SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
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:_______________________________________________________
________________________
HERLEY INDUSTRIES, INC.
______________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
January 20, 2005
______________________
To our Stockholders:
An annual meeting of stockholders will be held at The New York Palace
Hotel, 455 Madison Avenue, New York, New York 10022 on Thursday, January 20,
2005 beginning at 9:00 a.m. At the meeting, you will be asked to vote on the
following matters:
1. Election of two directors in Class II to hold office until the 2007
Annual Meeting of Stockholders.
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 22,
2004, you are entitled to vote at the meeting or at any adjournment or
postponement of the meeting. This notice and proxy statement are first being
mailed to stockholders on or about December 16, 2004.
By Order of the Board of Directors,
LEE N. BLATT
Chairman of the Board
Dated: December 16, 2004
Lancaster, Pennsylvania
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
PRE-ADDRESSED POSTAGE-PAID ENVELOPE AS DESCRIBED ON THE ENCLOSED PROXY CARD.
YOUR PROXY, GIVEN THROUGH THE RETURN OF THE ENCLOSED PROXY CARD, MAY BE REVOKED
PRIOR TO ITS EXERCISE BY FILING WITH OUR CORPORATE SECRETARY PRIOR TO THE
MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER
DATE, OR BY ATTENDING THE MEETING, FILING A WRITTEN NOTICE OF REVOCATION WITH
THE SECRETARY OF THE MEETING AND VOTING IN PERSON.
HERLEY INDUSTRIES, INC.
101 North Pointe Boulevard
Lancaster, Pennsylvania 17601-4133
______________________
PROXY STATEMENT
______________________
ANNUAL MEETING OF STOCKHOLDERS
Thursday, January 20, 2005
Our Annual Meeting of Stockholders will be held on Thursday, January 20,
2005, at The New York Palace Hotel, 455 Madison Avenue, New York, New York 10022
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 two directors in Class II
In addition, our management will report on our performance 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 22,
2004. 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) filing with our corporate
Secretary a written notice revoking your proxy, or (3) voting again at the
meeting.
1
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, (718) 921-8200.
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 a brokerage firm. Brokerage firms
generally have the authority to vote customers' unvoted shares on certain
"routine" matters, including the election of directors. When a brokerage firm
votes its customer's unvoted shares, these shares 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, but will not be counted for all
other matters to be voted on because these other matters are not considered
"routine" under the applicable rules.
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 22,
2004, must be present at the meeting. This is referred to as a quorum. On
November 22, 2004, there were 14,285,357 shares outstanding and entitled to
vote.
What vote is required to approve each item?
The affirmative vote of a majority of the votes cast at the Annual Meeting
on the proposal is required for approval of the election of directors. A
properly executed proxy marked "ABSTAIN" with respect to any such matter will
not be voted, although it will be counted for purposes of determining whether
there is a quorum.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of our
common stock as of November 22, 2004 of (i) each person known by us to
beneficially own 5% or more of the shares of outstanding common stock, based
solely on filings with the Securities and Exchange Commission, (ii) each of our
executive officers and directors, and (iii) all of our executive officers and
directors as a group. Except as otherwise indicated, all shares are beneficially
owned, and investment and voting power is held by the persons named as owners.
Common Stock % of Outstanding
Name of Beneficial Owner Beneficially Owned (1) (2) Shares
- ------------------------ -------------------------- ----------------
Lee N. Blatt (3) 1,426,320 9.3%
Myron Levy (4) 1,331,615 8.8%
John M. Kelley 42,123 *
William R. Wilson 8,000 *
Thomas V. Gilboy (5) - *
David H. Lieberman 32,150 *
John A. Thonet (6) 103,038 *
Adm. Edward K. Walker, Jr. (Ret.) 43,000 *
Dr. Edward A. Bogucz 10,075 *
Adm. Robert M. Moore (Ret.) 10,000 *
State Street Research & Mgt. Co. (7) 1,113,050 7.8%
Directors and executive
officers as a group
(10 persons) 3,006,321 18.2%
<FN>
_________
* Indicates ownership of less than one percent.
(1) No 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) Includes beneficial ownership of the following number of shares that may be
acquired within 60 days of November 22, 2004 pursuant to stock options
awarded under our stock option plans:
Lee N. Blatt 1,101,000 John A. Thonet 82,500
Myron Levy 875,000 Adm. Edward K. Walker, Jr. 42,000
John M. Kelley 36,700 Dr. Edward A. Bogucz 10,000
William R. Wilson 8,000 Adm. Robert M. Moore 10,000
David H. Lieberman 31,250 Directors and executive
officers as a group 2,196,450
(3) Does not include an aggregate of 432,318 shares owned by family members,
including Hannah Thonet, Rebecca Thonet, Kathi Thonet, Randi Rossignol, Max
Rossignol, Henry Rossignol, and Allyson Brenner, of which Mr. Blatt
disclaims beneficial ownership.
(4) Does not include an aggregate of 20,000 shares owned by family members,
including Samantha Roth, Zachary Roth, Ian Steren, and Jack Steren, of
which Mr. Levy disclaims beneficial ownership.
3
(5) Mr. Gilboy started with the Company on September 13, 2004 as Vice
President, Treasurer and Chief Financial Officer.
(6) Does not include 155,998 shares, owned by Mr. Thonet's children, Hannah and
Rebecca Thonet, and 31,832 shares owned by his wife, Kathi Thonet. Mr.
Thonet disclaims beneficial ownership of these shares.
(7) Address is 1 Financial Center, 31st Floor, Boston, MA 02111-2621.
</FN>
PROPOSAL ONE - ELECTION OF DIRECTORS
Our certificate of incorporation and by-laws provide for a Board of
Directors consisting of not less than three nor more than twelve directors. Our
Board of Directors is divided into three classes, as nearly equal in number as
possible, whose terms of office expire in successive years. Our Board of
Directors consists of seven directors as set forth below:
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 2006) Stockholders in 2007) Stockholders in 2005)
-------------------- -------------------- --------------------
Lee N. Blatt Myron Levy John A. Thonet
Adm. Edward K. Walker, Jr. (Ret.) (1)(2)(3) Dr. Edward A. Bogucz (1))(3) David H. Lieberman (2)
Adm. Robert M. Moore (Ret.) (1)(2)(3)
<FN>
________
(1) Member of Compensation and Audit Committees
(2) Member of Corporate Governance Committee
(3) Member of Nominating Committee
</FN>
Myron Levy and Dr. Edward A. Bogucz, current directors in Class II, are to
be elected to serve office until the 2007 Annual Meeting of Stockholders or
until their successors are duly elected and qualified.
Shares represented by executed proxies in the form enclosed will be voted,
unless otherwise indicated, for the election as directors of the nominees in
Class II (each of whom is now a director) unless any such nominee shall be
unavailable, in which event such shares will be voted for a substitute nominee
designated by the Board of Directors. The Board of Directors has no reason to
believe that any of the nominees will be unavailable or, if elected, will
decline to serve.
Principal Occupations of Directors
The following is a brief account of the business experience for at least
the past five years of our directors:
Mr. Lee N. Blatt is a co-founder of Herley 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.
Mr. Myron Levy was appointed Vice Chairman of the Board in August 2003, and
has been our Chief Executive Officer since August 2001. Prior thereto, Mr. Levy
4
served as President since June 1993, as Executive Vice President and Treasurer
since May 1991, and 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.
Admiral Edward K. Walker, Jr. (Ret.) (71 years of age) 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.
Dr. Edward A. Bogucz (48) is currently Executive Director of the New York
Center of Excellence in Environmental Systems, a university-industry consortium
that includes 12 universities and research institutions. Previously, Dr. Bogucz
has served as Dean of Engineering and Computer Science at Syracuse University
from 1995 through 2003. Dean Bogucz earned his bachelor's and doctoral degrees
in mechanical engineering from Lehigh University and a master's degree from
Imperial College, University of London. His teaching and research expertise
includes fluid dynamics, energy systems, computational methods, and
multidisciplinary analysis and design. As Dean, he led the strengthening of the
College of Engineering and Computer Science in selected areas, including RF and
microwave devices, information fusion, systems assurance, and environmental
technologies.
Adm. Robert M. Moore (Ret.) (65) is a consultant in business and financial
management. He is a retired Rear Admiral, U.S. Navy. His 35-year career in the
Navy culminated in his last assignment in charge of the Navy's worldwide supply
system. He holds a bachelor's degree from the University of Texas and a Master
in Business Administration degree from Harvard University.
Mr. John A. Thonet (54) has been a director since 1991, Secretary since
January 2003, 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.
Mr. David H. Lieberman (59) has been a director since 1985. Mr. Lieberman
has been a practicing attorney in the State of New York for more than thirty
years and is a member of the firm of Beckman, Lieberman & Barandes, LLP, our
general counsel.
Directors' compensation
Directors who are our employees receive no additional compensation for
serving as Directors. Directors who are not our employees receive an annual fee
of $15,000 and a fee of $1,500 for each interim board of directors meeting
attended. The Corporate Governance Committee Chairman receives an annual fee of
$7,500, and other members of the Corporate Governance Committee receive $5,000
annually. The Audit Committee Chairman receives an annual fee of $15,000, and
other members of the Audit Committee receive $10,000 annually. The Compensation
Committee Chairman receives an annual fee of $7,500, and other members of the
Compensation Committee receive $5,000 annually. We also reimburse each Director
for the reasonable expenses incurred in attending meetings of the Board of
Directors and committee meetings.
5
During the fiscal year ended August 1, 2004 there were:
-- six meetings of the Board of Directors
-- four meetings of the Audit Committee
-- two meetings of the Compensation Committee
-- one meeting of the Corporate Governance 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 our 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." Our Corporate Governance Committee,
which was formed in September 2002, is responsible for establishing and
maintaining procedures for receiving, investigating and reporting of information
and reports concerning alleged violations of our Corporate Code of Business
Ethics. Each director attended or participated in at least 75% of the meetings
of the Board of Directors and the committees on which he served.
Nominating Committee
In November 2004, in compliance with the adopted Nasdaq Listing Standards,
our Board formed a Nominating Committee comprised of Messrs. Moore, Walker and
Bogucz.
All members of the Nominating Committee are independent of management (as
independence is defined in the Nasdaq listing standards). The Nominating
Committee has adopted a written Nominating Committee Charter which is set forth
as Exhibit A.
When considering a potential candidate for membership on our Board, the
Nominating Committee considers relevant business and industry experience and
demonstrated character and judgment. There are no differences in the manner in
which the Nominating Committee evaluates a candidate that is recommended for
nomination for membership on our Board by a shareholder. The Nominating
Committee has not received any recommended nominations from any of our
shareholders in connection with the Annual Meeting.
The Nominating Committee will consider shareholder nominations for
directors in writing to our corporate secretary prior to the meeting. To be
timely, the notice must be delivered within the time permitted for submission of
a shareholder proposal as described under "Miscellaneous Information." Such
notice must be accompanied by the nominee's written consent, contain information
relating to the business experience and background of the nominee and contain
information with respect to the nominating shareholder and persons acting in
concert with the nominating shareholder.
The Nominating Committee is responsible for recommending to our full Board
of Directors nominees for election of directors. To fulfill this role, the
committee interviews, evaluates, nominates and recommends individuals for
membership on our Board and committees thereof.
6
MANAGEMENT
Our officers are:
Name Age Position held with Company
- ---- --- --------------------------
Lee N. Blatt 76 Chairman of the Board
Myron Levy 64 Vice Chairman of the Board and
Chief Executive Officer
John M. Kelley 51 President
William R. Wilson 56 Vice President and Chief Operating Officer
Thomas V. Gilboy 50 Vice President, Treasurer and Chief
Financial Officer
Anello C. Garefino 57 Vice President-Finance
John A. Thonet 54 Secretary and Director
Dr. Rozalie Schachter 58 Vice President
John Carroll 53 Vice President of Human Resources
Richard Poirier 39 Vice President
Mr. John Kelley was appointed President in August 2003, and served as
Executive Vice President since July 2002. Prior thereto, Mr. Kelley served as
Senior Vice President since July 2000, and 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 Bachelor of Science Degree in Business
Administration from the University of Arizona, Tucson Arizona with Graduate
Degree Studies at UCLA.
Mr. William R. Wilson was appointed Vice President and Chief Operating
Officer in August 2003 and served as Senior Vice President since January 2002.
From 1991 until his employment with us, Mr. Wilson held several executive
positions with the Litton Laser Systems, a division of Northrop Grumman
including, Vice President of Technical Operations and Special Projects from 1998
until January 2002. Mr. Wilson holds a Bachelors Degree in Engineering from the
University of Arkansas.
Mr. Thomas V. Gilboy was appointed Chief Financial Officer in September
2004. From 2001 to 2004 Mr. Gilboy was Chief Financial Officer of Del Global
Technologies Corp. From 2000 to 2001, Mr. Gilboy was Chief Financial Officer of
Microwave Power Devices Inc. For the prior 2 years, Mr. Gilboy provided
consulting services (including sometimes acting as Chief Financial Officer) to
troubled public and private companies, including Hanover Direct Inc., New Colt
Holdings Inc., and DeVlieg-Bullard Corp. Prior to that time, Mr. Gilboy was
Chief Financial Officer of PureTec Corp. Mr. Gilboy earned his BS in Business
Administration from Lehigh University, and an MBA from Columbia University.
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 on September 13, 2004 and prior
to that served as Vice President Finance, Treasurer and Chief Financial Officer
since June 1993. From 1987 to January 1990, Mr. Garefino was Corporate
Controller of Exide Corporation. Mr. Garefino earned his Bachelor of Science
Degree in Accounting from Rider University in 1969.
7
Dr. Rozalie Schachter was appointed Vice President and General Manager,
Herley Farmingdale in September 2004, and prior to that served as Vice President
of Business Development from August 2003, and 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 Bachelor of Science Degree from Brooklyn College in 1968,
a Masters Degree from Yeshiva University in 1970 and a PHD in Physics from New
York University in 1979.
John Carroll was appointed Vice President of Human Resources in August 2003
and joined Herley in 1999 as Director of Human Resources. For thirteen years
before joining Herley, Mr. Carroll was Director of Human Resources at Kemps
Foods, in Lancaster, PA. Mr. Carroll holds a BS in Business Administration from
St. Joseph College, Rensselaer, IN and professional certifications through the
Society for Human Resource Management and World At Work (formerly American
Compensation Association).
Mr. Richard Poirier was appointed Vice President in August 2003 and serves
as General Manager of Herley New England. Mr. Poirier was appointed Sales
Manager of Herley New England following the acquisition of Micro- Dynamics, Inc.
("MDI") by Herley in 1992. Prior to the acquisition, Mr. Poirier served as a
Microwave Engineer since joining MDI in 1987.
8
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
August 1, 2004, August 3, 2003, and July 28, 2002.
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 Compensation
- -------------------------------------------------------------------------------------------------------------
Lee N. Blatt 2004 $ 787,950 $ 1,207,680 - $ 6,500 (5)
Chairman of 2003 782,835 898,000 - 6,000
the Board 2002 637,162 546,000 500,000 (4) 5,000
Myron Levy 2004 $ 630,851 $ 987,010 - $ 11,072 (5)
Chief Executive 2003 624,048 673,000 - 8,376
Officer 2002 470,162 410,000 500,000 (4) 7,376
John M. Kelley 2004 $ 227,884 $ 35,000 - $ 6,741 (5)
President 2003 193,282 50,000 - 6,828
2002 116,354 25,000 29,500 (4) 4,182
William R. Wilson 2004 $ 214,528 $ 80,000 - $ 8,048 (5)
Chief Operating 2003 163,070 52,000 - 1,853
Officer 2002 76,920 - 20,000 (4) 745
Howard Eckstein 2004 $ 200,013 $ - - $ 7,466 (5)
Vice President (6) 2003 202,898 25,000 - 6,863
2002 166,357 25,000 29,500 (4) 5,458
<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 compensation 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. Bonuses for all other employees are discretionary
bonuses.
(4) Consisting of the following options issued in December 2001 for the right
to purchase Common Stock of the Company at a price of $13.10: Lee N. Blatt
- 250,000, Myron Levy - 250,000, John M. Kelley - 12,000, and Howard
Eckstein - 12,000; options issued in February 2002 for the right to
purchase Common Stock of the Company at a price of $17.42: William R.
Wilson - 10,000; and options issued in May 2002 for the right to purchase
Common Stock of the Company at a price of $19.52: Lee N. Blatt - 250,000,
Myron Levy - 250,000, John M. Kelley - 17,500, William R. Wilson - 10,000,
and Howard Eckstein - 17,500.
9
(5) All Other Compensation includes: (a) group term life insurance as follows:
$4,572 for Mr. Levy, $828 for Mr. Kelley, $1,548 for Mr. Wilson, and $966
for Mr. Eckstein, and (b) contributions to the Company's 401(k) Plan as a
pre-tax salary deferral as follows: $6,500 for each of Messrs. Blatt, Levy,
Wilson, and Eckstein, and $5,913 for Mr. Kelley.
(6) Mr. Eckstein was appointed Vice President in July 2000, and served as
President and General Manager, Herley Lancaster from December 1998 through
August 2004. Mr. Eckstein resigned his position in August 2004.
</FN>
Option Grants in Last Fiscal Year
There were no stock options granted to the named executive officers during
fiscal 2004.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth stock options exercised during fiscal 2004
and all unexercised stock options held by the named executive officers as of
August 1, 2004.
Value of Unexercised
Number of Unexercised In the-Money
Shares Options at Fiscal Options at Fiscal
Acquired on Value Year-End Year-End (2)
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------------- ----------- ------------- ----------- -------------
Lee N. Blatt - - 1,101,000 - $ 7,060,128$ -
Myron Levy - - 875,000 - 4,865,498 -
John M. Kelley - - 34,300 26,700 251,605 128,612
William R. Wilson - - 8,000 12,000 5,520 8,280
Howard Eckstein - - 66,550 26,700 573,841 128,612
<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 closing price of the common stock of $18.80 on August 1,
2004.
</FN>
Employment Agreements
Lee N. Blatt has entered into an employment agreement with us, dated as of
July 29, 2002 which expires December 31, 2008, subject to extension for
additional one-year periods annually each January 1 with a final expiration date
of December 31, 2015 (as amended December 9, 2003). The agreement provides for
an annual salary as of August 1, 2004 of $766,875 and provides for a semi-annual
cost of living adjustment based on the consumer price index. The agreement also
provides for incentive compensation at 4% in the aggregate of our pretax income.
Incentive compensation earned for fiscal year ended August 1, 2004 was $882,680.
Mr. Blatt was also awarded a discretionary bonus of $325,000 for fiscal 2003 by
the Board of Directors. At the end of the employment period, the agreement
provides for a five-year consulting period at an annual compensation rate
equivalent to one-half of Mr. Blatt's annual salary in effect at the end of the
employment period, subject to annual cost of living adjustments.
Myron Levy has entered into an employment agreement with us, dated as of
July 29, 2002 which expires December 31, 2008, subject to extension for
10
additional one-year periods annually each January 1 with a final expiration date
of December 31, 2015 (as amended December 9, 2003). The agreement provides for
an annual salary as of August 1, 2004 of $613,975 and provides for a semi-annual
cost of living adjustment based on the consumer price index. The agreement also
provides for incentive compensation at 3% in the aggregate of our pretax income.
Incentive compensation earned for fiscal year ended August 1, 2004 was $662,010.
Mr. Levy was also awarded a discretionary bonus of $325,000 for fiscal 2003 by
the Board of Directors. At the end of the employment period, the agreement
provides for a ten-year consulting period at an annual compensation rate
equivalent to one-half of Mr. Levy's annual salary in effect at the end of the
employment period, subject to annual cost of living adjustments.
The employment agreements with Messrs. Blatt and Levy provide for certain
payments following death or disability, and also provide that, in the event
there is a change in control of the Company, as defined, the executives have the
option to terminate the agreements and receive a lump-sum payment equal to the
sum of the salary payable for the remainder of the employment term, plus the
annual bonuses (based on the average of the three highest annual bonuses awarded
during the ten preceding years) for the remainder of the employment term. As of
August 1, 2004, the amount payable in the event of such termination would be
approximately $16,318,000.
Messrs. Kelley and Wilson have each entered into a severance agreement with
us, dated September 24, 2004, which provides that in the event of a change in
our control, as defined, prior to September 30, 2006, each is entitled to two
years' base salary. The base salary of each executive as of October 31, 2004 is
as follows: Mr. Kelley $250,000, and Mr. Wilson $240,000.
Six other officers of the Company have severance agreements providing for
an aggregate lump sum payment of $1,850,000 through September 30, 2006 in the
event of a change of control of the Company as defined in the agreements.
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
In connection with the move of the Amityville facilities of GMC in
September 1999, we entered into a 10- year lease agreement with a partnership
owned by the children of certain of our executive 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 with the same partnership for
additional space. The initial minimum annual rent of $92,000 is subject to
escalation of approximately 4% annually.
11
Equity Compensation Plan Information
The following table sets forth the indicated information as of August 1,
2004 with respect to our equity compensation plans:
(c)
Number of securities
(a) Remaining available
Number of securities (b) for future issuance
to be issued upon Weighted-average under equity
exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
- ------------- -------------------- -------------------- ------------------------
Equity compensation
Plans approved by
security holders 3,006,923 12.66 65,408
Equity compensation
plans not approved
by security holders 14,006 11.96 1,000,000
Total 3,020,929 12.66 1,065,408
The following information is provided about our stock option plans:
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 our stock are at least 110% of 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. No options were
granted under this plan during the fiscal year ended August 1, 2004. At August
1, 2004, non-qualified options to purchase 14,006 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 our stock are at least 110% of 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. Non-qualified stock options for 7,500 shares were granted
under this plan during the fiscal year ended August 1, 2004. At August 1, 2004,
options to purchase 285,931 shares of common stock were outstanding under this
plan.
12
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 our stock are at least 110% of 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. Non-qualified stock options for 40,000 shares were granted
under this plan during the fiscal year ended August 1, 2004. At August 1, 2004,
options to purchase 1,371,142 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
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. No
options were granted under this plan during the fiscal year ended August 1,
2004. At August 1, 2004, options to purchase 1,349,850 shares of common stock
were outstanding under this plan.
2003 Stock Option Plan. The 2003 Stock Option Plan covers 1,000,000 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
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. No
options have been granted under this plan.
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 $618,000, $513,000, and $533,000 in fiscal years 2004, 2003 and
2002, respectively. For the year ended August 1, 2004, $6,500 was contributed by
us to this plan for each of Messrs. Blatt, Levy, Wilson, and Eckstein, and
$5,913 for Mr. Kelley. A total of $53,032 was contributed for all officers and
directors as a group.
Board of Directors Interlocks and Insider Participation
In fiscal 2004, our Compensation Committee consisted of Dr. Edward A.
Bogucz, and Messrs. Edward K. Walker, Jr., and Robert M. Moore. None of these
persons were our officers or employees during fiscal 2004 nor had any
relationship requiring disclosures in this Proxy Statement.
13
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Compensation Committee
Report on Executive Compensation", "Audit Committee Report" and "Common Stock
Performance" will not be deemed to be filed or to be proxy soliciting material
or incorporated by reference in any prior or future filings by 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
following report with respect to certain compensation paid or awarded to our
executive officers during fiscal 2004 is furnished by the directors who
comprised the Compensation Committee during fiscal 2004.
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 on a cost-effective and tax efficient basis
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.
14
For fiscal 2004, pursuant to the terms of his employment agreement with us,
Mr. Myron Levy, our Chief Executive Officer, received a base salary, an
incentive bonus based on our Consolidated Pretax Earnings (see "Management
Employment Agreements"), and a discretionary bonus. Messrs. John M. Kelley,
President, and William R. Wilson, Chief Operating Officer, each received a base
salary and a discretionary bonus. The Compensation Committee determined that the
base salaries and bonuses were appropriate given our financial performance, and
the substantial contributions made by Messrs. Kelley and Wilson to such
performance, and the compensation levels of executives at companies competitive
with us.
Compensation of Chairman
For fiscal 2004, pursuant to the terms of his employment agreement with us,
Mr. Lee N. Blatt, our Chairman, received a base salary, an incentive bonus based
on our Consolidated Pretax Earnings (see "Management Employment Agreements"),
and a discretionary bonus.
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 approved by stockholders. Our stock
option 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: Edward A. Bogucz (Chairman)
Edward K. Walker
Robert M. Moore
AUDIT COMMITTEE REPORT
This is a report of the Audit Committee of our Board of Directors. This
report shall not be deemed incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934 and shall not
otherwise be deemed to be filed under either such Act.
In fiscal 2004, our Audit Committee consisted of Edward K. Walker -
Chairman, Robert M. Moore and Edward A. Bogucz. The current members of the Audit
Committee satisfy the independence requirements and other established criteria
by the Nasdaq Stock Market, Inc. and the Securities and Exchange Commission. We
intend to comply with future audit committee requirements as they become
applicable to us. The Audit Committee Charter is set forth as Exhibit B to this
proxy statement.
As required by its written charter, which sets forth its responsibilities
and duties, the Audit Committee has reviewed and discussed with our independent
registered public accounting firm, the matters required to be discussed by
Statement on Auditing Standards No. 61, Communications with Audit Committees, as
amended.
15
The Audit Committee has also received and reviewed the written disclosures
and the letter from the independent registered public accounting firm, Deloitte
& Touche LLP, required by Independence Standard No. 1, Independence Discussions
with Audit Committees, as amended, by the Independence Standards Board, and has
discussed with the independent registered public accounting firm their
independence. Based on these reviews and discussions, the Audit Committee
recommended to the Board of Directors that the financial statements for the
fiscal year ended August 1, 2004 be included in our Annual Report on Form 10-K
for filing with the Securities and Exchange Commission.
The Audit Committee has also reviewed and discussed the fees paid to
Deloitte & Touche 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
and has concluded that it is.
The Audit Committee: Edward K. Walker (Chairman)
Robert M. Moore
Edward A. Bogucz
Audit Committee Financial Expert
The members of the audit committee have substantial experience in assessing
the performance of companies, gained as members of the Company's board of
directors and audit committee, as well as by serving in various capacities in
other companies or governmental agencies. As a result, they each have an
understanding of financial statements. However, none of them keep current on all
aspects of generally accepted accounting principles. Accordingly, the board of
directors does not consider any of them to be a financial expert as that term is
defined in applicable regulations. Nevertheless, the board of directors believes
that they competently perform the functions required of them as members of the
audit committee and, given their backgrounds, it would not be in the best
interest of the Company to replace any of them with another person to qualify a
member of the audit committee as a financial expert.
Audit Fees
In fiscal 2004, amounts paid to Deloitte & Touche LLP's for audit fees and
quarterly reviews was approximately $236,000, including audits of other entities
within the consolidated group for statutory filing purposes; approximately
$52,000 for tax related services; and $15,000 for Sarbanes-Oxley 404 related
services. Other fees paid in fiscal 2004 include $8,000 for the audit of our
employee benefit plan. Deloitte & Touche LLP did not render any services related
to financial information systems design and implementation during fiscal years
2003 and 2004.
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
2003.
16
CODE OF ETHICS DISCLOSURE
The Company adopted a Corporate Code of Business Ethics (the "Code") in
December 2002 that applies to all employees, officers and directors of the
Company. The Code was amended in September 2003. It is broad in scope and is
intended to foster honest and ethical conduct, including accurate financial
reporting, compliance with laws and the like. It does not expressly cover
certain procedural matters covered by the Sarbanes-Oxley Act and regulations
promulgated thereunder and may not constitute a "code of ethics" within the
meaning of the law and regulations. Accordingly, the Company adopted an
additional code of ethics on October 13, 2003, that covers senior executive
officers of the Company and is intended to comply with the new law and
regulations. The "Code of Ethics - Chief Executive and Chief Financial Officers"
is set forth as Exhibit C to this proxy statement.
17
COMMON STOCK PERFORMANCE
The following graph sets forth the cumulative total stockholder return to
our stockholders during the five year period ended August 1, 2004 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
-----------------------------------------------------------------------
7/99 7/00 7/01 7/02 7/03 7/04
HERLEY INDUSTRIES, INC. 100.00 129.73 121.15 147.75 133.77 135.50
NASDAQ STOCK MARKET (U.S.) 100.00 170.44 64.58 52.80 58.98 67.64
S & P AEROSPACE & DEFENSE 100.00 75.20 92.35 90.61 83.32 106.21
<FN>
* 100 invested on July 31, 1999 in stock or index, including reinvestment of
dividends. Fiscal year ending July 31.
</FN>
18
MISCELLANEOUS INFORMATION
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 July 31, 2005 to be
considered for inclusion in the Company's next Proxy Statement.
A copy of the Company's Annual Report for the fiscal year ended August 1,
2004 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 16, 2004
Lancaster, Pennsylvania
19
Exhibit A
---------
HERLEY INDUSTRIES, INC.
NOMINATING COMMITTEE CHARTER
----------------------------
1. Responsibility. The Nominating Committee is responsible for providing
assistance to the Board of Directors and Chairman in membership selection. The
Committee will make recommendations to the full Board of potential candidates
for membership.
2. Purpose. The Nominating Committee, in consultation with the Chairman,
will review the Board's composition and requirements, solicit and evaluate
candidates and make recommendations to the full Board for its action.
Specifically, the Committee will identify and make recommendations to the Board
on individuals qualified to serve on the Board of Directors.
3. Qualifications and Composition.
3.1 The members of the Committee will be familiar with Herley
Industries, Inc.'s strategic plan, shareholders' perspective, and
regulations regarding duties and qualifications of directors.
3.2 Insiders or interlocking directors will not be eligible for
membership on the Committee.
3.3 The Committee will be comprised of a minimum of two independent
directors.
4. Duties. In consultation with the Chairman of the Board, the Committee
will
4.1 Establish the Board's criteria for the selection of new directors,
including minimum qualifications of candidates;
4.2 Accept suggestions from both internal and external sources,
including shareholders, of potential Board candidates;
4.3 Evaluate candidates against the selection criteria;
4.4 Conduct appropriate verifications and identify any potential
conflicts of interest;
4.5 Present all suggested candidates to the Board with their
recommendation for their review and vote;
4.6 Subsequent to the vote of the Board, recommend to the shareholders
a slate of candidates at elections of directors;
4.7 Review the size and composition of the Board, committee structure
and assignments, meeting frequency and schedule;
4.8 Lead the Board in an annual review of the full Board and
performance of individual Board members.
A-1
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 the Board's oversight responsibilities. The Audit
Committee's primary duties and responsibilities are to:
-- Monitor the integrity of the Company's financial statements and the
performance of its systems of internal controls regarding finance and
accounting.
-- Monitor the Company's compliance with legal and regulatory
requirements.
-- Monitor the qualifications, 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 Company. 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 of 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 and any rule or regulation
prescribed by the SEC, 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 in accordance with the Nasdaq Audit
Committee requirements.
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 four 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.
B-1
III. Audit Committee Responsibilities and Duties
1. Overseeing the internal audit function and reviewing, on a continuing
basis, the adequacy of the Company's system of internal controls, including
meeting periodically with the Company's management and the independent auditors
to review the adequacy of such controls and to review before release the
disclosure regarding such system of internal controls required under SEC rules
to be contained in the Company's periodic filings and the attestations or
reports by the independent auditors relating to such disclosure.
2. Appointing, compensating and overseeing the work of the independent
auditors (including resolving disagreements between management and the
independent auditors regarding financial reporting) for the purpose of preparing
or issuing an audit report or related work.
3. Pre-approving audit and non-audit services provided to the Company by
the independent auditors (or subsequently approving non-audit services in those
circumstances where a subsequent approval is necessary and permissible); in this
regard, the Audit Committee shall have the sole authority to approve the hiring
and firing of the independent auditors, all audit engagement fees and terms and
all non-audit engagements, as may be permissible, with the independent auditors.
4. Reviewing and providing guidance with respect to the external audit and
the Company's relationship with its independent auditors by:
(a) reviewing the independent auditors' proposed audit scope, approach and
independence;
(b) obtaining on a periodic basis a statement from the independent
auditors regarding relationships and services with the Company which
may impact independence and presenting this statement to the Board of
Directors, and to the extent there are relationships, monitoring and
investigating them;
(c) reviewing the independent auditors' peer review conducted every three
years;
(d) discussing with the Company's independent auditors the financial
statements and audit findings, including any significant adjustments,
management judgments and accounting estimates, significant new
accounting policies and disagreements with management and any other
matters described in SAS No. 61, as may be modified or supplemented;
(e) reviewing reports submitted to the audit committee by the independent
auditors in accordance with the applicable SEC requirements; and
(f) reviewing and discussing with management and the independent auditors
the annual audited financial statements and quarterly unaudited
financial statements, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," prior to filing the Company's Annual Report on
Form 10-K and Quarterly Reports on Form 10-Q, respectively, with the
SEC.
B-2
5. Directing the Company's independent auditors to review before filing
with the SEC the Company's interim financial statements including the Quarterly
Reports on Form 10-Q, using professional standards and procedures for conducting
such reviews.
6. Conducting a post-audit review of the financial statements and audit
findings, including any significant suggestions for improvements provided to
management by the independent auditors.
7. Reviewing before release the unaudited quarterly operating results in
the Company's quarterly earnings release.
8. Overseeing compliance with the requirements of the SEC for disclosure of
auditor's services and audit committee members, member qualifications and
activities.
9. Reviewing, approving and monitoring the Company's code of ethics for its
senior officers.
10. Reviewing management's monitoring of compliance with the Company's
standards of business conduct and with the Foreign Corrupt Practices Act.
11. Reviewing, in conjunction with counsel, any legal matters that could
have a significant impact on the Company's financial statements.
12. Providing oversight and review at least annually of the Company's risk
management policies, including its investment policies.
13. Reviewing the performance of the independent auditors and ensure that
the independent auditors are accountable to the Board of Directors.
14. Ensuring receipt from the independent auditors of a formal written
statement delineating between the auditor and the Company, consistent with
Independence Standards Board Standard 1, as well as actively engaging in a
dialogue with the independent auditors with respect to any disclosed
relationships or services that may impact the objectivity and independence of
the independent auditors.
15. If necessary, instituting special investigations and, if appropriate,
hiring special counsel or experts to assist.
16. Reviewing related party transactions for potential conflicts of
interest.
17. Reviewing and reassessing the adequacy of its formal written charter on
an annual basis.
18. Performing other oversight functions as requested by the full Board of
Directors.
B-3
Other Audit Committee Responsibilities
- --------------------------------------
19. 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.
20. 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.
21. 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 Business
Ethics.
B-4
Exhibit C
---------
Code of Ethics
Chief Executive and Chief Financial Officers
Herley Industries, Inc. ("Herley" or the "Company") is committed to conducting
its business in accordance with applicable laws, rules and regulations, to the
highest standards of business ethics and with full and accurate financial
disclosure. This Code of Ethics for the Chief Executive and Chief Financial
Officers ("Code of Ethics"), is applicable to the Company's Chief Executive
Officer and Chief Financial Officer (together, "Senior Officers") and sets forth
specific policies as a guide in the performance of their duties.
Senior Officers of the Company must comply with applicable laws, rules and
regulations. They also have a responsibility to conduct themselves in an honest
and ethical manner. They have leadership responsibilities that include creating
a culture of high ethical standards and commitment to compliance, and
maintaining a work environment that deters wrongdoing, encourages employees to
raise concerns, and promptly addresses employee compliance concerns.
All the Company employees are subject to the Herley Industries, Inc. Corporate
Code of Business Ethics, which sets forth the fundamental principles and key
policies and procedures that govern them in the conduct of Herley business. In
addition, Senior Officers are bound by the requirements and standards set forth
in this Code of Ethics.
Compliance with Laws, Rules and Regulations
Senior Officers are required to comply with all applicable laws, rules and
regulations governing the conduct of our business and to report any suspected
violations to the Audit Committee of the Board of Directors ("Audit Committee").
Conflicts of Interest
A conflict of interest occurs when a Senior Officer's private interests
interfere in any way with the interests of the Company as a whole. Senior
Officers should conduct the Company's business in an honest and ethical manner,
which includes the ethical handling of actual or apparent conflicts of interest
between personal and professional relationships.
Before making any investment, accepting any position or benefits, participating
in any transaction or business arrangement or otherwise acting in a manner that
creates or appears to create a conflict of interest, Senior Officers must obtain
prior approval from the Audit Committee.
Disclosures
As a public company, Herley is required to file various periodic and other
reports with the Securities and Exchange Commission ("SEC"). It is the Company
policy to make full, fair, accurate, timely and understandable disclosure in
compliance with all applicable laws and regulations in all reports and documents
that the Company files with, or submits to, the SEC and in all other public
communications made by the Company. Senior Officers are required to promote
compliance with this policy in their area of responsibility and amongst their
colleagues and to abide by all Company standards, policies and procedures
designed to promote compliance with this policy.
C-1
Compliance with the Code
If a Senior Officer knows of or suspects a violation of the Code of Ethics, the
information must immediately be reported to the Audit Committee.
Violations of this Code of Ethics may result in disciplinary action, up to and
including discharge.
Waivers of the Code
Should Senior Officers wish to seek a waiver of the Code of Ethics they must
make full disclosure of their particular circumstances to the Audit Committee.
Only the Audit Committee may grant waivers of or a change to a provision of the
Code. Changes in and waivers of this Code of Ethics will be disclosed as
required under applicable laws and regulations.
Personal Commitment to the Herley Industries, Inc. Code of Ethics for Chief
Executive and Chief Financial Officers
I acknowledge that I have received and read the Herley Industries, Inc. Code of
Ethics for Chief Executive and Chief Financial Officers, dated October 13, 2003,
and understand my obligation to comply with the Code of Ethics. To the best of
my knowledge and ability, I will adhere to the Code of Ethics and promptly
report any violation that I become aware of to the Audit Committee of the Board
of Directors.
Date: ___________________ ______________________________
Myron Levy, Chief Executive Officer
Date: ___________________ ___________________________________
Thomas V. Gilboy, Chief Financial Officer
C-2
HERLEY INDUSTRIES, INC. The undersigned hereby appoints Adm. Edward K.
Walker, Jr. 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 20, 2005 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
Dr. Edward A. Bogucz
[ ] 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)
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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)
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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