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