0001104659-06-040326.txt : 20060608 0001104659-06-040326.hdr.sgml : 20060608 20060607173137 ACCESSION NUMBER: 0001104659-06-040326 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20060608 DATE AS OF CHANGE: 20060607 GROUP MEMBERS: DANIEL J. DONOGHUE GROUP MEMBERS: MICHAEL R. MURPHY SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HERLEY INDUSTRIES INC /NEW CENTRAL INDEX KEY: 0000047035 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 232413500 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-34884 FILM NUMBER: 06892255 BUSINESS ADDRESS: STREET 1: 101 NORTH POINTE BOULEVARD CITY: LANCASTER STATE: PA ZIP: 17601-4133 BUSINESS PHONE: 7177358117 MAIL ADDRESS: STREET 1: 101 NORTH POINTE BOULEVARD CITY: LANCASTER STATE: PA ZIP: 17601-4133 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY MICROWAVE SYSTEMS INC DATE OF NAME CHANGE: 19900510 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY INDUSTRIES INC DATE OF NAME CHANGE: 19831103 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Discovery Group I, LLC CENTRAL INDEX KEY: 0001312548 IRS NUMBER: 300075077 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: HYATT CENTER, 24TH FLOOR STREET 2: 71 SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: (312) 920-2131 MAIL ADDRESS: STREET 1: HYATT CENTER, 24TH FLOOR STREET 2: 71 SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 SC 13D/A 1 a06-13429_1sc13da.htm AMENDMENT

	UNITED STATES	OMB APPROVAL
	SECURITIES AND EXCHANGE COMMISSION	OMB Number: 3235-0145
	Washington, D.C. 20549	Expires: February 28, 2009
	SCHEDULE 13D	Estimated average burden hours per response. . 14.5

Under the Securities Exchange Act of 1934
(Amendment No. 1)*

Herley Industries, Inc.

(Name of Issuer)

Common Stock, $ .10 par value

(Title of Class of Securities)

427398102

(CUSIP Number)

Daniel J. Donoghue
Michael R. Murphy
Discovery Group I, LLC
Hyatt Center
24th Floor
71 South Wacker Drive
Chicago, Illinois 60606

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

June 7, 2006

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

* The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP No. 427398102

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Discovery Group I, LLC

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) AF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization Delaware

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power None.

			8.	Shared Voting Power 730,799

			9.	Sole Dispositive Power None.

			10.	Shared Dispositive Power 730,799

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 730,799

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 5.0%

	14.	Type of Reporting Person (See Instructions) OO

CUSIP No. 427398102

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Daniel J. Donoghue

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) AF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization United States of America

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power None.

			8.	Shared Voting Power 730,799

			9.	Sole Dispositive Power None.

			10.	Shared Dispositive Power 730,799

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 730,799

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 5.0%

	14.	Type of Reporting Person (See Instructions) IN

CUSIP No. 427398102

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Michael R. Murphy

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) AF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization United States of America

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power None.

			8.	Shared Voting Power 730,799

			9.	Sole Dispositive Power None.

			10.	Shared Dispositive Power 730,799

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 730,799

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 5.0%

	14.	Type of Reporting Person (See Instructions) IN

Item 1.

Security and Company

This Amendment No. 1 (the “Amendment No. 1”) relates to the Common Stock, $.10 par value (the “Common Stock”), of Herley Industries, Inc., a Delaware corporation (the “Company”), which has its principal executive offices at 101 North Pointe Boulevard, Lancaster, Pennsylvania 17601. This Amendment No. 1 supplements, as set forth below, the information contained in Item 4 of the Schedule 13D filed by the Reporting Persons with respect to the Company on May 17, 2006 (the “Original Schedule 13D”). All capitalized terms used herein but not defined herein have the meanings set forth in the Original Schedule 13D. Except as amended by this Amendment No. 1, all information contained in the Original Schedule 13D is, after reasonable inquiry and to the best of the Reporting Persons’ knowledge and belief, true, complete and correct as of the date of this Amendment No. 1.

Item 4.

Purpose of Transaction

Item 4 of the Original Schedule 13D is amended by the addition of the following paragraph thereto:

Discovery Group on June 7, 2006 sent a letter (the “Second Letter”) to the Company’s Board of Directors recommending that the Board (i) seek to remove the Chairman of the Board, who has been indicted by the U.S. Attorney’s Office for the Eastern District of Pennsylvania, as a director of the Company, (ii) name a new Board Chairman who is independent and has interests that are aligned with the public shareholders, (iii) appoint a Special Committee of the Board to evaluate the future viability of the Company, (iv) hire an independent investment bank and independent legal counsel to assist the Special Committee, and (v) consider a sale of the Company. The description of the Second Letter contained in this Amendment No. 1 is qualified in its entirety by reference to the Second Letter, which is included as Exhibit 2 to this Amendment No. 1 and is incorporated by reference herein.

Item 7.	Material to Be Filed as Exhibits
	Exhibit 1: Joint Filing Agreement dated as of May 17, 2006, by and among Discovery Group I, LLC; Daniel J. Donoghue; and Michael R. Murphy.
	Exhibit 2: Letter dated June 7, 2006 from Discovery Group I, LLC to the Board of Directors of Herley Industries, Inc.

Signature

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

	June 7, 2006
	Date

	DISCOVERY GROUP I, LLC

	/s/ Michael R. Murphy
	Signature

	Michael R. Murphy, Managing Member
	Name/Title

	/s/ Daniel J. Donoghue
	Signature

	Daniel J. Donoghue
	Name/Title

	/s/ Michael R. Murphy
	Signature

	Michael R. Murphy
	Name/Title

Exhibit Index

Exhibit 1		Joint Filing Agreement dated as of May 17, 2006, by and among Discovery Group I, LLC; Daniel J. Donoghue; and Michael R. Murphy.
Exhibit 2		Letter dated June 7, 2006 from Discovery Group I, LLC to the Board of Directors of Herley Industries, Inc.

EX-1 2 a06-13429_1ex1.htm EX-1

Exhibit 1

JOINT FILING AGREEMENT

Discovery Group I, LLC, a Delaware limited liability company, Daniel J. Donoghue, and Michael R. Murphy hereby agree to file jointly the statement on Schedule 13D to which this Agreement is attached, and any amendments thereto which may be deemed necessary.

It is understood and agreed that each of the parties hereto is responsible for the timely filing of such statement and any amendments thereto, and for the completeness and accuracy of the information concerning such party contained therein, but such party is not responsible for the completeness or accuracy of information concerning the other party unless such party knows or has reason to believe that such information is inaccurate.

It is understood and agreed that a copy of this Agreement shall be attached as an exhibit to the statement on Schedule 13D, and any amendments thereto, filed on behalf of each of the parties hereto.

	May 17, 2006
	Date

	DISCOVERY GROUP I, LLC

	By	/s/ Michael R. Murphy
		Michael R. Murphy
		Managing Member

	/s/ Daniel J. Donoghue
	Daniel J. Donoghue

	/s/ Michael R. Murphy
	Michael R. Murphy

EX-2 3 a06-13429_1ex2.htm EX-2

Exhibit 2

[Letterhead of Discovery Partnerships]

June 7, 2006

Board of Directors
Herley Industries, Inc.
101 North Pointe Boulevard
Lancaster, PA 17601-4133

Dear Directors:

In light of your Board meeting tomorrow, June 8, 2006, and the grave circumstances surrounding the Company at this particular time, we are compelled to share information that is incremental to our previous letter (“First Letter”) of May 17, 2006. In the First Letter, which was attached to our Fund’s 13D filing with the SEC, we brought to the attention of the Board, “certain actions by the management of the Company that we believe should be of great concern.” In summary, we expressed our belief that management has repeatedly rejected overtures from highly strategic acquirers that are likely willing to pay a significant premium for the Company. We specifically urged the Board to seek advice on this matter from an independent investment banking advisor.

Immediately after sending that letter, a great number of large institutional shareholders contacted us expressing concern regarding governance of the Company. You should know that your institutional shareholders are generally appalled by the seeming lack of real independence of this Board as evidenced by excessive compensation packages and a lack of management accountability. In total, we have become aware of an exceptionally high level of dissatisfaction among at least 40% of the public shareholders.

In the few short weeks since the First Letter, Herley has reported two new, unanticipated and alarming events.

· First, on June 5, 2006, management announced that its third quarter earnings will be below Company expectations and analyst estimates. Given the Company’s track record for “unexpected earnings disappointments” the term has become an oxymoron at Herley. However, this stumble is particularly alarming in that management was finally expected to show the long-awaited fruits of its multi-year acquisition program and the large engineering investments that have weighed down earnings. Also, please know that the attempt by your company President, John Kelly, to put a positive futuristic spin on the situation has become not only trite but also transparent.

· Next, on June 6, 2006, the Company and its Chairman, Lee Blatt were indicted on multiple charges in connection with purported activities resulting in alleged excessive profits by the Company on three contracts with the United States Department of Defense.

In the first paragraph of the press release issued yesterday by management it is purposefully pointed out that the contracts in question amount to only $3.9 million in revenue over the course of three years at a company with total revenues of $180 million as if to dismiss the seriousness of the situation.

If our First Letter did not adequately capture the Board’s attention, certainly these two more recent disclosures must raise the requisite red flags. This Board of Directors has looked the other way long enough. The costs to the public shareholders, for whom the Board members are fiduciaries, are mounting. Indeed, the viability of the Company may now be at stake. You must be concerned that the allegations of cheating the government might preclude Herley from doing future business with the government and its contractors. Here is the action plan that the Board must now adopt:

1. Seek to remove Lee Blatt from the Board. Mr. Blatt cannot possibly serve as an effective director under these circumstances and he will surely be turning his attention to his personal legal defense.

2. Name a new Chairman that is independent and has interests that are aligned with public shareholders. Note that other than Lee Blatt, Chairman, and Myron Levy, Vice Chairman, the current directors own less than 1% of the Company’s outstanding stock. This is a particularly opportune time to add a director with a real and substantial economic interest in the Company. If any other large shareholders have expressed interest in serving in a director capacity, we would support their candidacy. If no other large shareholder has stepped forward, we would be willing to lend a qualified member of our management team to serve in such capacity.

3. Appoint a Special Committee of the Board to evaluate the future viability of Herley. A committee of independent directors must be formed to assess the strength of the Company’s legal defense and strategic alternatives for preserving shareholder value.

4. Hire an independent investment bank and independent legal counsel to assist the Special Committee. Qualified advisors can help the Board understand the risks of the present situation and explore all strategic alternatives, including a possible sale to any of the many interested strategic parties identified in our First Letter.

5. Consider a sale of the Company. The Board must consider the real possibility that Herley’s future, the continuing livelihoods of its employees and the security of its investors may now require that it become part of another company that can restore the integrity necessary to continue its business with the U.S. Department of Defense.

The Directors have no choice but to pursue such a course of action given the fiduciary responsibility they have to the Company’s constituents and to avoid personal culpability in the event of an unraveling of the Company.

With an investment of over 5% of Herley’s outstanding shares, we have a strong alignment of interest with all the unaffiliated shareholders. On the behalf of all the Company’s non-management shareholders, we hereby request a timely meeting with the Board to learn directly of your plans to address this grave situation. We would also present to you the information and analysis that supports our contention in the First Letter that there are logical strategic suitors willing to pay a significant premium to shareholders in order to acquire Herley.

Respectfully,

Daniel. J. Donoghue		Michael R. Murphy
Managing Director		Managing Director

Distribution:	Mr. Lee N. Blatt, Chairman of the Board
	Mr. Myron Levy, Vice Chairman and Chief Executive Officer
	Admiral Edward K. Walker, Jr. (Ret.), Director
	Dr. Edward A. Bogucz, Director
	Adm. Robert M. Moore (Ret.), Director
	Mr. John A. Thonet, Director and Secretary
	Mr. Carlos C. Campbell, Director

cc: Mr. John M. Kelley, President

Under the Securities Exchange Act of 1934 (Amendment No. 1)*

Signature

Under the Securities Exchange Act of 1934
(Amendment No. 1)*