ESP 8-K
Espey Mfg & Electronics Corp (ESP)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report
December 1, 2020
ESPEY MFG & ELECTRONICS CORP.
(Exact name of registrant as specified in its charter)
|
New York (State or Other Jurisdiction of Incorporation) |
001-04383 (Commission File Number) |
14-1387171 (IRS Employer Identification No.) |
|
233 Ballston Avenue, Saratoga Springs, New York 12866 (Address of principal executive offices) |
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(518) 584-4100 (Registrant’s telephone number, including area code) |
| Not Applicable |
| (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| Common Stock $.33-1/3 par value | ESP | NYSE American |
| Common Stock Purchase Rights | NYSE American |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Item 1.01. Entry into Definitive Material Agreement.
See disclosure under Item 3.02 below.
Item 3.02. Unregistered Sales of Equity Securities.
On December 1, 2020, pursuant to a Stock Purchase Agreement dated as of such date, Espey Mfg. & Electronics Corp. (the “Corporation”) sold 300,000 shares of its common stock, par value $0.33 1/3 per shares to the Trustees of The Espey Mfg. & Electronics Corp. Employee Stock Ownership Plan Trust (the “ESOP”). The ESOP paid $18.29 per share, for an aggregate purchase price of $5,487,000. The ESOP borrowed from the Corporation an amount equal to the purchase price. The loan will be repaid in fifteen (15) equal annual installments of principal and the unpaid balance will bear interest at a fixed rate of 3.00% per annum.
The Board of Directors of the Corporation had approved a purchase price per equal to the fair market value as determined by an independent valuation firm retained by the ESOP. The average trading pricing of the Corporation’s common stock on the NYSE - American on November 30, 2020 was $19.12.
In making the sale, the Corporation relied on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, because the shares sold were offered only to the ESOP.
After giving effect to the transaction, the ESOP owns 769,119 shares of the Corporation’s outstanding shares of common stock, all of which, with the exception of the newly-acquired 300,000 shares, have already been allocated to the accounts of the participants in the ESOP.
Item 9.01. Financial Statements and Exhibits.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ESPEY MFG. & ELECTRONICS CORP. | |
| /s/ David A. O’Neil | |
| David A. O’Neil | |
| Executive Vice President and | |
| Chief Financial Officer |
Dated: December 3, 2020
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STOCK PURCHASE AGREEMENT
AGREEMENT made as of the date last written by and among Espey Mfg. & Electronics Corp., a New York corporation (the “Seller”) and the trustee(s) not in their individual capacity, but solely as trustees (the “Trustees”) of the Espey Mfg. & Electronics Corp. Employee Retirement Plan Trust (the “Purchaser”), a trust established pursuant to the Espey Mfg. & Electronics Corp. Employee Retirement Plan (the “Plan” or “ESOP), which is an Employee Stock Ownership Plan within the meaning of Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the “Code”).
WHEREAS, Seller is authorized to issue 10,000,000 shares of common stock, $0.33 1/3 par value per share (the “Common Stock”) of which 2,402,633 shares are issued and outstanding and 627,241 shares are held in treasury, respectively, as of September 30, 2020.
WHEREAS, the Seller desires to sell, and the Purchaser desires to purchase the number of the shares of Common Stock as provided in Section 1 herein, on the terms and conditions contained herein; and
WHEREAS, the Shares are qualifying the employer securities as described in the Code and particularly Treas. Reg. §54.4975-12 and the corresponding provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and
WHEREAS, the Purchaser desires to finance the purchase of the Shares in a manner that is primarily for the benefit of the Purchaser’s participants and beneficiaries, and upon terms and conditions consistent with the Code and ERISA;
NOW, THEREFORE, in consideration of the mutual representations, warranties and covenants contained herein, the parties hereto agree as follows:
1. Purchase and Sale of Shares. Subject to the terms and conditions of this Agreement, the Seller hereby agrees to sell, transfer, convey and deliver to Purchaser, and Purchaser hereby purchases, acquires and accepts from the Seller, 300,000 shares of the Common Stock (the “Shares”), 200,000 of which shall be from treasury and 100,000 of which shall be newly issued shares.
2. Purchase Price for Shares. The consideration to be paid by Purchaser for the Shares shall be 5.487 Million Dollars ($5,487,000) (the “Purchase Price”), or $18.29 per Share, payable as provided in Section 3 hereof. The Purchase Price for the Shares shall in no event be more than adequate consideration within the meaning of Section 3(18)(B) of ERISA and shall not exceed the fair market value of the Shares as set forth in the opinion referred to in paragraph 7.(e) Fairness Opinion herein.
3. Payment of Purchase Price. The Purchase Price shall be paid by the Purchaser by delivering to the Seller at Closing the ESOP Note (a copy of which is attached hereto as Schedule 1) (the “ESOP Note”) with such note having those payments and other terms as referenced in the ESOP Note and more fully described in the ESOP Loan Agreement (a copy of which is attached hereto as Schedule 2) (the “ESOP Loan Agreement”) and (iii) the extension of credit made under the ESOP Note and the ESOP Loan Agreement being secured by a pledge of those shares to the Seller pursuant to the terms of the ESOP Pledge Agreement of even date (a copy of which is attached hereto as Schedule 3) (the “ESOP Pledge Agreement).
4. The Closing. The purchase and sale of the Shares shall take place on December 1, 2020, or at such time and place mutually agreed upon by the parties (which time and place are designated as the “Closing” or “Closing Date”). At the Closing, the Seller shall deliver to the Purchaser the certificate(s) representing the Shares, and the Purchaser shall deliver to Seller the ESOP Note.
5. Closing Deliveries.
(a) By the Purchaser. At the Closing, the Purchaser shall deliver to the Seller the ESOP Note in payment for the Shares, as provided herein.
(b) By the Seller. At the Closing, the Shares shall be credited, free and clear of any encumbrances, to a securities account of the Purchaser for the benefit of the Purchaser.
(c) By the Purchaser and the Seller. At the Closing, the Purchaser and the Seller shall sign and deliver to each other copies of the ESOP Loan Agreement, the ESOP Pledge Agreement and such other documents as shall be reasonably required in order to effect the transactions contemplated hereby.
6. Representations and Warranties.
(a) The Seller hereby represents and warrants to the Purchaser as follows:
(1) The Seller has full power, authority and capacity to enter into this Agreement and to carry out the transactions contemplated hereby. This Agreement is a valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms. No consent of any third party is required for the Seller to enter into this Agreement or consummate the transactions contemplated herein, except for the approval of the NYSE American (the “Exchange”) for the listing of the Shares on the Exchange.
(2) At the Closing, the Seller will be the sole lawful, beneficial and record owner of those of the Shares to be sold to the Purchaser by the Seller which are treasury shares, free and clear of all encumbrances and preemptive rights whatsoever. The remaining Shares are newly-issued shares. Except for this Agreement or pursuant to outstanding options under the Seller’s existing Stock Option Plan, the Seller is not a party to any option, warrant, purchase right or other contract or commitment that could require Seller to sell, transfer or otherwise dispose of any capital stock of the Company. The credit by book entry to the custodian account maintained by Purchaser with the Adirondack Trust Company, will transfer to the Purchaser good, marketable and valid title to the Shares, free and clear of all encumbrances and preemptive rights whatsoever.
(3) There is no action, suit, proceeding or investigation pending (or, to the knowledge of the Seller, threatened) affecting the rights of the Seller to sell the Shares pursuant to this Agreement or otherwise to carry out the provisions of this Agreement and the transactions contemplated hereby, in any court, at law or in equity, or before or by any federal, state, local or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind.
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(4) The execution, delivery and performance of this Agreement and the ESOP Loan Documents and the consummation of the transactions contemplated hereby and thereby do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under (a) any indenture, mortgage, deed of trust, instrument, order, arbitration award, judgment or decree to which the Seller is a party or by which the Seller is bound, or (b) any statute, rule or regulation of any federal, state or local government or agency applicable to the Sellers or the Sellers’ assets or properties.
(5) Other than the approval of the NYSE American, no consent, approval or authorization of, or declaration, filing or registration with any governmental or regulatory authority, is required to be obtained by the Sellers in connection with the execution, delivery and performance of this Agreement and the ESOP Loan Documents and the consummation of the transactions contemplated hereby and thereby.
(6) The Company is a corporation duly organized and subsisting under the laws of the State of New York having the corporate power to carry on its business as it is now being conducted. The Company is qualified to do business in each jurisdiction where the nature of its business requires such qualification. The Company is not in default under or in violation of any provision of its certificate of incorporation or its bylaws.
(7) The Company is not in material violation of any applicable federal, state, local or foreign law, regulation or any other requirement of any governmental, regulatory or administrative agency or authority or court or other tribunal (including any law, regulation order or requirement relating to securities, properties, business, products, advertising, sales or employment practices, terms and conditions of employment, occupational safety, health and welfare, conditions of occupied premises, environmental protection, product safety and liability of civil rights). The Company is not now under investigation with respect to any violation of any applicable law, regulation, order or requirement relating to any of the foregoing. The Company has filed all reports required to be filed with any governmental, regulatory or administrative agency or authority.
(8) Except as reflect on the most recent audited financial statements of the Seller:
| (a) | there are no legal, administrative, arbitration or other proceedings or governmental investigations pending or threatened, against the Company in which there is a possibility of an adverse decision that would result in a judgment, fine, penalty, cost or expense of $250,000 or more (in the aggregate for all such potential liabilities); |
| (b) | there are no judgments, decrees or orders binding upon the Company (other than those issued by governmental agencies in connection with the Covid-19 crisis) the effect of which is to prohibit any business practice or the acquisition of any property or the conduct of any business by the Company or which limit or control or otherwise adversely affect its method of manner of doing business; |
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| (c) | no work stoppage has occurred and is continuing or is threated affecting the Business; |
| (d) | the Seller is party to a collective bargaining agreement and the Seller’s relationship with the union is good; and |
| (e) | there are no charges of discrimination (relating to sex, age, race, national origin, handicap or veteran status) or unfair labor practices pending or threatened before any governmental or regulatory agency or authority relating to employees of the Company. |
(9) The ESOP, including the Trust, each have been duly authorized, adopted and established by all necessary corporate action on the part of the Company; the ESOP is a legal and valid employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code, qualified under Section 401(a) of the Code and the Trust is a trust exempt from taxation under Section 501(a) of the Code. The ESOP Loan constitutes an exempt loan within the meaning of Treas. Reg. Section 54.4975-7, and the interest rate on the ESOP Note is reasonable.
(b) Purchaser hereby represents and warrants to the Seller as follows:
(1) Purchaser is a trust related to the Plan duly organized, validly existing and in good standing under the laws of the State of New York and applicable Federal law, and has the requisite power and authority to enter into and perform this Agreement. This Agreement is a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. No consent of any third party is required for Purchaser to enter into this Agreement or consummate the transactions contemplated herein, except for the approval of the NYSE American (the “Exchange”) for the listing of the Shares on the Exchange.
(2) The purchase of the Shares contemplated herein is primarily for the benefit of Plan participants and beneficiaries.
(3) The Purchaser is acquiring the Shares for its own account, for investment and not with a view to, or for resale in connection with, any distribution thereof, nor with any present intention of distributing or reselling the same or any part thereof in any transactions that would be in violation of the Securities Act of 1933, as amended of or any state securities or “blue-sky” laws.
(4) The Plan is a legal and valid employee stock ownership plan within the meaning of Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the “Code”), is qualified under Section 401(a) of the Code, and the Trust is exempt from taxation under Section 501(a) of the Code.
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(5) The Purchaser has not incurred any obligation for any finder’s, broker’s or agent’s fees or commissions or similar compensation in connection with the transactions contemplated hereby.
(6) There are no current actions, suits, proceedings, arbitrations or investigations pending or, to the knowledge of the Purchaser, threatened against the Purchaser. The Purchaser is not subject to any court or administrative judgment, order, or decree which would reasonably be anticipated to have a material adverse effect on the Purchaser’s right to enter into the transaction contemplated by this Agreement.
7. Covenants of the Seller.
(a) Maintenance of Seller. The Seller will take all actions within its power to preserve its existence.
(b) Maintenance of ESOP. Subject to the right of the Seller to amend or terminate the ESOP in accordance with the terms of the ESOP, the Seller will take all actions within its power to preserve the existence of the ESOP and of the Trust and to maintain their tax-qualified status under Section 401(a) and 501(a), respectively, of the Code. The Seller shall administer, or cause to be administered, the ESOP in material compliance with (a) the Code and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), as applicable to the ESOP and this Agreement, and (b) all other laws and regulations applicable to the ESOP and the Trust.
(c) Contributions to the ESOP. The Seller shall make contributions to the Plan and/or declare and pay dividends/distributions on the Shares held by the ESOP in amounts which are sufficient to enable the Purchaser to pay all interest and principal, when due, on the ESOP Note and as provided in the Annual Contributions Agreement in the form set forth in Schedule 4 attached hereto.
(d) Valuation and Fairness Opinion. The Trustees will cause to deliver at Closing to Purchaser a current valuation and its opinion dated as of the Closing to the effect that (i) the Purchase Price to be paid by the Purchaser for the Shares is not in excess of fair market value for the purposes of Section 3(18) of ERISA and the aggregate consideration to be paid by the Purchaser for the Shares is not more than “adequate consideration” (as defined in Section 3(18)(B) of ERISA and the proposed regulations thereunder); (ii) the interest rate payable under the ESOP Loan is not in excess of a reasonable rate of interest; (iii) the terms of the ESOP Loan are at least as favorable to the ESOP as would be the terms of a comparable extension of credit resulting from arm’s length negotiations between independent parties; and (iv) the terms and conditions of the transactions which are to occur pursuant to this Agreement are fair and reasonable to the Purchaser from a financial point of view. The opinion shall be substantially in the form attached hereto as Schedule 5.
(e) Expenses. The Seller will pay the reasonable expenses of the Purchaser (including, without limitation, the fees of its legal and financial advisors) which are incurred (i) in connection with the authorization, preparation, execution, performance, negotiation and/or review of this Agreement and the documents ancillary thereto or (ii) in the performance of the Trustee’s duties under and with respect to the Plan following the Closing.
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8. (a) Agreement to Indemnify. Subject to other provisions of this Article 8, the Seller agrees to indemnify the Purchaser for any loss, cost, expense or other damage, including attorney’s fees (“Damages”), suffered by the Purchaser resulting from, arising out of or incurred with respect to misrepresentation or breach of any representation or warranty or covenant made by the Seller in this Agreement.
(b) Notice and Defense. The Purchaser will give written notice to the Company and the Sellers as to any matter with respect to which the Purchaser seeks to be indemnified (the “Claim”). Such notice will state the nature of the Claim and, if known, the amount of the Damages. If the Claim arises from a claim or demand of a third party, the Purchaser will give the notice within a reasonable time after the Purchaser’s knowledge of the third party claim, and in no event more than 10 days after the Purchaser’s receipt of a written notice of a lawsuit or other legal proceeding relating to such third party claim. If the Claim arises from the claim or demand of a third party, the Company will have the right to defend any such Claim (provided, however, that if the Company’s interests are in conflict with those of the Purchaser, the Purchaser may join in such defense with its own counsel). All the Parties hereto will cooperate in the defense or prosecution of any Claim and will furnish such records, information and testimony and will attend such conferences, discovery proceedings and trials as may be reasonably requested in connection therewith. In addition, the Company has a duty and obligation to notify the Purchaser of any known breaches of any representations or warranties under this Agreement.
9. Conditions to Performance.
(a) The obligations of the Seller to the Purchaser under this Agreement are subject to the following conditions:
(1) The representations and warranties of the Purchaser in Section 5(b) above shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing.
(2) Closing Deliveries pursuant to Section 5 shall be satisfactory to Seller.
(3) The Purchaser shall have received a fairness opinion from Stern Brothers.
(4) The Closing shall take place on December 1, 2020, unless waived by the Seller.
(b) The obligations of the Purchaser under this Agreement are subject to the following conditions:
(1) The representations and warranties of the Seller contained in Section 6(a) above shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing.
(2) On the Closing, the Purchaser shall have received and be satisfied with the Valuation and Fairness Opinion described in paragraph 7(d).
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(3) The Purchaser shall be satisfied that the ESOP Note and ESOP Loan Agreement constitute an “exempt loan” (within the meaning of Treas. Reg. §54.4975-7) from the Seller.
(4) The Purchaser shall have obtained a written direction from the “Committee” (defined and described in the trust agreement forming the Purchaser) or the Trustee(s) to engage in the proposed stock purchase and exempt loan transactions contemplated herein.
10. Further Assurances. From time to time, the parties shall execute and deliver to each other such additional documents and shall provide such additional information as either party may reasonably require to carry out the terms of this Agreement.
11. Notices. Any notices, consents or information required, requested or permitted by this Agreement shall be sent to the parties at the addresses below, unless such address is changed by written notice hereunder:
| If to Purchaser: | Espey Mfg. & Electronics Corp. Employee Retirement | |
| Plan Trust | ||
| Attn: Peg Murphy and Howard Pinsley | ||
| 233 Ballston Avenue | ||
| Saratoga Springs, NY 12866 | ||
| If to Seller: | Espey Mfg. & Electronics Corp. | |
| Attn: Dave O’Neil | ||
| 233 Ballston Avenue | ||
| Saratoga Springs, NY 12866 |
12. Binding Effect, Assignment and Entire Agreement. This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and permitted assigns of the parties hereto, may be assigned by a party only with the written consent of the other party. This Agreement constitutes the entire agreement between the parties with respect to the subject matter addressed herein, and may be amended only by a writing signed by the parties hereto.
13. Severability. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision under this Agreement.
14. Transfer of Shares. The Shares represented by this Certificate are transferrable only upon compliance with the terms of the Espey Mfg. & Electronics Corp. Employee Stock Ownership Plan, which restricts the transfer of such shares in the manner described herein, a copy of said plan being on file in the office of the Seller.
15. General.
(a) Execution of Counterparts. For the convenience of the parties, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.
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(b) Amendments, Waivers, Discharges, etc. This Agreement may not be amended or modified except by a writing signed by all parties to be bound by the amendment or modification. The failure of party to enforce any provision of this Agreement shall not be deemed a waiver by such party of any other provision or subsequent breach of the same or any other obligation hereunder.
(c) Action as Trustees. The Trustees have signed and delivered this Agreement solely as trustee of the Plan, and not in its individual or corporate capacity The performance of this Agreement by the Trustees, and all duties, obligations, and liabilities of the Trustees under this Agreement will be undertaken by the Trustee only in their capacity as the trustee of the Plan. The Trustees do not undertake any individual or corporate liability or obligation by virtue of the signing and delivery of this Agreement or by reason of the representations, warranties, and covenants contained in this Agreement.
(d) Survival. The ESOP Loan Agreement shall survive the Closing.
16. Governing Law. This Agreement shall be governed by the laws of the state of New York and applicable federal law, including, but not limited to, the Code and ERISA.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on this 1st day of December, 2020.
[Signature page follows]
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| PURCHASER: | ESPEY MFG. & ELECTRONICS CORP. | |
| EMPLOYEE RETIREMENT PLAN TRUST | ||
| /s/ Peg Murphy | ||
| Peg Murphy, solely as Trustee | ||
| /s/ Howard Pinsley | ||
| Howard Pinsley, solely as Trustee | ||
| SELLER: | ESPEY MFG. & ELECTRONICS CORP. | |
| By: | /s/Patrick T. Enright, Jr. | |
| Patrick T. Enright, Jr., President and CEO |
[Signature page for Stock Purchase Agreement]
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ATTACHMENTS
Schedule 1 – ESOP Note
Schedule 2 – ESOP Loan Agreement
Schedule 3 – ESOP Pledge Agreement
Schedule 4 – Annual Contributions Agreement
Schedule 5 - Valuation and Fairness Opinion
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ESOP LOAN AGREEMENT
by and between
THE TRUSTEES OF THE ESPEY MFG. & ELECTRONICS CORP. EMPLOYEE RETIREMENT PLAN TRUST
and
ESPEY MFG. & ELECTRONICS CORP.
Made and Entered Into as of December 1, 2020
ESOP LOAN AGREEMENT
This ESOP LOAN AGREEMENT (“ESOP Loan Agreement”) is made and entered into as of the 1st day of December, 2020 by and between the ESPEY MFG. & ELECTRONICS CORP. EMPLOYEE RETIREMENT PLAN TRUST (“Borrower”), a trust forming part of the ESPEY MFG. & ELECTRONICS CORP. EMPLOYEE RETIREMENT PLAN (“ESOP”), acting through and by its Trustees, PEG MURPHY and HOWARD PINSLEY (collectively, the “Trustee”), acting solely as trustees with an address at 233 Ballston Avenue, Saratoga Springs, NY 12866; and ESPEY MFG. & ELECTRONICS CORP. (“Lender”), a corporation existing under the laws of the State of New York with its principal place of business at 233 Ballston Avenue, Saratoga Springs, NY 12866 (“Company”).
W I T N E S S E T H:
WHEREAS, the ESOP Committee defined and described in the ESOP (plan and trust) under which the Trustee is serving as trustee of the Borrower (the “Committee”) has authorized and directed the Borrower to purchase a total of 300,000 shares of common stock of the Lender (“Common Stock” or “Shares”) from the Lender; and
WHEREAS, the Committee has further authorized the Borrower to borrow funds from the Lender for the purpose of financing authorized purchases of Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower for such purpose, subject to the terms and conditions of this ESOP Loan Agreement (“Agreement”);
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
Article I
Definitions
The following definitions shall apply for purposes of this ESOP Loan Agreement, except to the extent that a different meaning is plainly indicated by the context:
Section 1.1 Business Day means any day other than a Saturday, Sunday or other day on which banks are authorized or required to close under federal law or the laws of the State of New York.
Section 1.2 Code means the Internal Revenue Code of 1986, as amended (including the corresponding provisions of any succeeding law).
Section 1.3 Default means an event or condition which would constitute an Event of Default. The determination as to whether an event or condition would constitute an Event of Default shall be determined without regard to any applicable requirement of notice or lapse of time.
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Section 1.4 ERISA means the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of any succeeding law).
Section 1.5 Event of Default means an event or condition described in Article V.
Section 1.6 Fiscal Year means the fiscal year of the Lender.
Section 1.7 Independent Counsel means legal counsel mutually satisfactory to both the Lender and the Borrower.
Section 1.8 Loan means the loan described in section 2.1.
Section 1.9 Loan Documents means, collectively, this ESOP Loan Agreement, the ESOP Note and the ESOP Pledge Agreement and all other documents now or hereafter executed and delivered in connection with such documents, including all amendments, modifications and supplements of or to all such documents.
Section 1.10 ESOP Pledge Agreement means the agreement described in section 2.8(a).
Section 1.11 Principal Amount means the face amount of the ESOP Note, determined as set forth in section 2.1(a).
Section 1.12 ESOP Note means the ESOP Note described in section 2.3.
Article II
The Loan; Principal Amount; Interest; Security; Indemnification
Section 2.1 The Loan: Principal Amount.
(a) The Lender hereby agrees to lend to the Borrower at Closing the total sum as set forth in the ESOP Note referred to in Section 2.3 below.
Section 2.2 Interest.
(a) The Borrower shall pay annually to the Lender interest on the Principal Amount, for the period commencing on the date of this ESOP Loan Agreement and continuing until the Principal Amount shall be paid in full, at the per annum rate of three percent (3%). Interest payable under this Agreement shall be computed on the basis of a year of 365 days and actual days elapsed (including the first day but excluding the last) occurring in the period to which the computation relates. The maturity date of the ESOP Note shall be June 30, 2035.
(b) Except as otherwise provided in this section 2.2(b), accrued interest on the Principal Amount shall be payable by the Borrower annually in arrears as set forth and provided in the ESOP Note attached hereto.
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Section 2.3 ESOP Note.
The Loan shall be evidenced by a ESOP Note of the Borrower in substantially the form of Exhibit A attached hereto, dated the date hereof, payable to the order of the Lender in the Principal Amount and otherwise duly completed.
Section 2.4 Payment of Trust Loan.
The Principal Amount and interest shall be repaid in successive monthly installments as set forth and provided in the ESOP Note attached hereto.
Section 2.5 Prepayment.
This Loan may not be prepaid, in whole or part, and any such prepayment shall be done in the inverse order of maturity.
Section 2.6 Method of Payments.
(a) All payments of principal, interest, other charges (including indemnities) and other amounts payable by the Borrower hereunder shall be made monthly in lawful money of the United States, in immediately available funds, to the Lender at the address specified in or pursuant to this ESOP Loan Agreement for notices to the Lender, not later than 3:00 P.M., New York time, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, and except as expressly provided to the contrary herein, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest become due on a day other than a Business Day, such payment may be made on the next succeeding Business Day, and when paid, such payment shall include interest to the day on which such payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this ESOP Loan Agreement or the ESOP Note, neither the Borrower nor the Trustee shall be obligated to make any payment, or repayment or prepayment on the ESOP Note or take or refrain from taking any other action hereunder or under the ESOP Note if doing so would cause the ESOP to cease to be an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under section 501(a) of the Code or if such act or failure to act would cause the Borrower or Trustee to engage in any “prohibited transaction” as such term is defined in section 4975(c) of the Code and the regulations promulgated thereunder which is not exempted by section 4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in section 406 of ERISA and the regulations promulgated thereunder which is not exempted by section 408(b) of ERISA and the regulations promulgated thereunder. Any obligation of the Borrower or the Trustee to make any payment, repayment or prepayment on the ESOP Note or to take or refrain from taking any other act hereunder or under the ESOP Note which is excused pursuant to this section 2.6(b) shall be considered a binding obligation of the Borrower or the Trustee, or both, as the case may be, for the purposes of determining whether a Default or Event of Default has occurred hereunder or under the ESOP Note and nothing in this section 2.6(b) shall be construed as providing a defense to any remedies otherwise available upon a Default or an Event of Default hereunder (other than the remedy of specific performance).
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Section 2.7 Use of Proceeds of Loan.
The entire proceeds of the Loan, which is primarily for the benefit of the participants and beneficiaries of the Borrower, shall be used by the Trustee solely for acquiring shares of Common Stock from the Lender, and for no other purpose whatsoever.
Section 2.8 Security.
(a) In order to secure the due payment and performance by the Borrower of all of its obligations under this ESOP Loan Agreement, simultaneously with the execution and delivery of this ESOP Loan Agreement by the Borrower, the Borrower shall:
(i) pledge to the Lender as Collateral (as defined in the Pledge Agreement), and grant to the Lender a first priority lien on and security interest in, the Common Stock purchased with the Principal Amount, by the execution and delivery to the Lender of the ESOP Pledge Agreement in the form attached hereto as Exhibit B;
(ii) execute and deliver, or cause to be executed and delivered, such other agreements, instruments and documents as the Lender may reasonably require in order to effect the purposes of the ESOP Pledge Agreement and this ESOP Loan Agreement; and
(iii) except as provided herein, the Lender shall have no recourse against the Borrower or the Trustee.
(b) The Lender shall release from encumbrance under the Pledge Agreement and transfer to the Borrower, as of the date on which any payment or prepayment of the Principal Amount is made, a number of shares of Common Stock held as Collateral determined pursuant to the applicable provisions of this ESOP and as provided in Section 54.4975(b)(8)(i) of the IRC Regulations and regulation 2550.408-3(h) of ERISA.
Section 2.9 Financed Share Covenants.
The Borrower hereby covenants that, until the ESOP Note has been satisfied in full, it will not sell, convey, or otherwise dispose of any of the Shares or any interest therein or create, incur, or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever in or with respect to any of the financed Shares or the proceeds thereof, other than that created hereby. The Borrower and the Company shall defend the Lender’s right, title and security interest in and to the financed Shares to the extent provided in this ESOP Loan Agreement against he claims of any person, firm, corporation or other entity. The restrictions set forth in the Section 2.9 shall not apply to those financed Shares which have been allocated to the accounts of participants in the Plan as provided therein or as required by Section 54.4975-7(b)(8) of the Regulations or those financed Shares that are used to secure a refinancing than will repay the ESOP Loan.
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Section 2.10 Voting Rights, Dividends.
So long as no Events of Default (as defined in Section 5 herein) shall have occurred and be continuing:
(a) Except to the extent participants in the ESOP have rights granted by the Code or ERISA to exercise voting rights with respect to the Financed Shares or as otherwise provided in the ESOP, the Borrower or other fiduciary with the authority to so act shall be entitled to exercise any and all of the voting rights and powers relating to or pertaining to the Financed Shares or any part thereof for any purpose not inconsistent with the terms of this Agreement; and
(b) The Borrower shall be entitled to receive and retain any and all ordinary cash dividends payable to the Trust on the financed Shares prior to the occurrence of an Event of Default.
Upon the occurrence or during the continuance of an Event of Default and subject to the limitations of Section 54.4975-7(b)(6) of the Regulations (as defined herein), all rights of the Borrower to exercise the voting rights and powers which the Borrower is entitled to exercise pursuant to Section 2.10(a) and/or to receive the dividends which the Trust is authorized to receive and retain pursuant to Section 2.10(b) shall cease, and all such rights shall thereupon become vested in the Company.
Section 2.11 Release of the Financed Shares. Upon each payment or permitted prepayment of principal or interest towards the ESOP Note, the Borrower will release Financed Shares from the security interest of the Pledge in accordance with the ESOP , Section 54.49775(b)(8)(i) of the Regulations and 2550.408b-3(h) of the ERISA Regulations. Whenever requested by the Borrower and at least annually commencing December 31, 2017, the Lender will reassign and deliver to the Borrower free and clear of the lien and security interest created hereunder the number of financed Shares released from the security interest of the Pledge not previously reassigned and delivered to the Borrower.
Article
III
Representations and Warranties of the Borrower
The Borrower hereby represents and warrants to the Lender as follows:
Section 3.1 Power, Authority, Consents.
The Borrower has the power to execute, deliver and perform this ESOP Loan Agreement, the ESOP Note and the ESOP Pledge Agreement, all of which have been duly authorized by all necessary and proper corporate or other action. The Borrower has all requisite power and authority to carry out the purposes and conduct the business for which it was created.
Section 3.2 Due Execution, Validity, Enforceability.
Each of the ESOP Loan Documents, including, without limitation, this ESOP Loan Agreement, the ESOP Note and the ESOP Pledge Agreement, have been duly executed and delivered by the Borrower; and each constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms.
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Section 3.3 Properties, Priority of Liens.
The liens which have been created and granted by the ESOP Pledge Agreement constitute valid, first liens on the properties and assets covered by the ESOP Pledge Agreement, subject to no prior or equal lien.
Section 3.4 No Defaults, Compliance with Laws.
The Borrower is not in default in any material respect under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound, or any other agreement or other instrument by which any of the properties or assets owned by it is materially affected.
Section 3.5 Purchases of Common Stock.
Upon consummation of any purchase of Common Stock by the Borrower with the proceeds of the Loan, the Borrower shall acquire a valid, legal and marketable title to all of the Common Stock so purchased, free and clear of any liens, other than a pledge to the Lender of the Common Stock so purchased pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan Documents nor the performance of any obligation thereunder violates any provision of law or conflicts with or results in a breach of or creates (with or without the giving of notice or lapse of time, or both) a default under any agreement to which the Borrower is a party or by which it is bound or any of its properties is affected. No consent of any federal, state or local governmental authority, agency or other regulatory body, the absence of which could have a materially adverse effect on the Borrower or the Trustee, is or was required to be obtained in connection with the execution, delivery or performance of the Loan Documents and the transactions contemplated therein or in connection therewith, including, without limitation, with respect to the transfer of the shares of Common Stock purchased with the proceeds of the Loan pursuant thereto.
Article IV
Representations and Warranties of the Company
The Company hereby represents and warrants to the Borrower as follows:
Section 4.1 Power, Authority, Consents.
The Company has the power to execute, deliver and perform this ESOP Loan Agreement, the ESOP Pledge Agreement and all documents executed by the Lender in connection with the Loan, all of which have been duly authorized by all necessary and proper corporate or other action. No consent, authorization or approval or other action by any governmental authority or regulatory body, and no notice by the Lender to, or filing by the Lender with, any governmental authority or regulatory body is required for the due execution, delivery and performance of this ESOP Loan Agreement.
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Section 4.2 ESOP; Contributions.
The ESOP and the Borrower have been duly created, organized and maintained by the Lender in compliance with all applicable laws, regulations and rulings. The ESOP is intended to qualify as an “employee stock ownership plan” as defined in section 4975(e)(7) the Code. The ESOP provides that the Company may make contributions to the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the terms of the ESOP Note and this ESOP Loan Agreement, and the Company shall make such contributions; provided, however, that no such contributions shall be required if they would adversely affect the qualification of the ESOP under section 401(a) of the Code or they would be non-deductible under section 404 of the Code.
Section 4.3 Employer Securities.
The Shares will constitute “employer securities” within the meaning of Section 409(1) of the Code and “qualifying employer securities” within the meaning of Section 4975(e)(7) of the Coded and Section 408(e) of ERISA.
Section 4.4 Trustee.
The Company has taken such action as is required to be taken by it to duly appoint the Trustees. The Company expressly acknowledges and agrees that this ESOP Loan Agreement, the ESOP Note and the ESOP Pledge Agreement are being executed by the Trustee not in its individual capacity but solely as trustee of and on behalf of the Borrower.
Section 4.5 Favorable Terms.
The terms and interest rate of the Loan are at least as favorable to the Borrower as the terms of a comparable loan resulting from arms-length negotiation between independent parties.
Section 4.6 Exempt Loan.
The Loan will be an “exempt loan”, as that phrase is defined in Treasury Regulation section 54.4975-7 and Department of Labor Regulation section 2550.408h-3, and the transaction contemplated by the Loan Documents is not a nonexempt “prohibited transaction” under section 4975 of the Code and section 406 of ERISA.
Section 4.7 ESOP.
The ESOP is an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the “Code”) and Section 408(e) of ERISA, is designed to qualify under Section 401(a) of the Code.
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Section 4.8 ERISA Compliance.
The price being paid for the Shares is for no more than adequate consideration as that term is defined in Section 3(18) of ERISA, the Plan’s investment in the Shares is fair to the Plan and the Plan’s investment in the Shares is primarily in the best interest of its participants.
Article V
Events of Default
Section 5.1 Events of Default under ESOP Loan Agreement.
Each of the following events shall constitute an “Event of Default” hereunder:
(a) Failure to make any payment or mandatory prepayment of principal of the ESOP Note, or failure to make any payment of interest on the ESOP Note, within ten (10) Business Days after the date when due.
(b) Failure by the Borrower to perform or observe any term, condition or covenant of this ESOP Loan Agreement, including, without limitation, the ESOP Note and the ESOP Pledge Agreement, provided such failure is not cured, or reasonable steps are not taken to cure, by the Borrower within ten (10) Business Days after notice is provided to the Borrower by the Lender,
(c) Any representation or warranty made in writing to the Lender in any of the Loan Documents or any certificate, statement or report made or delivered in compliance with this ESOP Loan Agreement, shall have been false or misleading in any material respect when made or delivered.
Section 5.2 Lender's Rights upon Event of Default.
If an Event of Default under this ESOP Loan Agreement shall occur and be continuing, the Lender shall have no rights to assets of the Borrower other than: (a) contributions (other than contributions of Common Stock) that are made by the Lender to enable the Borrower to meet its obligations pursuant to this ESOP Loan Agreement and earnings attributable to the investment of such contributions and (b) “Eligible Collateral” (as defined in the Pledge Agreement); provided, however, that: (i) the value of the Borrower's assets transferred to the Lender following an Event of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in default; (ii) the Borrowers assets shall be transferred to the Lender following an Event of Default only to the extent of the failure of the Borrower to meet the payment schedule of the Loan; and (iii) all rights of the Lender to the Shares purchased with the proceeds of the Loan covered by the ESOP Pledge Agreement following an Event of Default shall be governed by the terms of the ESOP Pledge Agreement. The Lender shall be entitled to recover from the Company reasonable legal fees incurred by Lender to enforce Lender’s rights herein.
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Article VI
Miscellaneous Provisions
Section 6.1 Payments.
All payments hereunder and under the ESOP Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this ESOP Loan Agreement and the ESOP Note, subject to any applicable tax withholding requirements. Upon payment in full of the ESOP Note, the Lender shall mark such ESOP Note “Paid” and return it to the Borrower.
Section 6.2 Survival.
All agreements, representations and warranties made herein shall survive the delivery of this ESOP Loan Agreement and the ESOP Note.
Section 6.3 Modifications, Consents and Waivers; Entire Agreement.
No modification, amendment or waiver of or with respect to any provision of this ESOP Loan Agreement, the ESOP Note, the ESOP Pledge Agreement, or any of the other Loan Documents, nor consent to any departure from any of the terms or conditions thereof, shall in any event be effective unless it shall be in writing and signed by the party against whom enforcement thereof is sought. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on a party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. This ESOP Loan Agreement embodies the entire agreement and understanding between the Lender and the Borrower and supersedes all prior agreements and understandings relating to the subject matter hereof.
Section 6.4 Remedies Cumulative.
Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender or the holder of the ESOP Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. The due payment and performance of the obligations under the Loan Documents shall be without regard to any counterclaim, right of offset or any other claim whatsoever which the Borrower may have against the Lender and without regard to any other obligation of any nature whatsoever which the Lender may have to the Borrower, and no such counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by the Lender for payment or performance of such obligations.
Section 6.5 Further Assurances: Compliance with Consents.
At any time and from time to time, upon the request of the Lender, the Borrower shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged. such further documents and instruments and do such other acts and things as the Lender may reasonably request in order to fully effect the terms of this ESOP Loan Agreement, the ESOP Note, the ESOP Pledge Agreement, the other ESOP Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loan.
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Section 6.6 Notices.
Except as otherwise specifically provided for herein, all notices. requests, reports and other communications pursuant to this ESOP Loan Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service) or sent by registered or certified mail, return receipt requested, except for routine reports delivered in compliance with Article VI hereof which may be sent by ordinary first-class mail) or telex of telecopier, addressed as follows:
| (a) | If to the Borrower: | |
| Peg Murphy and Howard Pinsley, as Trustees of the | ||
| Espey Mfg. & Electronics Corp. Employee Retirement Plan Trust | ||
| 233 Ballston Avenue | ||
| Saratoga Springs, NY 12866 | ||
| (b) | If to the Lender: | |
| Espey Mfg. & Electronics Corp. | ||
| Attn: Dave O’Neil | ||
| 233 Ballston Avenue | ||
| Saratoga Springs, NY 12866 | ||
| (c) | If to Company: | |
| Espey Mfg. & Electronics Corp. | ||
| Attn: Dave O’Neil | ||
| 233 Ballston Avenue | ||
| Saratoga Springs, NY 12866 |
Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or telecopier, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed.
Section 6.7 Counterparts.
This ESOP Loan Agreement may be signed in any number of counterparts which, when taken together, shall constitute one and the same document.
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Section 6.8 Construction: Governing Law.
The headings used in this ESOP Loan Agreement are for convenience only and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular or plural terms shall be deemed to include uses of the other genders or plural or singular terms, as the context may require. All references in this ESOP Loan Agreement to an Article or section shall be to an Article or section of this ESOP Loan Agreement, unless otherwise specified. This ESOP Loan Agreement, the ESOP Note, the ESOP Pledge Agreement and the other Loan Documents shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.
Section 6.9 Severability.
Wherever possible, each provision of this ESOP Loan Agreement shall be interpreted in such manner as to be effective and valid under applicable law; however, the provisions of this ESOP Loan Agreement are severable, and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this ESOP Loan Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this ESOP Loan Agreement is independent, and compliance by a party with any of them shall not excuse non-compliance by such party with any other.
Section 6.10 Binding Effect; No Assignment or Delegation.
This ESOP Loan Agreement shall be binding and inure to the benefit of the Borrower and its successors and the Lender and its successors and assigns. The rights and obligations of the Borrower under this ESOP Loan Agreement shall not be assigned or delegated without the prior written consent of the Lender.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this ESOP Loan Agreement to be duty executed as of the date first above written.
| THE BORROWER: | ESPEY MFG. & ELECTRONICS CORP. | |
| EMPLOYEE RETIREMENT PLAN TRUST | ||
| /s/ Peg Murphy | ||
| Peg Murphy, solely as Trustee | ||
| /s/ Howard Pinsley | ||
| Howard Pinsley, solely as Trustee | ||
| THE LENDER: | ESPEY MFG. & ELECTRONICS CORP. | |
| By: /s/Patrick T. Enright, Jr. | ||
| Patrick T. Enright, Jr., President and CEO |
[Signature page for Loan Agreement]
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EXHIBIT A
To ESOP Loan Agreement
By and Between
Espey Mfg. & Electronics Corp. Employee Retirement Plan Trust
and
Espey Mfg. & Electronics Corp.
FORM OF ESOP NOTE
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EXHIBIT B
To ESOP Loan Agreement
By and Between
Espey Mfg. & Electronics Corp. Employee Retirement Plan Trust
and
Espey Mfg. & Electronics Corp.
FORM OF ESOP PLEDGE AGREEMENT
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