-----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, Uwx0TbeywccrOoW4rFPgP8R+bS86xkbgWojUAnbEq8F/SfRkUja6EmiEucEi1AdE ph79Npu8/IOaq613/Oj3tA== 0001201800-03-000184.txt : 20031202 0001201800-03-000184.hdr.sgml : 20031202 20031202142046 ACCESSION NUMBER: 0001201800-03-000184 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040115 FILED AS OF DATE: 20031202 EFFECTIVENESS DATE: 20031202 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: 1934 Act SEC FILE NUMBER: 000-05411 FILM NUMBER: 031032210 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 DEF 14A 1 hrlyproxy2004.txt PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12. 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)(1) 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 (Set forth the amount on which the filing fee is calculated and state how it was determined): (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 January 15, 2004 ---------------------- To our Stockholders: An annual meeting of stockholders will be held at The Waldorf Astoria, 301 Park Avenue, New York, New York 10022 on Thursday, January 15, 2004 beginning at 9:00 a.m. At the meeting, you will be asked to vote on the following matters: 1. Election of four directors. 2. Any other matters that properly come before the meeting. The above matters are set forth in the Proxy Statement attached to this notice to which your attention is directed. If you are a stockholder of record at the close of business on November 21, 2003, you are entitled to vote at the meeting or at any adjournment thereof. This notice and proxy statement are first being mailed to stockholders on or about December 1, 2003. By Order of the Board of Directors, LEE N. BLATT Chairman of the Board Dated: December 1, 2003 Lancaster, Pennsylvania WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PRE-ADDRESSED POSTAGE-PAID ENVELOPE AS DESCRIBED ON THE ENCLOSED PROXY CARD. YOUR PROXY, GIVEN THROUGH THE RETURN OF THE ENCLOSED PROXY CARD, MAY BE REVOKED PRIOR TO ITS EXERCISE BY FILING WITH OUR CORPORATE SECRETARY PRIOR TO THE MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE, OR BY ATTENDING THE MEETING, FILING A WRITTEN NOTICE OF REVOCATION WITH THE SECRETARY OF THE MEETING AND VOTING IN PERSON. HERLEY INDUSTRIES, INC. 101 North Pointe Boulevard Lancaster, Pennsylvania 17601-4133 ---------------------- PROXY STATEMENT ---------------------- ANNUAL MEETING OF STOCKHOLDERS Thursday, January 15, 2004 Our annual meeting of stockholders will be held on Thursday, January 15, 2004, at The Waldorf Astoria, 301 Park Avenue, New York, New York 10022 at 9:00 a.m.. This proxy statement contains information about the matters to be considered at the meeting or any adjournments or postponements of the meeting. ABOUT THE MEETING What is being considered at the meeting? You will be voting on the following: -- election of directors. We do not expect to ask you to vote on any other matters at the meeting. In addition, our management will report on our performance during fiscal 2003 and respond to your questions. Who is entitled to vote at the meeting? You may vote if you owned stock as of the close of business on November 21, 2003. Each share of stock is entitled to one vote. How do I vote? You can vote in two ways: -- by attending the meeting; or -- by completing, signing and returning the enclosed proxy card. Can I change my mind after I vote? Yes, you may change your mind at any time before the vote is taken at the meeting. You can do this by (1) signing another proxy with a later date and returning it to us prior to the meeting, or (2) voting again at the meeting. 1 What if I return my proxy card but do not include voting instructions? Proxies that are signed and returned but do not include voting instructions will be voted FOR the election of the nominee directors. What does it mean if I receive more than one proxy card? It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares. We recommend that you contact your broker and/or our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is American Stock Transfer & Trust Company, 800-937-5449. Will my shares be voted if I do not provide my proxy? If you hold your shares directly in your own name, they will not be voted if you do not provide a proxy. Your shares may be voted under certain circumstances if they are held in the name of a brokerage firm. Brokerage firms generally have the authority to vote customers' unvoted shares on certain "routine" matters, including the election of directors. When a brokerage firm votes its customer's unvoted shares, these shares are counted for purposes of establishing a quorum. At our meeting, these shares will be counted as voted by the brokerage firm in the election of directors, but will not be counted for any other matters to be voted on because these other matters would not be considered "routine" under the applicable rules. How many votes must be present to hold the meeting? Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by mail. In order for us to conduct our meeting, a majority of our outstanding shares as of November 21, 2003, must be present at the meeting. This is referred to as a quorum. On November 21, 2003, we had 14,057.301 shares issued and outstanding. What vote is required to elect directors? The affirmative vote of the holders of a majority of the shares represented in person or by proxy and voting on the item will be required to elect each director. Shares not voted, whether by marking "ABSTAIN" or by broker non-vote, will have no effect on the vote for election of directors. 2 PROPOSAL I - ELECTION OF DIRECTORS Our 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. Our board of directors now consists of seven directors. The directors in each class are: 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 2006) Stockholders in 2004) Stockholders in 2005) - --------------------- --------------------- --------------------- Lee N. Blatt Myron Levy John A. Thonet Adm. Edward K. Walker, Jr. Dr. Edward A. Bogucz David H. Lieberman (2) (Ret.) (1)(2) (1)(2) Adm. Robert M. Moore (Ret.) (1)(2) - -------- (1) Member of Compensation and Audit Committees (2) Member of Corporate Governance Committee Lee N. Blatt and Adm. Edward K. Walker, Jr. (Ret.), directors in Class I, are to be elected at this 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. Dr. Edward A. Bogucz is to be elected at this Annual Meeting of Stockholders to hold office in Class II until the Annual Meeting of Stockholders in 2004 or until his successor is chosen and qualified. Dr. Edward A. Bogucz replaces Dr. Alvin M. Silver (deceased) in Class II. Adm. Robert M. Moore (Ret.) is to be elected at this Annual Meeting of Stockholders to hold office in Class III until the Annual Meeting of Stockholders in 2005 or until his successor is chosen and qualified. Unless you indicate otherwise, 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. We have no reason to believe that any of the nominees will be unavailable or, if elected, will decline to serve. Nominee Biographies Mr. Lee N. Blatt is a co-founder of Herley and has been our Chairman of the Board 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. Admiral Edward K. Walker, Jr. (Ret.) has been a director since October 1997. Since his retirement from the United States Navy in 1988, Admiral Walker has been the Director of Corporate Strategy for Resource Consultants, Inc., a 3 privately held corporation supporting the Department of Defense, and other government agencies. 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. Edward A. Bogucz is currently Executive Director of the New York Center of Excellence in Environmental Systems, a university-industry consortium that includes 12 universities and research institutions. Previously, Dr. Bogucz has served as Dean of Engineering and Computer Science at Syracuse University from 1995 through 2003. Dean Bogucz earned his bachelor's and doctoral degrees in mechanical engineering from Lehigh University and a master's degree from Imperial College, University of London. His teaching and research expertise includes fluid dynamics, energy systems, computational methods, and multidisciplinary analysis and design. As Dean, he led the strengthening of the College of Engineering and Computer Science in selected areas, including RF and microwave devices, information fusion, systems assurance, and environmental technologies. Adm. Robert M. Moore (Ret.) is a consultant in business and financial management. He is a retired Rear Admiral, U.S. Navy. His 35-year career in the Navy culminated in his last assignment in charge of the Navy's worldwide supply system. He holds a bachelor's degree from the University of Texas and a Master in Business Administration degree from Harvard University. Standing Director Biographies Mr. Myron Levy was appointed Vice Chairman of the Board in August 2003, and has been our Chief Executive Officer since August 2001. Prior thereto, Mr. Levy served as President since June 1993, as Executive Vice President and Treasurer since May 1991, and 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. Mr. John A. Thonet has been a director since 1991, Secretary since January 2003, 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. Mr. David H. Lieberman has been a director since 1985. Mr. Lieberman has been a practicing attorney in the State of New York for more than thirty years and is a member of the firm of Beckman, Lieberman & Barandes, LLP, our general counsel. Directors' compensation Directors who are not our employees receive an annual fee of $7,500 and a fee of $1,500 for each interim board of directors or committee meeting attended. 4 During the fiscal year ended August 3, 2003 there were: -- six meetings of the Board of Directors -- four meetings of the Audit Committee -- two meetings of the Compensation Committee -- one meeting of the Corporate Governance Committee Our Audit Committee is involved in discussions with management and our independent public accountants with respect to financial reporting and our internal accounting controls. The committee recommends to the Board the appointment of the independent auditors. The independent auditors periodically meet alone with the committee and always have unrestricted access to the committee. Our Compensation Committee administers inactive compensation plans, including stock option plans, options to officers and employees and establishes the compensation structure for executives of our company. See "Compensation Committee Report on Executive Compensation." Our Corporate Governance Committee, which was formed in September 2002, is responsible for establishing and maintaining procedures for receiving, investigating and reporting of information and reports concerning alleged violations of our Corporate Code of Business Ethics. Each director attended or participated in at least 75% of the meetings of the Board of Directors and the committees on which he served. 5 SECURITY OWNERSHIP The following table sets forth the indicated information as of October 28, 2003 with respect to the beneficial ownership of our securities by: (i) all persons known to us to be beneficial owners of more than 5% of the outstanding shares of common stock based solely on filings with the Securities and Exchange Commission, (ii) each director and named executive officer of the company, and (iii) by all executive officers and directors as a group:
Shares of Common Stock Beneficially Director Owned (1) (5) Name Age Since Shares Percent - ---- --- -------- ------ ------- Lee N. Blatt (2) 75 1965 1,464,370 9.7% Myron Levy (3) 63 1992 1,331,615 8.9% John M. Kelley 50 - 30,223 William R. Wilson 55 - 4,000 Howard M. Eckstein 52 - 57,050 Mitchell Tuckman 53 - 29,500 David H. Lieberman 58 1985 32,150 John A. Thonet (4) 53 1991 103,038 Adm. Edward K. Walker, Jr. (Ret.) 70 1997 43,000 Dr. Edward A. Bogucz 47 2003 10,075 Adm. Robert M. Moore (Ret.) 64 2003 10,000 State Street Research & Mgt. Co. (6) - - 926,300 6.6% Directors and executive officers as a group (11 persons) 3,115,021 19.1% - --------- (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 442,582 shares owned by family members, including Hannah Thonet, Rebecca Thonet, Kathi Thonet, Randi Rossignol, Max Rossignol, Henry Rossignol, and Allyson Brenner, of which Mr. Blatt disclaims beneficial ownership. (3) Does not include an aggregate of 40,000 shares owned by family members, including Ronni Roth, Samantha Roth, Zachary Roth, Ian Steren, and Jack Steren, of which Mr. Levy disclaims beneficial ownership. (4) Does not include 155,998 shares, owned by Mr. Thonet's children, Hannah and Rebecca Thonet, and 32,096 shares owned by his wife, Kathi Thonet. Mr. Thonet disclaims beneficial ownership of these shares. (5) Includes shares subject to options exercisable within the 60 days after October 28, 2003 at prices ranging from $4.0625 to $19.52 per share pursuant to the Company's Stock Plans: Lee N. Blatt - 1,101,000, Myron Levy - 875,000, John M. Kelley - 24,800, William R. Wilson - 4,000, Howard Eckstein - 57,050, Mitchell Tuckman - 28,000, David H. Lieberman - 31,250, John A. Thonet - 82,500, Edward K. Walker - 42,000, Edward A. Bogucz - 10,000, Robert M. Moore - 10,000. (6) Address is 1 Financial Center, 31st Floor, Boston, MA 02111-2621.
6 MANAGEMENT Our officers are: Name Position held with Company - ---- -------------------------- Lee N. Blatt Chairman of the Board Myron Levy Vice Chairman of the Board and Chief Executive Officer John M. Kelley President William R. Wilson Vice President and Chief Operating Officer Anello C. Garefino Vice President-Finance, Treasurer and Chief Financial Officer John A. Thonet Secretary and Director Dr. Rozalie Schachter Vice President of Business Development John Carroll Vice President of Human Resources Howard M. Eckstein Vice President Mitchell Tuckman Vice President Richard Poirier Vice President Mr. John Kelley was appointed President in August 2003, and served as Executive Vice President since July 2002. Prior thereto, Mr. Kelley served as Senior Vice President since July 2000, and as Vice President/Director of Corporate Communications since March 2000. Mr. Kelley joined us in December 1998 as Director of Investor Relations. Prior to joining Herley, Mr. Kelley had fifteen years of banking experience, most recently serving as Vice President at First Capital Bank. Mr. Kelley earned his Bachelor of Science Degree in Business Administration from the University of Arizona, Tucson Arizona with Graduate Degree Studies at UCLA. Mr. William R. Wilson was appointed Vice President and Chief Operating Officer in August 2003 and served as Senior Vice President since January 2002. From 1991 until his employment with us, Mr. Wilson held several executive positions with the Litton Laser Systems, a division of Northrop Grumman including, Vice President of Technical Operations and Special Projects from 1998 until January 2002. Mr. Wilson holds a Bachelors Degree in Engineering from the University of Arkansas. Mr. Anello C. Garefino has been employed by us 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 1987 to January 1990, Mr. Garefino was Corporate Controller of Exide Corporation. Mr. Garefino earned his Bachelor of Science Degree in Accounting from Rider University in 1969. Dr. Rozalie Schachter was appointed Vice President of Business Development in August 2003, and served as Vice President since May 2000. Dr. Schachter joined General Microwave in 1990 and was Vice President, Business Development when we acquired General Microwave in January 1999. Prior to joining General Microwave Dr. Schachter held positions as Technical Director and Group Leader at American Cyanamid Co. and Stauffer Chemical Co., respectively. Dr. Schachter received her Bachelor of Science Degree from Brooklyn College in 1968, a Masters Degree from Yeshiva University in 1970 and a PHD in Physics from New York University in 1979. 7 John Carroll was appointed Vice President of Human Resources in August 2003 and joined Herley in 1999 as Director of Human Resources. For thirteen years before joining Herley, Mr. Carroll was Director of Human Resources at Kemps Foods, in Lancaster, PA. Mr. Carroll holds a BS in Business Administration from St. Joseph College, Rensselaer, IN and professional certifications through the Society for Human Resource Management and World At Work (formerly American Compensation Association). Mr. Howard M. Eckstein was appointed Vice President in July 2000, and serves as President and General Manager, Herley Lancaster since December 1998, and was Vice President-New Product Development upon joining us in April 1998. Mr. Eckstein has over 25 years experience in the design and development of aerospace telemetry equipment and systems. Mr. Eckstein served from 1992 to 1998 as Vice President - Advanced Products for L3 Communications, and as Vice President - Engineering from 1986 to 1992. Mr. Eckstein earned his Bachelors Degree in Electrical Engineering from the Pennsylvania State University and holds a Masters Degree in Technology Management from the Wharton School, University of Pennsylvania. Mr. Mitchell Tuckman was appointed Vice President in July 2000, and serves as President of General Microwave Corporation ("GMC") since its acquisition in January 1999. At the time of the acquisition, Mr. Tuckman was President - Chief Executive Officer of GMC since March, 1995. He was Executive Vice President and Chief Operating Officer of GMC from August, 1994 until March, 1995. From June, 1993 until August, 1994, Mr. Tuckman was Vice President-Microwave Engineering of GMC. Prior to that, he was Chief Microwave Engineer of GMC. Mr. Richard Poirier was appointed Vice President in August 2003 and serves as General Manager of Herley New England. Mr. Poirier was appointed Sales Manager of Herley New England following the acquisition of Micro-Dynamics, Inc. ("MDI") by Herley in 1992. Prior to the acquisition, Mr. Poirier served as a Microwave Engineer since joining MDI in 1987. Executive Compensation The following table sets forth the annual and long-term compensation with respect to our Chairman, Chief Executive Officer, and our four most highly compensated executive officers other than the Chief Executive Officer (the "named executive officers") for services rendered for the fiscal years ended August 3, 2003, July 28, 2002 and July 29, 2001. 8 Summary Compensation Table
Annual Compensation (1) Long-Term Compensation --------------------------- ------------------------------ Name and Securities Principal Fiscal Underlying All Other Position Year Salary Bonus Options/SARs Compensation (2) (3) (4) - -------------------------------------------------------------------------------- Lee N. Blatt 2003 $ 782,835 $ 898,000 - $ 6,000 (7) Chairman of 2002 637,162 546,000 500,000 (5) 5,000 the Board 2001 630,959 - 150,000 (6) 4,800 Myron Levy 2003 $ 624,048 $ 673,000 - $ 8,376 (7) Chief Executive 2002 470,162 410,000 500,000 (5) 7,376 Officer 2001 465,593 - 150,000 (6) 6,348 John M. Kelley 2003 $ 193,282 $ 50,000 - $ 6,828 (7) President 2002 116,354 25,000 29,500 (5) 4,182 2001 97,316 25,000 15,000 (6) 3,562 William R. Wilson 2003 $ 163,070 $ 52,000 - $ 1,853 (7) Chief Operating 2002 76,920 - 20,000 (5) 745 Officer 2001 - - - - Howard Eckstein 2003 $ 202,898 $ 25,000 - $ 6,863 (7) Vice President 2002 166,357 25,000 29,500 (5) 5,458 2001 145,972 25,000 15,000 (6) 5,250 Mitchell Tuckman 2003 $ 175,000 $ 25,000 - $ 6,725 (7) Vice President 2002 175,000 25,000 20,000 (5) 5,345 2001 173,269 6,875 11,250 (6) 5,140 - -------- (1) Does not include Other Annual Compensation because amounts of certain perquisites and other non-cash benefits provided by us do not exceed the lesser of $50,000 or 10% of the total annual compensation disclosed in this table for the respective officer. (2) Amounts set forth herein include cost of living adjustments for Messrs. Blatt and Levy under employment contracts. (3) Represents for Messrs. Blatt and Levy incentive compensation under employment agreements. The incentive under the contracts was waived by these individuals for fiscal year 2001. Bonuses for all other employees are discretionary bonuses. (4) Adjusted to give effect to a three-for-two stock split on September 10, 2001. (5) Consisting of the following options issued in December 2001 for the right to purchase Common Stock of the Company at a price of $13.10: Lee N. Blatt - 250,000, Myron Levy - 250,000, John M. Kelley - 12,000, Howard Eckstein - 12,000, and Mitchell Tuckman - 7,500; options issued in February 2002 for the right to purchase Common Stock of the Company at a price of $17.42: William R. Wilson - 10,000; and options issued in May 2002 for the right to purchase Common Stock of the Company at a price of $19.52: Lee N. Blatt - 250,000, Myron Levy - 250,000, John M. Kelley - 17,500, William R. Wilson - 10,000, Howard Eckstein - 17,500, and Mitchell Tuckman - 12,500. 9 (6) Consisting of the following options issued in March 2001 for the right to purchase Common Stock of the Company at a price of $8.3753: Lee N. Blatt - 150,000, Myron Levy - 150,000, John M. Kelley - 15,000, Howard Eckstein - 15,000, and Mitchell Tuckman - 11,250. (7) All Other Compensation includes: (a) group term life insurance as follows: $2,376 for Mr. Levy, $828 for Mr. Kelley, $745 for Mr. Wilson, $863 for Mr. Eckstein, and $725 for Mr. Tuckman, and (b) contributions to the Company's 401(k) Plan as a pre-tax salary deferral as follows: $6,000 for each of Messrs. Blatt, Levy, Kelley, Eckstein and Tuckman, and $1,108 for Mr. Wilson.
Option/SAR Grants in Last Fiscal Year There were no stock options granted to the named executive officers during fiscal 2003. Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values The following table sets forth stock options exercised during fiscal 2003 and all unexercised stock options and warrants held by the named executive officers as of August 3, 2003.
Value of Number of Unexercised Unexercised In the-Money Shares Options and Warrants Options and Warrants Acquired on Value at Fiscal Year-End (2) at Fiscal Year-End (2) (3) Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- ----------- ------------- Lee N. Blatt - - 1,101,000 - $ 6,549,528 $ - Myron Levy - - 875,000 - 4,490,498 - John M. Kelley - - 20,900 40,100 153,862 200,255 William R. Wilson - - 4,000 16,000 1,560 6,240 Howard Eckstein - - 54,650 38,600 473,173 183,830 Mitchell Tuckman - - 26,500 28,750 193,617 143,365 - -------- (1) Values are calculated by subtracting the exercise price from the trading price of the common stock as of the exercise date. (2) Adjusted to give effect to a three-for-two stock split on September 10, 2001. (3) Based upon the closing price of the common stock of $18.20 on August 3, 2003.
Employment Agreements Lee N. Blatt has entered into an employment agreement with us, dated as of July 29, 2002 which expires December 31, 2008 (as extended), subject to extension for additional one-year periods annually each January 1 with a final expiration date of December 31, 2010. The agreement provides for an annual salary as of August 3, 2003 of $757,647 and provides for a semi-annual cost of living adjustment based on the consumer price index. The agreement also provides for incentive compensation at 4% in the aggregate of our pretax income. Incentive compensation earned for fiscal year ended August 3, 2003 was $898,000. 10 At the end of the employment period, the agreement provides for a five-year consulting period at an annual compensation rate equivalent to one-half of Mr. Blatt's annual salary in effect at the end of the employment period, subject to annual cost of living adjustments. Myron Levy has entered into an employment agreement with us, dated as of July 29, 2002 which expires December 31, 2008 (as extended), subject to extension for additional one-year periods annually each January 1 with a final expiration date of December 31, 2010. The agreement provides for an annual salary as of August 3, 2003 of $606,581 and provides for a semi-annual cost of living adjustment based on the consumer price index. The agreement also provides for incentive compensation at 3% in the aggregate of our pretax income. Incentive compensation earned for fiscal year ended August 3, 2003 was $673,000. At the end of the employment period, the agreement provides for a ten-year consulting period at an annual compensation rate equivalent to one-half of Mr. Levy's annual salary in effect at the end of the employment period, subject to annual cost of living adjustments. The employment agreements with Messrs. Blatt and Levy provide for certain payments following death or disability, and also provide that, in the event there is a change in control of the Company, as defined, the executives have the option to terminate the agreements and receive a lump-sum payment equal to the sum of the salary payable for the remainder of the employment term, plus the annual bonuses (based on the average of the three highest annual bonuses awarded during the ten preceding years) for the remainder of the employment term. As of August 3, 2003, the amount payable in the event of such termination would be approximately $13,729,000. Messrs. Kelley, Eckstein and Tuckman have each entered into a severance agreement with us, dated September 12, 2002, which provides that in the event of a change in our control, as defined, prior to September 30, 2004, each is entitled to two years' base salary. The base salary of each executive as of October 31, 2003 is as follows: Mr. Kelley $225,000, Mr. Eckstein $200,000, and Mr. Tuckman $175,000. Indemnification Agreements We have entered into separate indemnification agreements with our officers and directors. We have 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, our best interests and with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. We only provided 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. Certain Transactions In connection with the move of the Amityville facilities of GMC in September 1999, we entered into a 10-year lease agreement with a partnership owned by the children of certain of our executive officers. The lease provides for initial minimum annual rent of $312,390 subject to escalation of approximately 4% annually throughout the 10-year term. Additionally, in March 11 2000, we entered into another 10-year lease with the same partnership for additional space. The initial minimum annual rent of $92,000 is subject to escalation of approximately 4% annually. Equity Compensation Plan Information The following table sets forth the indicated information as of August 3, 2003 with respect to our equity compensation plans:
(c) Number of securities (a) Remaining available Number of securities (b) for future issuance to be issued upon Weighted-average under equity exercise of exercise price of compensation plans outstanding options, outstanding options, (excluding securities Plan category warrants and rights warrants and rights reflected in column (a) - ------------- --------------------- -------------------- ----------------------- Equity compensation Plans approved by security holders 3,270,222 12.37 41,708 Equity compensation plans not approved by security holders 28,005 8.01 1,000,000 Total 3,298,227 12.33 1,041,708
The following information about our stock plans and warrant agreements reflect our three-for- two stock split as of September 10, 2001. 1996 Stock Option Plan. The 1996 Stock Option Plan covers 1,000,000 shares of 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. Prices for incentive stock options granted to employees who own 10% or more of our stock are at least 110% of 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 not later than ten years from the date of grant. No options were granted under this plan during the fiscal year ended August 3, 2003. At August 3, 2003, non-qualified options to purchase 28,005 shares of common stock were outstanding under this plan. 1997 Stock Option Plan. The 1997 Stock Option Plan covers 2,500,000 shares of 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 12 options granted under the plan will be the fair market value at the date of grant. Prices for incentive stock options granted to employees who own 10% or more of our stock are at least 110% of 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 not later than ten years from the date of grant, subject to certain restrictions. No options were granted under this plan during the fiscal year ended August 3, 2003. At August 3, 2003, options to purchase 371,830 shares of common stock were outstanding under this plan. 1998 Stock Option Plan. The 1998 Stock Option Plan covers 2,250,000 shares of 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. Prices for incentive stock options granted to employees who own 10% or more of our stock are at least 110% of 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 not later than ten years from the date of grant, subject to certain restrictions. No options were granted under this plan during the fiscal year ended August 3, 2003. At August 3, 2003, options to purchase 1,482,842 shares of common stock were outstanding under this plan. 2000 Stock Option Plan. The 2000 Stock Option Plan covers 1,500,000 shares of common stock. Options granted under the plan are 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 not later than ten years from the date of grant, subject to certain restrictions. Options for 108,500 shares of common stock were granted during the fiscal year ended August 3, 2003. At August 3, 2003, options to purchase 1,415,550 shares of common stock were outstanding under this plan. 2003 Stock Option Plan. The 2003 Stock Option Plan covers 1,000,000 shares of common stock. Options granted under the plan are 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 not later than ten years from the date of grant, subject to certain restrictions. No options were granted under this plan during the fiscal year ended August 3, 2003. Employee Savings Plan We maintain 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. At our discretion, we can contribute 100% of the first 2% of the employees' salary so contributed and 25% of the next 4% of salary. Additional contributions can be made by us, 13 depending on profits. The aggregate benefit payable to an 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. We recognized expenses of approximately $513,000, $533,000, and $164,000 in fiscal years 2003, 2002 and 2001, respectively. For the year ended August 3, 2003, $6,000 was contributed by us to this plan for each of Messrs. Blatt, Levy, Kelley, Eckstein and Tuckman, and $1,108 for Mr. Wilson. A total of $50,295 was contributed for all officers and directors as a group. Board of Directors Interlocks and Insider Participation In fiscal 2003, our Compensation Committee consisted of Dr. Edward A. Bogucz, and Messrs. Edward K. Walker, Jr., and Robert M. Moore. None of these persons were our officers or employees during fiscal 2003 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", "Audit Committee Report" and "Common Stock Performance" will not be deemed to be filed or to be proxy soliciting material or incorporated by reference in any prior or future filings by us under the Securities Act of 1933 or the Securities Exchange Act. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The compensation of our executive officers is generally determined by the Compensation Committee of the Board of Directors, subject to applicable employment agreements and incentive plans. Each member of the Compensation Committee is a director who is not employed by us or any of our affiliates. The following report with respect to certain compensation paid or awarded to our executive officers during fiscal 2003 is furnished by the directors who comprised the Compensation Committee during fiscal 2003. Executive Compensation Objectives Our compensation programs are intended to enable us to attract, motivate, reward and retain the management talent required to achieve corporate objectives, and thereby increase shareholder value. It is our policy to provide incentives to its senior management on a cost-effective and tax efficient basis to achieve both short-term and long-term objectives and to reward exceptional performance and contributions to the development of our businesses. To attain these objectives, our executive compensation program includes a competitive base salary, cash incentive bonuses and stock-based compensation. See "Management Employment Agreements." Stock options are granted to employees, including our executive officers, by the Compensation Committee under our stock option plans. The Committee believes that stock options provide an incentive that focuses the executive's attention on managing our company from the perspective of an owner with an equity stake in the business. Options are awarded with an exercise price equal to at least the market value of common stock on the date of grant and have a maximum term of ten years. Among our executive officers, the number of shares subject to options granted to each individual generally depends upon the level of that officer's responsibility. The largest grants are awarded to the most 14 senior officers who, in the view of the Compensation Committee, have the greatest potential impact on our profitability and growth. Previous grants of stock options are reviewed but are not considered the most important factor in determining the size of any executive's stock option award in a particular year. From time to time, the Compensation Committee utilizes the services of independent consultants to perform analyses and to make recommendations to the Committee relative to executive compensation matters. No compensation consultant is paid on a retainer basis. Determining Executive Officer Compensation The Compensation Committee annually establishes, subject to the approval of the Board of Directors and any applicable employment agreements, the salaries which will be paid to our executive officers during the coming year. In setting salaries, the Compensation Committee takes into account several factors, including competitive compensation data, the extent to which an individual may participate in the stock plans maintained by us, and qualitative factors bearing on an individual's experience, responsibilities, management and leadership abilities, and job performance. For fiscal 2003, pursuant to the terms of his employment agreement with us, Mr. Myron Levy, our Chief Executive Officer, received a base salary, and an incentive bonus based on our Consolidated Pretax Earnings. See "Management Employment Agreements." Messrs. John M. Kelley, President, William R. Wilson, Chief Operating Officer, Mr. Howard Eckstein, Vice President, and Mr. Mitchell Tuckman, Vice President, each received a base salary and a discretionary bonus. The Compensation Committee determined that the base salaries and bonuses were appropriate given our financial performance, and the substantial contributions made by Messrs. Kelley, Wilson, Eckstein and Tuckman to such performance, and the compensation levels of executives at companies competitive with us. Compensation of Chairman For fiscal 2003, pursuant to the terms of his employment agreement with us, Mr. Lee N. Blatt, our Chairman, received a base salary, and an incentive bonus based on our Consolidated Pretax Earnings. See "Management Employment Agreements." Tax Considerations As noted above, one of our objectives is to maintain cost-effective and tax efficient executive compensation programs. Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the tax deduction to $1 million for compensation paid to any one of the named executive officers identified in this proxy statement unless certain requirements are met. One of the requirements is that compensation over $1 million must be approved by stockholders. Our stock option plans which have been approved by stockholders are designed to meet these requirements. The Committee's policy is to preserve corporate tax deductions attributable to the compensation of executives while maintaining the flexibility to approve, when appropriate, compensation arrangements which it deems to be in the best interests of our company and our stockholders, but which may not always qualify for full tax deductibility. 15 The Compensation Committee: Edward A. Bogucz (Chairman) Edward K. Walker Robert M. Moore AUDIT COMMITTEE REPORT This is a report of the Audit Committee of our Board of Directors. This report shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 and shall not otherwise be deemed to be filed under either such Act. The Audit Committee, comprised of Edward K. Walker, Robert M. Moore and Edward A. Boqucz, operates under a written charter, which is set forth as Exhibit A to this proxy statement. The Audit Committee has reviewed and discussed with management our audited financial statements as of and for the year ended August 3, 2003. The Committee has also received and reviewed the written disclosures and the letter from the independent auditors, Deloitte & Touche LLP, required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended, by the Independence Standards Board, and has discussed with the auditors the auditors' independence. Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors that the financial statements referred to above be included in our Annual Report on Form 10-K for the year ended August 3, 2003 for filing with the Securities and Exchange Commission. The Audit Committee has also reviewed and discussed the fees paid to Deloitte & Touche LLP during the last fiscal year for audit and non-audit services, which are set forth under "Audit Fees" and has considered whether the provision of the non-audit services is compatible with the firm's independence and has concluded that it is. The Audit Committee: Edward K. Walker (Chairman) Robert M. Moore Edward A. Bogucz Audit Committee Financial Expert The members of the audit committee have substantial experience in assessing the performance of companies, gained as members of the Company's board of directors and audit committee, as well as by serving in various capacities in other companies or governmental agencies. As a result, they each have an understanding of financial statements. However, none of them keep current on all aspects of generally accepted accounting principles. Accordingly, the board of directors does not consider any of them to be a financial expert as that term is defined in applicable regulations. Nevertheless, the board of directors believes that they competently perform the functions required of them as members of the audit committee and, given their backgrounds, it would not be in the best interest of the Company to replace any of them with another person to qualify a member of the audit committee as a financial expert. 16 Independence of Audit Committee In fiscal 2003, our Audit Committee consisted of Edward K. Walker - Chairman, Robert M. Moore and Edward A. Bogucz, all of whom meet the criteria for independence under applicable rules and regulations. We intend to comply with future audit committee requirements as they become applicable to us. AUDIT FEES For fiscal 2003, amounts paid to Deloitte & Touche LLP's for audit fees was approximately $146,000, including audits of other entities within the consolidated group for statutory filing purposes, which were fees for the fiscal 2002 audit; approximately $84,000 for tax return preparation; and $15,000 for fiscal 2003 quarterly reviews. Other fees paid in fiscal 2003 include $12,000 for the audits of employee benefit plans, and approximately $13,000 for due diligence services in connection with an acquisition. Estimated fees for the fiscal 2003 audit to be paid are approximately $177,000, including audits of other entities within the consolidated group for statutory filing purposes, and approximately $15,000 for employee benefit plan audits. Deloitte & Touche LLP did not render any services related to financial information systems design and implementation during fiscal years 2002 and 2003. INDEPENDENT PUBLIC ACCOUNTANTS Deloitte & Touche LLP acted as our independent public accountants for the fiscal years ended July 28, 2002 and August 3, 2003. A representative of Deloitte & Touche LLP 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. 17 COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT Section 16(a) of the Exchange Act requires our executive officers, directors and persons who own more than ten percent of a registered class of our 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 us with copies of all Forms 3, 4 and 5 they file with the SEC and NASD. Based solely upon our review of the copies of the forms it has received, we believe that all Reporting Persons complied on a timely basis with all filing requirements applicable to them with respect to transactions during fiscal year 2003. CODE OF ETHICS DISCLOSURE The Company adopted a Corporate Code of Business Ethics (the "Code") in December 2002 that applies to all employees, officers and directors of the Company. The Code was amended in September 2003. It is broad in scope and is intended to foster honest and ethical conduct, including accurate financial reporting, compliance with laws and the like. It does not expressly cover certain procedural matters covered by the Sarbanes-Oxley Act and regulations promulgated thereunder and may not constitute a "code of ethics" within the meaning of the law and regulations. Accordingly, the Company adopted an additional code of ethics on October 13, 2003, that covers senior executive officers of the Company and is intended to comply with the new law and regulations. The "Code of Ethics - Chief Executive and Chief Financial Officers" is set forth as Exhibit B to this proxy statement. 18 COMMON STOCK PERFORMANCE The following graph sets forth the cumulative total stockholder return to our stockholders during the five year period ended August 3, 2003 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 7/98 7/99 7/00 7/01 7/02 7/03 --------------------------------------------------- HERLEY INDUSTRIES, INC. 100.00 139.62 181.13 169.16 309.43 280.15 NASDAQ STOCK MARKET (U.S.) 100.00 142.74 203.74 109.40 72.32 94.45 S & P AEROSPACE/DEFENSE 100.00 122.19 91.89 112.85 110.72 101.81 * $100 invested on July 31, 1998 in stock or index, including reinvestment of dividends. Fiscal year ending July 31.
19 MISCELLANEOUS INFORMATION 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 July 31, 2004 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, 2003 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: December 1, 2003 Lancaster, Pennsylvania 20 Exhibit A - --------- HERLEY INDUSTRIES, INC. CHARTER OF THE AUDIT COMMITTEE ------------------------------ I. Audit Committee Purpose The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling the Board's oversight responsibilities. The Audit Committee's primary duties and responsibilities are to: -- Monitor the integrity of the Company's financial statements and the performance of its systems of internal controls regarding finance and accounting. -- Monitor the Company's compliance with legal and regulatory requirements. -- Monitor the qualifications, independence and performance of the Company's independent auditors. -- Provide an avenue of communication among the independent auditors, management, and the Board of Directors. The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent auditors as well as anyone in the Company. The Audit Committee has the ability to retain, at the Company's expense, special legal, accounting, or other consultants or experts it deems necessary in the performance of its duties. II. Audit Committee Composition and Meetings Audit Committee members shall meet the requirements of the NASD. The Audit Committee shall be comprised of such number of directors as determined by the Board, but no less than three directors, each of whom shall be an independent director, as such is defined by Nasdaq rules and any rule or regulation prescribed by the SEC, free from any relationship that would interfere with the exercise of his or her independent judgment. All members of the Committee shall have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements in accordance with the Nasdaq Audit Committee requirements. Audit Committee members shall be elected by the Board at the annual meeting of the Board or until their successors shall be duly elected and qualified. If an audit committee Chair is not designated, the members of the Committee may designate a Chair by majority vote of the Committee membership. The Committee shall meet at least four times annually, or more frequently as circumstances dictate. The Audit Committee Chair shall prepare and/or approve an agenda in advance of each meeting. The Committee should meet privately in A-1 executive session at least annually with management, the independent auditors, and as a committee to discuss any matters that the Committee or each of these groups believe should be discussed. III. Audit Committee Responsibilities and Duties 1. Overseeing the internal audit function and reviewing, on a continuing basis, the adequacy of the Company's system of internal controls, including meeting periodically with the Company's management and the independent auditors to review the adequacy of such controls and to review before release the disclosure regarding such system of internal controls required under SEC rules to be contained in the Company's periodic filings and the attestations or reports by the independent auditors relating to such disclosure. 2. Appointing, compensating and overseeing the work of the independent auditors (including resolving disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. 3. Pre-approving audit and non-audit services provided to the Company by the independent auditors (or subsequently approving non-audit services in those circumstances where a subsequent approval is necessary and permissible); in this regard, the Audit Committee shall have the sole authority to approve the hiring and firing of the independent auditors, all audit engagement fees and terms and all non-audit engagements, as may be permissible, with the independent auditors. 4. Reviewing and providing guidance with respect to the external audit and the Company's relationship with its independent auditors by: (a) reviewing the independent auditors' proposed audit scope, approach and independence; (b) obtaining on a periodic basis a statement from the independent auditors regarding relationships and services with the Company which may impact independence and presenting this statement to the Board of Directors, and to the extent there are relationships, monitoring and investigating them; (c) reviewing the independent auditors' peer review conducted every three years; (d) discussing with the Company's independent auditors the financial statements and audit findings, including any significant adjustments, management judgments and accounting estimates, significant new accounting policies and disagreements with management and any other matters described in SAS No. 61, as may be modified or supplemented; A-2 (e) reviewing reports submitted to the audit committee by the independent auditors in accordance with the applicable SEC requirements; and (f) reviewing and discussing with management and the independent auditors the annual audited financial statements and quarterly unaudited financial statements, including the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations," prior to filing the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, respectively, with the SEC. 5. Directing the Company's independent auditors to review before filing with the SEC the Company's interim financial statements including the Quarterly Reports on Form 10-Q, using professional standards and procedures for conducting such reviews. 6. Conducting a post-audit review of the financial statements and audit findings, including any significant suggestions for improvements provided to management by the independent auditors. 7. Reviewing before release the unaudited quarterly operating results in the Company's quarterly earnings release. 8. Overseeing compliance with the requirements of the SEC for disclosure of auditor's services and audit committee members, member qualifications and activities. 9. Reviewing, approving and monitoring the Company's code of ethics for its senior officers. 10. Reviewing management's monitoring of compliance with the Company's standards of business conduct and with the Foreign Corrupt Practices Act. 11. Reviewing, in conjunction with counsel, any legal matters that could have a significant impact on the Company's financial statements. 12. Providing oversight and review at least annually of the Company's risk management policies, including its investment policies. 13. Reviewing the performance of the independent auditors and ensure that the independent auditors are accountable to the Board of Directors. 14. Ensuring receipt from the independent auditors of a formal written statement delineating between the auditor and the Company, consistent with Independence Standards Board Standard 1, as well as actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors. 15. If necessary, instituting special investigations and, if appropriate, hiring special counsel or experts to assist. A-3 16. Reviewing related party transactions for potential conflicts of interest. 17. Reviewing and reassessing the adequacy of its formal written charter on an annual basis. 18. Performing other oversight functions as requested by the full Board of Directors. Other Audit Committee Responsibilities -------------------------------------- 19. Annually prepare a report to shareholders as required by the Securities and Exchange Commission. The report should be included in the Company's annual proxy statement. 20. Perform any other activities consistent with this Charter, the Company's by-laws, and governing law, as the Committee or the Board deems necessary or appropriate. 21. Maintain minutes of meetings and periodically report to the Board of Directors on significant results of the foregoing activities. While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations and the Company's Code of Business Ethics. A-4 Exhibit B - --------- Code of Ethics Chief Executive and Chief Financial Officers Herley Industries, Inc. ("Herley" or the "Company") is committed to conducting its business in accordance with applicable laws, rules and regulations, to the highest standards of business ethics and with full and accurate financial disclosure. This Code of Ethics for the Chief Executive and Chief Financial Officers ("Code of Ethics"), is applicable to the Company's Chief Executive Officer and Chief Financial Officer (together, "Senior Officers") and sets forth specific policies as a guide in the performance of their duties. Senior Officers of the Company must comply with applicable laws, rules and regulations. They also have a responsibility to conduct themselves in an honest and ethical manner. They have leadership responsibilities that include creating a culture of high ethical standards and commitment to compliance, and maintaining a work environment that deters wrongdoing, encourages employees to raise concerns, and promptly addresses employee compliance concerns. All the Company employees are subject to the Herley Industries, Inc. Corporate Code of Business Ethics, which sets forth the fundamental principles and key policies and procedures that govern them in the conduct of Herley business. In addition, Senior Officers are bound by the requirements and standards set forth in this Code of Ethics. Compliance with Laws, Rules and Regulations Senior Officers are required to comply with all applicable laws, rules and regulations governing the conduct of our business and to report any suspected violations to the Audit Committee of the Board of Directors ("Audit Committee"). Conflicts of Interest A conflict of interest occurs when a Senior Officer's private interests interfere in any way with the interests of the Company as a whole. Senior Officers should conduct the Company's business in an honest and ethical manner, which includes the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. Before making any investment, accepting any position or benefits, participating in any transaction or business arrangement or otherwise acting in a manner that creates or appears to create a conflict of interest, Senior Officers must obtain prior approval from the Audit Committee. Disclosures As a public company, Herley is required to file various periodic and other reports with the Securities and Exchange Commission ("SEC"). It is the Company policy to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that the Company files with, or submits to, the SEC and in all other public B-1 communications made by the Company. Senior Officers are required to promote compliance with this policy in their area of responsibility and amongst their colleagues and to abide by all Company standards, policies and procedures designed to promote compliance with this policy. Compliance with the Code If a Senior Officer knows of or suspects a violation of the Code of Ethics, the information must immediately be reported to the Audit Committee. Violations of this Code of Ethics may result in disciplinary action, up to and including discharge. Waivers of the Code Should Senior Officers wish to seek a waiver of the Code of Ethics they must make full disclosure of their particular circumstances to the Audit Committee. Only the Audit Committee may grant waivers of or a change to a provision of the Code. Changes in and waivers of this Code of Ethics will be disclosed as required under applicable laws and regulations. Personal Commitment to the Herley Industries, Inc. Code of Ethics for Chief Executive and Chief Financial Officers I acknowledge that I have received and read the Herley Industries, Inc. Code of Ethics for Chief Executive and Chief Financial Officers, dated October 13, 2003, and understand my obligation to comply with the Code of Ethics. To the best of my knowledge and ability, I will adhere to the Code of Ethics and promptly report any violation that I become aware of to the Audit Committee of the Board of Directors. Date: ___________________ ___________________________________________ Myron Levy, Chief Executive Officer Date: ___________________ ___________________________________________ Anello C. Garefino, Chief Financial Officer B-2 HERLEY INDUSTRIES, The undersigned hereby appoints Myron Levy and John A. INC. Thonet, 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 January 15, 2004 and any adjournments thereof. The Board of Directors recommends a vote FOR the following proposals: 1. Election of nominees listed at right, as set forth in the proxy statement: Nominees: Lee N. Blatt Adm. Edward K. Walker, Jr. (Ret.) Dr. Edward A. Bogucz Adm. Robert M. Moore (Ret.) [ ] FOR all nominees at right [ ] 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. To consider and act 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 LEFT HEREOF. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE PROPOSALS SET FORTH ABOVE. Dated: __________________ ______________________________________________________[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-----