Edgar Filing: ESPEY MFG & ELECTRONICS CORP

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. )

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Check the appropriate box:

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[_] 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)

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ESPEY MFG. & ELECTRONICS CORP.

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD NOVEMBER 20, 2006

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October 17, 2006

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 Courtyard by Marriott,
11 Excelsior Avenue, Saratoga Springs, New York, on November 20, 2006, at 2:00
p.m., Eastern Standard Time, for the following purposes:

1. To elect three Class A Directors to serve for a three year term
expiring at the 2009 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, 2007.

No other business may be transacted at the meeting.

The Board of Directors has fixed the close of business on October 2, 2006,
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.

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 Courtyard by Marriott, 11
Excelsior Avenue, Saratoga Springs, New York, on November 20, 2006, at 2:00
p.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 17, 2006.

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 for the election of the Class A Directors nominated by the Board of
Directors. 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 not
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 2, 2006 will be entitled to vote at the meeting.
There were outstanding and entitled to vote on October 2, 2006, 2,312,596 shares
of Common Stock.

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 three Class A Directors expire at the Annual Meeting. There are
presently two Class B Directors, whose terms expire at the 2007 Annual Meeting,
and two Class C Directors, whose terms expire at the 2008 Annual Meeting.

The Board of Directors has nominated three persons to stand for election as
Class A Directors.

The votes will be cast pursuant to the enclosed proxy for the election of
each of the Class A 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 A 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.

The names and business experience for the past five years of the three
persons who have been nominated by the Board of Directors to stand for election
as Class A Directors at the Annual Meeting and the remaining directors whose
terms are continuing until the 2007 or 2008 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.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOLLOWING
NOMINEES FOR CLASS A DIRECTORS.

NOMINEES FOR 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
---- --- ------------ ---------------------------------- --------

Howard Pinsley (1) .....66 President, Chief Howard Pinsley for more than the past 1992
Executive Officer five years has been employed by the Company
and Chairman of on a full-time basis as Program Director
the Board prior to being elected Vice President-
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 ..........63 -- Attorney engaged in private practice of law and 1999
Senior Partner of the law firm of Donohue,
Sabo, Varley & Armstrong, P.C. in Albany, NY
since 1980. Prior to that position, he was
Assistant Attorney General, State of New York,
Department of Law for eleven years.

Carl Helmetag ..........58 -- 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 an MBA graduate
from The Wharton School of Business,
University of Pennsylvania.

CLASS B DIRECTORS -- SERVING FOR A
THREE YEAR TERM EXPIRING AT THE 2007 ANNUAL MEETING

Period to
Offices and Date
Positions Held Served as
Name Age with Company Principal Occupation or Employment Director
---- --- ------------ ---------------------------------- --------

Barry Pinsley (1) ......65 -- 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 .........85 -- 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 of the Institute of Electrical and
Electronics Engineers Inc. He holds many
patents and serves on the board of several
charitable organizations

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
---- --- ------------ ---------------------------------- --------

Paul J. Corr ...........62 -- Certified Public Accountant and a Professor 1992
of Business, Skidmore College, in Saratoga
Springs, NY, since 1981, currently holding
the position of Associate Professor. Mr.
Corr is also a shareholder in the Latham,
New York accounting firm of Rutnik & Corr, P.C.
and he has been a principal at Capital Financial
Advisors, LLC since 2003.

Michael W. Wool (2) ....60 -- Attorney engaged in private practice of law and 1990
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.

CLASS A DIRECTORS -- SERVING FOR A
THREE YEAR TERM EXPIRING AT THE 2006 ANNUAL MEETING

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(1) Barry Pinsley and Howard Pinsley are cousins.

(2) Mr. Wool's law firm performed legal services for the Company during the
fiscal year ended June 30, 2006 and may perform additional services during
the current fiscal year in connection with the Company's ESOP. See
"Certain Relationships and Related Transactions."

Howard Pinsley serves as a director of All American Semiconductor, Inc.
None of the other 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.

The only individuals currently considered executive officers of the Company not
identified previously are:

James Clemens, 57, 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, 35, 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, 48, 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, 41, 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 Ms. Peggy A. Murphy, Mr. David A. O'Neil, Mr. James
Clemens and Mrs. Katrina Sparano are until the next annual meeting of the Board
of Directors unless successors are sooner appointed by the Board of Directors.
The term of office of Mr. Howard Pinsley is subject to his employment agreement
with the Company. See "Employment Contracts and Termination of Employment."

BOARD OF DIRECTORS MEETINGS AND COMMITTEES

During the Company's fiscal year ended June 30, 2006, 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 2005 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, 2006, the
Audit Committee held five 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, 2006, 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 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 determining 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. During the fiscal year ended June 30, 2006,
the Stock Option Committee held two meetings and each committee member attended
such meetings.

The Board also has a Succession Committee and a Mergers and Acquisition
Committee, members of which are Paul J. Corr, Howard Pinsley, Alvin O. Sabo and
Michael Wool.

COMPENSATION OF DIRECTORS

Directors of the Company receive an annual fee in the amount 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 monthly to the Directors. Executive officers who
also serve on the Company's Board of Directors do not receive director's fees.

Directors are also eligible to receive stock options under the 2000 Stock
Option Plan at the discretion of the Stock Option Committee. The Stock Option
Committee consists of three appointed board members. At June 30, 2006, members
of the Board of Directors held the following number of unexercised options
granted under the Plan:

Name Number of Options Exercise Price Range
---- ----------------- --------------------

Seymour Saslow 4,000 $9.25 - 17.80

Barry Pinsley 2,800 17.36 - 17.80

Michael W. Wool 7,200 8.98 - 17.80

Paul J. Corr 5,200 11.25 - 17.80

Alvin O. Sabo 4,200 11.25 - 17.80

Carl Helmetag 5,200 9.25 - 17.80

Howard Pinsley 20,000 9.25 - 17.80

The above options have exercise dates ranging from March 1, 2003 and expiring on
May 19, 2016.

COMPENSATION OF EXECUTIVE OFFICERS

The following table summarizes the annual compensation for each of the
fiscal years ended June 30, 2006, June 30, 2005, and June 30, 2004 received by
the Company's Chief Executive Officer (or acting in a similar capacity) and the
other highest paid executive officers of the Company that received over $100,000
in total compensation as of June 30, 2006.

SUMMARY COMPENSATION TABLE

Long Term
Compensation
------------
Securities
Name and Annual Compensation Underlying All Other
Principal Position Fiscal Year Salary Bonus Options (#) Compensation(1)
------------------ ----------- ------ ----- ----------- ---------------

Howard Pinsley 2006 $198,024 $30,000 8,000 $ 8,922
President and 2005 $191,976 $20,000 4,000 $ 7,681
Chief Executive Officer 2004 $190,120 $20,000 0 $ 34,826

David A. O'Neil 2006 $119,082 $15,000 3,600 $ 3,338
Treasurer and Principal 2005 $113,830 $12,500 1,600 $ 2,932
Financial Officer 2004 $112,250 $12,500 0 $ 13,101

James Clemens 2006 $132,540 $ 5,000 3,600 --
Vice President
Sales and Marketing

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(1) Represents (a) the cash and market value of the shares allocated for the
respective fiscal years under the Company's ESOP to the extent to which
each named executive officer is vested, and the Company's matching
contribution under the 401K plan.

The following table sets forth information with respect to compensation
plans maintained by the Company, as of June 30, 2006, under which Common Stock
of the Company is authorized for issuance:

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))
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(a) (b) (c)
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Equity compensation
plans approved by
security holders 146,200 14.02 96,600
Equity compensation
plans not approved
by security holders -- -- --
------- ------
Total 146,200 96,600
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GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of stock
options to the named executive officers during the year ended on June 30, 2006.

Potential
Realizable
Value at
Assumed Annual
Number of Percent of Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise for Option Term (1)
Options Employees in Price Expiration ---------------------
Name Granted Fiscal Year ($/SH) Date 5% ($) 10% ($)
---- ------- ----------- ------ ---- ------ -------

Howard Pinsley 4,000 10.8% $17.36 2015 43,670 110,669
4,000 10.2% $17.80 2016 44,777 113,474

David A. O'Neil 1,600 4.3% $17.36 2015 17,468 44,268
2,000 5.1% $17.80 2016 22,389 56,737

James Clemens 1,600 4.3% $17.36 2015 17,468 44,268
2,000 5.1% 17.80 2016 22,389 56,737

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(1) Amounts reflect certain assumed rates of appreciation set forth in the
Commission's executive compensation disclosure rules. Actual gains, if any,
on stock option exercises will depend on future performance of the Common
Stock. No assurance can be made that the amounts reflected in these columns
will be achieved. The values in these columns assume that the fair market
value on the date of grant of each option was equal to the exercise price
thereof.

The following table sets forth information concerning the exercise of stock
options by the named executive officers during the year ended June 30, 2006 and
the year-end value of unexercised options:

AGGREGATED OPTIONS AT FISCAL YEAR-END AND FISCAL YEAR-END OPTION VALUES

Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Options at Options at
On Value Fiscal Year-End (#) Fiscal Year-End ($)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------- -------------------------

James Clemens 0 0 800/3,600 4,360/0

Howard Pinsley 4,000 43,280 16,000/8,000 109,600/0

David A. O'Neil 0 0 4,800/3,600 31,480/0

In accordance with the 2000 Stock Option Plan the above options have exercise
dates that range from March 1, 2003 through and expiring on May 19, 2016.

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.
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, 2006, 23,460 shares were allocated to
Howard Pinsley, 5,699 shares were allocated to David A. O'Neil and 5,301 shares
were allocated to Barry Pinsley and 774 shares were allocated to James Clemens.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT

The Company entered into an agreement with Howard Pinsley, President and
CEO as of May 25, 2006 which extended an agreement originally effective July 1,
2002. The contract allows Mr. Pinsley, upon his resignation or termination as
chief executive officer, to become a non-executive officer of the Company for a
period of thirty-six months. In consideration for services to be provided by Mr.
Pinsley for the equivalent of five days a month after his resignation or
termination, and the performance of such other duties as are reasonably
requested by the Company, he will receive full benefits plus $15,000 per month
for the first three months, and $4,333 per month for the next thirty-three
consecutive months. The number of days of service required by Mr. Pinsley may be
reduced to a number not less then two, provided, however, in no event shall the
reduction trigger a separation from service while Mr. Pinsley is a "key
employee" for the purposes of Section 409A of the Internal Revenue Code of 1986,
as amended the agreement expires on December 31, 2008.

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,
adopted by the Board on May 13, 2005.

In fulfilling its responsibilities, the Committee has reviewed and
discussed the Company's audited consolidated financial statements for the fiscal
year ended June 30, 2006 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,
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-K for the fiscal year ended June 30, 2006.

Audit Committee:
Paul J. Corr, Chairman
Carl Helmetag
Alvin O. Sabo

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
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the tab "Investors" by requesting a copy of an SEC report and then clicking on
the Definitive Proxy Statement filed October 12, 2004.

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.

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
shareholders wishing to submit such a recommendation should send a letter,
postmarked no

later than 120 days prior to the date on which the Company annual meeting was
held during the prior year, to the Secretary of the Company. The letter must
identify its writer as a shareholders 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 shareholders 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 September 30, 2006, 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.

Title Name and Address of Amount and Nature Percent
Class Beneficial Owner of Beneficial Ownership of Class
----- ---------------- ----------------------- --------

Common Stock Franklin Advisory Services, LLC 156,000 - Direct (1) 6.7%
777 Mariners Island Blvd
P.O. Box 7777 San Mateo, CA 94403-7777

Common Stock Espey Mfg. & Electronics Corp. 718,369 - Direct (2) 31.0%
Employee Retirement Plan and Trust
233 Ballston Ave
Saratoga Springs, NY 12866

Common Stock Advisory Research, Inc. 190,000 - Direct (3) 8.2%
180 North Stetson St.
Suite 5780
Chicago, IL 60601

Common Stock Howard Pinsley, 101,268 - Direct (4) 5.4%
233 Ballston Avenue 23,460 - Indirect (4)
Saratoga Springs, NY 12866

---------------
(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 February 4, 2004 filed with the Securities and Exchange
Commission (the "SEC"). The Franklin statement indicated that Franklin's
investment "advisory 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 advisory 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 September 30, 2006, 444,202 shares
were allocated to the accounts of participants and 274,167 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 14, 2006 filed with the SEC. Advisory, a
registered investment advisor, is deemed to have beneficial ownership of
190,000 shares of the Company's Common Stock as of February 14, 2006, 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 190,000 shares.

(4) This information is from Form 4 dated August 2, 2006 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 6, 2006 (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 ................ 800-Direct *
774-Indirect (2)

Common Stock Paul J. Corr ................. 6,400-Direct (1) *

Common Stock Carl Helmetag ................ 10,900-Direct (1) *

Common Stock Peggy A. Murphy .............. 3,600-Direct (1) *
7,951-Indirect (2)

Common Stock David A. O'Neil .............. 9,600-Direct (1) *
5,699-Indirect (2)

Common Stock Barry Pinsley ................ 59,660-Direct (1) 2.8%
5,301-Indirect (2)

Common Stock Howard Pinsley ............... 101,268-Direct (1) 5.4%
23,460-Indirect (2)

Common Stock Alvin O. Sabo ................ 7,500-Direct (1) *

Common Stock Seymour Saslow ............... 14,016-Direct (1) *

Common Stock Katrina Sparano .............. 423-Indirect (2) *

Common Stock Michael W. Wool .............. 4,700-Direct (1) *

Common Stock Officers and Directors ....... 217,644-Direct (1) 11%
as a Group (13 persons) 42,834-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 800 Howard Pinsley 8,000

Paul Corr 1,200 Alvin O. Sabo 1,000

Carl Helmetag 2,400 Seymour Saslow 2,000

Peggy A. Murphy 3,600 Michael W. Wool 4,000

David A. O'Neil 4,800

(2) Includes shares allocated to named director or officer as of June 30, 2006
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's ESOP Trust owns 718,369 shares of the Company's common stock
as of September 30, 2006, of which 444,202 were allocated to participants in the
ESOP. On July 15, 2005, the Company sold an additional 150,000 shares of its
common stock to the ESOP Trust for an aggregate purchase price of $4,335,000, or
$28.90, per share. The ESOP borrowed from the Company 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 6.25% per annum, the "prime rate" as quoted in The Wall Street Journal
on the date of closing. The Board of Directors of the Company had approved a
purchase price per share equal to a 5% discount on the average trading price of
the common stock on the American Stock Exchange on the date before closing, but
in no event greater than the fair market value of the stock as determined by the
ESOP trustees, in reliance upon a "fairness opinion" from an independent
valuation firm retained by 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
are allocated to participants. Officers of the Company, including Howard Pinsley
who is also Chairman of the Board, are eligible to participate in the ESOP and
to have shares and cash allocated to their accounts and distributed to them in
accordance with the terms of the ESOP.

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.
-------------

BOARD OF DIRECTORS' PROPOSAL TO RATIFY
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, 2007.
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, 2007. 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 Audit Committee had determined not to re-engage KPMG LLP, which served
as the Company's independent accountants for the fiscal years ending June 30,
2004 and June 30, 2005. There were no disagreements with KPMG LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. Rather, the Audit Committee determined that if was
in the Company's best interest to seek audit services from a regional, as
opposed to one of the "big four" accounting firms.

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, 2007.

The Company's Audit Committee has had policies and procedures for
pre-approving all audit and non-audit work performed by KPMG LLP and Rotenberg &
Company LLP for the fiscal year ended June 30, 2005 and 2006 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 KPMG LLP and
Rotenberg & Company LLP in the fiscal years ended June 30, 2005 and 2006,
respectively, for these various services were:

TYPES OF FEES 2006 2005
---- ----
Amount Billed Amount Billed
------------- -------------

(1) Audit Fees $ 84,900 $ 79,850

(2) Audit Related Fees None None

(3) Tax Fees 12,900 13,450

(4) All Other Fees 10,750 None
-------- --------

Total $108,550 $ 93,300
======== ========

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 for the audit of the Company's financial statements
included in Form 10-K and review of financial statements included in Form 10-Qs,
and for services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements; "audit-related fees" are fees
for assurance and related services that are related to the performance of the
audit of the Company's employee benefit plan financial statements; "tax fees"
are fees for tax compliance, tax advice and tax planning; and "all other fees"
are fees paid to KPMG LLP for services rendered in connection with the review of
Form S-8 and issuance of consent related to the Espey Mfg. & Electronics Corp.
2000 Stock Option Plan. 100% of the services set forth in sections (1) through
(4) above were approved by the Audit Committee in accordance with its charter.

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, 2006.

ANNUAL REPORTS

The Annual Report of the Company to the shareholders for the fiscal year
ended June 30, 2006, including financial statements, 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, 2006 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, 2006 can
also be viewed electronically through a link at the Company's website at
www.espey.com.
-------------

SHAREHOLDER PROPOSALS

Any shareholder proposal which may be a proper subject for inclusion in the
proxy statement and for consideration at the 2007 Annual Meeting must be
received by the Company at its principal executive office no later than June 17,
2007, if it is to be included in the Company's 2007 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 17, 2006
Saratoga Springs, New York

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

ESPEY MFG. & ELECTRONICS CORP.

PROXY FOR THE
2006 ANNUAL MEETING OF SHAREHOLDERS
November 20, 2006

COMMON

The undersigned hereby appoints Paul Corr and Seymour Saslow 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 2006 Annual Meeting of Shareholders to be
held on November 20, 2006 or any adjournment thereof.

1. TO ELECT THREE CLASS A DIRECTORS TO SERVE FOR A THREE YEAR TERM EXPIRING AT
THE 2009 ANNUAL MEETING OR UNTIL HIS SUCCESSOR IS DULY ELECTED AND
QUALIFIES.

[_] FOR the nominee listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for the nominee listed below

HOWARD PINSLEY ALVIN O. SABO CARL HELMETAG

The Board of Directors recommends a vote FOR these nominees.
---

INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
"FOR" box above AND write the nominee's name in the space provided below.

--------------------------------------------------------------------------------

2. TO RATIFY the appointment of Rotenberg & Company, LLP as the independent
public accountants of the Company for fiscal year ending June 30, 2007.

[_] 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 AND 2.
---

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.

--------------------------------

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

ESPEY MFG. & ELECTRONICS CORP.

PROXY FOR THE
2006 ANNUAL MEETING OF SHAREHOLDERS
November 20, 2006

ESOP

1. TO ELECT THREE CLASS A DIRECTORS TO SERVE FOR A THREE YEAR TERM EXPIRING AT
THE 2009 ANNUAL MEETING OR UNTIL HIS SUCCESSOR IS DULY ELECTED AND
QUALIFIES.

[_] FOR the nominee listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for the nominee listed below

HOWARD PINSLEY ALVIN O. SABO CARL HELMETAG

The Board of Directors recommends a vote FOR these nominees.
---

INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
"FOR" box above AND write the nominee's name in the space provided below.

--------------------------------------------------------------------------------

2. TO RATIFY the appointment of Rotenberg & Company, LLP as the independent
public accountants of the Company for fiscal year ending June 30, 2007.

[_] FOR [_] AGAINST [_] ABSTAIN

The Board of Directors recommends a vote FOR this proposal.
---

No other business may be transacted at the meeting.

--------------------------------------------------------------------------------
^ Detach here, sign, date and mail in postage paid envelope provided. ^

ESPEY MFG. & ELECTRONICS CORP.

--------------------------------