<PAGE> 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.
AEROFLEX INCORPORATED
(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:
------------------------------------------------------
<PAGE> 2
AEROFLEX INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 17, 1998
------------------------
To the Stockholders of
AEROFLEX INCORPORATED
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of AEROFLEX
INCORPORATED will be held on Tuesday, November 17, 1998 at the deSeversky
Conference Center, Northern Boulevard, Old Westbury, New York 11568, at 10:00
a.m., or at any adjournment thereof (the "Annual Meeting"), for the following
purposes:
1. To elect four directors comprising the Class III Directors to serve
until the 2001 Annual Meeting of Stockholders or until their respective
successors have been duly elected and qualified;
2. To consider and act upon a proposal to amend article FOURTH of the
Certificate of Incorporation to increase the number of authorized shares
of the Corporation from 26,000,000 to 41,000,000; and
3. To consider and act upon such other business as may properly come before
the 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 September 25, 1998 will be entitled to vote at the Annual Meeting 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,
LEONARD BOROW
Secretary
Dated: Plainview, New York
October 2, 1998
<PAGE> 3
AEROFLEX INCORPORATED
35 SOUTH SERVICE ROAD
PLAINVIEW, NEW YORK 11803
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, NOVEMBER 17, 1998
PROXY STATEMENT
The Annual Meeting of Stockholders of Aeroflex Incorporated (the "Company")
will be held on Tuesday, November 17, 1998 at the deSeversky Conference Center,
Northern Boulevard, Old Westbury, New York 11568, 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. The approximate date
on which this proxy statement and the enclosed proxy are being mailed to
stockholders is October 2, 1998.
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 September 25, 1998 (the "Record Date"), will
be entitled to vote at the annual meeting or any adjournment thereof. The
Company had outstanding at the Record Date one class of voting securities,
namely 17,426,618 shares of Common Stock, $.10 par value ("Common Stock"),
excluding treasury shares. Stockholders of record are entitled to one vote for
each share registered in their names. 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. 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 as of
the Record Date more than five (5%) percent of the outstanding Common Stock of
the Company was Munder Capital Management, 480 Pierce Street, Detroit, Michigan,
48009, which beneficially owns 1,206,640 shares, representing approximately 6.9%
of the Company's outstanding Common Stock.
<PAGE> 4
ELECTION OF DIRECTORS
The By-Laws of the Company provides for a Board of Directors of not less
than three nor more than ten 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 ten directors, with directors
in each class as set forth below:
<TABLE>
<CAPTION>
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 1999) STOCKHOLDERS IN 2000) STOCKHOLDERS IN 1998)
- - ---------------------- --------------------------- ---------------------
<S> <C> <C>
Robert Bradley, Sr.(2) Harvey R. Blau Paul Abecassis
Michael Gorin Ernest E. Courchene, Jr.(1) Leonard Borow
Donald S. Jones(1) John S. Patton(2) Milton Brenner(1)
Eugene Novikoff(2)
</TABLE>
- - ---------------
(1) Member of Audit Committee.
(2) Member of Compensation/Stock Option Committee.
Paul Abecassis, Leonard Borow, Milton Brenner and Eugene Novikoff,
directors in Class III, are nominated for election to hold office until the
Annual Meeting of Stockholders in 2001 or until their successors are chosen and
qualified. Shares represented by executed proxies in the form enclosed will be
voted, unless otherwise indicated, for the election as directors of Messrs.
Abecassis, Borow, Brenner and Novikoff (each of whom is now a director) unless
any nominee shall be unavailable, in which event 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 an annual fee of
$10,000 and a fee of $750 for each Board of Directors or Committee meeting
attended. There were seven meetings of the Board of Directors during the fiscal
year ended June 30, 1998, one meeting of the audit committee and four meetings
of the compensation/stock option committee. Each director attended or
participated in all of such meetings of the Board of Directors and his
respective committees. The Company's audit committee is involved in discussions
with the Company's independent certified accountants with respect to the year
end audited financial statements and the compensation/stock option committee
recommends executive compensation and the granting of stock options to key
employees. See "Compensation/Stock Option Committee Report on Executive
Compensation." The Company does not have a nominating committee.
2
<PAGE> 5
The following information, including stock ownership, is submitted with
respect to the directors of the Company, each executive officer named in the
"Summary Compensation Table" and for all executive officers and directors as a
group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
BENEFICIALLY
DIRECTOR OWNED AS OF
NAME AGE OCCUPATION SINCE 9/25/98(1)(2)
---- --- ------------------------ ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Harvey R. Blau............. 62 Chairman and CEO of the July 1980 833,822 (4.6%) (3)
Company
Michael Gorin.............. 56 President of the Company August 1990 554,112 (3.1%) (4)
Leonard Borow.............. 50 Executive Vice President November 1992 883,201 (4.9%) (5)
of the Company
Carl Caruso................ 54 Vice President -- -- 123,972 -- (6)
Manufacturing
Charles Badlato............ 39 Treasurer and Assistant -- 56,047 -- (7)
Secretary
Paul Abecassis............. 48 Investment Banker August 1998 18,000 --
Robert Bradley, Sr. ....... 79 Retired February 1979 40,487 -- (8)
Milton Brenner............. 70 Retired August 1988 132,666 -- (8)
Ernest E. Courchene, 66 Business Consultant April 1980 113,440 -- (8)
Jr. .....................
Donald S. Jones............ 70 Consultant November 1993 41,000 -- (8)
Eugene Novikoff............ 74 Self-Employed June 1979 41,183 -- (8)
Engineering Consultant
John S. Patton............. 80 Consultant August 1985 40,500 -- (8)
All Directors and Officers
as a Group (12 2,878,430 (14.9%)
persons).................
</TABLE>
- - ---------------
(1) No officer or director owns more than one percent of the issued and
outstanding Common Stock of the Company unless otherwise indicated.
Ownership represents sole voting and investment power.
(2) Includes options currently exercisable or exercisable within 60 days under
the Company's 1989 Non-Qualified Stock Option Plan, 1993 Outside Director
Stock Option Plan, 1994 Non-Qualified Stock Option Plan and 1996 Stock
Option Plan.
(3) Includes 39,261 shares reserved pursuant to a deferred compensation
agreement and options currently exercisable or exercisable within 60 days to
purchase 606,667 shares of Common Stock. Also includes 4,651 shares held by
the Blau, Kramer, Wactlar & Lieberman, P.C. Profit Sharing Plan and 110,058
shares owned by his wife, to which Mr. Blau disclaims beneficial ownership.
(4) Includes options currently exercisable or exercisable within 60 days to
purchase 440,000 shares of Common Stock.
(5) Includes options currently exercisable or exercisable within 60 days to
purchase 440,000 shares of Common Stock. Also includes 8,888 shares owned by
his wife to which Mr. Borow disclaims beneficial ownership.
(6) Includes options currently exercisable or exercisable within 60 days to
purchase 62,471 shares of Common Stock.
(7) Includes options currently exercisable or exercisable within 60 days to
purchase 50,082 shares of Common Stock.
(8) Includes options currently exercisable to purchase 40,000 shares of Common
Stock.
3
<PAGE> 6
PRINCIPAL OCCUPATIONS OF DIRECTORS
Mr. Harvey R. Blau was appointed Chairman of the Board and Chief Executive
Officer of the Company in October 1991. Mr. Blau had previously served as Vice
Chairman from November 1983 until October 1991 and has been a Director since
1980. Mr. Blau is also Chairman of the Board and Chief Executive Officer of
Griffon Corporation and a director of Nu Horizons Electronics Corp. and Reckson
Associates Realty Corp. During fiscal 1998, a subsidiary of Griffon Corporation
purchased products from the Company for an aggregate $1,084,000 in various arms
length transactions. Mr. Blau has been a practicing attorney in the State of New
York since 1961, and is a member of the law firm of Blau, Kramer, Wactlar &
Lieberman, P.C., general counsel to the Company. The Company has engaged Blau,
Kramer, Wactlar & Lieberman, P.C. in the past and intends to continue to retain
the firm on an ongoing basis. For the year ended June 30, 1998, the Company paid
approximately $324,000 in legal fees to the firm.
Mr. Michael Gorin has been employed by the Company in various executive
positions since July 1985 and has been President since October 1988, a Director
since August 1990 and Chief Financial Officer since 1991. From 1986 to October
1988, Mr. Gorin was Vice President -- Finance. From May 1980 until July 1985,
Mr. Gorin was Senior Vice President of Republic National Bank of New York. For
more than ten years prior thereto, he was employed by Arthur Andersen & Co.,
becoming a partner in April 1973. Mr. Gorin is licensed as a Certified Public
Accountant in the State of New York.
Mr. Leonard Borow has been employed by the Company in various executive
positions since November 1989 and has been Executive Vice President and Chief
Operating Officer since October 1991, a Director of the Company since November
1992 and Secretary since November 1993. Prior to joining the Company, Mr. Borow
was President of Comstron Corporation, a manufacturer of fast switching
frequency synthesizers and components, which was acquired by the Company in
November 1989.
Mr. Paul Abecassis was appointed a Director of the Company by the Board of
Directors in August 1998. Mr. Abecassis has been an investment banker for the
past 20 years. He joined Bear Stearns & Company as a Managing Director in May
1990 and became a Senior Managing Director in September 1992. He is also a
director of Bracco Diagnostics Incorporated.
Mr. Robert Bradley, Sr. has been a Director of the Company since February
1979. Mr. Bradley was actively engaged as an employee and executive of
commercial banks for more than 30 years prior to his retirement in 1979. He was
Executive Vice President of Central State Bank, in New York, New York and Senior
Vice President of European-American Bank and Trust Company. Mr. Bradley is a
director of Griffon Corporation.
Mr. Milton Brenner, until his retirement in September 1988, had been
President of Aeroflex Laboratories Incorporated, a subsidiary of the Company,
for more than 15 years. Mr. Brenner was previously a Director of the Company
from 1973 to 1986 and was again elected a Director in August 1988.
Mr. Ernest E. Courchene, Jr. has been a Director of the Company since April
1980. Mr. Courchene served from May 1987 to May 1992 as Vice Chairman and a
director of Digitech Industries, Inc., a manufacturer of data communications
diagnostic equipment. From May 1983 to May 1987, Mr. Courchene was President of
Southport Capital Group Ltd., an investment banking firm and from March 1980 to
November 1985, he was Chairman of the Board of Harbor Electronics Inc., a
manufacturer of cable assemblies for the electronics industry.
Vice Admiral Donald S. Jones (USN Ret.) has been a Director of the Company
since November 1993. Admiral Jones retired from the United States government in
1987 after more than 37 years of service. From
4
<PAGE> 7
March 1988 to March 1990, Vice Admiral Jones was Vice President for Government
and International Affairs for Tracor Inc., a manufacturer of electronic products
and a provider of aircraft service and repair. Since retirement, Admiral Jones
also has acted as an independent consultant.
Mr. Eugene Novikoff has been a Director of the Company since June 1979. Mr.
Novikoff is a professional engineer and during the period from 1972 to 1978 was
a director and Vice President (in charge of development and engineering) for
Knogo Corporation, a manufacturing and service organization engaged in providing
equipment and devices to libraries and retail businesses to reduce losses from
pilferage. Since January 1979, Mr. Novikoff has been a self-employed consulting
engineer.
Major General John S. Patton (USAF Ret.) has been a Director of the Company
since August 1985. General Patton retired from the United States government in
1978 after more than 36 years of service. Since retirement, he has acted as an
independent analytical technical consultant.
MANAGEMENT
OFFICERS OF THE COMPANY
The officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION HELD
---- -------------
<S> <C>
Harvey R. Blau............................... Chairman of the Board (Chief
Executive Officer)
Michael Gorin................................ President (Chief Financial Officer
and Principal Accounting Officer)
Leonard Borow................................ Executive Vice President (Chief
Operating Officer) and Secretary
Carl Caruso.................................. Vice President -- Manufacturing
Charles Badlato.............................. Treasurer and Assistant Secretary
</TABLE>
- - ---------------
Mr. Carl Caruso has been employed by the Company as Vice President of
Aeroflex Laboratories Incorporated since November 1989 and has been Vice
President -- Manufacturing of the Company since February 1997. Prior to joining
the Company, Mr. Caruso was Vice President of Comstron Corporation which was
acquired by the Company in November 1989.
Mr. Charles Badlato has been employed by the Company in various financial
positions since December 1987 and has been Treasurer since February 1994. From
May 1981 until December 1987, Mr. Badlato was employed by various certified
public accounting firms, most recently as an audit manager with Touche Ross &
Co. Mr. Badlato is licensed as a Certified Public Accountant in the State of New
York.
5
<PAGE> 8
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the
Chairman/Chief Executive Officer and each of the other executive officers of the
Company serving as of June 30, 1998 for services rendered for the years ended
June 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ----------------------------------------------------
OTHER ANNUAL RESTRICTED STOCK LONG-TERM ALL OTHER
NAME AND FISCAL COMPENSATION STOCK OPTION INCENTIVE COMPENSATION
PRINCIPAL POSITION YEAR SALARY(1) BONUS (2) AWARDS AWARDS(#) PLAN PAYOUTS (3)
------------------ ------ --------- -------- ------------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harvey R. Blau......... 1998 $220,667 (4) $-- $-- 250,000 -- $ 805
Chairman and Chief 1997 216,471 $212,010 -- -- 200,000 -- 754
Executive Officer 1996 208,517 218,165 -- -- 175,000 -- 686
Michael Gorin.......... 1998 $300,250 $420,000 $-- $-- 125,000 -- $4,939
President and Chief 1997 281,261 212,010 -- -- 50,000 -- 5,283
Financial Officer 1996 262,962 218,165 -- -- 150,000 -- 2,978
Leonard Borow.......... 1998 $300,250 $420,000 $-- $-- 125,000 -- $4,149
Executive Vice 1997 281,261 212,010 -- -- 50,000 -- 4,309
President-Chief 1996 262,962 218,165 -- -- 150,000 -- 3,587
Operating Officer
Carl Caruso............ 1998 $186,399 $ 50,000 $-- $-- 50,000 -- $2,857
Vice President -- 1997 173,564 60,000 -- -- 35,000 -- 3,022
Manufacturing 1996 162,363 50,000 -- -- 25,000 -- 2,756
Charles Badlato........ 1998 $128,562 $ 40,000 $-- $-- 40,000 -- $2,889
Treasurer and 1997 120,875 30,000 -- -- 15,000 -- 3,084
Assistant Secretary 1996 106,217 30,000 -- -- 25,000 -- 3,214
</TABLE>
- - ---------------
(1) Includes the following contributions to the Aeroflex Incorporated Employees'
401(k) Plan by each of the executive officers for the fiscal years ended
June 30, 1998, 1997 and 1996: Michael Gorin -- $9,449, $11,242 and $9,310,
respectively; Leonard Borow -- $9,414, $10,262 and $9,414, respectively;
Carl Caruso -- $9,524, $10,073 and $9,186, respectively; and Charles
Badlato -- $9,565, $10,175 and $10,913, respectively.
(2) Other annual compensation does not include amounts of certain perquisites
and other non-cash benefits provided by the Company since such amounts 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.
(3) All other compensation includes the compensation component of certain life
insurance policies and the Company's matching contribution to the Aeroflex
Incorporated Employees' 401(k) Plan.
(4) Pursuant to his deferred compensation agreement, Mr. Blau elected to defer
the $406,843 he was entitled to receive for the fiscal year ended June 30,
1998 and receive such incentive compensation in Common Stock valued at its
market price. Accordingly, there has been reserved 39,261 shares of Common
Stock in respect of Mr. Blau's incentive compensation for the fiscal year
ended June 30, 1998.
EMPLOYMENT AGREEMENTS
In July 1994, the Company entered into employment agreements, as amended,
with Messrs. Blau, Gorin and Borow for the period July 1, 1994 to December 31,
2002. The agreements provide for salaries at the annual rate of $275,000,
$350,000 and $350,000, respectively, together with cost of living increments.
The agreements each provide for an incentive equal to three (3%) percent of the
consolidated pre-tax earnings of the Company but not more than two hundred
(200%) percent of the respective individual's salary.
6
<PAGE> 9
In February, 1997, the Company entered into an employment agreement with
Mr. Caruso for the period February 5, 1997 to February 5, 2000. The agreement
provides for an annual salary of $180,000, together with cost of living
increments.
In the event that any of these four individuals' employment is terminated
by the Company without cause, the terminated employee is entitled to receive his
salary and incentive payment for the remainder of the contract term. The
employment agreements also provide that in the event there is a change in
control of the Company, as defined therein, the employee has the option,
exercisable within six (6) months of becoming aware of such event, to terminate
his employment agreement. Upon such termination, each of Messrs. Blau, Gorin and
Borow has the right to receive a lump sum payment equal to three (3) times his
salary and incentive payment last previously awarded and Mr. Caruso has the
right to receive his base salary for the remainder of the term of the contract.
In May 1997, the Company and Mr. Blau entered into a deferred compensation
agreement which was approved by stockholders in November 1997 which provides
that Mr. Blau can elect to defer all or any portion of the incentive
compensation payable to him pursuant to his employment agreement and receive
such deferred compensation in cash or Common Stock. Mr. Blau elected to defer
all of his incentive compensation for the fiscal year ended June 30, 1998 and
receive such deferred compensation in Common Stock. For the fiscal year ending
June 30, 1999, Mr. Blau has elected to defer 25% of his incentive compensation
and receive all of such deferred compensation in Common Stock.
STOCK OPTION PLANS
The Company currently has five stock option plans -- the 1989 Non-Qualified
Stock Option Plan (the "1989 NQSOP"), the Outside Director Stock Option Plan
(the "Director Plan"), the 1994 Non-Qualified Stock Option Plan (the "1994
Plan"), the 1996 Stock Option Plan (the "1996 Plan") and the 1998 Stock Option
Plan (the "1998 Plan"). The plans were designed for the purpose of strengthening
the Company's ability to retain and attract in its employ persons of training,
experience and ability and to furnish additional incentives to key employees,
consultants and directors.
In December 1993, the Board of Directors adopted, subject to stockholder
approval obtained in November 1994, the Director Plan which, as amended in
November 1996, covers 500,000 shares of the Company's Common Stock and expires
in 2003. The Director Plan provides for an annual grant to each non-employee
director of options to purchase 10,000 shares of the Company's Common Stock. The
plan is administered by a committee of two or more members of the Board of
Directors who determine, among other things, the individuals to whom options
should be granted and the purchase price of the shares with the exception that
no option may be granted at less than market value at the time of grant and
options may only be exercised before the expiration of ten years from the date
of grant.
The 1989 NQSOP, 1994 Plan, 1996 Plan and 1998 Plan each covers 1,500,000
shares of the Company's Common Stock. The 1989 NQSOP, the 1994 Plan and the 1998
Plan, which expire in 1999, 2004 and 2008, respectively, permit the granting of
Non-Qualified Options to the Company's officers and other senior executives and
management and supervisory personnel and consultants and, for the 1989 NQSOP and
the 1998 Plan, also directors. The 1996 Plan, which expires in 2006, permits the
granting of both Non-Qualified and Incentive Options to the Company's officers
and employees. These plans are administered by a committee of two or more
members of the Board of Directors who determine, among other things, the
individuals to whom, and the time or times at which, options shall be granted,
the number of shares to be subject to each option, the purchase price of the
shares and the term of each option, with the exception that no option can be
7
<PAGE> 10
granted at less than market value at the time of grant and options may only be
exercised before the expiration of five years from the date of grant (or ten
years for the 1996 Plan and 1998 Plan). Each option granted under these plans
may be exercised only during the continuance of an optionee's employment or
service with the Company, except under certain circumstances.
STOCK OPTION GRANTS IN LAST FISCAL YEAR(1)
The following table sets forth all stock option grants to the named
executive officers during the fiscal year ended June 30, 1998:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------- POTENTIAL REALIZED VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK PRICE
OPTIONS APPRECIATION FOR OPTION TERM(1)(5)
GRANTED TO -----------------------------------------
OPTIONS EMPLOYEES/ EXERCISE STOCK STOCK
GRANTED CONSULTANTS IN PRICE EXPIRATION PRICE DOLLAR PRICE DOLLAR
NAME (#)(2) FISCAL YEAR(3) ($/SH)(2) DATE 5%(4) GAIN 10%(4) GAIN
---- ------- -------------- --------- ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harvey R. Blau........ 250,000 24.0% $ 8.25 11/12/07 $13.44 $1,297,500 $21.40 $3,287,500
Michael Gorin......... 125,000 12.0 8.25 11/12/07 13.44 648,750 21.40 1,643,750
Leonard Borow......... 125,000 12.0 8.25 11/12/07 13.44 648,750 21.40 1,643,750
Carl Caruso........... 25,000 2.4 8.25 11/12/07 13.44 129,750 21.40 328,750
Carl Caruso........... 25,000 2.4 13.44 4/28/08 21.89 211,250 34.85 535,250
Charles Badlato....... 15,000 1.4 8.25 11/12/07 13.44 77,850 21.40 197,250
Charles Badlato....... 25,000 2.4 13.44 4/28/08 21.89 211,250 34.85 535,250
</TABLE>
- - ---------------
(1) All grants are under the 1996 Plan or the 1998 Plan. Dollar gains are based
on the assumed annual rates of appreciation of the exercise price of each
option for the term of the option.
(2) Grants were made at 100% of the closing price of the Company's Common Stock
on the date of grant. Grants pursuant to the 1996 Plan vest 33 1/3% on each
of the first, second and third anniversary of the date of grant. Grants
pursuant to the 1998 Plan vest 25% on each of the second, third, fourth and
fifth anniversary of the date of grant.
(3) Total options granted to employees, consultants and directors in 1998 were
for 1,042,500 shares of Common Stock.
(4) The stock price represents the price of the Company's Common Stock if the
assumed annual rates of stock price appreciation are achieved over the term
of each of the options.
(5) The increases in market value of the Company's stock for all stockholders as
of the Record Date, assuming annual rates of stock price appreciation from
June 30, 1998 (stock price of $10.38 per share) over the ten year period
used in this table, aggregate approximately $114,000,000 at a 5% rate and
approximately $288,000,000 at 10%.
8
<PAGE> 11
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information concerning options exercised
during the year ended June 30, 1998, by the named executive officers and the
value of unexercised options held by them as of June 30, 1998:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey R. Blau....... 75,000 $708,481 598,333 391,667 $3,995,833 $1,369,792
Michael Gorin........ 50,000 472,313 448,333 166,667 3,011,458 516,667
Leonard Borow........ 50,000 472,313 448,333 166,667 3,011,458 516,667
Carl Caruso.......... 24,196 211,152 54,137 81,667 346,684 245,417
Charles Badlato...... 16,585 140,764 45,082 58,333 291,989 145,833
</TABLE>
- - ---------------
(1) Based upon the closing price of the Company's Common Stock of $10.38 on June
30, 1998.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1, 1994 the Company established the Aeroflex Incorporated
Supplemental Executive Retirement Plan ("SERP") for certain of its officers. No
benefits were payable prior to January 1, 1996.
The Normal Retirement Age under the SERP is 70. The SERP would provide an
annual benefit of 50% of Final Average Pay. "Final Average Pay" means the
average of the three highest paid calendar years out of the last ten prior to
retirement. The benefits payable under the SERP are not subject to deduction for
Social Security amounts. Benefits are also payable, on a reduced basis, for
early retirement after the sum of a participant's age and years of service
equals 70 and the participant attains age 55. Retirement benefits are payable
for life, with a guarantee of 10 years of payments. In addition, the SERP
provides a pre-retirement death benefit payable for 10 years to the
participant's beneficiary and a disability benefit with a guarantee of 10 years
of payment; provided that any disability benefit shall be reduced by the amount
of the disability benefit payable under the participant's employment agreement,
if any.
A trust has been established to which contributions are made annually to
provide for the benefits under the SERP. The trust is funding the benefits
partially through insurance contracts.
9
<PAGE> 12
The following tables show the projected annual benefits payable at age 70
under the SERP. The number of years of credited service of the participants as
of June 30, 1998 are: Mr. Blau, 17; Mr. Gorin, 12; Mr. Borow, 20; and Mr.
Badlato, 10.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
ANNUAL BENEFIT AT NORMAL RETIREMENT
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE --------------------------------
ANNUAL PAY(1) 10 15 20
------------- -------- -------- --------
<S> <C> <C> <C>
$ 50,000................................... $ 25,000 $ 25,000 $ 25,000
100,000................................... 50,000 50,000 50,000
200,000................................... 100,000 100,000 100,000
300,000................................... 150,000 150,000 150,000
400,000................................... 200,000 200,000 200,000
500,000................................... 250,000 250,000 250,000
</TABLE>
- - ---------------
(1) Average of a participant's highest three year's compensation out of the last
ten prior to retirement as reported on Form W-2 but excluding stock related
compensation and including deferred compensation.
BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, the Company's Compensation/Stock Option Committee
consisted of Messrs. Robert Bradley, Eugene Novikoff and John S. Patton. None of
these persons were officers or employees of the Company during fiscal 1998 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/STOCK OPTION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION" 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 THE COMPANY UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT.
COMPENSATION/STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is generally
determined by the Compensation/ Stock Option Committee of the Board of
Directors, subject to applicable employment agreements. Each member of the
Compensation/Stock Option Committee is a director who is not an employee of the
Company or any of its affiliates. The following report with respect to certain
compensation paid or awarded to the Company's executive officers during fiscal
1998 is furnished by the directors who comprised the Compensation/Stock Option
Committee during fiscal 1998.
GENERAL POLICIES
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain the management talent required to achieve
corporate objectives, and thereby increase shareholder value. It is the
Company's policy to provide incentives to its senior management to achieve both
short-term and long-term objectives and to reward exceptional performance and
contributions to the development of the Company's businesses. To attain these
objectives, the Company's executive compensation program includes a
10
<PAGE> 13
competitive base salary, cash incentive bonuses and stock-based compensation.
See "Management -- Employment Agreements".
Stock options are granted to employees, including the Company's executive
officers, by the Compensation/Stock Option Committee under the Company's option
plans. The Committee believes that stock options provide an incentive that
focuses the executive's attention on managing the Company from the perspective
of an owner with an equity stake in the business. Options are awarded with an
exercise price equal to the market value of Common Stock on the date of grant.
Among the Company's 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 senior officers who,
in the view of the Compensation/Stock Option Committee, have the greatest
potential impact on the Company's 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/Stock Option Committee may utilize 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.
RELATIONSHIP OF COMPENSATION TO PERFORMANCE AND
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation/Stock Option Committee annually establishes, subject to
the approval of the Board of Directors and any applicable employment agreements,
the salaries which will be paid to the Company's executive officers during the
coming year. In setting salaries, the Compensation/Stock Option Committee takes
into account several factors, including competitive compensation data, the
extent to which an individual may participate in the stock plans maintained by
the Company, and qualitative factors bearing on an individual's experience,
responsibilities, management and leadership abilities, and job performance.
For fiscal 1998, pursuant to the terms of his employment agreement with the
Company, the Company's Chairman received a base salary and additional
compensation (See "Employment Agreements"). The Compensation/Stock Option
Committee also recommended the issuance of, and the Chairman received, options
to purchase 250,000 shares of Common Stock at $8.25 per share.
THE COMPENSATION COMMITTEE:
Robert Bradley, Sr.
Eugene Novikoff
John S. Patton
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 New York Stock Exchange (the
"NYSE"). These Reporting Persons are required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file with the SEC and NYSE.
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 1998.
11
<PAGE> 14
COMMON STOCK PERFORMANCE
The following graph provides a comparison of cumulative stockholder return
among the Company, Standard and Poors' 500 companies and Standard and Poors'
electronics (instrumentation) companies from June 1993 to August 1998:
COMPARISON OF 62 MONTH CUMULATIVE TOTAL RETURN*
AMONG AEROFLEX INCORPORATED, THE S&P 500 INDEX AND
THE S&P ELECTRONIC (INSTRUMENTATION) INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
S & P ELECTRONICS
(INSTRUMENTATION) S & P 500 AEROFLEX INC.
<S> <C> <C> <C>
JUN-93 100 100 100
JUN-94 94.65 101.41 177.78
JUN-95 184.03 127.84 211.11
JUN-96 209.06 161.09 272.22
JUN-97 300.59 216.99 227.78
JUN-98 273.22 282.43 461.11
AUG-98 206.69 239.03 297.22
</TABLE>
* $100 INVESTED ON 06/30/93 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
12
<PAGE> 15
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO
INCREASE AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has proposed and recommended to its stockholders the
approval of an amendment to Article "FOURTH" of the Company's Certificate of
Incorporation increasing the total number of shares which the Company has
authority to issue from 26,000,000 shares to 41,000,000 shares, of which
40,000,000 shares shall be shares of Common Stock of the par value of $.10 per
share and 1,000,000 shares shall be shares of Preferred Stock of the par value
of $.10 per share. This proposed amendment to the Company's Certificate of
Incorporation is indicated on Exhibit "A" annexed hereto.
The proposed amendment to the Company's Certificate of Incorporation is
intended to provide additional flexibility to the Company for possible capital
reorganization, acquisitions, refinancings, exchanges of securities, public
offerings and other corporate purposes. In recent years, the Company has issued
a substantial number of shares through a public Common Stock offering and
conversion of debentures. A substantial amount of shares has also been reserved
under the Company's stock plans. These events have decreased the number of
shares of Common Stock presently available for issuance. See
"Management -- Stock Option Plans."
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 to the Company is presented.
The following table sets forth as of September 1, 1998, the approximate
number of shares of Common Stock and Preferred Stock authorized, outstanding,
reserved, and available for issuance, as well as the approximate number of
shares of which will be available for issuance if this amendment is approved.
<TABLE>
<CAPTION>
AVAILABLE FOR
ISSUANCE
AVAILABLE UPON
FOR APPROVAL OF
AUTHORIZED OUTSTANDING RESERVED ISSUANCE AMENDMENT
---------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Common Stock...................... 25,000,000 17,426,618 5,946,111(1) 1,627,271 16,627,271
Preferred Stock................... 1,000,000
Series A Junior Participating
Preferred Stock.............. 25,000 -- 25,000 -- --
</TABLE>
- - ---------------
(1) Represents shares issuable upon exercise of stock options under the
Company's stock option plans and other stock options and warrants.
The proposed amendment to the Company's Certificate of Incorporation, as
amended, must be approved by a majority of the Company's outstanding Common
Stock entitled to vote on this matter at the meeting. Stockholders should note
that an issuance of Common Stock by the Company other than on a pro rata basis
may dilute their ownership position.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSED AMENDMENT.
13
<PAGE> 16
MISCELLANEOUS INFORMATION
KPMG Peat Marwick LLP, the Company's independent auditors for the fiscal
year ended June 30, 1998, has advised the Company that a representative of the
firm 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 intend to present at the meeting any matters not referred to
in the form of Proxy. If any proposal not set forth in this Proxy Statement
should be presented for action at the meeting, it is intended that the shares
represented by proxies will be voted with respect to such matters in accordance
with the judgment of the persons voting them.
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, other
custodians, nominees and fiduciaries to forward soliciting material to the
beneficial owners of stock held of record by such persons, and may make
reimbursement for payments made for their expense in forwarding soliciting
material to such beneficial owners.
Stockholder proposals with respect to the Company's next Annual Meeting of
Stockholders must be received by the Company no later than June 3, 1999 to be
considered for inclusion in the Company's next Proxy Statement.
A copy of the Annual Report has been mailed to every stockholder as of the
Record Date. The Annual Report is not to be considered proxy soliciting
material.
By Order of the Board of Directors,
LEONARD BOROW
Secretary
Dated: October 2, 1998
Plainview, New York
14
<PAGE> 17
EXHIBIT "A"
PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
The following sets forth the changes to Article "FOURTH" of the Company's
Certificate of Incorporation if the proposed amendment is approved:
"FOURTH: The total number of shares of all classes of stock which the
corporation shall have the authority to issue is FORTY ONE MILLION
(41,000,000) shares, of which FORTY MILLION (40,000,000) shares shall be
shares of Common Stock of the par value of Ten Cents ($.10) per share and
ONE MILLION (1,000,000) shares shall be shares of Preferred Stock of the
par value of Ten Cents ($.10) per share. The Preferred Stock may be issued
in series and the number, designation, relative rights, preferences and
limitations of shares of each series of Preferred Stock, Ten Cents ($.10)
per share par value shall be fixed by the Board of Directors."
A-1
<PAGE> 18
AEROFLEX INCORPORATED
The undersigned hereby appoints Harvey R. Blau and Leonard Borow, 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 Aeroflex Incorporated, a Delaware corporation, at the
Annual Meeting of Stockholders scheduled to be held November 17, 1998 and any
adjournments thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
-----------
SEE REVERSE
SIDE
-----------
<PAGE> 19
[X] Please mark your votes as in this example
The Board of Directors recommends a vote FOR the following proposals:
FOR WITHHOLD
all nominees listed authority to vote
1. Election of the [ ] [ ]
following nomi-
nees, as set forth
in the proxy
statement
(Instruction To withhold authority to vote for any individual nominee,
print the nominee's name on the line provided below)
- - -------------------------------------------------------
NOMINEES: Paul Abecassis, Leonard Barow,
Milton Brenner and Eugene Novikoff
FOR AGAINST ABSTAIN
2. Proposal to amend the Certificate of [ ] [ ] [ ]
Incorporation to increase the number
of authorized shares of the Corporation
from 26,000,000 to 41,000,000
3. Upon such other business as may properly come before the meeting or any
adjournment thereof.
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
ABOVE. IF NO SPECIFICATION IS MADE, THE SHARES WILL VOTED FOR THE PROPOSALS SET
FORTH ABOVE.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
SIGNATURE(S) DATED , 1998
----------------------------------------- -----------
(Note: Please sign exactly as your name appears hereon. Executors,
administrators, Trustees, etc. should so indicate when signing, giving full
title as such. If a 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.)
