SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12.
HERLEY INDUSTRIES, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: __________________________________________________
(2) Form, Schedule or Registration Statement No.:_____________________________
(3) Filing Party:_____________________________________________________________
(4) Date Filed:_______________________________________________________________
<PAGE>
HERLEY INDUSTRIES, INC.
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
January 18, 2001
----------------------
To our Stockholders:
An annual meeting of stockholders will be held at the Grand Hyatt Hotel,
Park Avenue at Grand Central, 109 East 42nd Street, New York, New York 10017 on
Thursday, January 18, 2001 beginning at 9:00 a.m. At the meeting, you will be
asked to vote on the following matters:
1. Election of two directors.
2. Adoption of our 2000 Stock Option Plan, set forth as Exhibit "A".
3. Any other matters that properly come before the meeting.
The above matters are set forth in the Proxy Statement attached to this
notice to which your attention is directed.
If you are a stockholder of record at the close of business on December 11,
2000, you are entitled to vote at the meeting or at any adjournment thereof.
This notice and proxy statement are first being mailed to stockholders on or
about December 13, 2000.
By Order of the Board of Directors,
LEE N. BLATT
Chairman of the Board
Dated: December 13, 2000
Lancaster, Pennsylvania
<PAGE>
HERLEY INDUSTRIES, INC.
10 Industry Drive
Lancaster, Pennsylvania 17603
----------------------
PROXY STATEMENT
----------------------
ANNUAL MEETING OF STOCKHOLDERS
Thursday, January 18, 2001
Our annual meeting of stockholders will be held on Thursday, January 18,
2001, at the Grand Hyatt Hotel, Park Avenue at Grand Central, 109 East 42nd
Street, New York, New York 10017 at 9:00 a.m.. This proxy statement contains
information about the matters to be considered at the meeting or any
adjournments or postponements of the meeting.
ABOUT THE MEETING
What is being considered at the meeting?
You will be voting on the following:
-- election of directors;
-- adoption of our 2000 Stock Option Plan, set forth as Exhibit "A".
We do not expect to ask you to vote on any other matters at the meeting.
In addition, our management will report on our performance during fiscal
2000 and respond to your questions.
Who is entitled to vote at the meeting?
You may vote if you owned stock as of the close of business on December 11,
2000. Each share of stock is entitled to one vote.
How do I vote?
You can vote in two ways:
-- by attending the meeting; or
-- by completing, signing and returning the enclosed proxy card.
Can I change my mind after I vote?
Yes, you may change your mind at any time before the vote is taken at the
meeting. You can do this by (1) signing another proxy with a later date and
returning it to us prior to the meeting, or (2) voting again at the meeting.
<PAGE>
What if I return my proxy card but do not include voting instructions?
Proxies that are signed and returned but do not include voting instructions
will be voted FOR (1) the election of the nominee directors and (2) the adoption
of the 2000 Stock Option Plan.
What does it mean if I receive more than one proxy card?
It means that you have multiple accounts with brokers and/or our transfer
agent. Please vote all of these shares. We recommend that you contact your
broker and/or our transfer agent to consolidate as many accounts as possible
under the same name and address. Our transfer agent is American Stock Transfer &
Trust Company, 212-936-5100.
Will my shares be voted if I do not provide my proxy?
If you hold your shares directly in your own name, they will not be voted if
you do not provide a proxy.
Your shares may be voted under certain circumstances if they are held in the
name of the brokerage firm. Brokerage firms generally have the authority to vote
a customer's unvoted shares, which are referred to as "broker non-votes," on
certain routine matters, including the election of directors. Shares represented
by broker non-votes are counted for purposes of establishing a quorum. At our
meeting, these shares will be counted as voted by the brokerage firm in the
election of directors.
How many votes must be present to hold the meeting?
Your shares are counted as present at the meeting if you attend the meeting
and vote in person or if you properly return a proxy by mail. In order for us to
conduct our meeting, a majority of our outstanding shares as of December 11,
2000, must be present at the meeting. This is referred to as a quorum. On
December 11, 2000, we had 6,985,015 shares issued and outstanding.
What vote is required to elect directors?
The affirmative vote of the holders of a majority of the shares represented in
person or by proxy and voting at the meeting will be required to elect each
director. Shares not voted, whether by marking "ABSTAIN" or by broker non-vote,
will have no effect on the vote for election of directors.
What vote is required to approve the 2000 Stock Option Plan?
The affirmative vote of the holders of a majority of the shares represented in
person or by proxy and voting on the item will be required for approval. A
properly executed proxy marked "ABSTAIN" or by broker non-vote, will have no
effect on the vote for the 2000 Stock Option Plan.
<PAGE>
PROPOSAL I - ELECTION OF DIRECTORS
Our certificate of incorporation provides for a board of directors consisting
of not less than three nor more than twelve directors, classified into three
classes as nearly equal in number as possible, whose terms of office expire in
successive years. Our board of directors now consists of seven directors. The
directors in each class are:
<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 2003) Stockholders in 2001) Stockholders in 2002)
-------------------- -------------------- --------------------
<S> <C> <C>
Lee N. Blatt Dr. Alvin M. Silver (1) Adm. Thomas J. Allshouse (Ret.) (1)
Adm. Edward K. Walker, Jr. (Ret.) (1) John A. Thonet David H. Lieberman
Myron Levy
<FN>
-------
(1) Member of Compensation and Audit Committees
</FN>
</TABLE>
Lee N. Blatt and Adm. Edward K. Walker, Jr. (Ret.), directors in Class I,
are to be elected at this Annual Meeting of Stockholders to hold office until
the Annual Meeting of Stockholders as set forth above or until their successors
are chosen and qualified.
Unless you indicate otherwise, shares represented by executed proxies in
the form enclosed will be voted, if authority to do so is not withheld, for the
election as directors of the aforesaid nominees (each of whom is now a director)
unless any such nominee shall be unavailable, in which case such shares will be
voted for a substitute nominee designated by the board of directors. We have has
no reason to believe that any of the nominees will be unavailable or, if
elected, will decline to serve.
Nominee Biographies
Mr. Lee N. Blatt is our co-founder and has been our Chairman of the Board
since its organization in 1965. Mr. Blatt holds a Bachelors Degree in Electrical
Engineering from Syracuse University and a Masters Degree in Business
Administration from City College of New York.
Admiral Edward K. Walker, Jr. (Ret.) has been a director since October
1997. Since his retirement from the United States Navy in 1988, Admiral Walker
has been the Director of Corporate Strategy for Resource Consultants, Inc., a
privately held corporation supporting the Department of Defense, and other
government agencies. Prior to his retirement from the United States Navy,
Admiral Walker served for 34 years in various naval officer positions, including
Commander of the Naval Supply Systems Command, and Chief of Supply Corps.
Admiral Walker holds a Bachelors Degree from the United States Naval Academy and
Masters Degree in Business Administration from The George Washington University.
<PAGE>
Standing Director Biographies
Mr. Myron Levy has been our President 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).
Admiral Thomas J. Allshouse (Ret.) has been a director 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 since 1985 and our Secretary
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., our general counsel.
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.
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.
Directors' compensation
Directors who are not our employees receive an annual fee of $7,500 and a
fee of $1,500 for each interim board of directors or committee meeting attended.
During the fiscal year ended July 30, 2000 there were
-- four meetings of the Board of Directors
-- two meetings of the Audit Committee
-- one meeting of the Compensation Committee
Each director attended or participated in at least 75% of the meetings of
the Board of Directors and the committees on which he served.
Our Audit Committee is involved in discussions with management and our
independent public accountants with respect to financial reporting and our
internal accounting controls. The committee recommends to the Board the
appointment of the independent auditors. The independent auditors periodically
meet alone with the committee and always have unrestricted access to the
committee. Our Compensation Committee administers inactive compensation plans,
including stock option plans, options to officers and employees and establishes
the compensation structure for executives of our company.
See "Compensation Committee Report on Executive Compensation."
<PAGE>
PROPOSAL 2 -ADOPTION OF THE HERLEY INDUSTRIES, INC.
2000 STOCK OPTION PLAN
Introduction
At the meeting, you will be asked to vote on the adoption of the Herley
Industries, Inc. 2000 Stock Option Plan . The board adopted the 2000 Stock
Option Plan on September 7, 2000, subject to stockholder approval.
We believe that our long-term success depends upon our ability to attract
and retain qualified officers, directors, employees and consultants and to
motivate their best efforts on our behalf. Our directors, officers, employees
and consultants, as well as those of our subsidiaries and affiliates, are
eligible to participate in the 2000 Stock Option Plan. We believe that the 2000
Stock Option Plan will be an important part of our compensation of our
directors, officers, employees and consultants, particularly since as of
December 8, 2000, we only have approximately 310,000 shares available for grant
under all of our existing stock option plans.
The 2000 Stock Option Plan is set forth as Exhibit "A" to this proxy
statement. The principal features of the 2000 Stock Option Plan are summarized
below, but the summary is qualified in its entirety by the full text of the 2000
Stock Option Plan.
Stock Subject to the Plan
The stock to be offered under the 2000 Stock Option Plan consists of shares
of our common stock, whether authorized but unissued or reacquired. Up to
1,000,000 shares of common stock may be issuable upon the exercise of all stock
options under the 2000 Stock Option Plan. The number of shares issuable is also
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 2000 Stock Option Plan is to be administered by our board of directors
or by a compensation committee or a stock option committee consisting of no
fewer than two "non-employee directors," as defined in the Securities Exchange
Act of 1934. We expect that our compensation committee will administer the 2000
Stock Option Plan.
Subject to the terms of the 2000 Stock Option Plan, the board or the
committee may determine and designate the individuals who are to be granted
stock options under the 2000 Stock Option Plan, the number of shares to be
subject to options and the nature and terms of the options to be granted. The
board or the committee also has authority to interpret the 2000 Stock Option
Plan and to prescribe, amend and rescind the rules and regulations relating to
the 2000 Stock Option Plan. Although the committee may amend or modify any
outstanding stock option in any manner not inconsistent with the terms of the
2000 Stock Option Plan, the committee does not have the right to reprice any
outstanding options.
<PAGE>
Grant of Options
Our directors, officers, employees and consultants, as well as those of our
subsidiaries, are eligible to participate in the 2000 Stock Option Plan.
The options to be granted under the 2000 Stock Option Plan will be
non-qualified stock options. The exercise price for the options will be not less
than the market value of our common stock on the date of grant of the stock
option. The committee must adjust the option price, as well as the number of
shares subject to such option, in the event of stock splits, stock dividends,
recapitalizations and certain other events involving a change in our capital.
Exercise of Stock Options
Stock options granted under the 2000 Stock Option Plan shall expire not
later than ten years from the date of grant.
Stock options granted to employees under the 2000 Stock Option Plan become
exercisable up to half on the first anniversary of the grant date and up to all
on the second anniversary of the grant date unless otherwise specified by the
committee. Stock options granted to persons who are not employees become
exercisable as specified by the committee.
Upon the exercise of a stock option, optionees may pay the exercise price
in cash, by certified or bank cashiers check or, at our option, in shares of
common stock valued at its fair market value on the date of exercise, or a
combination of cash and stock. Withholding and other employment taxes applicable
to the exercise of an option shall be paid by the optionee at such time as the
board or the committee determines that the optionee has recognized gross income
under the Internal Revenue Code resulting from such exercise. These taxes may,
at our option, be paid in shares of common stock.
A stock option is exercisable during the optionee's lifetime only by him
and cannot be exercised by him unless, at all times since the date of grant and
at the time of exercise, he is employed by or providing services to us or any of
our subsidiaries or affiliates, except that, upon termination of his employment
or service (other than (1) by death, (2) by total disability followed by death
in the circumstances provided below or (3) by total disability), he may exercise
an option for a period of three months after his termination but only to the
extent such option is exercisable on the date of such termination. In the
discretion of the committee, options may be transferred to (1) members of the
optionee's family, (2) a trust, (3) a family limited partnership, or (4) an
estate planning vehicle primarily for the optionee's family.
Upon termination of all employment or service by total disability, the
optionee may exercise such options at any time within one year after his
termination, 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 (1) while an employee of, or
providing services to us or any subsidiary or affiliate, (2) within three months
after termination of all employment or service with us or any subsidiary or
affiliate (other than for total disability) or (3) within one year after
termination on account of total disability of all employment or service with us
or any subsidiary or affiliate, the 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 the optionee's option at any time within the
period of three years from the date of death. In the case of clauses (1) and (3)
above, the option shall be exercisable in full for all the remaining shares
covered by it, but in the case of clause (2) the option shall be exercisable
only to the extent it was exercisable on the date of such termination of
employment or service.
Change in Control
In the event of a "change in control," at the option of the committee (a)
all options outstanding on the date of the change in control shall become
immediately and fully exercisable, and (b) an optionee will be permitted to
surrender for cancellation within sixty (60) days after the 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.
For the purposes of the 2000 Stock Option Plan, a change in control is
defined as
-- a change in control as such term is presently defined in Regulation
240.12b-(2) under the Securities Exchange Act of 1934; or
-- if any "person" (as such term is used in Section 13(d) and 14(d) of the
Exchange Act) other than Herley or any "person" who on the date of the
adoption of the 2000 Stock Option Plan is a director or officer of Herley,
becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the
Exchange Act) directly or indirectly, of securities representing twenty
percent (20%) or more of the voting power of our then outstanding
securities; or
-- if during any period of two (2) consecutive years during the term of the
2000 Stock Option Plan, individuals who at the beginning of such period
constitute the board of directors, cease for any reason to constitute at
least a majority of the board.
Federal Income Tax Consequences
The following is a brief summary of the principal federal income tax
consequences under current federal income tax laws relating to the options. This
summary is not intended to be exhaustive. Among other things, it does not
describe state, local or foreign income tax consequences.
We understand that under present federal tax laws, the grant of stock
options creates no tax consequences for an optionee or for us. Upon exercising a
non-qualified stock option, the optionee must generally recognize ordinary
income equal to the "spread" between the exercise price and the fair market
value of the common stock on the date of exercise. The fair market value of the
shares on the date of exercise will constitute the tax basis for the shares for
computing gain or loss on their subsequent sale.
Compensation that is subject to a substantial risk of forfeiture generally
is not included in income until the risk of forfeiture lapses. Under current
law, optionees who are either directors, officers or more than 10% stockholders
are subject to the "short-swing" insider trading restrictions of Section 16(b)
of the Exchange Act of 1934. The Section 16(b) restriction is considered a
substantial risk of forfeiture for tax purposes. Consequently, the time of
recognition of compensation income and its amount will be determined when the
restriction ceases to apply. The Section 16(b) restriction lapses six months
after the date of exercise.
<PAGE>
Nevertheless, an optionee who is subject to the Section 16(b) restriction
is entitled to elect to recognize income on the date of exercise of the option.
The election must be made within 30 days of the date of exercise. If the
election is made, the results are the same as if the optionee were not subject
to the Section 16(b) restriction.
If permitted by our board of directors and if the optionee pays the
exercise price of an option in whole or in part with previously-owned shares of
common stock, the optionee's tax basis and holding period for the newly-acquired
shares is determined as follows: As to a number of newly-acquired shares equal
to the number of previously-owned shares used by the optionee to pay the
exercise price, the optionee's tax basis and holding period for the
previously-owned shares will carry over to the newly- acquired shares on a
share-for-share basis, thereby deferring any gain inherent in the
previously-owned shares. As to each remaining newly acquired share, the
optionee's tax basis will equal the fair market value of the share on the date
of exercise and the optionee's holding period will begin on the day after the
exercise date. The optionee's compensation income and our deduction will not be
affected by whether the exercise price is paid in cash or in shares of common
stock.
We will generally be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as an optionee is required to
recognize ordinary compensation income. We will be required to comply with
applicable federal income tax withholding and information reporting requirements
with respect to the amount of ordinary compensation income recognized by the
optionee. If our board of directors permits shares of common stock to be used to
satisfy tax withholding, such shares will be valued at their fair market value
on the date of exercise.
When a sale of the acquired shares occurs, an optionee will recognize
capital gain or loss equal to the difference between the sales proceeds and the
tax basis of the shares. Such gain or loss will be treated as capital gain or
loss if the shares are capital assets. The capital gain or loss will receive
long- term capital gain or loss treatment if the shares have been held for more
than 12 months. There will be no tax consequences to us in connection with a
sale of shares acquired under an option.
Recommendation of the Board
Our board of directors believes that it is in our best long-term interests
to have available for issuance under a stock option plan a sufficient number of
shares to attract, retain and motivate our highly qualified directors, officers,
employees and consultants by tying their interests to our stockholders'
interests. Accordingly, subject to the approval of our stockholders, our board
has adopted the 2000 Stock Option Plan under which options to acquire 1,000,000
shares may be granted.
The affirmative vote of a majority of the votes cast on this proposal in
person or by proxy at the annual meeting is required for approval of the 2000
Stock Option Plan.
Our board of directors recommends a vote FOR approval of the adoption of
the 2000 Stock Option Plan.
<PAGE>
SECURITY OWNERSHIP
The following table sets forth the indicated information as of October 29,
2000 with respect to the beneficial ownership of our securities by: (i) all
persons known to us to be beneficial owners of more than 5% of the outstanding
shares of common stock, (ii) each director and named executive officer of the
company, and (iii) by all executive officers and directors as a group:
<TABLE>
<CAPTION>
Shares of Common
Stock Beneficially
Director Owned (1)(5)
Name Age Since Shares Percent
---- --- -------- ------ -------
<S> <C> <C> <C> <C>
Lee N. Blatt (2)(4)(5) 72 1965 801,596 11.9%
Myron Levy (4)(5) 60 1992 857,074 12.8%
Allan L. Coon (4) 64 - 70,332 1.1%
Howard M. Eckstein (4) 49 - 12,000
Mitchell Tuckman (4) 50 - 8,000
Adm. Thomas J. Allshouse (4) 75 1983 39,666
David H. Lieberman (4) 55 1985 15,933
John A. Thonet (3)(4) 50 1991 48,693
Alvin M. Silver (4) 69 1997 31,500
Adm. Edward K. Walker, Jr. (Ret.) (4) 67 1997 23,500
Kennedy Capital Management, Inc. (6) - - 309,129 5.1%
Fidelity Management & Research, Inc.(7) - - 449,966 7.4%
Directors and executive
officers as a group
(10 persons) 1,908,294 25.1%
<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 312,602 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 117,332 shares, owned by Mr. Thonet's children, Hannah and
Rebecca Thonet, and 28,278 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
October 29, 2000 at prices ranging from $6.0938 to $16.46 per share
pursuant to the Company's Stock Plans: Lee N. Blatt - 566,666, Myron Levy -
566,666, Allan L. Coon - 65,332, Howard Eckstein - 12,000, Mitchell Tuckman
- 7,000, Adm. Thomas J. Allshouse - 28,333, David H. Lieberman - 15,333,
John A. Thonet - 28,333, Alvin M. Silver - 22,500, Edward K. Walker -
22,500.
(5) Includes shares subject to outstanding warrants exercisable within 60 days
after October 29, 2000 at a price of $4.6406: Lee N. Blatt - 133,333, Myron
Levy - 66,667.
(6) Address is 10829 Olive Boulevard, St. Louis, Missouri 63141.
(7) Address is 82 Devonshire Street , Boston, Massachusetts 02109.
</FN>
</TABLE>
<PAGE>
MANAGEMENT
Our Officers
Our officers are:
Name Position Held
---- -------------
Lee N. Blatt Chairman of the Board and Chief Executive
Officer
Myron Levy President and Director
David H. Lieberman Secretary and Director
Allan L. Coon Senior Vice President
Howard M. Eckstein Senior Vice President
Mitchell Tuckman Senior Vice President
John M. Kelley Senior Vice President
Anello C. Garefino Vice President-Finance, Treasurer and Chief
Financial Officer
Rozalie Schachter Vice President
Benjamin Robinson Vice President
Mr. Allan L. Coon joined us in 1992 and was appointed Senior Vice President
in December 1998, and served as a Vice President since December 1995. Prior to
joining us, 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. Howard M. Eckstein was appointed Senior Vice President in July 2000,
and served as Vice President and General Manager, Herley Vega since December
1998, and was Vice President-New Product Development upon joining us in April
1998. Mr. Eckstein has 25 years experience in the design and development of
aerospace telemetry equipment and systems. Mr. Eckstein served from 1992 to 1998
as Vice President - Advanced Products for L3 Communications, and as Vice
President - Engineering from 1986 to 1992. Mr. Eckstein earned his Bachelors
Degree in Electrical Engineering from the Pennsylvania State University and
holds a Masters Degree in Engineering from the University of Pennsylvania.
Mr. Mitchell Tuckman was appointed Senior Vice President in July 2000, and
served as our Vice President since the acquisition of General Microwave
Corporation ("GMC") in January 1999. At the time of the acquisition, Mr. Tuckman
was President - Chief Executive Officer of GMC since March, 1995. He was
Executive Vice President and Chief Operating Officer of GMC from August, 1994
until March, 1995. From June, 1993 until August, 1994, Mr. Tuckman was Vice
President-Microwave Engineering of GMC. Prior to that, he was Chief Microwave
Engineer of GMC.
<PAGE>
Mr. John Kelley was appointed Senior Vice President in July 2000, and
served as Vice President/Director of Corporate Communications since March 2000.
Mr. Kelley joined us in December 1998 as Director of Investor Relations. Prior
to joining Herley, Mr. Kelley had fifteen years of banking experience, most
recently serving as Vice President at First Capital Bank. Mr. Kelley earned his
BS in Finance from the University of Arizona, Tucson Arizona with Graduate
Degree Studies at UCLA.
Mr. Anello C. Garefino has been employed by us in various executive
capacities for more than the past five years. Mr. Garefino, a certified public
accountant, was appointed Vice President-Finance, Treasurer and Chief Financial
Officer in June 1993. From 1987 to January 1990, Mr. Garefino was Corporate
Controller of Exide Corporation.
Dr. Rozalie Schachter was appointed Vice President in May 2000. Dr.
Schachter joined General Microwave in 1990 and was Vice President, Business
Development when we acquired General Microwave in January 1999. Prior to joining
General Microwave Dr. Schachter held positions as Technical Director and Group
Leader at American Cyanamid Co. and Stauffer Chemical Co., respectively. Dr.
Schachter received her BS from Brooklyn College in 1968, MS from Yeshiva
University in 1970 and PHD in Physics from New York University in 1979.
Mr. Benjamin Robinson was appointed our Vice President upon the acquisition
of Robinson Laboratories, Inc. in January 2000. Mr. Robinson founded Robinson
Labs in 1980 and served as President since that time. Mr. Robinson has over 35
years experience in the design and manufacture of microwave products and has
published technical articles in that field. Mr. Robinson holds a Bachelor of
Electrical Engineering from Rensselaer Polytechnic Institute.
<PAGE>
Executive Compensation
The following table sets forth the annual and long-term compensation with
respect to our Chairman/Chief Executive Officer, and our four most highly
compensated executive officers other than the Chief Executive Officer (the
"named executive officers") for services rendered for the fiscal years ended
July 30, 2000, August 1, 1999 and August 2, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1) Long-Term Compensation
Name and Securities
Principal Fiscal Underlying All Other
Position Year Salary(2) Bonus(3) Options/SARs Compensation
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lee N. Blatt 2000 $ 637,879 $ 539,619 150,000 (4) $ 4,800 (6)
Chairman of 1999 475,908 538,126 500,000 (5) 4,800
the Board 1998 485,549 303,191 - 4,800
Myron Levy 2000 $ 471,590 $ 431,695 150,000 (4) $ 6,924 (6)
President 1999 329,166 430,501 500,000 (5) 9,525
1998 333,912 242,553 - 9,300
Allan L. Coon 2000 $ 158,758 $ 50,000 15,000 (4) $ 8,094 (6)
Senior 1999 137,157 35,000 20,000 (5) 6,502
Vice President 1998 110,011 30,000 - 6,153
Howard Eckstein 2000 $ 120,016 $ 20,000 10,000 (4) $ 4,402 (6)
Senior 1999 114,240 3,000 15,000 (5) 4,083
Vice President 1998 24,231 - - 727
Mitchell Tuckman 2000 $ 160,000 $ - 10,000 (4) $ 5,059 (6)
Senior 1999 92,308 44,985 - (5) 2,664
Vice President
<FN>
--------
(1) Does not include Other Annual Compensation because amounts of certain
perquisites and other non-cash benefits provided by us do not exceed the
lesser of $50,000 or 10% of the total annual base salary and bonus
disclosed in this table for the respective officer.
(2) Amounts set forth herein include cost of living adjustments for Messrs.
Blatt and Levy under employment contracts.
(3) Represents for Messrs. Blatt and Levy incentive compensation under
employment agreements.
(4) Consisting of the following options issued in May 2000 for the right to
purchase Common Stock of the Company at a price of $15.688: Lee N. Blatt -
150,000, Myron Levy - 150,000, Allan L. Coon - 15,000, Howard Eckstein -
10,000, and Mitchell Tuckman - 10,000.
(5) Consisting of the following options issued in August 1998 for the right to
purchase common stock at a price of $9.25: Lee N. Blatt - 250,000, and
Myron Levy - 250,000; options granted in December 1998 at a price of
$11.44: Allan L. Coon - 10,000, and Howard Eckstein - 7,500; and at a price
of $13.15 (at 115% of the market price on date of issue): Allan L. Coon -
<PAGE>
10,000, and Howard Eckstein - 7,500; and options granted in June 1999 at a
price of $12.13: Lee N. Blatt - 125,000, and Myron Levy - 125,000, and at a
price of $13.94 (at 115% of the market price on date of issue): Lee N.
Blatt - 125,000, and Myron Levy - 125,000.
(6) All Other Compensation includes: (a) group term life insurance as follows:
$2,124 for Mr. Levy, $3,294 for Mr. Coon, $502 for Mr. Eckstein, and $259
for Mr. Tuckman, and (b) contributions to the Company's 401(k) Plan as a
pre-tax salary deferral as follows: $4,800 for each of Messrs. Blatt, Levy,
Coon and Tuckman, and $3,900 for Mr. Eckstein.
</FN>
</TABLE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning the stock
options granted to the named executive officers during fiscal 2000. Since the
end of fiscal 2000, we have not granted any stock options or warrants to any of
these individuals.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Number of Potential Realized Value at
Securities % of Total Assumed Annual Rates of
Underlying Options Issued Exercise Stock Price Appreciation
Options to Employees in Price Expiration Option Term (3)
Name Granted(1) Fiscal Year(2) ($/Sh) Date 0% 5% 10%
---- ---------- --------------- -------- ---------- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Lee N. Blatt 150,000 22 $15.69 5/18/10 $ 0.00 $ 1,479,915 $ 3,750,395
Myron Levy 150,000 22 $15.69 5/18/10 $ 0.00 $ 1,479,915 $ 3,750,395
Allan L. Coon 15,000 2 $15.69 5/18/10 $ 0.00 $ 147,991 $ 375,039
Howard Eckstein 10,000 2 $15.69 5/18/05 $ 0.00 $ 43,343 $ 95,777
Mitchell Tuckman 10,000 2 $15.69 5/18/05 $ 0.00 $ 43,343 $ 95,777
<FN>
--------
(1) Options were issued in fiscal 2000 at 100% of the closing price of our
common stock on dates of issue and vest as follows: Lee N. Blatt, Myron
Levy and Allan L. Coon - at date of grant, Howard Eckstein and Mitchell
Tuckman - one fifth of the options vest one year from date of grant and one
fifth each year thereafter.
(2) Total options issued to employees and directors in fiscal 2000 were for
842,500 shares of common stock.
(3) The amounts under the columns labeled "5%" and "10%" are included by us
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 greater than or 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>
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 2000
and all unexercised stock options and warrants held by the named executive
officers as of July 30, 2000.
<PAGE>
<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 at Fiscal Year-End (2)
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ---------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lee N. Blatt - $ - 616,666 83,333 $ 4,542,008 $ 789,080
Myron Levy - - 550,000 83,333 3,603,457 789,080
Allan L. Coon 15,000 104,843 61,332 12,000 553,927 77,078
Howard Eckstein - - 9,000 23,500 55,696 113,854
Mitchell Tuckman - - 8,000 22,000 26,660 70,300
<FN>
--------
(1) Values are calculated by subtracting the exercise price from the trading
price of the common stock as of the exercise date.
(2) Based upon the trading price of the common stock of $18.719 on July 30,
2000.
</FN>
</TABLE>
Employment Agreements
Lee N. Blatt has entered into an employment agreement with us, dated as of
October 1, 1998, (as modified January 26, 1999 and June 17, 1999), which
provides for a four year and three month term, terminating on December 31, 2002.
Pursuant to the agreement, Mr. Blatt receives compensation consisting of a base
salary of $604,933, as adjusted June 30, 2000, with an annual cost of living
increase plus an incentive bonus. Mr. Blatt's incentive bonus is 5% of our
pretax income in excess of $2,000,000.
Myron Levy has entered into an employment agreement with us, dated as of
October 1, 1998, (as modified January 26, 1999 and June 17, 1999), which
provides for a four year and three month term, terminating on December 31, 2002,
and a five year consulting period commencing at the end of the active employment
period. Pursuant to the agreement, Mr. Levy receives compensation consisting of
a base salary of $446,391, as adjusted June 30, 2000, with an annual cost of
living increase plus an incentive bonus. Mr. Levy's incentive bonus is 4% of our
pretax income in excess of $2,000,000. Mr. Levy's compensation during the
consulting period is at the annual rate of $100,000.
The employment agreements with Messrs. Blatt and Levy provide for certain
payments following death or disability. The employment agreements also provide,
in the event of a change in the control of the company, as defined therein, the
right, at their election, to terminate the agreement and receive a lump sum
payment of approximately three times their annual salary.
Messrs. Coon, Eckstein and Tuckman have each entered into a severance
agreement with the Company, dated July 26, 2000, which provides that in the
event of a change in control of the company prior to July 27, 2002, each is
entitled to two years' base salary. The base salary of each executive as of
November 1, 2000 is as follows: Mr. Coon $200,000, Mr. Eckstein $150,000, and
Mr. Tuckman $175,000.
Indemnification Agreements
We have entered into separate indemnification agreements with our officers
and directors. We have agreed to provide indemnification with regard to certain
legal proceedings so long as the indemnified officer or director has acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, our best interests and with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. We only provided
<PAGE>
indemnification for expenses, judgments, fines and amounts paid in settlement
actually incurred by the relevant officer or director, or on his or her behalf,
arising out of proceedings brought against such officer or director by reason of
his or her corporate status.
Certain Transactions
On September 23, 1999, we closed on the sale of GMC's property in Amityville,
New York and relocated the plant to a leased facility in Farmingdale, New York.
We entered into a 10-year lease agreement with a partnership owned by the
children of certain of our officers. The lease provides for initial minimum
annual rent of $312,390, subject to escalation of approximately 4% annually
throughout the 10 year term.
Additionally, in March 2000, we entered into another 10-year lease agreement
with the same partnership for additional space. The initial minimum annual rent
of $92,000 is subject to escalation of approximately 4% annually throughout the
10-year term.
We believe that these rents are at the fair market value. Our outside
directors unanimously approved this transaction.
Stock Plans
Certain of our officers and directors hold options or warrants to purchase
common stock under our 1996 Stock Option Plan, 1997 Stock Option Plan, and 1998
Stock Option Plan (collectively, the "Stock Plans"), and under certain warrant
agreements.
1996 Stock Option Plan. The 1996 Stock Option Plan covers 666,666 shares of
common stock. Options granted under the plan may be incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options. Under the terms of the plan, the exercise price of
options granted under the plan will be the fair market value at the date of
grant. 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. At July 30, 2000,
non-qualified options to purchase 58,664 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
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 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, subject to certain
restrictions. Options for 86,000 shares of common stock were granted during the
fiscal year ended July 30, 2000. At July 30, 2000, options to purchase 805,759
shares of common stock were outstanding under this plan.
1998 Stock Option Plan. The 1998 Stock Option Plan covers 1,500,000 shares of
common stock. Options granted under the plan may be incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options. Under the terms of the plan, the exercise price of
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
<PAGE>
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 up to ten years from the date of grant, subject to certain
restrictions. Options for 646,500 shares of common stock were granted during the
fiscal year ended July 30, 2000. At July 30, 2000, options to purchase 1,145,000
shares of common stock were outstanding under this plan.
On May 18, 2000, we issued 10 year options to purchase 150,000 shares of
common stock at a price of $15.688 per share, the fair market value at the date
of grant, under these plans to each of Lee N. Blatt and Myron Levy, which
options vest at grant date.
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 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, and the remaining 40,000 warrants were
exercised in March 1998. In December 1995, warrants were issued to certain
officers for the right to acquire 293,333 shares of common stock at an exercise
price of $4.6425 per share at date of issue. These warrants expire December 13,
2005. At July 30, 2000, warrants to purchase 213,333 shares of common stock at
$4.6425 per share were outstanding.
Employee Savings Plan
We maintain an Employee Savings Plan that qualifies as a thrift plan under
Section 401(k) of the Internal Revenue Code. This plan allows employees to
contribute between 2% and 15% of their salaries to the plan. At our discretion,
we can contribute 100% of the first 2% of the employees' salary so contributed
and 25% of the next 4% of salary. Additional contributions can be made by us,
depending on profits. The aggregate benefit payable to an employee depends upon
the employee's rate of contribution, the earnings of the fund, and the length of
time such employee continues as a participant. We recognize expenses of
approximately $415,000, $266,000 and $197,000 for the 52 weeks ended July 30,
2000, August 1, 1999 and August 2, 1998, respectively. For the year ended July
30, 2000, $4,800, $4,800, $4,800, $3,900, and $4,800 was contributed by us to
this plan for Messrs. Blatt, Levy, Coon, Eckstein and Tuckman, respectively, and
$32,520 was contributed for all officers and directors as a group.
Board of Directors Interlocks and Insider Participation
Our Compensation Committee consists of Messrs. Thomas J. Allshouse, Edward
K. Walker, Jr. and Alvin M. Silver. None of these persons were our officers or
employees during fiscal 2000 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 us under the Securities Act of 1933 or the Securities
Exchange Act.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of our executive officers is generally determined by the
Compensation Committee of the Board of Directors, subject to applicable
employment agreements and incentive plans. Each member of the Compensation
Committee is a director who is not employed by us or any of our affiliates. The
<PAGE>
following report with respect to certain compensation paid or awarded to our
executive officers during fiscal 2000 is furnished by the directors who
comprised the Compensation Committee during fiscal 2000.
Executive Compensation Objectives
Our compensation programs are intended to enable us to attract, motivate,
reward and retain the management talent required to achieve corporate
objectives, and thereby increase shareholder value. It is our policy to provide
incentives to its senior management to achieve both short-term and long-term
objectives and to reward exceptional performance and contributions to the
development of our businesses. To attain these objectives, our executive
compensation program includes a competitive base salary, cash incentive bonuses
and stock-based compensation. See "Management Employment Agreements."
Stock options are granted to employees, including our executive officers,
by the Compensation Committee under our stock option plans. The Committee
believes that stock options provide an incentive that focuses the executive's
attention on managing our company from the perspective of an owner with an
equity stake in the business. Options are awarded with an exercise price equal
to at least the market value of common stock on the date of grant and have a
maximum term of ten years. Among our executive officers, the number of shares
subject to options granted to each individual generally depends upon the level
of that officer's responsibility. The largest grants are awarded to the most
senior officers who, in the view of the Compensation Committee, have the
greatest potential impact on our profitability and growth. Previous grants of
stock options are reviewed but are not considered the most important factor in
determining the size of any executive's stock option award in a particular year.
From time to time, the Compensation Committee utilizes the services of
independent consultants to perform analyses and to make recommendations to the
Committee relative to executive compensation matters. No compensation consultant
is paid on a retainer basis.
Determining Executive Officer Compensation
The Compensation Committee annually establishes, subject to the approval of
the Board of Directors and any applicable employment agreements, the salaries
which will be paid to our executive officers during the coming year. In setting
salaries, the Compensation Committee takes into account several factors,
including competitive compensation data, the extent to which an individual may
participate in the stock plans maintained by us, and qualitative factors bearing
on an individual's experience, responsibilities, management and leadership
abilities, and job performance.
For fiscal 2000, pursuant to the terms of his employment agreement with us,
Mr. Myron Levy, our President, received a base salary and an incentive bonus
based on our Consolidated Pretax Earnings. See "Management Employment
Agreements." In light of this employment agreement, the Compensation Committee
was not required to make any decision regarding the compensation of Mr. Levy.
Mr. Levy was also granted certain stock options for the same reasons as are set
forth under "Compensation of Chief Executive Officer" below. Mr. Allan Coon, a
Senior Vice President received a base salary, a cash bonus and a grant of stock
options. Mr. Howard Eckstein, a Senior Vice President, also received a base
salary, bonus and a grant of stock options. Mr. Mitchell Tuckman, a Senior Vice
<PAGE>
President, received a base salary and stock options. The Compensation Committee
determined that the base salaries, bonus and grant of stock options were
appropriate given our financial performance, the substantial contributions made
by Messrs. Levy, Coon, Eckstein and Tuckman. to such performance and the
compensation levels of executives at companies competitive with us.
Compensation of Chief Executive Officer
For fiscal 2000, pursuant to the terms of his employment agreement with us,
Mr. Lee N. Blatt, our Chairman and Chief Executive Officer, received a base
salary, an incentive bonus based on our Consolidated Pretax Earnings and stock
options. See "Management -- Employment Agreements -- and Senior Management --
Incentive Compensation Plan." In light of this employment agreement, the
Compensation Committee was not required to make any decision regarding the
compensation of Mr. Blatt. The Compensation Committee granted to Mr. Blatt
options to purchase common stock. The Compensation Committee believes that stock
options provide an incentive for Mr. Blatt to maximize long-term shareholder
value.
Tax Considerations
As noted above, one of our objectives is to maintain cost-effective and tax
efficient executive compensation programs. Section 162(m) of the Internal
Revenue Code of 1986, as amended, limits the tax deduction to $1 million for
compensation paid to any one of the named executive officers identified in this
proxy statement unless certain requirements are met. One of the requirements is
that compensation over $1 million must be based upon attainment of performance
goals approved by stockholders. Our plans which have been approved by
stockholders are designed to meet these requirements. The Committee's policy is
to preserve corporate tax deductions attributable to the compensation of
executives while maintaining the flexibility to approve, when appropriate,
compensation arrangements which it deems to be in the best interests of our
company and our stockholders, but which may not always qualify for full tax
deductibility.
The Compensation Committee: Thomas J. Allshouse
Edward K. Walker
Alvin M. Silver
AUDIT COMMITTEE REPORT
The Audit Committee has adopted a charter to set forth its responsibilities.
A copy of the charter is attached as Exhibit "B" to this proxy statement.
The Audit Committee has reviewed and discussed with management the Company's
audited financial statements as of and for the year ended July 30, 2000.
The Committee has also received and reviewed the written disclosures and the
letter from the independent auditors required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the Independence
Standards Board, and has discussed with the auditors the auditors' independence.
<PAGE>
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the financial statements referred to
above be included in the Company's Annual Report on Form 10-K for the year ended
July 30, 2000 for filing with the Securities and Exchange Commission.
The Audit Committee: Thomas J. Allshouse
Edward K. Walker
Alvin M. Silver
Independence of Audit Committee
In fiscal 2000, our Audit Committee consisted of Thomas J. Allshouse -
Chairman , Edward K. Walker and Alvin M. Silver, all of whom are independent
within the meaning of applicable rules and regulations.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires our executive officers, directors
and persons who own more than ten percent of a registered class of our equity
securities (Reporting Persons") to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers, Inc. (the "NASD").
These Reporting Persons are required by SEC regulations to furnish us with
copies of all Forms 3, 4 and 5 they file with the SEC and NASD.
Based solely upon our review of the copies of the forms it has received, we
believe that all Reporting Persons complied on a timely basis with all filing
requirements applicable to them with respect to transactions during fiscal year
2000.
<PAGE>
COMMON STOCK PERFORMANCE
The following graph sets forth the cumulative total stockholder return to
our stockholders during the five year period ended July 30, 2000 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
-----------------------------------------------------------------------
7/95 7/96 7/97 7/98 7/99 7/00
<S> <C> <C> <C> <C> <C> <C>
HERLEY INDUSTRIES, INC. 100.00 162.79 258.14 246.52 344.19 446.51
NASDAQ STOCK MARKET (U.S.) 100.00 108.96 160.79 189.28 270.71 385.48
S & P AEROSPACE/DEFENSE 100.00 129.76 183.87 139.72 146.26 145.55
<FN>
* $100 invested on July 31, 1995 in stock or index, including reinvestment of
dividends. Fiscal year ending July 31.
</FN>
</TABLE>
<PAGE>
MISCELLANEOUS INFORMATION
A representative of Arthur Andersen LLP, the Company's independent public
accountants for the fiscal year July 30, 2000, 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 September 19, 2001 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, 2000
has been provided to all stockholders as of the Record Date. The Annual Report
is not to be considered as proxy soliciting material.
By Order of the Board of Directors,
LEE N. BLATT
Chairman of the Board
Dated: December 13, 2000
Lancaster, Pennsylvania
<PAGE>
Exhibit A
HERLEY INDUSTRIES, INC.
2000 Stock Option Plan
----------------------
SECTION 1. GENERAL PROVISIONS
------------------
1.1 Name and General Purpose
------------------------
The name of this plan is the Herley Industries, Inc. 2000 Stock Option Plan
(hereinafter called the "Plan"). The Plan is intended to be a broadly-based
incentive plan which enables Herley Industries, Inc. (the "Company") and its
subsidiaries and affiliates to foster and promote the interests of the Company
by attracting and retaining directors, officers and employees of, and
consultants to, the Company who contribute to the Company's success by their
ability, ingenuity and industry, to enable such directors, officers, employees
and consultants 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-(2) 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
<PAGE>
(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. "Committee" means the Committee referred to in Section 1.3 of the
Plan.
e. "Common Stock" means shares of the Common Stock, par value $.10
per share, of the Company.
f. "Company" means Herley Industries, Inc., a corporation organized
under the laws of the State of Delaware (or any successor
corporation).
g. "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 the NASDAQ on such date,
Fair Market Value shall be determined by the Committee.
h. "Non-Employee Director" shall have the meaning set forth in Rule
16(b) promulgated by the Securities and Exchange Commission
("Commission").
i. "Option" means any option to purchase Common Stock under Section
2 of the Plan.
j. "Option Agreement" means the option agreement described in
Section 2.4 of the Plan.
k. "Participant" means any director, officer, employee or consultant
of the Company, a Subsidiary or an Affiliate who is selected by
the Committee to participate in the Plan.
l. "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.
m. "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 Board or by the Committee appointed by
the Board consisting of two or more members of the Board all of whom shall be
Non-Employee Directors. 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.
<PAGE>
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.
1.4 Eligibility
-----------
Stock Options may be granted only to directors, officers, employees or
consultants of the Company or a Subsidiary or Affiliate. All employees are
eligible to receive Stock Options under the Plan. Any person who has been
granted any Option may, if he is otherwise eligible, be granted an additional
Option or Options.
1.5 Shares
------
The aggregate number of shares reserved for issuance pursuant to the Plan
shall be 1,000,000 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.
<PAGE>
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, at the option of the Board or Committee,
(a) all Options outstanding on the date of such Change in Control shall 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.
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.
<PAGE>
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 alter or impair any right theretofore granted to any
Participant.
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 Section
2.3(c) below, to accelerate the date or dates as of which an
installment of an Option becomes exercisable; provided, that the
Committee shall not have the right to reprice any outstanding
Options.
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.
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 or service 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.
<PAGE>
1.12 Effective Dates
---------------
The Plan was adopted by the Board on September 7, 2000. The Plan shall
terminate on September 6, 2010.
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 shall be non-qualified stock options.
The Committee shall have the authority to grant Options.
2.2 Option Exercise Price
---------------------
The exercise price set forth in the Option Agreement at the time of grant
shall not be less than the Fair Market Value of the Common Stock at the time
that 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 Option Grants
-------------
Each Option will be subject to the following provisions:
<PAGE>
a. Term of Option
--------------
An Option will be for a term of not more than ten years from
the date of grant.
b. Exercise
--------
(i) By an Employee:
--------------
Unless otherwise provided by the Committee and except in the manner
described below upon the death of the optionee, an Option may be
exercised only in installments as follows: up to one-half of the
subject shares on and after the first anniversary of the date of
grant, up to all of the subject shares on and after the second 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 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 or providing services to the Company, any
parent corporation of the Company or any Subsidiary or Affiliate,
except that, upon termination of all such employment or provision of
services (other than by death, Total Disability, or by Total
Disability followed by death in the circumstances provided below), the
optionee may exercise an Option at any time within three months
thereafter but only to the extent such Option is exercisable on the
date of such termination.
Upon termination of all such employment by Total Disability, the
optionee may exercise such Options at any time within one year
thereafter, but only to the extent such Option is exercisable on the
date of such termination.
In the event of the death of an optionee (i) while an employee of or
providing services to the Company, any parent corporation of the
Company or any Subsidiary or Affiliate, or (ii) within three months
after termination of all such employment or provision of services
(other than for Total Disability) or (iii) within one year after
termination on account of Total Disability of all such employment or
provision of services, 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 three years 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 of
employment or service.
<PAGE>
(ii) By Persons other than Employees:
-------------------------------
If the optionee is not an employee of the Company or the parent
corporation of the Company or any Subsidiary or Affiliate, the vesting
of such optionee's right to exercise his Options shall be established
and determined by the Committee in the Option Agreement covering the
Options granted to such optionee.
Notwithstanding the foregoing provisions regarding the exercise of an
Option in the event of death, Total Disability, other termination of
employment or provision of services or otherwise, in no event shall an
Option be exercisable in whole or in part after the termination date
provided in the Option Agreement.
c. Transferability
---------------
An Option granted under the Plan shall not be transferable otherwise
than by will or by the laws of descent and distribution, except as may
be permitted by the Board or the Committee.
2.4 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.
<PAGE>
Exhibit B
HERLEY INDUSTRIES, INC.
CHARTER OF THE AUDIT COMMITTEE
------------------------------
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
-- Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
-- Monitor the independence and performance of the Company's independent
auditors.
-- Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at the Company's expense, special legal, accounting,
or other consultants or experts it deems necessary in the performance of its
duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the NASD. The Audit
Committee shall be comprised such number of directors as determined by the
Board, but no less than three directors, each of whom shall be an independent
director (as such is defined by Nasdaq rules), free from any relationship that
would interfere with the exercise of his or her independent judgment. All
members of the Committee shall have a basic understanding of finance and
accounting and be able to read and understand fundamental financial statements,
and at least one member of the Committee shall have past employment experience
in finance or accounting, requisite professional certification in accounting or
comparable experience or background resulting in the individual's financial
sophistication.
Audit Committee members shall be elected by the Board at the annual meeting
of the Board or until their successors shall be duly elected and qualified. If
an audit committee Chair is not designated, the members of the Committee may
designate a Chair by majority vote of the Committee membership.
The Committee shall meet at least two times annually, or more frequently as
circumstances dictate. The Audit Committee Chair shall prepare and/or approve an
agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the independent auditors,
and as a committee to discuss any matters that the Committee or each of these
groups believe should be discussed.
<PAGE>
III. Audit Committee Responsibilities and Duties
Review Procedures
-----------------
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
2. Review the Company's annual audited financial statements. Review
should include discussion with management and independent auditors of
significant issues regarding accounting principles, practices, and
judgments.
3. In consultation with management and the independent auditors, consider
the integrity of the Company's financial reporting process and
controls. Discuss significant financial risk exposures and the steps
management has taken to monitor, control, and report exposures. Review
significant findings prepared by the independent auditors together
with management's responses.
4. Review with management and the independent auditors the company's
annual audited financial statements. Discuss the following items
required to be communicated by the independent auditors in accordance
with AICPA Statement of Auditing Standards 61:
(a) the auditor's responsibilities in accordance with generally
accepted accounting standards;
(b) the initial selection of and changes in significant accounting
policies or their application;
(c) managements' judgments and accounting estimates;
(d) significant audit adjustments;
(e) other information in documents containing audited financial
statements, such as the MD&A;
(f) disagreements with management;
<PAGE>
(g) consultation with other accountants;
(h) major issues discussed with management prior to retention;
(i) difficulties encountered in performing the audit; and
(j) the auditor's judgments about the quality of the Company's
accounting principles.
Independent Auditors
--------------------
5. The independent auditors are ultimately accountable to the Audit Committee
and the Board of Directors. The Audit Committee shall review the
independence and performance of the auditors and annually recommend to the
Board of Directors the appointment of the independent auditors or approve
any discharge of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships the auditors have with
the Company that could impair their independence.
8. Review the independent auditors audit plan.
9. Discuss the results of the audit with the independent auditors, including
the matters required to be communicated to audit committees in accordance
with AICPA Statement of Auditing Standards 61, as then in effect.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
<PAGE>
Other Audit Committee Responsibilities
--------------------------------------
11. Annually prepare a report to shareholders as required by the Securities and
Exchange Commission. The report should be included in the Company's annual
proxy statement.
12. Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or the Board deems necessary
or appropriate.
13. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
Nor is it the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's Code of Conduct.
<PAGE>
HERLEY INDUSTRIES, INC.
The undersigned hereby appoints Myron Levy 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 January 18, 2001 and any adjournments thereof.
The Board of Directors recommends a vote FOR the following proposals:
1. Election of nominees listed at right, as set forth in the proxy statement:
Nominees:
Lee N. Blatt
Adm. Edward K. Walker, Jr. (Ret.)
[ ] FOR all nominees at right [ ] WITHHOLD AUTHORITY to vote
(Instruction: To withhold authority to vote for any individual nominee,
print the nominee's name on the line provided below)
--------------------------------------------------------------------------------
2. To consider and act upon a proposal to ratify the adoption of a 2000 Stock
Option Plan, as set forth in the proxy statement as "Exhibit A.".
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To consider and act upon such other business as may properly come before
the meeting or any adjournment thereof.
(Continued and to be signed on reverse side)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF THEM, AS
SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING. SHAREHOLDERS MAY WITHHOLD THE VOTE FOR ONE OR MORE
NOMINEE(S) BY WRITING THE NOMINEE(S) NAME(S) IN THE BLANK SPACE PROVIDED ON THE
LEFT HEREOF. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
PROPOSALS SET FORTH ABOVE.
Dated: __________________
_________________________________________________[L.S.]
_________________________________________________[L.S.]
(Note: Please sign exactly as your name appears hereon.
Executors, administrators, trustees, etc. should so
indicate when signing, giving full title as such. If
signer is a corporation, execute in full corporate name
by authorized officer. If shares are held in the name
of two or more persons, all should sign.)
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
