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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permited by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HERLEY INDUSTRIES, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)3.
[ ] 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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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5) Total fee paid:
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[ ] 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.
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<PAGE>
HERLEY INDUSTRIES, INC.
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
December 13, 1995
---------------------
To the Stockholders of HERLEY INDUSTRIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Herley
Industries, Inc. will be held at the Comfort Inn, 500 Centerville Road,
Lancaster, Pennsylvania 17601 on Wednesday, December 13, 1995 at 10:00 a.m., or
at any adjournment thereof, for the following purposes:
1. To elect six directors;
2. To consider and act upon a proposal to adopt a 1996 Stock Option Plan,
set forth as Exhibit "A".
3. To consider and act upon such other business as may properly come
before this meeting or any adjournment thereof.
The above matters are set forth in the Proxy Statement attached to this
Notice to which your attention is directed.
Only stockholders of record on the books of the Company at the close of
business on October 30, 1995 will be entitled to vote at the Annual Meeting of
Stockholders or at any adjournment thereof. You are requested to sign, date and
return the enclosed Proxy at your earliest convenience in order that your shares
may be voted for you as specified.
By Order of the Board of Directors,
MYRON LEVY
President
Dated: November 7, 1995
Lancaster, Pennsylvania
<PAGE>
HERLEY INDUSTRIES, INC.
10 Industry Drive
Lancaster, Pennsylvania 17603
-------------------
PROXY STATEMENT
-------------------
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, December 13, 1995
The Annual Meeting of Stockholders of Herley Industries, Inc. (the
"Company") will be held on Wednesday, December 13, 1995 at The Comfort Inn, 500
Centerville Road, Lancaster, Pennsylvania 19601 at 10:00 a.m., for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders. This
statement is furnished in connection with the solicitation by the Board of
Directors of proxies to be used at the Annual Meeting and at any and all
adjournments of such meeting.
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.
This Proxy Statement has been mailed on or about November 7, 1995 to all
stockholders as of the record date.
Only stockholders of record on October 30, 1995 (the "Record Date") will be
entitled to vote at the Annual Meeting or any adjournment thereof. The Company
has outstanding one class of voting capital stock, namely 2,802,274 shares of
Common Stock, $.10 par value. Stockholders are entitled to one vote for each
share registered in their names at the close of business on the Record Date. To
the knowledge of the Board of Directors, upon whose behalf this solicitation is
made, the only persons owning more than 5% of the Company's Common Stock as of
the Record Date are Lee N. Blatt, Chairman of the Board, residing in Vero Beach,
Florida, who owns 331,774 (11.8%) shares of the Company's Common Stock, Allyson
Gerber, daughter of Lee N. Blatt, residing in Floral Park, New York, who owns
157,234 (5.6%) shares of the Company's Common Stock, and Randi Rossignol,
daughter of Lee N. Blatt, residing in Scarsdale, New York, who owns 157,233
(5.6%) shares of the Company's Common Stock.
<PAGE>
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a Board of
Directors consisting of not less than three nor more than twelve directors,
classified into three classes as nearly equal in number as possible, whose terms
of office expire in successive years. The Company's Board of Directors now
consists of seven directors, including Mr. Richard J. Blakinger who is retiring
from the Board of Directors and, accordingly, will not be nominated for
reelection at this meeting. The Company's Board of Directors nominated for
election at this meeting and the classes in which they will serve are as
follows:
Class I Class II Class III
------- -------- ---------
(To Serve until the (To Serve until the (To Serve until the
Annual Meeting of Annual Meeting of Annual Meeting of
Stockholders in 1996) Stockholders in 1997) Stockholders in 1998)
Gerald I. Klein Myron Levy Lee N. Blatt
David H. Lieberman(1) Adm. Thomas J. Allshouse(1)(2) John A. Thonet(2)
(1) Member of Compensation Committee
(2) Member of Audit Committee
The directors are to be elected to hold office until the Annual Meeting of
Stockholders as set forth above or until their successors are chosen and
qualified. Shares represented by executed proxies in the form enclosed will be
voted, if authority to do so is not withheld, for the election as directors of
the aforesaid nominees (each of whom is now a director) unless any such nominee
shall be unavailable, in which case such shares will be voted for a substitute
nominee designated by the Board of Directors. The Board of Directors has no
reason to believe that any of the nominees will be unavailable or, if elected,
will decline to serve.
Directors who are not employees of the Company receive a fee of $5,000 for
each annual meeting of the Board of Directors and $1,500 for each interim Board
of Directors or committee meeting attended. There were five meetings of the
Board of Directors during the fiscal year ended July 30, 1995, including the
annual meeting. Each Director attended or participated in at least 75% of such
meetings of the Board of Directors. During the fiscal year ended July 30, 1995,
there was one meeting each of the Audit and Compensation Committees. The Audit
Committee is involved in discussions with the Company's independent certified
public accountants with respect to the year end audited financial statements.
The Compensation Committee recommends executive compensation and the granting of
stock options and warrants to key employees. See "Compensation Committee Report
on Executive Compensation."
<PAGE>
Security Ownership
The following table sets forth the indicated information as of October 5,
1995 with respect to the beneficial ownership of the Company's securities by the
directors and by all officers and directors as a group:
Shares of Common Stock
Director Beneficially Owned as of
Name Age Since October 5, 1995 (1)(6)
------------------------ --- -------- -------------------------
Lee N. Blatt(2)(5) 67 1965 331,774 shares (11.8%)
Myron Levy(5) 55 1992 130,709 shares (4.7%)
Gerald I. Klein(3)(5) 67 1991 135,000 shares (4.8%)
Adm. Thomas J.Allshouse 70 1983 9,600 shares
Richard J. Blakinger(5) 73 1984 12,000 shares
David H. Lieberman 50 1985 6,600 shares
John A. Thonet(4) 45 1991 6,270 shares
Directors and officers
as a group (8 persons) 637,453 shares (22.7%)
(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) Does not include an aggregate of 588,970 shares owned by family
members, including Hannah Thonet, Rebecca Thonet, Kathi Thonet, Randi
Rossignol and Allyson Gerber, of which Mr. Blatt disclaims beneficial
ownership.
(3) Does not include an aggregate of 28,000 shares owned by family
members, of which Mr. Klein disclaims beneficial ownership.
(4) Does not include 105,000 shares, owned by Mr. Thonet's children,
Hannah and Rebecca Thonet, and 137,233 shares owned by his wife, Kathi
Thonet. Mr. Thonet disclaims beneficial ownership of these shares.
(5) Does not include options to purchase 400,000, 160,000, 210,000 and
10,000 shares at prices ranging from $3.38 to $6.88 per share pursuant
to the Company's Non-Qualified Stock Option Plans held by Messrs.
Blatt, Levy, Klein and Blakinger, respectively.
(6) Does not include the following outstanding warrants to purchase shares
at a price of $7.125: Lee N. Blatt - 200,000, Myron Levy - 80,000,
Gerald I. Klein - 120,000, Adm. Thomas J. Allshouse - 10,000, David H.
Lieberman - 10,000, John A. Thonet - 10,000.
Principal Occupations of Directors
The following is a brief account of the business experience for the past
five years of the Company's directors:
Mr. Lee N. Blatt has been Chairman of the Board of the Company since its
organization in 1965. Mr. Blatt holds a Bachelors Degree in Electrical
Engineering from Syracuse University and a Masters Degree in Business
Administration from City College of New York. Mr. Blatt is primarily involved in
the financial and administrative activities of the Company.
<PAGE>
Mr. Myron Levy has been President of the Company since June 1993 and served
as Executive Vice President and Treasurer since May 1991, and prior thereto as
Vice President for Business Operations and Treasurer since October 1988. For
more than ten years prior to joining the Company, Mr. Levy, a certified public
accountant, was employed in various executive capacities by Instrument Systems
Corporation, most recently holding the position of Vice President.
Mr. Gerald I. Klein has been Chief Technical Officer of the Company since
March 1994, and has served as Chief Operating Officer and as Executive Vice
President since January 1988.
Admiral Thomas J. Allshouse has been a director of the Company since
September 1983. Prior to 1981, when he retired from the United States Navy,
Admiral Allshouse served for 34 years in various naval officer positions,
including acting as commanding officer of the United States Naval Ships Parts
Control Center. Admiral Allshouse holds a Bachelors Degree in Engineering from
the United States Naval Academy and a Masters Degree in Business Administration
from Harvard University.
Mr. David H. Lieberman has been a practicing attorney in the State of New
York for more than the past ten years and is a member of the firm of Blau,
Kramer, Wactlar & Lieberman, P.C., general counsel to the Company. For the
fiscal year ended July 30, 1995, approximately $202,000 in legal fees and
disbursements were paid to this firm.
Mr. John A. Thonet has been 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. Lee N. Blatt.
MANAGEMENT
Officers of the Company
The executive officers of the Company are as follows:
Name Position Held with the Company
------------------ -------------------------------------
Lee N. Blatt Chairman of the Board and
Chief Executive Officer
Myron Levy President
Gerald I. Klein Chief Technical Officer
Anello C. Garefino Vice President-Finance,
Treasurer and Chief Financial Officer
David H. Lieberman Secretary
Mr. Anello C. Garefino (48 years of age) has been employed by the Company
in various executive capacities for more than the past five years. Mr. Garefino,
a certified public accountant, was appointed Vice President-Finance, Treasurer
and Chief Financial Officer in June 1993. From 1987 to January 1990, Mr.
Garefino was Corporate Controller of Exide Corporation.
<PAGE>
Executive Compensation
The following table sets forth the annual and long-term compensation with
respect to the Chairman/Chief Executive Officer and each of the other executive
officers of the Company, for services rendered for the fiscal years ended July
30, 1995, July 31, 1994, and August 1, 1993.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
-------------------------------- -------------------------------------
Other Annual Stock Long-term All Other
Name and Fiscal Compensation Option Incentive Compensation
Principal Position Year Salary(1) Bonus(2) (3) Awards(#) Plan Payouts (4)
- ------------------ ---- --------- -------- ------------ ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Lee N. Blatt 1995 $503,842 $ - $ - 100,000 $ - $ 4,620
Chairman of 1994 454,705 - - 100,000 - 22,400
the Board 1993 408,387 - - 400,000 (5) - 22,781
Myron Levy 1995 295,331 - - 50,000 - 6,636
President 1994 240,384 - - 40,000 - 5,041
1993 211,443 - - 150,000 (5) - 5,624
Gerald I. Klein 1995 295,328 - - 50,000 - 4,620
Chief Technical 1994 286,727 - - 60,000 - 4,980
Officer 1993 251,260 - - 220,000 (5) - 5,253
</TABLE>
(1) Amounts set forth herein include cost of living adjustments under
employment contracts in fiscal 1995 and are less than contractual
obligations in fiscal 1994 as a result of voluntary salary reductions.
(2) Represents for Messrs. Blatt, Levy and Klein incentive compensation under
employment agreements. No incentive compensation was earned in fiscal 1995.
Messrs. Blatt, Levy and Klein each waived their incentive compensation
payments for fiscal 1994 and 1993. See "Management - Employment
Agreements."
(3) 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.
(4) All Other Compensation includes: (a) $2,016 paid by the Company for term
life insurance on Mr. Levy, and (b) $4,620, $4,620 and $4,620 contributed
to the Company's 401(k) Plan as a pre-tax salary deferral for Messrs.
Blatt, Levy and Klein respectively.
(5) Includes the following warrants issued in April 1993 for the right to
purchase Common Stock of the Company at a price of $7.125: Lee N. Blatt -
200,000, Myron Levy - 80,000, Gerald I. Klein - 120,000.
<PAGE>
Employment Agreements
In June 1984, Lee N. Blatt entered into an employment agreement with the
Company, which, as amended, terminates on December 31, 1999, subject to
extension each January 1 for six years from that date not to extend, in any
event, beyond December 31, 2002. Pursuant to the agreement, Mr. Blatt receives
compensation consisting of salary, an annual cost of living increment, and an
incentive bonus. The present base annual salary for Mr. Blatt is $475,000. Mr.
Blatt's incentive bonus is not less than 5% of the Company's consolidated pretax
earnings.
In October 1988, the Company entered into an employment agreement with
Myron Levy, which, as amended, terminates on December 31, 1999, subject to
extension each January 1 for six years from that date not to extend, in any
event, beyond December 31, 2002. The agreement, as amended, provides for a
present base salary of $275,000 per annum, plus cost-of-living increments. Mr.
Levy also is entitled to an incentive bonus in an amount equal to not less than
3% of the consolidated pretax earnings of the Company.
In December 1991, the Company entered into an employment agreement with
Gerald I. Klein which, as amended, terminates on December 31, 1999, subject to
extension each January 1 for six years from that date not to extend, in any
event, beyond December 31, 2002. The agreement provides for a present base
salary at the annual rate of $275,000, an annual cost of living increment and an
incentive bonus equal to not less than 3% of the consolidated pretax earnings of
the Company.
The employment agreements with Messrs. Blatt, Levy and Klein make provision
for certain payments following death or disability. The employment agreements
also provide for certain rights in the event there is a change in control of the
Company, as defined therein.
Certain Transactions
On October 17, 1995, the Board of Directors, with Messrs. Blatt and Klein
abstaining, authorized the Company to enter into loan agreements with Messrs.
Blatt and Klein whereby the Company will loan to them an amount not greater than
the shares owned by them multiplied by 75% of the average closing price of the
Company's Common Stock for the ten consecutive business days prior to the loan
date. It is anticipated that the loan agreements will be executed on or before
December 31, 1995. Mr. Blatt's loan will be secured by approximately 321,000
shares of the Company's Common Stock and Mr. Klein's loan will be secured by
approximately 135,000 shares of the Company's Common Stock (the "Pledged
Securities"), of which they are the respective record and beneficial owners. The
interest rate to be paid will be the same or the equivalent rate paid by the
Company for borrowed funds. The loans shall be for a one-year period renewable
for up to four additional one year periods. The market value of the Pledged
Securities are required to be not less than 60% of the principal amount of the
loan outstanding for each person at the time of each renewal. The loan
agreements will further provide that in the event of death or disability, as
defined in Messrs. Blatt and Klein's employment agreements, the Company will be
required to purchase and the decedent or his estate will be required to sell,
the Pledged Securities, at a price equal to 10% less than the average closing
price of the Company's Common Stock for the twenty consecutive business days
prior to the date of death or disability, whichever is applicable (the "Purchase
Price"). If at the time of death or disability the outstanding loan balance is
insufficient to purchase all of the Pledged Securities, the Company will have an
option exercisable for sixty days, to purchase the balance of the Pledged
Securities at the Purchase Price.
<PAGE>
In determining whether to recommend this transaction, the Board of
Directors carefully reviewed the short and long-term objectives of the Company,
including stock value and the need for continuity in management and determined,
in the exercise of their business judgment, that the loan agreements were in the
best interests of the Company.
Stock Plans
1988 Non-Qualified Stock Option Plan.
The Company's 1988 Non-Qualified Stock Option Plan covers 500,000 shares of
the Company's Common Stock. Under the terms of the plan, the purchase price of
the shares subject to each option granted will not be less than 85% of the fair
market value at the date of grant. The date of exercise may be determined at the
time of grant by the Board of Directors; however, if not specified, 20% of the
shares can be exercised each year beginning one year after the date of grant so
that such option may be exercised as to 100% of the shares covered thereby five
years after the date of grant.
No options were granted during the fiscal year ended July 30, 1995. At July
30, 1995 options to purchase 39,700 shares of Common Stock were outstanding, of
which 29,775 shares were exercisable, at prices ranging from $5.69 to $12.01 per
share. Upon approval of the 1996 Option Plan this plan will be terminated except
for outstanding options thereunder.
1992 Non-Qualified Stock Option Plan.
The 1992 Non-Qualified Stock Option Plan covers 1,000,000 shares of the
Company's Common Stock. Under the terms of the Plan, the purchase price of the
shares, subject to each option granted, is 100% of the fair market value at the
date of grant. The date of exercise is determined at the time of grant by the
Board of Directors; however, if not specified, 50% of the shares can be
exercised each year beginning one year after the date of grant. The options
expire ten years from the date of grant. Options for 255,000 shares were issued
during the fiscal year ended July 30, 1995 at $3.38 per share. These options may
be exercised cumulatively at the rate of 25% per year beginning one year after
the date of grant. At July 30, 1995 options to purchase 902,800 shares of Common
Stock were outstanding, of which 534,800 shares were exercisable, at prices
ranging from $3.38 to $7.63 per share. Upon approval of the 1996 Option Plan
this plan will be terminated except for outstanding options thereunder.
Warrant Agreements.
In April 1993, the Company issued Common Stock Warrants to certain officers
and directors for the right to acquire 430,000 shares of Common Stock of the
Company at the fair market value of $7.125 per share at date of issue. The
Warrants expire April 30, 1998.
Employee Savings Plan.
The Company maintains an Employee Savings Plan which qualifies as a thrift
plan under Section 401(k) of the Internal Revenue Code. This plan allows
employees to contribute between 2% and 15% of their salaries to the plan. The
Company, at its discretion can contribute 100% of the first 2% of the employees'
salary so contributed and 25% of the next 4% of salary. Additional Company
contributions can be made, depending on profits. The aggregate benefit payable
to an employee is dependent upon his rate of contribution, the earnings of the
fund, and the length of time such employee continues as a participant.
<PAGE>
The Company accrued approximately $151,000 for the fiscal year ended July
30, 1995 and contributed approximately $199,000 and $98,000 to this plan for the
years ended July 31, 1994 and August 1, 1993, respectively. For the year ended
July 30, 1995, $4,620 each was contributed by the Company to this plan for
Messrs. Blatt, Levy, and Klein, and approximately $16,579 was contributed for
all officers and directors as a group.
Stock Grants in Last Fiscal Year (1)
The following table sets forth all stock option grants to the named
executive officers during the fiscal year ended July 30, 1995:
<TABLE>
<CAPTION>
Individual Grants (1)(2)
-------------------------------------------------- Potential Realizable Value
% of Total at Assumed Annual Rates of
Options Stock Price Appreciation
Options Granted to Exercise for Option Term (4)(5)
Granted Employees in Price Expiration ---------------------------
Name (#) Fiscal Year (3) ($/Sh) Date 0% 5% 10%
- ----------------- -------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lee N. Blatt 100,000 39% $3.38 02/06/05 $0 $212,600 $538,700
Myron Levy 50,000 20% 3.38 02/06/05 0 106,300 269,300
Gerald I. Klein 50,000 20% 3.38 02/06/05 0 106,300 269,300
</TABLE>
(1) All grants are under the Company's non-qualified stock option plans.
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 in fiscal 1995 at 100% of the closing price of the
Company's Common Stock on date of grant. Grants vest.
(3) Total options granted to employees in 1995 were for 255,000 shares of
Common Stock.
(4) The amounts under the columns labeled "5%" and "10%" are included by
the Company pursuant to certain rules promulgated by the Securities
and Exchange Commission and are not intended to forecast future
appreciation, if any, in the price of the Company's stock. Such
amounts are based on the assumption that the named persons hold the
options granted for their full ten year term. The actual value of the
options will vary in accordance with the market price of the Company's
Common Stock. The column headed "0%" is included to demonstrate that
the options were granted at fair market value and optionees will not
recognize any gain without an increase in the stock price, which
increase benefits to all stockholders commensurately. The Company did
not use an alternative formula to attempt to value options at the date
of grant, as management is not aware of any formula which determines
with reasonable accuracy a present value of options of the type
granted to the optionees.
(5) The increase in market value of the Company's stock for all
stockholders as of the Record Date, assuming annual rates of stock
appreciation from July 30, 1995 (stock price at $5.375 per share) over
the ten year period used in this table, aggregates $9,472,600 at a
rate of 5% and $24,005,300 at a rate of 10%.
<PAGE>
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth stock options exercised during fiscal 1995
and all unexercised stock option grants and warrants issued to the named
executive officers as of July 30, 1995.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-The-Money
Shares Options at Fiscal Year-End Options at Fiscal-Year End (2)
Acquired on Value ---------------------------- ------------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- --------------- --------- -------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Lee N. Blatt - - 450,000 (3) 150,000 $ - $199,500
Myron Levy - - 170,000 (3) 70,000 - 99,750
Gerald I. Klein - - 250,000 (3) 80,000 - 99,750
</TABLE>
(1) Values are calculated by subtracting the exercise price from the fair
market value of the stock as of the exercise date.
(2) Based upon the closing price of the Company's Common Stock of $5.375
on July 30, 1995.
(3) Includes warrants issued in April 1993 for the right to purchase
Common Stock of the Company at a price of $7.125 per share of 200,000,
80,000 and 120,000 to Messrs. Blatt, Levy, and Klein, respectively.
Board of Directors Interlocks and Insider Participation
During fiscal 1995, the Company's Compensation Committee consisted of
Messrs. Thomas J. Allshouse and David H. Lieberman. Except for Mr. Lieberman
being Secretary and a member of a law firm acting as counsel to the Company,
none of these persons were officers or employees of the Company during fiscal
1995 nor had any relationship requiring disclosures in this Proxy Statement.
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Compensation Committee
Report on Executive Compensation" and "Performance Graph" will not be deemed to
be filed or to be proxy soliciting material or incorporated by reference in any
prior or future filings by the Company under the Securities Act of 1933 or the
Securities Exchange Act.
Compensation Committee Report on Executive Compensation
The primary function of the Compensation Committee is to oversee policies
relating to executive compensation including salary, incentive bonuses, fringe
benefits and stock option awards. Its objective is to attract and retain
qualified individuals by providing competitive compensation, while, at the same
time, linking such compensation to corporate objectives. The Committee believes
that providing a direct relationship between corporate results and executive
compensation will best serve shareholder interest. This link between executive
compensation and corporate performance is facilitated through incentive bonuses
based on earnings and also through stock option awards. Salary ranges for the
chief executive officer and other executive officers are based on the underlying
accountability of each executive's position, which is reviewed on a regular
basis, subject to the terms and conditions of employment agreements.
<PAGE>
Relationship of Compensation to Performance for Officers and Chief Executive
Officer
The Compensation Committee annually establishes, subject to any applicable
employment agreements, the salaries which will be paid to the Company's
executive officers during the coming year. In setting salaries, the Committee
takes into account several factors, including competitive compensation data, the
extend to which an individual may participate in the stock option plans
maintained by the Company and its affiliates, and qualitative factors bearing on
an individual's experience, responsibilities, management and leadership
abilities and job performance.
The Compensation Committee: Thomas J. Allshouse
David H. Lieberman
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities (Reporting Persons") to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the "SEC") and the National Association of Securities
Dealers, Inc. (the "NASD"). These Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Forms 3, 4 and 5 they file
with the SEC and NASD.
Based solely upon the Company's review of the copies of the forms it has
received, the Company believes that all Reporting Persons complied on a timely
basis with all filing requirements applicable to them with respect to
transactions during fiscal year 1995.
PERFORMANCE GRAPH
The following graph sets forth the cumulative total stockholder return to
the Company's stockholders during the five year period ended July 30, 1995 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
<TABLE>
<CAPTION>
MEASUREMENT PERIOD HERLEY NASDAQ S & P
(FISCAL YEAR COVERED) INDUSTRIES,INC. STOCK MARKET AEROSPACE/DEFENSE
- --------------------- --------------- ------------ -----------------
<S> <C> <C> <C>
1990 100 100 100
1991 484 118 105
1992 747 139 107
1993 663 169 136
1994 332 174 155
1995 453 243 232
</TABLE>
* $100 Invested on July 31, 1990 in stock or index including reinvestment
of dividends. Fiscal year ending July 31.
<PAGE>
PROPOSAL TO ADOPT THE 1996 STOCK OPTION PLAN
Introduction
At the Annual Meeting there will be presented to stockholders a proposal to
approve the adoption of the Herley Industries, Inc. 1996 Stock Option Plan (the
"1996 Option Plan"), which was approved by the Board of Directors on October 17,
1995, subject to stockholder approval. Eligible participants are officers and
employees of the Company or any of its subsidiaries or affiliates. Options
granted under the 1996 Option Plan may be incentive stock options qualified
under Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code")
or non-qualified stock options.
Management believes that the Company's long-term success is dependent upon
the ability of the Company to attract and retain qualified officers and
employees and to motivate their best efforts on behalf of the Company's
interests. The Company believes that the 1996 Option Plan will constitute an
important part of the Company's compensation of its officers and other
employees.
The full text of the 1996 Option Plan appears as "Exhibit A" to this Proxy
Statement. The principal features of the 1996 Option Plan are summarized below,
but such summary is qualified in its entirety by the full text of the 1996
Option Plan.
Stock Subject to the Plan
The stock to be offered under the 1996 Option Plan consists of shares,
whether authorized but unissued or reacquired by the Company, of Common Stock of
the Company. The total number of shares of Common Stock issuable upon the
exercise of all stock options under the 1996 Option Plan may not exceed 500,000
shares, subject to adjustments upon the occurrence of certain events, including
stock dividends, stock splits, mergers, consolidations, reorganizations,
recapitalizations, or other capital adjustments.
Administration of the Plan
The 1996 Option Plan is to be administered by the Board of Directors of the
Company; provided, however, that the Board may, in the exercise of its
discretion, designate from among its members a Compensation Committee or a Stock
Option Committee (the "Committee") consisting of no fewer than two directors.
The Board intends that its Compensation Committee will administer the 1996
Option Plan.
Subject to the terms of the 1996 Option Plan, the Board of Directors or the
Committee may determine and designate those officers and employees who are to be
granted stock options under the 1996 Option Plan and the number of shares to be
subject to such options and, as hereinafter described, the nature and terms of
the options to be granted. The Board of Directors or the Committee shall also,
subject to the express provisions of the 1996 Option Plan, have authority to
interpret the 1996 Option Plan and to prescribe, amend and rescind the rules and
regulations relating to the 1996 Option Plan.
<PAGE>
Grant of Options
Officers and employees of the Company or any of its subsidiaries or
affiliates are eligible to participate in the 1996 Option Plan.
The exercise price for incentive stock options granted under the 1996
Option Plan will be the fair market value of the Company's Common Stock on the
date of grant of the stock option (or in the case of incentive stock options
granted to any individual who owns stock possessing more than 10% of the total
combined voting power of all voting stock of the Company [a "Principal
Stockholder"], 110% of such fair market value). The exercise price for
Non-Qualified Stock Options granted under the 1996 Option Plan will be not less
than such fair market value. The option price, as well as the number of shares
subject to such option, shall be appropriately adjusted by the Committee in the
event of stock splits, stock dividends, recapitalizations, and certain other
events involving a change in the Company's capital.
Exercise of Stock Options
Stock options granted under the 1996 Option Plan shall expire not later
than ten years from the date of grant, or in the case of any incentive stock
option granted to a Principal Stockholder, five years from the date of grant or
such shorter period as the Committee may determine.
Stock options granted under the 1996 Option Plan may become exercisable in
one or more installments in the manner and at the time or times specified by the
Committee. Subject to this power of the Committee, and except in the manner
described below upon the death of the Optionee, a stock option may be exercised
for all of the subject shares on and after the first such anniversary of the
date of the grant of such Option, but in no event later than the expiration of
the term of the Option.
Upon the exercise of a stock option, Optionees may pay the exercise price
in cash, by certified or bank cashiers check or, at the option of the Company,
in shares of Common Stock of the Company valued at its fair market value on the
date of exercise, or a combination thereof. Withholding and other employment
taxes applicable to the exercise of an option shall be paid by the optionee at
such time as the Board of Directors or the Committee determines that the
optionee has recognized gross income under the Code resulting from such
exercise. These taxes may, at the option of the Company, be paid in shares of
Common Stock.
An Incentive Stock Option shall be exercisable during the Optionee's
lifetime only by the Optionee and shall not be exercisable by the Optionee
unless, at all times since the date of grant and at the time of exercise, such
Optionee is an employee of the Company, or any subsidiary or affiliate, except
that, upon termination of all employment (other than by death or by Total
Disability followed by death in the circumstances provided below) with the
Company, any subsidiary or any affiliate, the Optionee may exercise an Incentive
Stock Option at any time within three months thereafter but only to the extent
such Option is exercisable on the date of such termination.
<PAGE>
In the event of the death of an Optionee (i) while an employee of the
Company, any parent corporation of the Company or any subsidiary, or (ii) within
three months after termination of all employment with the Company, any parent
corporation of the Company and any subsidiary (other than for Total Disability)
or (iii) within three months after termination on account of Total Disability of
all employment with the Company, any parent corporation of the Company and any
Subsidiary, such optionee's estate or any person who acquires the right to
exercise such option by bequest or inheritance or by reason of the death of the
optionee may exercise such Optionee's Option at any time within the period of
one year from the date of death. In the case of clauses (i) and (iii) above,
such Option shall be exercisable in full for all the remaining shares covered
thereby, but in the case of clause (ii) such Option shall be exercisable only to
the extent it is exercisable on the date of such termination.
To the extent the aggregate market value of the Common Stock (determined as
of the date of grant) with respect to which any options granted are intended to
be designated as Incentive Stock Options under the 1996 Option Plan (or any
other incentive stock option plan of the Company or any subsidiary) which may be
exercisable for the first time by the optionee in any calendar year exceeds
$100,000, such options shall not be considered Incentive Stock Options.
Stock options granted under the 1996 Option Plan may not be transferred by
the holder other than by will or the laws of descent and distribution and may be
exercised during the holder's lifetime only by the holder.
Change in Control
In the event of a Change in Control (as defined), (a) all options
outstanding on the date of such Change in Control shall, for a period of sixty
(60) days following such Change in Control, become immediately and fully
exercisable, and (b) an optionee will be permitted to surrender for cancellation
within sixty (60) days after such Change in Control any option or portion of an
option which was granted more than six (6) months prior to the date of such
surrender, to the extent not yet exercised, and to receive a cash payment in an
amount equal to the excess, if any, of the Fair Market Value (on the date of
surrender) of the shares of Common Stock subject to the option or portion
thereof surrendered, over the aggregate purchase price for such Shares under the
option.
Federal Income Tax Consequences
Incentive Stock Options granted under the 1996 Option Plan are intended to
be qualified incentive stock options in accordance with the provisions of
Section 422 of the Code. All other options granted under the 1996 Option Plan
are non-qualified options not entitled to special tax treatment under Section
422 of the Code. Generally, the grant of an incentive stock option will not
result in taxable income to the recipient at the time of the grant, and the
Company will not be entitled to an income tax deduction at such time. The grant
of non-qualified options will not result in taxable income to the recipient at
the time of the grant to the extent that it is granted at 100% of the fair
market value of the Company's Common Stock at such time. So long as such option
does not result in taxable income to the recipient at the time of the grant, the
Company will not be entitled to an income tax deduction.
<PAGE>
Upon the exercise of an Incentive Stock Option granted under the 1996 Stock
Option Plan, the recipient will not be treated as receiving any taxable income,
and the Company will not be entitled to an income tax deduction. Upon the
exercise of a non-qualified option, an employee who is not a director or officer
of the Company will be treated as receiving compensation, taxable as ordinary
income, in an amount equal to the excess of the fair market value of the
underlying shares of the Company's Common Stock at the time of exercise, over
the exercise price. The date of recognition and determination of the ordinary
compensation income attributable to shares received upon exercise of an option
by an officer of the Company, while he or she is subject to Section 16(b) of the
Securities Exchange Act of 1934, is generally delayed until six months after
such exercise, unless that person elects to be taxed as of the date of exercise.
The Company will receive an income tax deduction for the amount treated as
compensation income to the recipient at the time and in the amount that the
recipient recognizes such income.
Upon subsequent disposition of the shares subject to the option, any
differences between the tax basis of the shares and the amount realized on the
disposition is generally treated as long-term or short-term capital gain or
loss, depending on the holding period of the shares of Common Stock; provided,
that if the shares subject to an incentive stock option are disposed of prior to
the expiration of two years from the date of grant and one year from the date of
exercise, the gain realized on the disposition will be treated as ordinary
compensation income to the Optionee.
Board Position and Required Vote
The affirmative vote of a majority of the outstanding voting stock present
in person or by proxy at the Annual Meeting is required for approval of the 1996
Option Plan.
The Board of Directors recommends a vote FOR approval of the adoption of
the 1996 Option Plan.
<PAGE>
MISCELLANEOUS INFORMATION
A representative of Arthur Andersen LLP, the Company's independent auditors
for the fiscal year ended July 30, 1995, plans to be present at the Annual
Meeting with the opportunity to make a statement if he desires to do so, and
will be available to respond to appropriate questions.
As of the date of this Proxy Statement, the Board of Directors does not
know of any business other than specified above to come before the meeting, but,
if any other business does lawfully come before the meeting, it is the intention
of the persons named in the enclosed Proxy to vote in regard thereto, in
accordance with their judgment.
The Company will pay the cost of soliciting proxies in the accompanying
form. In addition to solicitation by use of the mails, certain officers and
regular employees of the Company may solicit proxies by telephone, telegraph or
personal interview. The Company may also request brokerage houses and other
custodians, and, nominees and fiduciaries, to forward soliciting material to the
beneficial owners of stock held by record by such persons, and may make
reimbursement for payments made for their expense in forwarding soliciting
material to the beneficial owners of the stock held of record by such persons.
Stockholder proposals with respect to the Company's next Annual Meeting of
Stockholders must be received by the Company no later than October 14, 1996 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 July 30,
1995 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,
MYRON LEVY
President
Dated: November 7, 1995
Lancaster, Pennsylvania
<PAGE>
HERLEY INDUSTRIES, INC.
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING
December 13, 1995
The undersigned hereby appoints Lee N. Blatt and John A. 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 December 13, 1995 and any
adjournments thereof.
The Board of Directors recommends a vote FOR the following proposals:
1. Election of the following nominees, as set forth in the proxy statement:
Adm. Thomas J. Allshouse, Lee N. Blatt, Gerald I. Klein, Myron Levy,
David H. Lieberman, John A. Thonet
-------------------------------------------------------------------------
2. Proposal to adopt a 1996 Stock Option Plan, as set forth in Exhibit A.
FOR / / AGAINST / / ABSTAIN / /
3. Upon such other business as may properly come before the meeting or any
adjournment thereof.
(Continued and to be signed on reverse side)
<PAGE>
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF THEM, AS
SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING. SHAREHOLDERS MAY WITHHOLD THE VOTE FOR ONE OR MORE
NOMINEE(S) BY WRITING THE NOMINEE(S) NAME(S) IN THE BLANK SPACE PROVIDED ON THE
REVERSE HEREOF. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
PROPOSALS SET FORTH ON THE REVERSE HEREOF.
Dated: ______________ , 1995 _______________________________ [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.
<PAGE>
EXHIBIT A
HERLEY INDUSTRIES, INC.
1996 STOCK OPTION PLAN
SECTION 1. GENERAL PROVISIONS
1.1. Name and General Purpose
The name of this plan is the Herley Industries, Inc. 1996 Stock Option Plan
(hereinafter called the "Plan"). The purpose of the Plan is to enable Herley
Industries, Inc. (the "Company") and its subsidiaries and affiliates to foster
and promote the interests of the Company by attracting and retaining officers
and employees of the Company who contribute to the Company's success by their
ability, ingenuity and industry, to enable such officers and employees of the
Company to participate in the long-term success and growth of the Company by
giving them a proprietary interest in the Company and to provide incentive
compensation opportunities competitive with those of competing corporations.
1.2 Definitions
a. "Affiliate" means any person or entity controlled by or under common
control with the Company, by virtue of the ownership of voting
securities, by contract or otherwise.
b. "Board" means the Board of Directors of the Company.
c. "Change in Control" means a change of control of the Company, or in
any person directly or indirectly controlling the Company, which shall
mean:
(a) a change in control as such term is presently defined in
Regulation 240.12b-(f) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); or
(b) if any "person" (as such term is used in Section 13(d) and 14(d)
of the Exchange Act) other than the Company or any "person" who on
the date of this Agreement is a director or officer of the
Company, becomes the "beneficial owner" (as defined in Rule
13(d)-3 under the Exchange Act) directly or indirectly, of
securities of the Company representing twenty percent (20%) or
more of the voting power of the Company's then outstanding
securities; or
(c) if during any period of two (2) consecutive years during the term
of this Plan, individuals who at the beginning of such period
constitute the Board of Directors, cease for any reason to
constitute at least a majority thereof.
d. "Code" means the Internal Revenue Code of 1986, as amended.
e. "Committee" means the Committee referred to in Section 1.3 of the Plan.
f. "Common Stock" means shares of the Common Stock, par value $.10 per
share, of the Company.
g. "Company" means Herley Industries, Inc., a corporation organized under
the laws of the State of Delaware (or any successor corporation).
<PAGE>
h. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2) as promulgated by the Securities and Exchange Commission
(the "Commission");provided, that such person is also an "outside
director" as set forth in Section 162(m) of the Code and the
regulations promulgated thereunder.
i. "Fair Market Value" means the market price of the Common Stock on the
National Association of Securities Dealers Automated Quotation
("NASDAQ") system on the date of the grant or on any other date on
which the Common Stock is to be valued hereunder. If no sale shall have
been reported on NASDAQ on such date, Fair Market Value shall be
determined by the Committee in accordance with the Treasury Regulations
applicable to incentive stock options under Section 422 of the Code.
j. "Incentive Stock Option" means an Incentive Stock Option as described
in Section 2.1 of the Plan.
k. "Non-Qualified Stock Option" means a Non-Qualified Stock Option as
described in Section 2.1 of the Plan.
l. "Option" means any option to purchase Common Stock under Section 2 of
the plan.
m. "Participant" means any officer or employee of the Company, a
Subsidiary or an Affiliate who is selected by the Committee to
participate in the Plan.
n. "Subsidiary" means any corporation in which the Company possesses
directly or indirectly 50% or more of the combined voting power of all
classes of stock of such corporation.
o. "Total Disability" means accidental bodily injury or sickness which
wholly and continuously disabled an optionee. The Committee, whose
decisions shall be final, shall make a determination of Total
Disability.
1.3 Administration of the Plan
The Plan shall be administered by the Committee appointed by the Board
consisting of two or more members of the Board all of whom shall be
Disinterested Persons. The Committee shall serve at the pleasure of the Board
and shall have such powers as the Board may, from time to time, confer upon it.
Subject to this Section 1.3, the Committee shall have sole and complete
authority to adopt, alter, amend or revoke such administrative rules, guidelines
and practices governing the operation of the Plan as it shall, from time to
time, deem advisable, and to interpret the terms and provisions of the Plan.
The Committee shall keep minutes of its meetings and of action taken by it
without a meeting. A majority of the Committee shall constitute a quorum, and
the acts of a majority of the members present at any meeting at which a quorum
is present, or acts approved in writing by all of the members of the Committee
without a meeting, shall constitute the acts of the Committee.
<PAGE>
1.4 Eligibility
Stock options may be granted only to regular full-time and part-time
employees of the Company or a Subsidiary or Affiliate. Subject to Section 2.3,
any person who has been granted any Option may, if he is otherwise eligible, be
granted an additional Option or Options. Those directors who are not regular
employees are not eligible.
1.5 Shares
The aggregate number of shares reserved for issuance pursuant to the Plan
shall be 500,000 shares of Common Stock, or the number and kind of shares of
stock or other securities which shall be substituted for such shares or to which
such shares shall be adjusted as provided in Section 1.6.
Such number of shares may be set aside out of the authorized but unissued
shares of Common Stock or out of issued shares of Common Stock acquired for and
held in the Treasury of the Company, not reserved for any other purpose. Shares
subject to, but not sold or issued under, any Option terminating or expiring for
any reason prior to its exercise in full will again be available for Options
thereafter granted during the balance of the term of the Plan.
1.6 Adjustments Due to Stock Splits, Mergers, Consolidation, Etc.
If, at any time, the Company shall take any action, whether by stock
dividend, stock split, combination of shares or otherwise, which results in a
proportionate increase or decrease in the number of shares of Common Stock
theretofore issued and outstanding, the number of shares which are reserved for
issuance under the Plan and the number of shares which, at such time, are
subject to Options shall, to the extent deemed appropriate by the Committee, be
increased or decreased in the same proportion, provided, however, that the
Company shall not be obligated to issue fractional shares.
Likewise, in the event of any change in the outstanding shares of Common
Stock by reason of any recapitalization, merger, consolidation, reorganization,
combination or exchange of shares or other corporate change, the Committee shall
make such substitution or adjustments, if any, as it deems to be appropriate, as
to the number or kind of shares of Common Stock or other securities which are
reserved for issuance under the Plan and the number of shares or other
securities which, at such time are subject to Options.
In the event of a Change in Control, (a) all options outstanding on the
date of such Change in Control shall, for a period of sixty (60) days following
such Change in Control, become immediately and fully exercisable, and (b) an
optionee will be permitted to surrender for cancellation within sixty (60) days
after such Change in Control any option or portion of an option which was
granted more than six (6) months prior to the date of such surrender, to the
extent not yet exercised, and to receive a cash payment in an amount equal to
the excess, if any, of the Fair Market Value (on the date of surrender) of the
shares of Common Stock subject to the option or portion thereof surrendered,
over the aggregate purchase price for such Shares under the option.
<PAGE>
1.7 Non-Alienation of Benefits
Except as herein specifically provided, no right or unpaid benefit under
the Plan shall be subject to alienation, assignment, pledge or charge and any
attempt to alienate, assign, pledge or charge the same shall be void. If any
Participant or other person entitled to benefits hereunder should attempt to
alienate, assign, pledge or charge any benefit hereunder, then such benefit
shall, in the discretion of the Committee, cease.
1.8 Withholding or Deduction for Taxes
If, at any time, the Company or any Subsidiary or Affiliate is required,
under applicable laws and regulations, to withhold, or to make any deduction for
any taxes, or take any other action in connection with any Option exercise, the
Participant shall be required to pay to the Company or such Subsidiary or
Affiliate, the amount of any taxes required to be withheld, or, in lieu thereof,
at the option of the Company, the Company or such Subsidiary or Affiliate may
accept a sufficient number of shares of Common Stock to cover the amount
required to be withheld.
1.9 Administrative Expenses
The entire expense of administering the Plan shall be borne by the Company.
1.10 General Conditions
(a) The Board or the Committee may, from time to time, amend, suspend or
terminate any or all of the provisions of the Plan, provided that,
without the Participant's approval, no change may be made which would
prevent an Incentive Stock Option granted under the Plan from
qualifying as an Incentive Stock Option under Section 422 of the Code
or result in a "modification" of the Incentive Stock Option under
Section 424(h) of the Code or otherwise alter or impair any right
theretofore granted to any Participant ; and further provided that,
without the consent and approval of the holders of a majority of the
outstanding shares of Common Stock of the Company present at a meeting
at which a quorum exists, neither the Board nor the Committee may make
any amendment which (i) changes the class of persons eligible for
options; (ii) increases (except as provided under Section 1.6 above)
the total number of shares or other securities reserved for issuance
under the Plan; (iii) decreases the minimum option prices stated in
Section 2.2 hereof (other than to change the manner of determining
Fair Market Value to conform to any then applicable provision of the
Code or any regulation thereunder); (iv) extends the expiration date
of the Plan, or the limit on the maximum term of Options; or (v)
withdraws the administration of the Plan from a committee consisting
of two or more members, each of whom is a Disinterested Person.
(b) With the consent of the Participant affected thereby, the Committee
may amend or modify any outstanding Option in any manner not
inconsistent with the terms of the Plan, including, without
limitation, and irrespective of the provisions of Sections 2.3(c) and
2.4(b) below, to accelerate the date or dates as of which an
installment of an Option becomes exercisable.
(c) Nothing contained in the Plan shall prohibit the Company or any
Subsidiary or Affiliate from establishing other additional incentive
compensation arrangements for employees of the Company or such
Subsidiary or Affiliate.
<PAGE>
(d) Nothing in the Plan shall be deemed to limit, in any way, the right of
the Company or any Subsidiary or Affiliate to terminate a
Participant's employment with the Company (or such Subsidiary or
Affiliate) at any time.
(e) Any decision or action taken by the Board or the Committee arising out
of or in connection with the construction, administration,
interpretation and effect of the Plan shall be conclusive and binding
upon all Participants and any person claiming under or through any
Participant.
(f) No member of the Board or of the Committee shall be liable for any act
or action, whether of commission or omission, (i) by such member
except in circumstances involving actual bad faith, nor (ii) by any
other member or by any officer, agent or employee.
1.11 Compliance with Applicable Law
Notwithstanding any other provision of the Plan, the Company shall not be
obligated to issue any shares of Common Stock, or grant any Option with respect
thereto, unless it is advised by counsel of its selection that it may do so
without violation of the applicable Federal and State laws pertaining to the
issuance of securities and the Company may require any stock certificate so
issued to bear a legend, may give its transfer agent instructions limiting the
transfer thereof, and may take such other steps, as in its judgment are
reasonably required to prevent any such violation.
1.12 Effective Dates
The Plan was adopted by the Board on October 17, 1995, subject to approval
by the stockholders of the Company. The Plan shall terminate on October 16,
2005.
SECTION 2. OPTION GRANTS
2.1 Authority of Committee
Subject to the provisions of the Plan, the Committee shall have the sole
and complete authority to determine (i) the Participants to whom Options shall
be granted; (ii) the number of shares to be covered by each Option; and (iii)
the conditions and limitations, if any, in addition to those set forth in
Sections 2 and 3 hereof, applicable to the exercise of an Option, including
without limitation, the nature and duration of the restrictions, if any, to be
imposed upon the sale or other disposition of shares acquired upon exercise of
an Option.
Stock options granted under the Plan may be of two types: an incentive
stock option ("Incentive Stock Option"); and a non-qualified stock option
("Non-Qualified Stock Option").
It is intended that the Incentive Stock Options granted hereunder shall
constitute incentive stock options within the meaning of Section 422 of the Code
and shall be subject to the tax treatment described in Section 422 of the Code.
Anything in the Plan to the contrary notwithstanding, no provision of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or, without the consent of the
optionee, any Incentive Stock Option under Section 422 of the Code.
<PAGE>
The Committee shall have the authority to grant Incentive Stock Options, or
to grant Non-Qualified Stock Options, or to grant both types of Options. To the
extent that any Option does not qualify as an Incentive Stock Option, in whole
or in part, it shall constitute a separate Non-Qualified Stock Option to the
extent of such disqualification.
2.2 Option Exercise Price
The price of stock purchased upon the exercise of Options granted pursuant
to the Plan shall be the Fair Market Value thereof at the time that the Option
is granted.
If an employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of the stock of the Company or any parent
corporation of the Company or Subsidiary and an Option granted to such employee
is intended to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code, the exercise price shall be no less than 110% of the
Fair Market Value of the Common Stock on the date the Option is granted. The
purchase price is to be paid in full in cash, certified or bank cashier's check
or, at the option of the Company, Common Stock valued at its Fair Market Value
on the date of exercise, or a combination thereof, when the Option is exercised
and stock certificates will be delivered only against such payment.
2.3 Incentive Stock Option Grants
Each Incentive Stock Option will be subject to the following provisions:
a. Term of Option: An Incentive Stock Option will be for a term of not more
than ten years from the date of grant, except in the case of an employee
described in the second paragraph of Section 2.2 above in which case an
Incentive Stock Option will be for a term of not more than five years from
the date of the grant.
b. Annual Limit: To the extent the aggregate Fair Market Value of the Common
Stock (determined as of the date of grant) with respect to which any
options granted hereunder are intended to be designated as Incentive Stock
Options under the Plan (or any other incentive stock option plan of the
Company or any Subsidiary) which may be exercisable for the first time by
the optionee in any calendar year exceeds $100,000, such options shall not
be considered incentive stock options.
c. Exercise: Subject to the power of the Committee under Section 1.10(b) above
and except in the manner described below upon the death of the optionee, an
Incentive Stock Option may be exercised for all of the subject shares on
and after the first such anniversary of the date of the grant of such
Option but in no event later than the expiration of the term of the Option.
An Incentive Stock Option shall be exercisable during the optionee's
lifetime only by the optionee and shall not be exercisable by the optionee
unless, at all times since the date of grant and at the time of exercise,
such optionee is an employee of the Company, any parent corporation of the
Company or any Subsidiary, except that, upon termination of all employment
(other than by death or by Total Disability followed by death in the
circumstances provided below) with the Company, any parent corporation of
the Company and any Subsidiary or Affiliate, the optionee may exercise an
Incentive Stock Option at any time within three months thereafter but only
to the extent such Option is exercisable on the date of such termination.
<PAGE>
If termination of employment is the result of the optionee having reached
normal retirement age, option grants continue to be exercisable for five
years after retirement but in no event later than the expiration of the
term of the Option.
In the event of the death of an optionee (i) while an employee of the
Company, any parent corporation of the Company or any Subsidiary or
Affiliate, or (ii) within three months after termination of all employment
with the Company, any parent corporation of the Company and any Subsidiary
or Affiliate (other than for Total Disability) or (iii) within three months
after termination on account of Total Disability of all employment with the
Company, any parent corporation of the Company and any Subsidiary, such
optionee's estate or any person who acquires the right to exercise such
option by bequest or inheritance or by reason of the death of the optionee
may exercise such optionee's Option at any time within the period of one
year from the date of death. In the case of clauses (i) and (iii) above,
such Option shall be exercisable in full for all the remaining shares
covered thereby, but in the case of clause (ii) such Option shall be
exercisable only to the extent it was exercisable on the date of such
termination.
If an optionee's employment is terminated for deliberate, willful or gross
misconduct, all rights under an Option expire upon receipt by the optionee
of the notice of such termination. Notwithstanding the foregoing provisions
regarding the exercise of an Option in the event of death, Total Disability
or other termination of employment, in no event shall an Option be
exercisable in whole or in part after the termination date provided in the
Option.
d. Transferability: An Incentive Stock Option granted under the Plan shall not
be transferable otherwise than by will or by the laws of descent and
distribution.
2.4 Non-Qualified Stock Option Grants
Each Non-Qualified Stock Option will be subject to the following provisions:
a. Term of Option: A Non-Qualified Stock Option will be for a term of not
more than ten years from the date of grant.
b. Exercise: The exercise of a Non-Qualified Stock Option shall be
subject to the same terms and conditions as provided under Section
2.3(c) above.
c. Transferability: A Non-Qualified Stock Option granted under the Plan
shall not be transferable otherwise than by will or by the laws of
descent and distribution.
2.5 Agreements
In consideration of any Options granted to a Participant under the Plan,
each such Participant shall enter into an Option Agreement with the Company
providing, consistent with the Plan, such terms as the Committee may deem
advisable.
