted Stock Awards shall consist of shares of Common Stock
restricted against transfer, subject to a substantial risk of forfeiture, and
other terms and conditions as determined by the Committee. The Committee shall,
in its exclusive discretion, determine the terms and conditions of each
Restricted Stock Award, which shall be set forth in the Restricted Stock Award
Agreement. In addition, all Grantees shall become fully vested in their
Restricted Stock Awards on a Change in Control.
(b) To protect against the Corporation's or a Subsidiary's loss of
deductibility under Code Section 162(m), the Committee may make Restricted Stock
Awards subject to conditions of attainment of one or more preestablished
performance objectives that relate to corporate, subsidiary, division, group or
unit performance in terms of growth in gross revenue, earnings per share, or
ratios of earnings to equity or assets. The Committee may change these
objectives to reduce or eliminate, but not to increase, an Award to take into
account unforeseen events or changes in circumstances.
(c) Upon the grant of a Restricted Stock Award or, if the grant is subject
to a vesting schedule, upon the vesting of shares, the Corporation shall issue
to the Grantee a certificate representing the vested shares. In no event shall
the Grantee have the right to receive dividends and to vote shares underlying a
Restricted Stock Award until the shares have vested.
(d) Unvested Restricted Stock Awards shall terminate immediately upon the
termination of all the Grantee's employment, directorship, and consultancy
relationships with the Corporation and its Subsidiaries. The employment
relationship is treated as continuing intact while the Grantee is on military
leave, sick leave, or other bona fide leave of absence if the period of leave
does not exceed six (6) months or, if longer, so long as the Grantee's right to
reemployment is provided by statute or contract. If the period of leave exceeds
six (6) months and the Grantee's right to reemployment is not provided by
statute or contract, the employment relationship is deemed to terminate on the
first date immediately following the six (6) month period.
8. Other Events
If any combination, consolidation, forward or reverse split, merger,
reorganization, repurchase, spin off, or exchange of Common Stock or other
securities, Common Stock dividend or other special and nonrecurring dividend or
distribution (whether in cash, securities, or other property), liquidation,
dissolution, or other corporate transaction or event, affects the Common Stock
such that an adjustment is appropriate to prevent dilution or enlargement of the
rights of Grantees, then the Committee shall, in such manner as it determines
appropriate in its exclusive discretion, adjust any or all of (a) the number and
kind of shares of stock deemed to be available thereafter for grants of Options
and Restricted Stock Awards in the aggregate to all eligible individuals and
individually to any one eligible individual; (b) the number and kind of shares
of stock that may be delivered or deliverable in respect of outstanding Options
and Restricted Stock Awards; and (c) the exercise price.
9. Restrictions on Delivery of Shares
(a) The Corporation shall not deliver shares of Common Stock upon the
exercise of any Option, or the grant or vesting of any Restricted Stock Award,
or take any other action under the Plan if the Board determines that applicable
federal and state laws have not been satisfied, the approvals of any regulatory
or governmental agency have not been obtained, and contractual obligations to
which the Option or Restricted Stock Award may be subject have not been
satisfied. The Board may, in its exclusive discretion, postpone the issuance or
delivery of shares of Common Stock until completion of a stock exchange listing
or registration, or qualification of stock or other required action under any
federal or state law. The Corporation shall issue and deliver shares of Common
Stock at the earliest date at which the Board reasonably anticipates that the
issuance and delivery shall not violate any applicable federal and state law, or
contractual obligation.
(b) The Committee may, in its exclusive discretion, require a Grantee (i)
to make representations and furnish information in connection with the issuance
and delivery of Common Stock, the registration of Common Stock under the
Securities Act or other law, and the qualification for an exemption from
registration under the Securities Act or other law; and (ii) to indemnify and
hold harmless the Corporation, all Subsidiaries, the Board, and the Committee
for and from all claims, damages, expenses, liabilities, losses, and reasonable
attorney's and paralegal's fees and disbursements arising from or related to the
making of such representations and the furnishing of such information. In
addition, the Committee may require a Grantee not to make any short sale of,
loan, grant any option for the purchase, pledge, or otherwise encumber or
dispose of shares of stock in the Corporation or any Subsidiary in connection
with the registration of shares of the Corporation or any Subsidiary.
10. General Provisions
(a) Each Option grant shall be evidenced by a Stock Option Agreement, and
each Restricted Stock Award shall be evidenced by a Restricted Stock Agreement.
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(b) The grant of an Option or Restricted Stock Award in any year does not
give the Grantee any right to similar grants in future years, nor any right to
continue the Grantee's employment, directorship, or consultancy relationship
with the Corporation and any Subsidiary. All Grantees remain subject to
termination of their services to the same extent as if this Plan were not in
effect.
(c) No Grantee, and no beneficiary and other person claiming under or
through the Grantee, has any right, title, or interest by reason of any Option
or Restricted Stock Award to any asset of the Corporation and any Subsidiary,
and except as expressly set forth herein in this Plan to any shares of Common
Stock allocated or reserved for the Plan or subject to any Option or Restricted
Stock Award. Neither the Corporation nor any Subsidiary is required to establish
any fund or make any other segregation of assets for the delivery of Common
Stock on the exercise of any Option, or the grant or vesting of a Restricted
Stock Award.
(d) Any Option, Restricted Stock Award, or other right under this Plan
shall not be assigned, encumbered, or pledged except by will or the laws of
intestate descent and distribution. An Option is exercisable during the
Grantee's lifetime only by the Grantee, and with respect to a Nonqualified Stock
Option the Committee may, in its exclusive discretion, grant greater
transferability rights.
(e) The Corporation and its Subsidiaries, as applicable, may require that
the Grantee make such provision, or provide such authorization so that the
Corporation or Subsidiary can satisfy its obligation to withhold or otherwise
pay for employment, excise, income, and payroll taxes of the Grantee arising
from the grant, exercise, or cancellation of Options, or the sale of Common
Stock acquired on the exercise of an Option, or arising from the grant, vesting,
Code Section 83(b) election, or cancellation of Restricted Stock Awards, or the
sale of Common Stock acquired pursuant to a Restricted Stock Award. This
authority and discretion includes without limitation the right to withhold or
receive Common Stock, other securities, and property, and to make cash payments
in respect thereof.
(f) No Grantee of an Option has any rights of a shareholder until the
Grantee exercises the Option.
(g) This Plan is governed by the laws of the State of New York regardless
of the laws that might otherwise apply under the applicable principles of
conflict of laws.
(h) References to any statutory and regulatory provision include
corresponding successor provisions.
(i) The headings and captions contained in this Plan are inserted as a
matter of convenience, and do not construe, define, extend, interpret, or limit
any provision of this Plan.
11. Amendment and Termination
(a) The Board may amend, discontinue, suspend, or terminate this Plan at
any time and from time to time; provided, however, that no such action shall
adversely affect the rights of Grantees of Options and Restricted Stock Awards
previously granted, and that any shareholder approval necessary or desirable to
comply with applicable law or listing requirement must be obtained.
(b) The Board may terminate and liquidate this Plan and accelerate the
exercisability of Options and vesting of Restricted Stock Awards (i) within
twelve (12) months of a dissolution taxed under Code Section 331, or with the
approval of a bankruptcy court under 11 U.S.C. ss. 503(b)(1)(A), provided that
the Grantee recognizes income upon the latest of the calendar year in which the
termination occurs, the calendar year in which an amount is no longer subject to
a substantial risk of forfeiture, and the first calendar year in which the
payment is administratively practicable; or (ii) within thirty (30) days
preceding or the twelve (12) months following a Change in Control.
12. Effective Date and Duration of Plan
This Plan shall be effective immediately upon its adoption by the Board,
subject to the approval of this Plan with respect to Options by the
Corporation's shareholders either before or within one year after the effective
date. Options granted prior to the date that shareholder approval is obtained
are conditioned on receipt of this approval; the Options may not be exercised,
nor shall any shares of Common Stock be delivered on exercise of an Option,
prior to the date that shareholder approval is obtained. This Plan shall
terminate ten (10) years from the earlier of the date that this Plan is adopted
by the Board, and the date that the Corporation's shareholders approve this
Plan; provided, however, that termination of this Plan shall not adversely
affect the rights of Grantees of Options and Restricted Stock Awards previously
granted.
13. Notices and Time
All notices given under this Plan must be in writing. Except as otherwise
provided in this Plan, all periods of time begin or end, as the case may be, on
the date the notice is sent via facsimile transmission and receipt confirmed,
the date personally delivered to any recipient, the date deposited with an
overnight delivery service with tracking capability for next business day
delivery, or on the date of mailing by certified mail, return receipt requested,
postage prepaid, addressed to the recipient. In computing the number of days,
the date of facsimile transmission and receipt confirmed, the date of personal
delivery, the date of deposit with an overnight delivery service with tracking
capability for next business day delivery, or the date of mailing, is included.
Notice of change of address is deemed given only when received.
B-6
<page>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ESPEY MFG. & ELECTRONICS CORP.
PROXY FOR THE
2007 ANNUAL MEETING OF SHAREHOLDERS
November 30, 2007
COMMON
The undersigned hereby appoints Alvin O. Sabo and Carl Helmetag as Proxies, each
with the power to appoint his substitute, and hereby authorizes them or any one
of them to represent and to vote, as designated below, all the shares of common
stock of ESPEY MFG. & ELECTRONICS CORP. which the undersigned would be entitled
to vote if personally present at the 2007 Annual Meeting of Shareholders to be
held on November 30, 2007 or any adjournment thereof.
1. TO ELECT: two Class B Directors Barry Pinsley and Seymour Saslow to serve
for a three year term expiring at the 2010 annual meeting or until his
successor is duly elected and qualifies.
SEYMOUR SASLOW [_] FOR [_] WITHHOLD AUTHORITY
BARRY PINSLEY [_] FOR [_] WITHHOLD AUTHORITY
The Board of Directors recommends a vote FOR these nominees.
---
2. TO RATIFY the appointment of Rotenberg & Company, LLP as the independent
public accountants of the Company for fiscal year ending June 30, 2008.
[_] FOR [_] AGAINST [_] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
---
3. TO APPROVE The Espey Mfg. & Electronics Corp. 2007 Stock Option and
Restricted Stock Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
---
No other business may be transacted at the meeting.
------------------------
Please be sure to sign and date | Date |
this Proxy in the box below. | |
- --------------------------------------------------------------------------------
| |
| |
- -----------Shareholder sign above----------Co-holder (if any) sign above-------
- --------------------------------------------------------------------------------
^ Detach here, sign, date and mail in postage paid envelope provided. ^
ESPEY MFG. & ELECTRONICS CORP.
- --------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE ABOVE SIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporation name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
<page>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ESPEY MFG. & ELECTRONICS CORP.
PROXY FOR THE
2007 ANNUAL MEETING OF SHAREHOLDERS
November 30, 2007
ESOP
The undersigned hereby appoints Alvin O. Sabo and Carl Helmetag as Proxies, each
with the power to appoint his substitute, and hereby authorizes them or any one
of them to represent and to vote, as designated below, all the shares of common
stock of ESPEY MFG. & ELECTRONICS CORP. which the undersigned would be entitled
to vote if personally present at the 2007 Annual Meeting of Shareholders to be
held on November 30, 2007 or any adjournment thereof.
1. TO ELECT: two Class B Directors Barry Pinsley and Seymour Saslow to serve
for a three year term expiring at the 2010 annual meeting or until his
successor is duly elected and qualifies.
SEYMOUR SASLOW [_] FOR [_] WITHHOLD AUTHORITY
BARRY PINSLEY [_] FOR [_] WITHHOLD AUTHORITY
The Board of Directors recommends a vote FOR these nominees.
---
2. TO RATIFY the appointment of Rotenberg & Company, LLP as the independent
public accountants of the Company for fiscal year ending June 30, 2008.
[_] FOR [_] AGAINST [_] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
---
3. TO APPROVE The Espey Mfg. & Electronics Corp. 2007 Stock Option and
Restricted Stock Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
---
No other business may be transacted at the meeting.
------------------------
Please be sure to sign and date | Date |
this Proxy in the box below. | |
- --------------------------------------------------------------------------------
| |
| |
- -----------Shareholder sign above----------Co-holder (if any) sign above-------
- --------------------------------------------------------------------------------
^ Detach here, sign, date and mail in postage paid envelope provided. ^
ESPEY MFG. & ELECTRONICS CORP.
- --------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE ABOVE SIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporation name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------