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):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: _________________________________________________
(2) Form, Schedule or Registration Statement No.:____________________________
(3) Filing Party:____________________________________________________________
(4) Date Filed:______________________________________________________________
HERLEY INDUSTRIES, INC.
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
January 10, 2002
----------------------
To our Stockholders:
An annual meeting of stockholders will be held at Le Meridien, 250 Franklin
Street, Boston, Massachusetts 02110 on Thursday, January 10, 2002 beginning at
9:00 a.m. At the meeting, you will be asked to vote on the following matters:
1. Election of three directors.
2. Any other matters that properly come before the meeting.
The above matters are set forth in the Proxy Statement attached to this
notice to which your attention is directed.
If you are a stockholder of record at the close of business on November 21,
2001, 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 November 26, 2001.
By Order of the Board of Directors,
LEE N. BLATT
Chairman of the Board
Dated: November 26, 2001
Lancaster, Pennsylvania
HERLEY INDUSTRIES, INC.
3061 Industry Drive
Lancaster, Pennsylvania 17603
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
Thursday, January 10, 2002
Our annual meeting of stockholders will be held on Thursday, January 10,
2002, at Le Meridien, 250 Franklin Street, Boston, Massachusetts 02110 at 9:00
a.m.. This proxy statement contains information about the matters to be
considered at the meeting or any adjournments or postponements of the meeting.
ABOUT THE MEETING
What is being considered at the meeting?
You will be voting on the following:
-- election of directors.
We do not expect to ask you to vote on any other matters at the meeting.
In addition, our management will report on our performance during fiscal
2001 and respond to your questions.
Who is entitled to vote at the meeting?
You may vote if you owned stock as of the close of business on November 21,
2001. 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.
2
What if I return my proxy card but do not include voting instructions?
Proxies that are signed and returned but do not include voting instructions
will be voted FOR the election of the nominee directors.
What does it mean if I receive more than one proxy card?
It means that you have multiple accounts with brokers and/or our transfer
agent. Please vote all of these shares. We recommend that you contact your
broker and/or our transfer agent to consolidate as many accounts as possible
under the same name and address. Our transfer agent is American Stock Transfer &
Trust Company, 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 November 21,
2001, must be present at the meeting. This is referred to as a quorum. On
November 21, 2001, we had 11,194,667 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.
3
PROPOSAL I - ELECTION OF DIRECTORS
Our certificate of incorporation provides for a board of directors
consisting of not less than three nor more than twelve directors, classified
into three classes as nearly equal in number as possible, whose terms of office
expire in successive years. Our board of directors now consists of seven
directors. The directors in each class are:
Class I Class II Class III
(To serve until the (To serve until the (To serve until the
Annual Meeting of Annual Meeting of Annual Meeting of
Stockholders in 2003) Stockholders in 2004) Stockholders in 2002)
----------------------- --------------------- ----------------------
Lee N. Blatt Myron Levy Adm. Thomas J. Allshouse (Ret.)(1)
Adm. Edward K. Walker, Jr.(Ret.)(1) John A. Thonet David H. Lieberman
Dr. Alvin M. Silver (1)
- ----------
<FN>
(1) Member of Compensation and Audit Committees
</FN>
Myron Levy, John A. Thonet and Dr. Alvin M. Silver, directors in Class II,
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. Myron Levy has been our Chief Executive Officer since August 2001 and
served as President since June 1993, and 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. 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.
4
Standing Director 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.
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.
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 29, 2001 there were
-- five meetings of the Board of Directors
-- three meetings of the Audit Committee
-- one meeting of the Compensation Committee
Our Audit Committee is involved in discussions with management and our
independent public accountants with respect to financial reporting and our
internal accounting controls. The committee recommends to the Board the
appointment of the independent auditors. The independent auditors periodically
meet alone with the committee and always have unrestricted access to the
committee. Our Compensation Committee administers inactive compensation plans,
including stock option plans, options to officers and employees and establishes
the compensation structure for executives of our company. See "Compensation
Committee Report on Executive Compensation." Each director attended or
participated in at least 75% of the meetings of the Board of Directors and the
committees on which he served.
5
SECURITY OWNERSHIP
The following table sets forth the indicated information as of October 28,
2001 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:
Shares of Common
Stock Beneficially
Director Owned (1)(5)
Name Age Since Shares Percent
- ---- --- -------- ------ -------
Lee N. Blatt (2)(4)(5) 73 1965 1,107,520 9.2%
Myron Levy (4)(5) 61 1992 942,680 8.1%
Allan L. Coon (4) 65 - 13,500
Howard M. Eckstein (4) 50 - 27,750
Mitchell Tuckman 51 - 1,500
Adm. Thomas J. Allshouse (4) 76 1983 73,249
David H. Lieberman (4) 56 1985 20,150
John A. Thonet (3)(4) 51 1991 81,788
Alvin M. Silver (4) 70 1997 56,250
Adm. Edward K. Walker, Jr.(Ret.)(4) 68 1997 42,750
Royce & Associates (6) - - 839,400 7.5%
Directors and executive
officers as a group
(10 persons) 2,367,137 18.6%
- ---------
<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 378,902 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 155,998 shares, owned by Mr. Thonet's children, Hannah and
Rebecca Thonet, and 32,417 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 28, 2001 at prices ranging from $4.0625 to $10.4587 per share
pursuant to the Company's Stock Plans: Lee N. Blatt - 601,000, Myron Levy -
375,000, Allan L. Coon - 6,000, Howard Eckstein - 27,750, Adm. Thomas J.
Allshouse - 56,250, David H. Lieberman - 19,250, John A. Thonet - 61,250,
Alvin M. Silver - 56,250, Edward K. Walker - 41,250.
(5) Includes shares subject to outstanding warrants exercisable within 60 days
after October 28, 2001 at a price of $3.0937: Lee N. Blatt - 200,000, Myron
Levy - 100,000.
(6) Address is 1414 Avenue of the Americas, Ninth Floor, New York, NY 10019.
</FN>
6
MANAGEMENT
Our Officers
Our officers are:
Name Position Held
- ---- -------------
Lee N. Blatt Chairman of the Board
Myron Levy Chief Executive Officer 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
Rozalie Schachter Senior Vice President
Anello C. Garefino Vice President-Finance, Treasurer and Chief
Financial Officer
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.
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.
7
Dr. Rozalie Schachter was appointed Senior Vice President in August 2001,
and served as Vice President since May 2000. Dr. Schachter joined General
Microwave in 1990 and was Vice President, Business Development when we acquired
General Microwave in January 1999. Prior to joining General Microwave Dr.
Schachter held positions as Technical Director and Group Leader at American
Cyanamid Co. and Stauffer Chemical Co., respectively. Dr. Schachter received her
BS from Brooklyn College in 1968, MS from Yeshiva University in 1970 and PHD in
Physics from New York University in 1979.
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.
Executive Compensation
The following table sets forth the annual and long-term compensation with
respect to our Chairman, Chief Executive Officer, and our three most highly
compensated executive officers other than the Chief Executive Officer (the
"named executive officers") for services rendered for the fiscal years ended
July 29, 2001, July 30, 2000 and August 1, 1999.
Summary Compensation Table
Annual Compensation (1) Long-Term Compensation
------------------------------------------ -------------------------------------
Name and Securities
Principal Fiscal Underlying All Other
Position Year Salary (2) Bonus (3) Options/SARs (4) Compensation
- -------------------------------------------------------------------------------------------------------
Lee N. Blatt 2001 $ 630,959 $ - 150,000 (5) $ 4,800 (8)
Chairman of 2000 637,879 539,619 225,000 (6) 4,800
the Board 1999 475,908 538,126 750.000 (7) 4,800
Myron Levy 2001 $ 465,593 $ - 150,000 (5) $ 6,348 (8)
Chief Executive 2000 471,590 431,695 225,000 (6) 6,924
Officer 1999 329,166 430,501 750,000 (7) 9,525
Allan L. Coon 2001 $ 197,681 $ - 15,000 (5) $ 7,572 (8)
Senior 2000 158,758 50,000 22,500 (6) 8,094
Vice President 1999 137,157 35,000 30,000 (7) 6,502
Howard Eckstein 2001 $ 145,972 $ 25,000 15,000 (5) $ 5,250 (8)
Senior 2000 120,016 20,000 15,000 (6) 4,402
Vice President 1999 114,240 3,000 22,500 (7) 4,083
Mitchell Tuckman 2001 $ 173,269 $ 6,875 11,250 (5) $ 5,140 (8)
Senior 2000 160,000 - 15,000 (6) 5,059
Vice President 1999 92,308 44,985 30,000 (7) 2,664
- --------
<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.
8
(2) Amounts set forth herein include cost of living adjustments for Messrs.
Blatt and Levy under employment contracts.
(3) Represents for Messrs. Blatt and Levy incentive compensation under
employment agreements. The incentive under the contracts was waived by
these individuals for fiscal year 2001.
(4) Adjusted to give effect to a three-for-two stock split on September 10,
2001.
(5) Consisting of the following options issued in March 2001 for the right to
purchase Common Stock of the Company at a price of $8.3753: Lee N. Blatt -
150,000, Myron Levy - 150,000, Allan L. Coon - 15,000, Howard Eckstein -
15,000, and Mitchell Tuckman - 11,250.
(6) Consisting of the following options issued in May 2000 for the right to
purchase Common Stock of the Company at a price of $10.4587: Lee N. Blatt -
225,000, Myron Levy - 225,000, Allan L. Coon - 22,500, Howard Eckstein -
15,000, and Mitchell Tuckman - 15,000.
(7) Consisting of the following options issued in August 1998 for the right to
purchase common stock at a price of $6.1667 Lee N. Blatt - 375,000, and
Myron Levy - 375,000; options granted in December 1998 at a price of
$7.6253: Allan L. Coon - 15,000, and Howard Eckstein - 11,250; and at a
price of $8.7691 (at 115% of the market price on date of issue): Allan L.
Coon - 15,000, and Howard Eckstein - 11,250; and options granted in June
1999 at a price of $8.0833: Lee N. Blatt - 187,500, and Myron Levy -
187,500, and at a price of $9.2958 (at 115% of the market price on date of
issue): Lee N. Blatt - 187,500, and Myron Levy - 187,500; and options
granted in January 1999 at a price of 10.9733 (at 115% of the market price
on date of issue): Mitchell Tuckman - 15,000, and at a price of $9.542:
Mitchell Tuckman - 15,000.
(8) All Other Compensation includes: (a) group term life insurance as follows:
$1,548 for Mr. Levy, $2,772 for Mr. Coon, $450 for Mr. Eckstein, and $340
for Mr. Tuckman, and (b) contributions to the Company's 401(k) Plan as a
pre-tax salary deferral as follows: $4,800 for each of Messrs. Blatt, Levy,
Coon, Eckstein and Tuckman.
</FN>
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning the stock
options granted to the named executive officers during fiscal 2001. Since the
end of fiscal 2001, we have not granted any stock options or warrants to any of
these individuals.
Individual Grants (1)
---------------------------------------------
Number of Potential Realized Value at
Securities % of Total Assumed Annual Rates of
Underlying Options Issued Exercise Stock Price Appreciation
Options to Employees in Price Expiration Option Term (4)
Name Granted(2) Fiscal Year(3) ($/Sh) Date 0% 5% 10%
- ---- ----------- ---------------- -------- ----------- ----------- ----------- -----------
Lee N. Blatt 150,000 20 $ 8.38 3/12/11 $ 0.00 $ 790,077 $ 2,002,211
Myron Levy 150,000 20 $ 8.38 3/12/11 $ 0.00 $ 790,077 $ 2,002,211
Allan L. Coon 15,000 2 $ 8.38 4/12/06 $ 0.00 $ 35,375 $ 78,343
Howard Eckstein 15,000 2 $ 8.38 4/12/06 $ 0.00 $ 35,375 $ 78,343
Mitchell Tuckman 11,250 1 $ 8.38 4/12/06 $ 0.00 $ 26,531 $ 58,757
- --------
9
<FN>
(1) Adjusted to give effect to a three-for-two stock split on September 10,
2001.
(2) Options were issued in fiscal 2001 at 100% of the closing price of our
common stock on dates of issue and vest as follows: Lee N. Blatt and Myron
Levy- at date of grant, Allan L. Coon Howard Eckstein and Mitchell Tuckman
- 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 2001 were for
829,500 shares of common stock.
(4) 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>
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 2001
and all unexercised stock options and warrants held by the named executive
officers as of July 29, 2001.
Value of
Number of Unexercised Unexercised In-the-Money
Shares Options and Warrants Options and Warrants
Acquired on Value at Fiscal Year-End (2) at Fiscal Year-End (2) (3)
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------------- ----------- ------------- ----------- -------------
Lee N. Blatt - $ - 1,199,999 - $ 12,055,490 $ -
Myron Levy - - 1,100,000 - 10,607,874 -
Allan L. Coon - - 97,998 27,000 1,078,495 250,394
Howard Eckstein - - 23,250 40,500 207,964 347,676
Mitchell Tuckman 1,500 6,875 19,500 35,250 140,914 276,524
- --------
<FN>
(1) Values are calculated by subtracting the exercise price from the trading
price of the common stock as of the exercise date.
(2) Adjusted to give effect to a three-for-two stock split on September 10,
2001.
(3) Based upon the closing price of the common stock of $17.57 on July 29,
2001.
</FN>
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 an initial four year and three month term commencing October 1,
1998, and terminating on December 31, 2003 (as extended). Commencing January 1,
2000 the term of the agreement automatically extends for three years from each
January 1, unless either party provides written notice not to extend the term.
Pursuant to the agreement, Mr. Blatt receives compensation consisting of a base
salary of $626,217, as adjusted June 30, 2001, 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. Mr. Blatt waived the incentive bonus for
fiscal 2001.
10
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 an initial four year and three month term commencing October 1,
1998, and terminating on December 31, 2003 (as extended), and a five year
consulting period commencing at the end of the active employment period.
Commencing January 1, 2000 the term of the agreement automatically extends for
three years from each January 1, unless either party provides written notice not
to extend the term. Pursuant to the agreement, Mr. Levy receives compensation
consisting of a base salary of $462,097, as adjusted June 30, 2001, 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. Mr.
Levy waived the incentive bonus for fiscal 2001.
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, 2001 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
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 January 16, 2001, the Board of directors approved the purchase of an
industrial parcel of land adjacent to the existing facility in Lancaster, PA for
$747,000 from a partnership of which the Chairman is general partner. Settlement
on the property was on July 27, 2001. The Company is using this land for a
15,000 square foot addition.
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.
11
We believe that these transactions were entered into at fair market values on
the respective dates. Our outside directors unanimously approved these
transactions.
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, 1998
Stock Option Plan, and 2000 Stock Option Plan (collectively, the "Stock Plans"),
and under certain warrant agreements. The following information about the Stock
Plans and agreements reflect the three-for-two stock split as of September 10,
2001.
1996 Stock Option Plan. The 1996 Stock Option Plan covers 1,000,000 shares
of common stock. Options granted under the plan may be incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options. Under the terms of the plan, the exercise price of
options granted under the plan will be the fair market value at the date of
grant. Prices for incentive stock options granted to employees who own 10% or
more of the Company's stock are at least 110% of market value at date of grant.
The nature and terms of the options to be granted are determined at the time of
grant by the Compensation Committee or the Board of Directors. If not specified,
100% of the shares can be exercised one year after the date of grant. The
options expire not later than ten years from the date of grant. At July 29,
2001, non-qualified options to purchase 78,996 shares of common stock were
outstanding under this plan.
1997 Stock Option Plan. The 1997 Stock Option Plan covers 2,500,000 shares
of common stock. Options granted under the plan may be incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options. Under the terms of the plan, the exercise price of
options granted under the plan will be the fair market value at the date of
grant. Prices for incentive stock options granted to employees who own 10% or
more of the Company's stock are at least 110% of market value at date of grant.
The nature and terms of the options to be granted are determined at the time of
grant by the Compensation Committee or the Board of Directors. If not specified,
100% of the shares can be exercised one year after the date of grant. The
options expire not later than ten years from the date of grant, subject to
certain restrictions. Options for 14,250 shares of common stock were granted
during the fiscal year ended July 29, 2001. At July 29, 2001, options to
purchase 1,181,740 shares of common stock were outstanding under this plan.
1998 Stock Option Plan. The 1998 Stock Option Plan covers 2,250,000 shares
of common stock. Options granted under the plan may be incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options. Under the terms of the plan, the exercise price of
options granted under the plan will be the fair market value at the date of
grant. Prices for incentive stock options granted to employees who own 10% or
more of the Company's stock are at least 110% of market value at date of grant.
The nature and terms of the options to be granted are determined at the time of
grant by the Compensation Committee or the Board of Directors. If not specified,
100% of the shares can be exercised one year after the date of grant. The
options expire not later than ten years from the date of grant, subject to
certain restrictions. Options for 440,250 shares of common stock were granted
during the fiscal year ended July 29, 2001. At July 29, 2001, options to
purchase 2,122,050 shares of common stock were outstanding under this plan.
2000 Stock Option Plan.. The 2000 Stock Option Plan covers 1,500,000 shares
of common stock. Options granted under the plan are non-qualified stock options.
Under the terms of the plan, the exercise price of options granted under the
12
plan will be the fair market value at the date of grant. The nature and terms of
the options to be granted are determined at the time of grant by the
Compensation Committee or the Board of Directors. If not specified, 100% of the
shares can be exercised one year after the date of grant. The options expire not
later than ten years from the date of grant, subject to certain restrictions.
Options for 375,000 shares of common stock were granted during the fiscal year
ended July 29, 2001. At July 29, 2001, options to purchase 375,000 shares of
common stock were outstanding under this plan.
On March 12, 2001, we issued 10 year options to purchase 150,000 shares of
common stock at a price of $8.3753 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, and five year options for 15,000 shares of common
stock at a price of $8.3753 per share to each of Allan L. Coon and Howard
Eckstein, and options for 11,250 shares to Mitchell Tuckman, all of which
options vest one fifth one year from date of grant and one fifth each year
thereafter.
Warrant Agreements. In December 1995, warrants were issued to certain
officers for the right to acquire 440,000 shares of common stock at an exercise
price of $3.09 per share at date of issue. These warrants expire December 13,
2005. At July 29, 2001, warrants to purchase 320,000 shares of common stock at
$3.09 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 recognized expenses of
approximately $164,000, $415,000 and $266,000 for the 52 weeks ended July 29,
2001, July 30, 2000 and August 1, 1999, respectively. For the year ended July
29, 2001, $4,800 was contributed by us to this plan for each of Messrs. Blatt,
Levy, Coon, Eckstein and Tuckman, and $31,414 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 2001 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
13
Committee is a director who is not employed by us or any of our affiliates. The
following report with respect to certain compensation paid or awarded to our
executive officers during fiscal 2001 is furnished by the directors who
comprised the Compensation Committee during fiscal 2001.
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 2001, pursuant to the terms of his employment agreement with us,
Mr. Myron Levy, our Chief Executive Officer, received a base salary, stock
options, and was entitled to an incentive bonus based on our Consolidated Pretax
Earnings. Mr. Levy waived the incentive bonus under his employment agreement for
fiscal 2001. See "Management Employment Agreements." In light of this employment
agreement, the Compensation Committee was not required to make any decision
14
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 Chairman"
below. Mr. Allan Coon, a Senior Vice President received a base salary, and a
grant of stock options. Mr. Howard Eckstein, a Senior Vice President, received a
base salary, bonus and a grant of stock options. Mr. Mitchell Tuckman, a Senior
Vice President, received a base salary, bonus and a grant of 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 Chairman
For fiscal 2001, pursuant to the terms of his employment agreement with us,
Mr. Lee N. Blatt, our Chairman, received a base salary, stock options, and was
entitled to an incentive bonus based on our Consolidated Pretax Earnings. Mr.
Blatt waived the incentive bonus under his employment agreement for fiscal 2001.
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 reviewed and discussed with management the
Company's audited financial statements as of and for the year ended July 29,
2001.
The Committee has also received and reviewed the written disclosures and
the letter from the independent auditors, Arthur Andersen LLP, required by
Independence Standard No. 1, Independence Discussions with Audit Committees, as
amended, by the Independence Standards Board, and has discussed with the
auditors the auditors' independence. Based on these reviews and discussions, the
Audit Committee recommended to the Board of Directors that the financial
statements referred to above be included in the Company's Annual Report on Form
10-K for the year ended July 29, 2001 for filing with the Securities and
Exchange Commission.
15
The Audit Committee has also reviewed and discussed the fees paid to Arthur
Andersen LLP during the last fiscal year for audit and non-audit services, which
are set forth under "Audit Fees" and has considered whether the provision of the
non-audit services is compatible with the firm's independence.
The Audit Committee: Thomas J. Allshouse
Edward K. Walker
Alvin M. Silver
Independence of Audit Committee
In fiscal 2001, 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.
AUDIT FEES
General
For fiscal 2001, Arthur Andersen LLP's fees were in the aggregate amount of
approximately $229,000. Of this amount, approximately $116,000 were fees for the
fiscal 2001 audit and other audit services.
Financial Information Systems Design and Implementation Fees
Arthur Andersen LLP did not render any services related to financial
information systems design and implementation during fiscal 2001.
All Other Fees
Arthur Andersen rendered other services consisting primarily of tax return
preparation and consulting, due diligence assistance, and audits of other
entities within the consolidated group for statutory filing purposes. Aggregate
fees for all other services rendered by Arthur Andersen LLP for fiscal 2001 were
approximately $113,000.
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
2001.
16
COMMON STOCK PERFORMANCE
The following graph sets forth the cumulative total stockholder return to
our stockholders during the five year period ended July 29, 2001 as well as an
overall stock market index (NASDAQ Stock Market-US) and the Company's peer group
index (S&P Aerospace/Defense):
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG HERLEY INDUSTRIES, INC., THE NASDAQ STOCK MARKET-US INDEX AND
THE S & P AEROSPACE/DEFENSE INDEX
Cumulative Total Return
-------------------------------------------------------------
7/96 7/97 7/98 7/99 7/00 7/01
HERLEY INDUSTRIES, INC. 100.00 158.57 151.43 211.43 274.29 256.15
NASDAQ STOCK MARKET (U.S.) 100.00 147.54 173.63 248.14 353.37 189.71
S & P AEROSPACE/DEFENSE 100.00 141.70 107.67 112.71 112.17 140.50
<FN>
* $100 invested on July 31, 1996 in stock or index, including reinvestment of
dividends. Fiscal year ending July 31.
</FN>
17
MISCELLANEOUS INFORMATION
A representative of Arthur Andersen LLP, the Company's independent public
accountants for the fiscal year July 29, 2001, 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, 2002 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 29,
2001 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: November 26, 2001
Lancaster, Pennsylvania
18
HERLEY INDUSTRIES, INC.
The undersigned hereby appoints Lee N. Blatt and Adm. Thomas J.
Allshouse (Ret.), 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 10, 2002 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:
Myron Levy
John A. Thonet
Dr. Alvin M. Silver
[ ] FOR all nominees at right [ ] WITHHOLD AUTHORITY to vote
(Instruction: To withhold authority to vote for any individual nominee, print
the nominee's name on the line provided below)
_______________________________________________________________________________
2. To consider and act upon such other business as may properly come before
the meeting or any adjournment thereof.
(Continued and to be signed on reverse side)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF THEM, AS
SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING. SHAREHOLDERS MAY WITHHOLD THE VOTE FOR ONE OR MORE
NOMINEE(S) BY WRITING THE NOMINEE(S) NAME(S) IN THE BLANK SPACE PROVIDED ON THE
LEFT HEREOF. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
PROPOSALS SET FORTH ABOVE.
Dated: __________________
__________________________________________ [L.S.]
__________________________________________ [L.S.]
(Note: Please sign exactly as your name
appears hereon. Executors, administrators,
trustees, etc. should so indicate when signing,
giving full title as such. If signer is a
corporation, execute in full corporate name by
authorized officer. If shares are held in the
name of two or more persons, all should sign.)
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE