-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GNt50nVvA0Z8EO13CNeEEK7cz7lCmirgzx+ZflF9p49SeH22Gb0EPn0VskbrvncJ 2h/cvTjJOyjxStZvhr2JHw== 0000047035-98-000002.txt : 19980122 0000047035-98-000002.hdr.sgml : 19980122 ACCESSION NUMBER: 0000047035-98-000002 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980218 FILED AS OF DATE: 19980121 SROS: NASD FILER: 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: DEF 14A SEC ACT: SEC FILE NUMBER: 000-05411 FILM NUMBER: 98509840 BUSINESS ADDRESS: STREET 1: 10 INDUSTRY DR CITY: LANCASTER STATE: PA ZIP: 17603 BUSINESS PHONE: 7173972777 MAIL ADDRESS: STREET 1: 10 INDUSTRY DRIVE CITY: LANCASTER STATE: PA ZIP: 17603 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 DEF 14A 1 SCHEDULE 14A Information Required in Proxy Statement SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2. HERLEY INDUSTRIES, INC. (Name of Registrant as Specified in its Charter) - ------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: - ------------------------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: - ------------------------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: - ------------------------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: - ------------------------------------------------------------------------------- 5) Total fee paid: - ------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials - ------------------------------------------------------------------------------- [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule, and the date of its filing. 1) Amount Previously Paid: - ------------------------------------------------------------------------------- 2) Form, Schedule or Registration Statement No.: - ------------------------------------------------------------------------------- 3) Filing Party: - ------------------------------------------------------------------------------- 4) Date Filed: - ------------------------------------------------------------------------------- HERLEY INDUSTRIES, INC. ---------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS February 18, 1998 ---------------------- To the Stockholders of HERLEY INDUSTRIES, INC.: NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Herley Industries, Inc. will be held at the Comfort Inn, 500 Centerville Road, Lancaster, Pennsylvania 17601 on Wednesday, February 18, 1998 at 10:00 a.m., or at any adjournment thereof, for the following purposes: 1. To elect seven directors. 2. To consider and act upon a proposal to amend the Certificate of Incorporation to increase the authorized shares of Common Stock from 10,000,000 to 20,000,000. 3. To consider and act upon such other business as may properly come before this meeting or any adjournment thereof. The above matters are set forth in the Proxy Statement attached to this Notice to which your attention is directed. Only stockholders of record on the books of the Company at the close of business on January 19, 1998 will be entitled to vote at the Annual Meeting of Stockholders or at any adjournment thereof. You are requested to sign, date and return the enclosed Proxy at your earliest convenience in order that your shares may be voted for you as specified. By Order of the Board of Directors, LEE N. BLATT Chairman Dated: January 20, 1998 Lancaster, Pennsylvania HERLEY INDUSTRIES, INC. 10 Industry Drive Lancaster, Pennsylvania 17603 ---------------------- PROXY STATEMENT ---------------------- ANNUAL MEETING OF STOCKHOLDERS Wednesday, February 18, 1998 The Annual Meeting of Stockholders of Herley Industries, Inc. (the "Company") will be held on Wednesday, February 18, 1998 at The Comfort Inn, 500 Centerville Road, Lancaster, Pennsylvania 17601 at 10:00 a.m., for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. The enclosed proxy is solicited by and on behalf of the Board of Directors of the Company for use at the Annual Meeting of Stockholders. This proxy statement and the enclosed proxy has been mailed on or about January 20, 1998 to all stockholders as of the record date. If a proxy in the accompanying form is duly executed and returned, the shares represented by such proxy will be voted as specified. Any person executing the proxy may revoke it prior to its exercise either by letter directed to the Company or in person at the Annual Meeting. Voting Rights Only stockholders of record on January 19, 1998 (the "Record Date") will be entitled to vote at the Annual Meeting or any adjournment thereof. The Company has outstanding one class of voting capital stock, namely 5,241,147 shares of Common Stock, $.10 par value. Stockholders are entitled to one vote for each share registered in their names at the close of business on the Record Date. The affirmative vote of a majority of the votes cast at the meeting is required for approval of each matter to be submitted to a vote of the stockholders, except for the amendment to the Company's Certificate of Incorporation which requires an affirmative vote of a majority of the Company's outstanding shares of Common Stock. For purposes of determining whether proposals requiring a majority of the votes cast at the meeting have received a majority vote, abstentions will not be included in the vote totals, and in instances where brokers are prohibited from exercising discretionary authority for beneficial owners who have not returned a proxy (so called "broker non-votes"), those votes will not be included in the vote totals. Therefore, abstentions and broker non-votes will have no effect on such vote, but will be counted in the determination of a quorum. To the knowledge of the Board of Directors, upon whose behalf this solicitation is made, the only persons owning of record or beneficially more than 5% of the Company's outstanding Common Stock as of the Record Date are Lee N. Blatt, Chairman of the Board, residing in Vero Beach, Florida, who owns 512,572 (9.3%) shares, Myron Levy, President, residing in Lancaster, Pennsylvania, who owns 421,724 shares (7.8%), and Gerald I. Klein, the Company's Chief Technologist, residing in Lancaster, Pennsylvania, who owns 315,878 (5.9%) shares. ELECTION OF DIRECTORS The Company's Certificate of Incorporation provides for a Board of Directors consisting of not less than three nor more than twelve directors, classified into three classes as nearly equal in number as possible, whose terms of office expire in successive years. The Company's Board of Directors now consists of seven directors. The Company's Board of Directors nominated for election at this meeting and the classes in which they will serve are as follows:
Class I Class II Class III (To Serve until the (To Serve until the (To Serve until the Annual Meeting of Annual Meeting of Annual Meeting of Stockholders in 2000) Stockholders in 1998) Stockholders in 1999) - --------------------- --------------------- --------------------- Lee N. Blatt Dr. Alvin M. Silver (1) Adm. Thomas J. Adm. Edward K. Walker, John A. Thonet Allshouse (Ret.) (1) Jr. (Ret.) (1) Myron Levy David H. Lieberman (1) Member of Compensation and Audit Committees
The seven directors are to be elected at this 1997 Annual Meeting of Stockholders to hold office until the Annual Meeting of Stockholders as set forth above or until their successors are chosen and qualified. Shares represented by executed proxies in the form enclosed will be voted, if authority to do so is not withheld, for the election as directors of the aforesaid nominees (each of whom is now a director) unless any such nominee shall be unavailable, in which case such shares will be voted for a substitute nominee designated by the Board of Directors. The Board of Directors has no reason to believe that any of the nominees will be unavailable or, if elected, will decline to serve. Directors who are not employees of the Company receive a fee of $7,500 for each annual meeting of the Board of Directors and $1,500 for each interim Board of Directors or committee meeting attended. There were seven meetings of the Board of Directors during the fiscal year ended August 3, 1997, including the annual meeting. Each Director attended or participated in at least 75% of such meetings of the Board of Directors. During the fiscal year ended August 3, 1997, there was one meeting each of the Audit and Compensation Committees. The Audit Committee is involved in discussions with the Company's independent certified public accountants with respect to the year end audited financial statements. The Compensation Committee recommends executive compensation and the granting of stock options and warrants to key employees. See "Compensation Committee Report on Executive Compensation." The Company does not have a nominating committee. Security Ownership The following table sets forth the indicated information as of January 19, 1998 with respect to the beneficial ownership of the Company's securities by (i) all persons known to the Company to be beneficial owners of more than 5% of the Company's outstanding Common Stock, (ii) each director of the Company, and (iii) by all officers and directors as a group:
Shares of Common Stock Director Beneficially Owned Name Age Since (1)(5) ---- --- -------- ---------------------- Lee N. Blatt (2)(4)(5) 69 1965 512,572 (9.3%) Myron Levy (4)(5)(6) 57 1992 421,724 (7.8%) Gerald I. Klein (4)(5) 69 - 315,878 (5.9%) Anello C. Garefino (4)(5) 50 -- 51,885 (1.0%) Allan Coon (4) 61 -- 45,555 Adam J. Bottenfeld (4) 37 -- 20,664 Ray Umbarger (4) 50 -- 7,953 George Hopp (4) 59 -- 9,333 Glenn Rosenthal 38 -- 262 Adm. Thomas J. Allshouse (Ret.) (4)(5) 72 1983 32,798 David H. Lieberman (4)(5) 52 1985 20,799 John A. Thonet (3)(4)(5) 47 1991 28,359 Alvin M. Silver 66 1997 Adm. Edward K. Walker, Jr. (Ret.) 64 1997 Directors and officers as a group (14 persons) 1,151,904 (19.9%) (1) No executive officer or director owns more than one percent of the outstanding shares of Common Stock unless otherwise indicated. Ownership represents sole voting and investment power. (2) Does not include an aggregate of 519,759 shares owned by family members, including Hannah Thonet, Rebecca Thonet, Kathi Thonet, Randi Rossignol, Max Rossignol, Henry Rossignol, Patrick Rossignol and Allyson Gerber, of which Mr. Blatt disclaims beneficial ownership. (3) Does not include 153,332 shares owned by Mr. Thonet's children, Hannah and Rebecca Thonet, and 113,809 shares owned by his wife, Kathi Thonet. Mr. Thonet disclaims beneficial ownership of these shares. (4) Includes shares subject to options exercisable within the 60 days after January 19, 1998 at prices ranging from $2.535 to $6.9375 per share pursuant to the Company's Stock Plans: Lee N. Blatt - 111,112, Myron Levy - 72,224, Gerald 1. Klein - 22,224, Anello C. Garefino - 11,112, Allan Coon - 45,555, George Hopp - 4,889, Adm. Thomas J. Allshouse - 6,665, David H. Lieberman - 6,666, John A. Thonet - 6,666, Ray Umbarger - 7,000, Adam J. Bottenfield - 18,664. (5) Includes shares subject to outstanding warrants exercisable within 60 days after January 19, 1998 at a price of $4.6425: Lee N. Blatt - 133,333, Myron Levy - 66,667, Gerald 1. Klein - 66,667, Anello C. Garefino - 13,333, and the following at a price of $5.3475: Adm. Thomas J. Allshouse - 13,333, David H. Lieberman 13,333, John A. Thonet - 13,333. (6) Does not include 12,666 shares owned by Mr. Levy's children, Stephanie Levy and Ronnie Roth, of which Mr. Levy disclaims beneficial ownership.
Principal Occupations of Directors The following is a brief account of the business experience for the past five years of the Company's directors: Mr. Lee N. Blatt is a co-founder of the Company and has been Chairman of the Board of the Company since its organization in 1965. Mr. Blatt holds a Bachelors Degree in Electrical Engineering from Syracuse University and a Masters Degree in Business Administration from City College of New York. Mr. Myron Levy has been President of the Company since June 1993 and served as Executive Vice President and Treasurer since May 1991, and prior thereto as Vice President for Business Operations and Treasurer since October 1988. For more than ten years prior to joining the Company, Mr. Levy, a certified public accountant, was employed in various executive capacities, including Vice-President, by Griffon Corporation (formerly Instrument Systems Corporation). Mr. Levy is a director of Mike's Original, Inc., a manufacturer and distributor of premium ice cream products. Admiral Edward K. Walker, Jr. (Ret.) has been a director of the Company since October 1997. Since his retirement from the United States Navy in 1988, Admiral Walker has been Vice President, Administration for Resource Consultants, Inc., a member of Gilbert Associates, Inc. which is a professional services company providing services to the Department of Defense, particularly the Navy, in a wide range of technical, engineering and management disciplines. Prior to his retirement from the United States Navy, Admiral Walker served for 34 years in various naval officer positions, including Commander of the Naval Supply Systems Command, and Chief of Supply Corps. Admiral Walker holds a Bachelors Degree from the United States Naval Academy and Masters Degree in Business Administration from The George Washington University. Dr. Alvin M. Silver has been a director of the Company since October 1997. Since 1977, Dr. Silver has been Executive Vice President of the Ademco Division of Pittway Corporation. Dr. Silver holds a Bachelors Degree in Industrial Engineering from Columbia University, a Masters Degree in Industrial Engineering from Stevens Institute of Technology and a Doctor of Engineering Science Degree in Industrial Engineering/Operations Research from Columbia University. Dr. Silver is a Professor at the Frank G. Zarb School of Business of Hofstra University. Mr. John A. Thonet has been a director of the Company since 1991 and President of Thonet Associates, an environmental consulting firm specializing in land planning and zoning matters for the past ten years. Mr. Thonet is the son-in-law of Mr. Blatt. Admiral Thomas J. Allshouse (Ret.) has been a director of the Company since September 1983. Prior to 1981, when he retired from the United States Navy, Admiral Allshouse served for 34 years in various naval officer positions, including acting as commanding officer of the United States Naval Ships Parts Control Center. Admiral Allshouse holds a Bachelors Degree in Engineering from the United States Naval Academy and a Masters Degree in Business Administration from Harvard University. Mr. David H. Lieberman has been a director of the Company since 1985 and Secretary of the Company since 1994. Mr. Lieberman has been a practicing attorney in the State of New York for more than the past ten years and is a member of the firm of Blau, Kramer, Wactlar & Lieberman, P.C., general counsel to the Company. MANAGEMENT Officers of the Company The executive officers of the Company are as follows: Name Position Held with the Company ---- ------------------------------ Lee N. Blatt Chairman of the Board and Chief Executive Officer Myron Levy President Anello C. Garefino Vice President - Finance, Treasurer and Chief Financial Officer Allan Coon Vice President Adam J. Bottenfield Vice President - Engineering Ray Umbarger Vice President - Domestic Marketing George Hopp Vice President - International Marketing Glenn Rosenthal Vice President David H. Lieberman Secretary Mr. Anello C. Garefino has been employed by the Company in various executive capacities for more than the past five years. Mr. Garefino, a certified public accountant, was appointed Vice President - Finance, Treasurer and Chief Financial Officer in June 1993. From January 1990 to June 1993, Mr. Garefino was Finance Manager of the Company. From 1987 to January 1990, Mr. Garefino was Corporate Controller of Exide Corporation. Mr. Allan Coon joined the Company in 1992 and was appointed Vice President in December 1995. Prior to joining the Company, Mr. Coon was Senior Vice President and Chief Financial Officer of Alpha Industries, Inc., a publicly traded company engaged in military and commercial electronic programs. Mr. Adam J. Bottenfield was appointed Vice President - Engineering in July 1997. Mr. Bottenfield has been employed by the Company as Systems Engineering Manager of Herley-Vega Systems since the Company's acquisition of Vega in 1993. From 1984 to 1993, Mr. Bottenfield was Manager of Digital and Software Engineering of Vega. Mr. Ray Umbarger was appointed Vice President - Domestic Marketing in July 1997, having been employed by the Company since June 1995. For more than ten years prior to that, Mr. Umbarger served in the U.S. Navy where he was a Captain. His responsibilities in the Navy included the design, development production, deployment and life cycle support of all Navy, and in some cases, all Department of Defense target systems. Mr. Umbarger received a Bachelors Degree in Aeronautical Engineering from the U.S. Naval Academy, a Masters Degree in Aeronautical Engineering from Princeton University and a Masters Degree in Business Administration from Monmouth College. Mr. George Hopp was appointed Vice President - International Marketing in July 1997. Mr. Hopp has been employed by the Company in a sales and marketing position since 1995 and directs the operations of the Company's GSS division. For more than ten years prior to joining the Company, Mr. Hopp was Director of International Programs for Northrop Grumman, Military Aircraft Division. Mr. Glenn Rosenthal was appointed Vice President of the Company in August 1997. From June 1988 until its acquisition by the Company in August 1997, Mr. Rosenthal was employed by Metraplex Corporation, holding the positions of President (from June 1996) and Chief Operations Officer (from 1995). Mr. Rosenthal holds a Bachelors Degree in Engineering from Carnegie Mellon University. Mr. Gerald Klein, Chief Technologist for the Company since March 1994, has been employed by the Company since 1988, serving as Chief Operating Officer and Executive Vice President from July 1988 until December 1996 and was a director of the Company from 1991 until December 1996. Executive Compensation The following table sets forth the annual and long-term compensation with respect to the Chairman/Chief Executive Officer, the Company's four most highly compensated executive officers other than the Chief Executive Officer and one individual who served as an executive officer for a portion of fiscal year 1997 and all of fiscal years 1996 and 1995 (the "named executive officers") for services rendered for the fiscal years ended August 3, 1997, July 28, 1996 and July 30, 1995. Summary Compensation Table
Annual Compensation(1) Long-Term Compensation --------------------- ---------------------- Securities Name and Fiscal Underlying All Other Principal Position Year Salary(2) Bonus(3) Options/SARs(4) Compensation - ------------------ ------ --------- -------- --------------- ------------ Lee N. Blatt 1997 $531,629 $302,432 599,999 (5) $4,500 (6) Chairman of 1996 483,028 203,068 133,333 (7) 4,500 the Board 1995 503,842 - 133,333 4,620 Myron Levy 1997 $307,764 $181,460 400,000 (5) $9,000 (6) President 1996 288,756 121,841 66,667 (7) 7,380 1995 295,331 27,500 66,666 6,636 Allan Coon 1997 $110,011 - 73,332 (5) $5,751 (6) Vice President 1996 110,011 30,000 13,333 (7) 4,569 1995 99,008 15,000 - 4,245 Anello C. Garefino 1997 $101,914 - 59,999 (5) $3,579 (6) Vice President 1996 97,885 15,000 13,333 (7) 3,424 Finance-Treasurer 1995 90,620 - 13,333 3,173 George Hopp 1997 $107,615 - 18,666 (5) $1,422 (6) Vice President 1996 104,000 - - 1,185 1995 44,000 - 6,667 - Gerald I. Klein (8) 1997 $307,764 $181,460 99,999 (5) $4,500 (6) 1996 288,726 121,841 66,667 (7) 4,500 1995 295,328 - 66,666 4,620 (1) Does not include Other Annual Compensation because amounts of certain perquisites and other non-cash benefits provided by the Company do not exceed the lesser of $50,000 or 10% of the total annual base salary and bonus disclosed in this table for the respective officer. (2) Amounts set forth herein include cost of living adjustments under employment contracts. (3) Represents for Messrs. Blatt, Levy and Klein incentive compensation under employment agreements. No incentive compensation was earned under the employment agreements in fiscal 1995. Mr. Levy was awarded a bonus by the Board of Directors for fiscal 1995. See "Management-Employment Agreements." (4) Adjusted to give effect to a four-for-three stock split on September 30, 1997. This table includes warrants issued to these individuals outside the stock option plans. (5) Consisting of the following options issued in October 1996 for the right to purchase Common Stock of the Company at a price of $6.9375: Lee N. Blatt - 133,333; Myron Levy - 100,000, Allan Coon - 26,666, Anello C. Garefino - 13,333; options granted in February 1997 at a price of $8.3438 and repriced to $6.0938 in April 1997: Lee N. Blatt 133,333, Myron Levy - 100,000, Alan Coon - 20,000, Anello C. Garefino - 20,000, Gerald I. Klein - 33,333 and George Hopp - 5,333; and options granted in May 1997 at a price of $6.4688: Lee N. Blatt - 333,333, Myron Levy - 200,000, Allan Coon - 26,666, Anello C. Garefino - 26,666, Gerald I. Klein - 66,666 and George Hopp - 13,333. (6) All Other Compensation includes: (a) group term life insurance as follows: $4,500 for Mr. Levy, $2,387 for Mr. Coon, $522 for Mr. Garefino, and $1,422 for Mr. Hopp, and (b) contributions to the Company's 401(k) Plan as a pre-tax salary deferral as follows: $4,500 for each of Messrs. Blatt, Levy and Klein, $3,364 for Mr. Coon, and $3,057 for Mr. Garefino. (7) Represents warrants issued in December 1995 for the right to purchase Common Stock of the Company at a price of $4.6425. (8) Effective December 1996, Mr. Klein ceased to serve as an executive officer of the Company.
The following table sets forth certain information concerning the stock options granted to the named executive officers during fiscal 1997. Since the end of fiscal 1997, the Company has not granted any stock options or warrants to any of these individuals. Option/SAR Grants in Last Fiscal Year
Individual Grants (1) -------------------------------------------- Number of % of Total Potential Realized Value at Securities Options Issued Assumed Annual Rates of Underlying to Employees Exercise Stock Price Appreciation Options in Fiscal Price Expiration Option Term (4) Name Granted(2) Year(3) ($/Sh) Date 0% 5% 10% - ---- --------- ------------- ------ ---------- -- -- --- Lee N. Blatt 133,333 9 $6.9375 10/08/06 $0.00 $581,726 $1,474,208 133,333 9 $6.0938 04/04/07 $0.00 $510,980 $1,294,923 333,333 24 $6.4688 05/01/07 $0.00 $1,356,063 $3,436,530 Myron Levy 100,000 7 $6.9375 10/08/06 $0.00 $436,296 $1,105,659 100,000 7 $6.0938 04/04/07 $0.00 $383,236 $971,195 200,000 14 $6.4688 05/01/07 $0.00 $813,638 $2,061,920 Allan Coon 26,666 2 $6.9375 10/08/06 $0.00 $116,343 $294,835 20,000 1 $6.0938 04/04/07 $0.00 $76,647 $194,239 26,666 2 $6.4688 05/01/07 $0.00 $108,482 $274,916 Anello C. Garefino 13,333 1 $6.9375 10/08/06 $0.00 $58,171 $147,417 20,000 1 $6.0938 04/04/07 $0.00 $76,647 $194,239 26,666 2 $6.4688 05/01/07 $0.00 $108,486 $274,916 George Hopp 5,333 - $6.0938 04/04/07 $0.00 $20,438 $51,794 13,333 1 $6.4688 05/01/07 $0.00 $54,241 $137,458 Gerald I. Klein 33,333 2 $6.0938 04/04/07 $0.00 $127,744 $323,728 66,666 5 $6.4688 05/01/07 $0.00 $271,210 $687,301 (1) Adjusted to give effect to a four-for-three stock split on September 30, 1997. During fiscal 1997, no warrants were issued to these individuals outside the stock option plans. (2) Options were issued in fiscal 1997 at 100% of the closing price of the Company's Common Stock on dates of issue and vest as follows: Lee N. Blatt - all options vest at date of grant; Myron Levy, Allan Coon, Anello C. Garefino and Gerald I. Klein - one- third of the options vest at date of grant, one-third vest one year from date of grant and the balance vest two years from date of grant; George Hopp - one-fifth of the options vest one year from date of grant and one-fifth each year thereafter. (3) Total options issued to employees and directors in fiscal 1997 were for 1,465,649 shares of Common Stock. (4) The amounts under the columns labeled "5%" and "10%" are included by the Company pursuant to certain rules promulgated by the Commission and are not intended to forecast future appreciation, if any, in the price of the Common Stock. Such amounts are based on the assumption that the named persons hold the options for the full term of the options. The actual value of the options will vary in accordance with the market price of the Common Stock. The column headed "0%" is included to demonstrate that the options were issued with an exercise price equal to the trading price of the Common Stock so that the holders of the options will not recognize any gain without an increase in the stock price, which increase benefits all stockholders commensurately.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES The following table sets forth stock options and warrants exercised during fiscal 1997 and all unexercised stock option grants and warrants issued to the named executive officers as of August 3, 1997.
Value of Number of Unexercised Unexercised In-The-Money Shares Options and Warrants Options and Warrants Acquired on Value at Fiscal Year-End(2) at Fiscal Year-End(3) Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- ----------- ------------- Lee N. Blatt 688,886 $3,203,301 133,333 177,779 $706,532 $785,698 Myron Levy 264,441 1,255,128 66,667 255,558 353,293 969,833 Allan Coon 13,333 70,625 32,222 41,110 109,350 140,202 Anello Garefino 41,109 200,659 13,333 38,889 70,657 153,102 George Hopp 4,443 22,442 2,667 18,222 10,261 72,993 Gerald I. Klein 163,330 854,708 66,667 83,335 353,923 382,947 (1) Values are calculated by subtracting the exercise price from the fair market value of the stock as of the exercise date. (2) Adjusted to give effect to a four-for-three stock split on September 30, 1997. (3) Based upon the trading price of the Common Stock of $9.94 on August 3, 1997, as adjusted to give effect to the four-for-three stock split on September 30, 1997.
Employment Agreements Lee N. Blatt has entered into a new employment agreement with the Company, dated as of November 1, 1997, which provides for a three year term, terminating on October 31, 2000. Pursuant to the agreement, Mr. Blatt receives compensation consisting of a base salary of $375,000, with an annual cost of living increase and an incentive bonus. Mr. Blatt's incentive bonus is 5% of the pretax income of the Company in excess of 10% of the Company's stockholders' equity for specific periods, as adjusted for stock issuances. Mr. Blatt's incentive bonus cannot exceed his base salary. Myron Levy has entered into a new employment agreement with the Company, dated as of November 1, 1997, which provides for a five year term, terminating on October 31, 2002, and a five year consulting period commencing at the end of the employment period. Pursuant to the agreement, Mr. Levy receives compensation consisting of a base salary of $275,000, with an annual cost of living increase and an incentive bonus. Mr. Levy's incentive bonus is 4% of the pretax income of the Company in excess of 10% of the Company's stockholders' equity for specific periods, as adjusted for stock issuances. Mr. Levy's incentive bonus cannot exceed his base salary. Mr. Levy's compensation during the consulting period is at the annual rate of $60,000. Gerald Klein has entered into a new employment agreement with the Company, dated as of November 1, 1997, which provides for a four year term, terminating on October 31, 2001, and a consulting period commencing at the end of the employment period and terminating on December 31, 2010. Pursuant to the agreement, Mr. Klein receives compensation consisting of a base salary of $275,000, with an annual cost of living increase and an incentive bonus. Mr. Klein's incentive bonus is 3% of the pretax income of the Company in excess of 10% of the Company's stockholders' equity for specific periods, as adjusted for stock issuances. Mr. Klein's incentive bonus cannot exceed his base salary. Mr. Klein has the right at any time during his full time employment to terminate such employment and commence his consulting arrangement. Mr. Klein's compensation during his consulting period is at the annual rate of $100,000. The employment agreements with Messrs. Blatt, Levy and Klein provide for certain payments following death or disability. The employment agreements also provide, in the event of a change in control of the Company, as defined therein, the right, at their election, to terminate and receive a lump sum payment of approximately twice their annual salary. Glenn Rosenthal entered into an employment agreement with the Company and Metraplex, dated as of August 4, 1997, which provides for a three year term, terminating on August 4, 2000. Pursuant to this agreement, Mr. Rosenthal receives annual compensation consisting of a base salary of $130,000 and an incentive bonus based on 3% of the pre-tax income of Metraplex. The employment agreement also provides that if Mr. Rosenthal is relocated out of Frederick, Maryland, he shall receive $260,000 if during the first year of the employment agreements, $195,000 if during the second year, and $130,000 if during the third year or beyond. In addition, Allan Coon has entered into a severance agreement with the Company, dated June 11, 1997, which provides that in the event Mr. Coon is terminated other that for cause prior to June 11, 1999, he is entitled to two years' base salary and in the event he is so terminated after June 11, 1999 and before June 11, 2002, he is entitled to one year's base salary. Mr. Coon's present base salary is $110,000. Indemnification Agreements The Company has entered into separate indemnification agreements with the officers and directors of the Company. The Company has agreed to provide indemnification with regard to certain legal proceedings so long as the indemnified officer or director has acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company and with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The Company will only provide indemnification for expenses, judgments, fines and amounts paid in settlement actually incurred by the relevant officer or director, or on his or her behalf, arising out of proceedings brought against such officer or director by reason of his or her corporate status. Table of Ten-Year Option Repricings The following table sets forth information concerning options of the named executive officers that were repriced during fiscal 1997.
Length of Original Number of Market Price Option Term Securities of Stock at Exercise Price Remaining Underlying Options Time of at Time of New at Date of Repriced or Repricing or Repricing or Exercise Repricing Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment (Yrs) - ---- ---- ------------------ -------------- -------------- ---------- ----------------- Lee N. Blatt 4/8/97 133,333 $6.0938 $8.3438 $6.0938 9 yrs, 10 months Myron Levy 4/8/97 100,000 $6.0938 $8.3438 $6.0938 9 yrs, 10 months Gerald I. Klein 4/8/97 33,333 $6.0938 $8.3438 $6.0938 9 yrs, 10 months Anello C. Garefino 4/8/97 20,000 $6.0938 $8.3438 $6.0938 9 yrs, 10 months Allan Coon 4/8/97 20,000 $6.0938 $8.3438 $6.0938 9 yrs, 10 months
The Board of Directors determined to reprice the above described stock options to strengthen the link that the Company believes exists between executive compensation and corporate objectives. Certain Transactions In November 1995 and March 1996, the Company loaned $1,400,000, $300,000 and $300,000, to Messrs. Blatt, Levy and Klein, respectively, as authorized by the Board of Directors, pursuant to the terms of non-negotiable promissory notes. The loans are secured by 315,774 50,000 and 80,000 shares of Common Stock, respectively. The notes were initially due November 1996, March 1997 and March 1997, respectively. The notes were extended by the Company and are now due April 30, 1998, January 31, 1998 and January 31, 1998, respectively. Interest is payable at maturity at the average rate of interest paid by the Company on borrowed funds during the fiscal year. The pledge agreement also provides for the Company to have the right of first refusal to purchase the pledged securities, based on a formula as defined, in the event of the death or disability of the officer. In December 1997, the loans were repaid. On March 6, 1996, the Board of Directors, by action of the disinterested directors, approved the purchase of an industrial parcel of land from the Chairman of the Company for $940,000. A deposit of $94,000 was paid on execution of the contract, and the balance of $846,000 will be paid at settlement on or before April 30, 1998. The Company intends to use this land for possible future expansion. Stock Plans Certain officers and directors of the Company hold options or warrants to purchase Common Stock under the Company's 1992 Non-Qualified Stock Option Plan, 1996 Stock Option Plan, 1997 Stock Option Plan (collectively, the "Stock Plans") and warrant agreements. 1992 Non-Qualified Stock Option Plan The 1992 Non-Qualified Stock Option Plan covers 1,333,333 shares of the Company's Common Stock. Under the terms of the Plan, the purchase price of the shares, subject to each option granted, is 100% of the fair market value at the date of grant. The date of exercise is determined at the time of grant by the Board of Directors; however, if not specified, 50% of the shares can be exercised each year beginning one year after the date of grant. The options expire ten years from the date of grant. In December 1995, this Plan was terminated except for outstanding options thereunder. At August 3, 1997, options to purchase 151,127 shares of Common Stock were outstanding. 1996 Stock Option Plan The 1996 Stock Option Plan covers 666,666 shares of the Company's Common Stock. Options granted under the plan may be incentive stock options qualified under Section 422 of the Internal Revenue Code of 1986, as amended, or non-qualified stock options. Under the terms of the Plan, the exercise price of options granted under the plan will be the fair market value at the date of grant. The nature and terms of the options to be granted is determined at the time of grant by the Board of Directors. If not specified, 100% of the shares can be exercised one year after the date of grant. The options expire ten years from the date of grant. Options for 663,989 shares of Common Stock were granted during the fiscal year ended August 3, 1997. At August 3, 1997, non-qualified options to purchase 394,662 shares of Common Stock were outstanding under this plan. 1997 Stock Option Plan The 1997 Stock Option Plan covers 1,666,666 shares of Common Stock. Options granted under the plan may be incentive stock options under Section 422 of the Internal Revenue Code or non-qualified stock options. Under the terms of the plan, the exercise price of options granted under the plan will be the fair market value at the date of grant. The nature and terms of the options to be granted are determined at the time of grant by the Compensation Committee or the Board of Directors. If not specified, 100% of the shares can be exercised one year after the date of grant. The options expire ten years from the date of grant. Options for 801,660 shares of Common Stock were granted during the fiscal year ended August 3, 1997. At August 3, 1997, options to purchase 369,553 shares of Common Stock were outstanding under this plan. Warrant Agreements In April 1993, Common Stock warrants were issued to certain officers and directors for the right to acquire 573,333 shares of Common Stock of the Company at an exercise price of $5.3475 per share, which was the closing price of the Common Stock on the date of issue. In December 1995, warrants with respect to 533,333 of these shares were canceled. The warrants expire April 30, 1998. In December 1995, common stock warrants were issued to certain officers for the right to acquire 293,333 shares of common stock of the Company at a price of $4.6425 per share, which was the closing price of the Common Stock on the date of issue. The warrants expire December 13, 2005. Employee Savings Plan The Company maintains an Employee Savings Plan that qualifies as a thrift plan under Section 401 (k) of the Internal Revenue Code. This plan allows employees to contribute between 2% and 15% of their salaries to the plan. The Company, at its discretion, can contribute 100% of the first 2% of the employee's salary so contributed and 25% of the next 4% of salary. Additional Company contributions can be made, depending on profits. The aggregate benefit payable to any employee depends upon the employee's rate of contribution, the earnings of the fund, and the length of time such employee continues as a participant. The Company accrued approximately $178,000 for the fiscal year ended August 3, 1997 and contributed approximately $159,000 and $151,000 to this plan for the years ended July 28, 1996 and July 30, 1995, respectively. For the year ended August 3, 1997, $4,500, $4,500, $3,364, and $3,057 was contributed by the Company to this plan for Messrs. Blatt, Levy, Coon and Garefino, respectively, and $20,452 was contributed for all executive officers and directors as a group. Board of Directors Interlocks and Insider Participation The Company's Compensation Committee consists of Messrs. Thomas J. Allshouse, Edward K. Walker, Jr. and Alvin M. Silver. None of these persons were officers or employees of the Company during fiscal 1997 nor had any relationship requiring disclosures in this Proxy Statement. In accordance with rules promulgated by the Securities and Exchange Commission, the information included under the captions "Compensation Committee Report on Executive Compensation" and "Performance Graph" will not be deemed to be filed or to be proxy soliciting material or incorporated by reference in any prior or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act. Compensation Committee Report on Executive Compensation The primary function of the Compensation Committee is to oversee policies relating to executive compensation including salary, incentive bonuses, fringe benefits and stock option awards. Its objective is to attract and retain qualified individuals by providing competitive compensation, while, at the same time, linking such compensation to corporate objectives. The Committee believes that providing a direct relationship between corporate results and executive compensation will best serve shareholder interest. This link between executive compensation and corporate performance is facilitated through incentive bonuses based on earnings and also through stock option awards. Salary ranges for the chief executive officer and other executive officers are based on the underlying accountability of each executive's position, which is reviewed on a regular basis, subject to the terms and conditions of employment agreements. Relationship of Compensation to Performance for Officers and Chief Executive Officer The Compensation Committee annually establishes, subject to any applicable employment agreements, the salaries which will be paid to the Company's executive officers during the coming year. In setting salaries, the Committee takes into account several factors, including competitive compensation data, the extent to which an individual may participate in the stock option plans maintained by the Company and its affiliates, and qualitative factors bearing on an individual's experience, responsibilities, management and leadership abilities and job performance. The Compensation Committee: Thomas J. Allshouse Edward K. Walker Alvin M. Silver Compliance with Section 16(a) of the Securities Exchange Act Section 16(a) of the Exchange Act requires the Company's executive officers, directors and persons who own more than ten percent of a registered class of the Company's equity securities (Reporting Persons") to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers, Inc. (the "NASD"). These Reporting Persons are required by SEC regulations to furnish the Company with copies of all Forms 3, 4 and 5 they file with the SEC and NASD. Based solely upon the Company's review of the copies of the forms it has received, the Company believes that all Reporting Persons complied on a timely basis with all filing requirements applicable to them with respect to transactions during fiscal year 1997. PERFORMANCE GRAPH The following graph sets forth the cumulative total stockholder return to the Company's stockholders during the five year period ended August 3, 1997 as well as an overall stock market index (NASDAQ Stock Market-US) and the Company's peer group index (S&P Aerospace/Defense): COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG HERLEY INDUSTRIES, INC., THE NASDAQ STOCK MARKET-US INDEX AND THE S & P AEROSPACE/DEFENSE INDEX
Cumulative Total Return 7/92 7/93 7/94 7/95 7/96 7/97 ---- ---- ---- ---- ---- ---- Herley Inds Inc. HRLY 100 89 44 61 99 156 NASDAQ Stock Market (U.S.) INAS 100 122 125 176 191 283 S&P Aerospace/Defense IARD 100 128 146 217 282 400 * $100 Invested on July 31, 1992 in stock or index including reinvestment of dividends. Fiscal year ending July 31.
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK General The Board of Directors has proposed and recommended to its stockholders the approval of an amendment to Article 4 of the Company's Certificate of Incorporation increasing the total number of shares of Common Stock which the Company has authority to issue from 10,000,000 to 20,000,000. The Selected Financial Data, Management's Discussion and Analysis of Financial Condition and Results of Operations and Financial Statement on pages 7 through 10 and 12 through 26 of the 1997 Annual Report are incorporated by reference herein. Purpose of Increasing Authorized Shares of Common Stock The increase in the authorized numbers of shares of Common Stock is intended to provide additional flexibility to the Company for possible capital reorganization, acquisitions, refinancing, exchange of securities, public offerings and other corporate purposes. Also, in recent years the Company has issued a substantial number of shares through stock rights and sales of securities, which events have decreased the number of shares of Common Stock presently available for issuance for such purposes. The proposed amendment does not change the terms of the Common Stock, which do not have preemptive rights. The additional shares of Common Stock for which authorization is sought will have the same voting rights, the same rights to dividends and distributions and will be identical in all other respects to the shares of Common Stock now authorized. The Board of Directors, which recommends approval of this amendment, believes it would be advantageous to the Company to be in a position to issue additional Common Stock without the necessary delay of calling a stockholders' meeting if one or more suitable opportunities present themselves to the Company. There are no pending transactions for which shares of Common Stock will be issued. The following table sets forth as of December 24, 1997, the approximate numbers of shares of Common Stock authorized, outstanding, reserved and available for issuance if this amendment is approved.
Available for Available Issuance Upon for Approval of Authorized Outstanding Reserved Issuance Amendment ---------- ----------- -------- --------- ------------- Common Stock 20,000,000 5,241,147 2,568,675 2,190,178 12,190,178
Board Position and Required Vote THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENT IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS ITS ADOPTION. Each outstanding share of Common Stock will be entitled to one vote for or against the proposed amendment. The proposal will be adopted only if it receives the affirmative vote of a majority of the outstanding shares of Common Stock. The Board of Directors urges you to vote FOR the proposed amendment. Proxies received will be voted in favor of the proposed amendment unless otherwise instructed. MISCELLANEOUS INFORMATION A representative of Arthur Andersen LLP, the Company's independent public accountants for the fiscal year ended August 3, 1997, plans to be present at the Annual Meeting with the opportunity to make a statement if he desires to do so, and will be available to respond to appropriate questions. As of the date of this Proxy Statement, the Board of Directors does not know of any business other than specified above to come before the meeting, but, if any other business does lawfully come before the meeting, it is the intention of the persons named in the enclosed Proxy to vote in regard thereto, in accordance with their judgment. The Company will pay the cost of soliciting proxies in the accompanying form. In addition to solicitation by use of the mails, certain officers and regular employees of the Company may solicit proxies by telephone, telegraph or personal interview. The Company may also request brokerage houses and other custodians, and, nominees and fiduciaries, to forward soliciting material to the beneficial owners of stock held by record by such persons, and may make reimbursement for payments made for their expense in forwarding soliciting material to the beneficial owners of the stock held of record by such persons. Stockholder proposals with respect to the Company's next Annual Meeting of Stockholders must be received by the Company no later than October 1, 1998 to be considered for inclusion in the Company's next Proxy Statement. A copy of the Company's Annual Report for the fiscal year ended August 3, 1997 has been provided to all stockholders as of the Record Date. The Annual Report is not to be considered as proxy soliciting material. By Order of the Board of Directors, LEE N. BLATT Chairman of the Board Dated: January 20, 1998 Lancaster, Pennsylvania EXHIBIT A PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK The following sets forth the changes to the first paragraph in Article 4 of the Company's Certificate of Incorporation if the proposed amendment is approved: 4. The aggregate number of shares which the Corporation shall have the authority to issue is twenty million (20,000,000), consisting of twenty million (20,000,000) shares of Common Stock of the par value of ten ($.10) cents per share. Herley Industries, Inc. The undersigned hereby appoints Lee N. Blatt and Myron Levy, or either of them, attorneys and Proxies with full power of substitution in each of them, in the name and stead of the undersigned to vote as Proxy all the stock of the undersigned in HERLEY INDUSTRIES, INC., a Delaware corporation, at the Annual Meeting of Stockholders scheduled to be held February 18, 1998 and any adjournments thereof. The Board of Directors recommends a vote FOR the following proposals: 1. Election of the following nominees, as set forth in the proxy statement: Lee N. Blatt, Dr. Alvin M. Silver, Adm. Thomas J. Allhouse (Ret.), Myron Levy, John A. Thonet, Adm. Edward K. Walker, Jr. (Ret.), David Lieberman [ ] FOR all nominees listed above [ ] WITHHOLD authority to vote (Instruction: To withhold authority to vote for any individual nominee, print the nominee's name on the line provided below) 2. Amendment of the Certificate of Incorporation of the Company to increase the authorized shares of Common Stock from 10,000,000 to 20,000,000. FOR [ ] AGAINST [ ] ABSTAIN [ ] 3. Upon such other business as may properly come before the meeting or any adjournment thereof. (Continued and to be signed on reverse side) - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF THEM, AS SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, SHAREHOLDERS MAY WITHHOLD THE VOTE FOR ONE OR MORE NOMINEE(S) BY WRITING THE NOMINEE(S) NAME(S) IN THE BLANK SPACE PROVIDED ON THE REVERSE HEREOF. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE PROPOSALS SET FORTH ON THE REVERSE HEREOF. Dated: _____________, 1998 ____________________________[L.S.] ____________________________{L.S.] (Note: Please sign exactly as your name appears hereon. Executors, administrators, trustees, etc. should so indicate when signing, giving full title as such. If signer is a corporation, execute in full corporate name by authorized officer. If shares are held in the name of two or more persons, all should sign.) PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE -----END PRIVACY-ENHANCED MESSAGE-----