UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12.
HERLEY INDUSTRIES, INC.
(Name of Registrant as Specified in its Charter)
--------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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:
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(4) Date Filed:
HERLEY INDUSTRIES, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 23, 2010
---------------
To our Stockholders:
An annual meeting of stockholders will be held at the
[_______________________], New York, New York on Tuesday, March 23, 2010,
beginning at 10:00 a.m. Eastern Daylight Time. At the meeting, you will be asked
to vote on the following matters:
1. Election of two directors in Class I to hold office until the 2012
Annual Meeting of Stockholders.
2. Proposal to amend our Certificate of Incorporation to eliminate the
classified board structure, as set forth in Exhibit A.
3. Proposal to ratify and approve our 2010 Stock Plan, as set forth in
Exhibit B.
4. 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 February 8,
2010, 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 February 11, 2010.
By Order of the Board of Directors,
JOHN A. THONET
Chairman of the Board
Dated: February 11, 2010
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.
THIS PAGE LEFT INTENTIONALLY BLANK
HERLEY INDUSTRIES, INC.
3061 Industry Drive
Lancaster, Pennsylvania 17603
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
Tuesday, March 23, 2010
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Our Annual Meeting of Stockholders will be held on Tuesday, March 23, 2010,
at [__________________], New York, New York at 10:00 a.m. Eastern Daylight Time.
This proxy statement contains information about the matters to be considered at
the meeting or any adjournments or postponements of the meeting. You are invited
to attend the meeting.
ABOUT THE MEETING
Why did I receive these proxy materials?
We are providing these proxy materials in connection with the solicitation
by the Board of Directors of Herley Industries, Inc. ("Herley," the "Company",
"we," "us" or "our"), a Delaware corporation, of proxies to be voted at our 2010
Annual Meeting of Stockholders and at any adjournment or postponement.
The Annual Meeting will be held at the [__________________], New York, New
York at 10:00 a.m. EDT.
Stockholders will be admitted to the Annual Meeting beginning at 9:30 a.m.
EDT. Seating will be limited.
No cameras, recording equipment, electronic devices, large bags, briefcases or
packages will be permitted in the meeting.
What is being considered at the meeting?
You will be voting on the following:
o the election of two Class I directors;
o a proposal to amend our Certificate of Incorporation to eliminate a
classified Board; and
o a proposal to ratify and approve our 2010 Stock Plan.
1
Who is entitled to vote at the meeting?
You may vote if you owned our common stock as of the close of business on
February 8, 2010. Each share of stock is entitled to one vote.
How do I vote?
You can vote in two ways:
o by attending the meeting in person; or
o 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 filing with our corporate secretary a
written notice revoking your proxy, or (2) voting again at the meeting.
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, FOR the amendment to
declassify our board of directors and FOR the 2010 Stock Plan.
What does it mean if I receive more than one proxy card?
It means that you have multiple accounts with brokers and/or our transfer
agent. Please vote all of these shares. We recommend that you contact your
broker and/or our transfer agent to consolidate as many accounts as possible
under the same name and address. Our transfer agent is American Stock Transfer &
Trust Company, (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. 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 not be counted since no matters being considered are "routine"
under the applicable rules to brokerage firms that are NYSE member
organizations, Brokerage firms that are NYSE member organizations can still
consider the election of our directors as "routine" and cast a vote without
instructions from the beneficial owner.
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 of common stock as of
February 8, 2010 must be present at the meeting. This is referred to as a
2
quorum. On February 8, 2010, there were ___________ shares issued and
outstanding and entitled to vote.
Is there a list of stockholders entitled to vote at the Annual Meeting?
The names of stockholders of record entitled to vote at the Annual Meeting
will be available at the Annual Meeting and for ten days prior to the meeting
for any purpose germane to the meeting, between the hours of 9:00 a.m. and 5:00
p.m. at our principal executive offices at 3061 Industry Drive, Lancaster,
Pennsylvania 17603.
What vote is required to approve each item?
Directors are elected by a plurality of the votes cast. Abstentions will
have no effect on the voting outcome with respect to the election of directors.
The affirmative vote of a majority of the shares of our common stock outstanding
on February 8, 2010 is required to amend our Certificate of Incorporation to
eliminate our classified board structure. The affirmative vote of a majority of
the issued and outstanding shares of common stock present in person or by proxy
and voting on the proposal is required for approval of our 2010 Stock Plan. An
abstention will be counted as a vote against this proposal and broker non-votes
will have no effect on the votes. Notwithstanding the foregoing, in accordance
with the most recent amendment to our by-laws, any director nominee who receives
more "withheld" votes than "for" votes in such election, must immediately submit
a resignation letter to the remaining Board of Directors upon certification of
the stockholder vote and the remaining Board of Directors shall, upon a process
managed by the Nominating Committee and excluding the director nominee in
question, within 45 days of receiving such resignation letter determine whether
to accept such resignation. The Board of Director's explanation of its decision
shall be promptly disclosed on Form 8-K filed with the Securities and Exchange
Commission.
Important Notice Regarding the Availability of Proxy Material for the
Stockholder Meeting to be Held on March 23, 2010
A copy of this proxy statement and our annual report to security holders
are available to you on the Internet at www.herley.com under the heading "Proxy
Material" found under "About Us - Investor Relations."
Who will pay for the cost of this proxy solicitation?
We will pay the cost of soliciting proxies. Proxies may be solicited on our
behalf by directors, officers or employees in person or by telephone, electronic
transmission and facsimile transmission.
Who will count the vote?
Representatives of our transfer agent, American Stock Transfer & Trust
Company, will tabulate the votes and act as inspectors of election.
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EXECUTIVE OFFICERS
Name Age Position
---- --- --------
John A. Thonet 59 Chairman of the Board
Richard F. Poirier 44 President and Chief Executive Officer
Yonah Adelman 59 Senior Vice President
Anello C. Garefino 62 Chief Financial Officer
- --------------------
John A. Thonet was appointed Chairman of the Board in January 2010 and was
Secretary from January 2003 until his appointment as Chairman. Mr. Thonet is
President of Thonet Associates, an environmental consulting firm specializing in
land planning and zoning matters, for more than the past ten years.
Richard H. Poirier was appointed President and Chief Executive Officer in
July 2009 after serving as a Vice President of the Company and as General
Manager of Herley New England since August 2003. Mr. Poirier has been with
Herley since 1992 when Herley acquired Micro Dynamics Inc. ("MDI"). Mr. Poirier
joined MDI upon graduation in 1987 and has held various management positions
over the years. Mr. Poirier holds a Bachelor of Science Degree in Electrical
Engineering from Marquette University.
Yonah Adelman was appointed Senior Vice President in July 2009. He also has
been the General Manager of the Company's subsidiary, General Microwave Israel,
since the Company's acquisition of General Microwave Corp. in 1999.
Anello C. Garefino was appointed Vice President-Finance and Chief Financial
Officer in January 2009 after serving as Vice President-Finance since June 2006.
Mr. Garefino, a certified public accountant, served as Acting Chief Financial
Officer from September 2005 to June 2006 and as Vice President-Finance from
September 2004 to September 2005 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to persons
known to us, based solely on filings with the Securities and Exchange
Commission, to own beneficially 5% or more of the outstanding shares of our
common stock as of January 29, 2010.
4
Number of Shares
of Common Stock % of Outstanding
Name and Address of Beneficial Owner Beneficially Owned (2) Shares
- ------------------------------------ ---------------------- ------------------
GAMCO Investors
One Corporate Center
Rye, NY 10580
Third Avenue Management, Inc.
622 Third Avenue
New York, NY 10017
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
Santa Monica, CA 90401
Barclays Global Investors NA
400 Howard Street
San Francisco, CA 94105
Lee N. Blatt (1)
471 N. Arrowhead Trail
Vero Beach, FL 32963
- ---------
(1) Includes beneficial ownership of ____________ shares that may be acquired
within 60 days of January 29, 2010 pursuant to various stock options. Mr.
Blatt entered into a voting trust agreement wherein sole voting power to
___________ shares under stock options held by him and ___________ shares
held in his IRA was granted to Myron Levy.
(2) Except as otherwise indicated, all of such shares are owned with sole
voting power.
Security Ownership of Management
The following table sets forth certain information, as of January 29, 2010,
with respect to the beneficial ownership of our common stock by (a) each of our
directors, (b) each of our Named Executive Officers and (c) all of our directors
and executive officers as a group.
The percentage of beneficial ownership for the table is based on
_______________ shares of our common stock outstanding as of January 29, 2010.
To our knowledge, except under community property laws or as otherwise noted,
the persons and entities named in the table have sole voting and sole investment
power over their shares of our common stock. Unless otherwise indicated, each
beneficial owner listed below maintains a mailing address of c/o Herley
Industries, Inc., 3061 Industry Drive, Lancaster, PA 17603.
The number of shares beneficially owned by each shareholder is determined
under SEC rules and is not necessarily indicative of beneficial ownership for
any other purpose. Under these rules, beneficial ownership includes those shares
of common stock over which the shareholder has sole or shared voting or
investment power and those shares of common stock that the shareholder has the
right to acquire within 60 days after January 29, 2010 through the exercise of
any stock option. The "Percentage of Shares" column treats as outstanding all
shares underlying such options held by the shareholder, but not shares
underlying options held by other shareholders.
Common Stock % of Outstanding
Directors and Named Executive Officers Beneficially Owned (1) (2) Shares
- -------------------------------------- -------------------------- -----------------------
Richard F. Poirier
Yonah Adelman
Anello C. Garefino
Myron Levy (3)
Jeffrey L. Markel (4)
Carlos C. Campbell
John A. Thonet (6)
Adm. Edward K. Walker, Jr. (Ret.)
Dr. Edward A. Bogucz
Gerald A. Gagliardi
Michael N. Pocalyko
Directors and current executive
officers as a group (9 persons)
<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 January 29, 2010 pursuant to stock options
awarded under our stock option plans:
5
Richard F. Poirier Carlos C. Campbell
Yonah Adelman John A. Thonet
Anello C. Garefino Adm. Edward K. Walker, Jr.
Myron Levy Dr. Edward A. Bogucz
Jeffrey L. Markel
Directors and executive
officers as a group
(3) Mr. Levy served as Chief Executive Officer from August 2001 to July 22,
2009.
(4) Mr. Markel served as Chief Operating Officer from June 2007 to August 1,
2009.
(5) Mr. Purcell served as Vice President and Chief Financial Officer from June
2006 to January 12, 2009.
(6) Does not include _________ shares owned by Mr. Thonet's children, Hannah
and Rebecca Thonet, and ______ shares owned by his wife, Kathi Thonet. Mr.
Thonet disclaims beneficial ownership of these shares.
</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 now consists of six directors. At each annual meeting of
stockholders, directors constituting a class are elected for staggered
three-year terms.
The Board has nominated Gerald A. Gagliardi and Rear Adm. Edward K. Walker,
Jr. (Ret.) for election as Class I directors. Mr. Gagliardi and Rear Adm. Walker
will be elected to serve until the 2012 annual meeting of stockholders, or until
their successors are duly elected and qualified. However, in the event the
proposal to eliminate the classified board is approved at this meeting, all
directors will serve until the next annual meeting of stockholders. Shares
represented by executed proxies in the form enclosed will be voted, unless
otherwise indicated, for the election as directors of the nominees named in
Class I, 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 either of the
nominees will be unavailable or, if elected, will decline to serve.
The following table sets forth our directors and the classes in which they
will be presently serving.
Class I Class II Class III
------- -------- ---------
(To serve until the 2012 Annual (To serve until the 2010 Annual (To serve until the 2011 Annual
Meeting of Stockholders) Meeting of Stockholders) Meeting of Stockholders)
- ------------------------------- ------------------------------- -------------------------------
Gerald A. Gagliardi (4) Dr. Edward A. Bogucz (1)(3)(4) John A. Thonet
Rear Adm. Edward K. Walker, Jr. (Ret.) Michael N. Pocalyko (4) Carlos C. Campbell (2)(3)(4)
(1)(2)
<FN>
- -----------
(1) Member of Compensation Committee
(2) Member of Governance and Ethics Committee
(3) Member of Nominating Committee
(4) Member of Audit Committee
</FN>
The business experience of our directors is set forth below.
6
Dr. Edward A. Bogucz (53 years of age) is currently Executive Director of
the New York Center of Excellence in Environmental Systems, a
university-industry consortium that includes twelve universities and research
institutions. Previously, Dr. Bogucz served as Dean of Engineering and Computer
Science at Syracuse University from 1995 through 2003. Dean Bogucz earned his
Bachelor 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.
Carlos C. Campbell (72) has been a director of Herley Industries since
2005. Mr. Campbell served in the Sub-Cabinet of President Reagan where he was
the Assistant Secretary of Commerce for Economic Development, U.S. Department of
Commerce (1981-1984). He was also an Envoy of President Reagan and a member of
the OMB Task Force on Integrity and Efficiency and the Task Force of Credit
Scoring and Debt Management. He is a Certified Corporate Director and a graduate
of the Director's Institute, Anderson School of Management, UCLA (2003). Mr.
Campbell has also been certified as a Director by the National Association of
Corporate Directors. He has completed executive management seminars from the
Harvard Business School in Governance, Compensation and Auditing. He is also a
member of the Board of Directors of Resource America, Inc. (REXI/NASDAQ) and
PICO Holdings, Inc. (PICO/NASDAQ). Mr. Campbell has held Executive Level
positions with the U.S. Department of Housing and Urban Development (1969-1972)
and the American Revolution Bicentennial Administration (1974-1976). As a Naval
Aviator he acquired over 1,000 flight hours and achieved the rank of Lieutenant
Commander. In addition to Cold War reconnaissance squadron tours, he had
assignment with the Defense Intelligence Agency and the Naval Air Systems
Command. He has a B.S. from Michigan State University, a Certificate in
Engineering Science from the U.S. Naval Post Graduate School in Monterey,
California and a Master of City & Regional Planning from Catholic University of
America.
Gerald A. Gagliardi (62) is currently managing partner of Lyme Technology,
LLC, a company which provides consulting services to data processing and
telecommunications companies. From February 2001 through March 2006, Mr.
Gagliardi was Senior Vice President, Worldwide Customer Services of NCR
Corporation, a global business information solutions provider. In this capacity,
he was responsible for worldwide customer services, a unit with operations in
130 countries and with over 13,000 employees. From June 2000 to January 2001 and
since March 2006, he has served as a consultant to E. M. Warburg Pincus &
Company, LLC, a New York based private equity firm where he has been engaged in
evaluating investments and providing managerial assistance within the Warburg
Pincus portfolios. From October 1999 to June 2000, he served as President and
Chief Executive Officer of Inacom Corp. Prior thereto, he spent 28 years at
Unisys Corporation where he held senior management positions in that company's
services division, including Executive Vice President and President of Global
Customer Services from 1995 to 1999. Mr. Gagliardi has received various awards
during his career, including the Chairman's "Pinnacle of Excellence" award while
at Unisys, which has been awarded to only thirteen persons in that company's 100
year history.
Michael N. Pocalyko (55) is managing director and chief executive officer
of Monticello Capital in Chantilly, Virginia, an investment bank and private
equity firm that specializes in technology companies and mergers and
acquisitions, operating internationally in eleven countries. He has extensive
experience as an expert financial advisor, corporate director, and principal in
high-growth multinational corporations in the advanced technology manufacturing,
engineering services, defense and aerospace, and biomedical industries. He
currently chairs the board of TherimuneX Pharmaceuticals, Inc. in Doylestown,
Pennsylvania and previously chaired Advanced Environmental Resources, Inc. in
Reston, Virginia and Erdevel Europa S.a r.l. in Luxembourg and Saudi Arabia. He
also represented two governors of Virginia on the Commonwealth Competition
Council. Prior to his career as a financier, Mr. Pocalyko was a Navy commander
and served in the Office of the Secretary of Defense and on the staff of the
Secretary of the Navy. He is a Beirut veteran and was a decorated Navy pilot.
Mr. Pocalyko earned his Bachelor's Degree at Muhlenberg College, his Master in
Public Administration Degree at the Harvard Kennedy School, and his Master of
Business Administration Degree at the Wharton School of the University of
Pennsylvania. He holds the Certificate of Director Education from the National
Association of Corporate Directors and has graduated from corporate director
executive education programs at Wharton and the University of Chicago.
7
Rear Adm. Edward K. Walker, Jr. (Ret.) (77) was appointed Vice Chairman of
the Board in June 2006. Rear Admiral Walker served as the Director of Corporate
Strategy for Resource Consultants, Inc., a privately-held corporation supporting
the Department of Defense and other government agencies, after his retirement
from the United States Navy in 1988 until 2000. Prior to his retirement from the
United States Navy, Rear Admiral Walker served for thirty-four years in various
naval officer positions, including Commander of the Naval Supply Systems Command
and Chief of Supply Corps. He holds a Bachelor's Degree from the United States
Naval Academy and Master's Degree in Business Administration from The George
Washington University.
DIRECTOR INDEPENDENCE
We have adopted the NASDAQ Stock Market's standards for determining the
independence of directors. Under these standards, an independent director means
a person other than an executive officer or one of our employees or any other
individual having a relationship which, in the opinion of the Board of
Directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director. In addition, the following persons shall
not be considered independent:
o a director who is, or at any time during the past three years was,
employed by us;
o a director who accepted or who has a family member who accepted any
compensation from us in excess of $120,000 during any period of twelve
consecutive months within the three years preceding the determination
of independence, other than the following:
o compensation for service on the Board of Directors or any
committee thereof;
o compensation paid to a family member who is one of our employees
(other than an executive officer); or
o under a tax-qualified retirement plan, or non-discretionary
compensation;
o a director who is a family member of an individual who is, or at any
time during the past three years was, employed by us as an executive
officer;
o a director who is, or has a family member who is, a partner in, or a
controlling shareholder or an executive officer of, any organization
to which we made, or from which we received, payments for property or
services in the current or any of the past three fiscal years that
exceed 5% of the recipient's consolidated gross revenues for that
year, or $200,000, whichever is more, other than the following:
o payments arising solely from investments in our securities; or
o payments under non-discretionary charitable contribution matching
programs;
o a director who is, or has a family member who is, employed as an
executive officer of another entity where at any time during the past
three years any of our executive officers served on the compensation
committee of such other entity; or
o a director who is, or has a family member who is, a current partner of
our outside auditor, or was a partner or employee of our outside
auditor who worked on our audit at any time during any of the past
three years.
For purposes of the NASDAQ independence standards, the term "family member"
means a person's spouse, parents, children and siblings, whether by blood,
marriage or adoption, or anyone residing in such person's home.
8
The Board of Directors has assessed the independence of each non-employee
director under the independence standards of the NASDAQ Stock Market set forth
above, and has affirmatively determined that all of our non-employee directors
are independent.
We expect each director to attend every meeting of the Board and the
committees on which he serves, as well as the annual meeting. In 2009, each
director who was a director at the time attended the 2009 Annual Meeting of
Stockholders meeting. All directors attended at least 75% of the meetings of the
Board and the committees on which they served in fiscal 2009.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended August 2, 2009 there were:
o 10 meetings of the Board of Directors
o 5 meetings of the Audit Committee
o 2 meetings of the Compensation Committee
o 1 meeting of the Nominating Committee
o 1 meeting of the Governance and Ethics Committee
Committee Autonomy
Each committee has the power to engage independent legal, financial or
other advisors, as it may deem necessary, without consulting or obtaining the
approval of our Board of Directors or any officer of the Company.
Audit Committee and Audit Committee Financial Expert
The Board has a standing Audit Committee. The Board has affirmatively
determined that each director who serves on the Audit Committee is independent,
as the term is defined by applicable NASDAQ listing standards and Securities and
Exchange Commission ("SEC") rules. The Audit Committee currently consists of
Michael N. Pocalyko, Chairman, Gerald A. Gagliardi, Carlos C. Campbell and Dr.
Edward A. Bogucz. 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. Messrs. Pocalyko and Gagliardi
each qualifies as a "financial expert" under NASDAQ's listing rules and
applicable regulations of the SEC.
The Audit Committee regularly meets with our independent registered public
accounting firm outside the presence of management.
The Audit Committee operates under a charter approved by the Board of
Directors. The Audit Committee charter is not available on our website. A copy
of the Audit Committee charter was attached as an exhibit to our proxy statement
for the 2007 Annual Meeting of Stockholders and may be found through a link to
SEC filings from our website www.herley.com under "About Us - Investor
Relations."
9
Compensation Committee
Our 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, and
administers our stock-based benefit plans. The Compensation Committee currently
consists of Edward A. Bogucz, Chairman and Edward K. Walker, Jr. Each member of
the Compensation Committee is a director who is not employed by us or any of our
affiliates and are independent directors under NASDAQ listing standards.
The Compensation Committee operates under a charter approved by the Board
of Directors. The Compensation Committee charter is not available on our
website. A copy of the charter of the Compensation Committee was attached as an
exhibit to our proxy statement for the 2009 Annual Meeting of Stockholders and
may be found through a link to SEC filings from our website www.herley.com under
"About Us - Investor Relations."
Nominating Committee
Our Nominating Committee currently consisting of Carlos C. Campbell,
Chairman and Edward A. Bogucz, each of whom is an independent director under
NASDAQ listing standards, identifies individuals qualified to become board
members, recommends to the Board nominees to fill vacancies in membership of the
Board as they occur and, prior to each Annual Meeting of Stockholders,
recommends a slate of nominees for election as Directors at such meeting.
The Nominating Committee operates under a charter approved by the Board of
Directors. The Nominating Committee charter is not available on our website. A
copy of the charter of the Nominating Committee was attached as an exhibit to
our proxy statement for the 2009 Annual Meeting of Stockholders and may be found
through a link to SEC filings from our website www.herley.com under "About Us -
Investor Relations."
Governance and Ethics Committee
Our Governance and Ethics Committee, currently consisting of Edward K.
Walker, Jr., Chairman and Carlos C. Campbell, each of whom is an independent
director, monitors developments in corporate governance principles and other
corporate governance matters and makes recommendations to the Board of Directors
regarding the adoption of additional corporate governance principles.
Shareholder Recommendations for Board Nominees
The Nominating Committee will consider shareholder recommendations for
candidates for the Board. The name of any recommended candidate for director,
together with a brief biographical sketch, a document indicating the candidate's
willingness to serve, if elected, and evidence of the nominating shareholder's
ownership of Company stock, should be sent to the attention of the Secretary of
the Company.
Stockholder Communications with the Board
We have not developed to date a formal process by which stockholders may
communicate directly with directors. However, in recent years, an informal
process has developed in which communications sent to the Board of Directors or
10
in care of an officer or our other representative is forwarded to the Chairman
or Chief Executive Officer. We believe this process has adequately served the
needs of the Board of Directors and our stockholders. In light of SEC disclosure
rules on this matter, the Board of Directors may consider the development and
adoption of more formal procedures. Until such procedures are adopted and
disclosed to our stockholders, stockholders may direct communications intended
for the Board of Directors to the Secretary of the Company, at 3061 Industry
Drive, Lancaster, Pennsylvania 17603. The envelope containing such communication
must contain a clear notation indicating that the enclosed letter is a
"Stockholder-Board Communication" or "Stockholder-Director Communication" or
similar statement that clearly and unmistakably indicates the communication is
intended for the Board of Directors. All such communications must clearly
indicate the author as a stockholder and state whether the intended recipients
are all members of the Board of Directors or just certain specified directors.
The Secretary will make copies of all such communications and circulate them to
the appropriate director or directors.
DIRECTOR COMPENSATION
Directors who are also employees of the Company are not separately
compensated for their services as directors.
Cash Compensation to Board Members
Directors who are not our employees receive an annual fee of $30,000 and a
fee of $1,500 for each board of directors meeting attended. The Governance and
Ethics Committee Chairman receives an annual fee of $15,000, and other members
of the Governance and Ethics Committee receive $7,500 annually. The Audit
Committee Chairman receives an annual fee of $25,000, and other members of the
Audit Committee receive $7,500 annually. The Compensation Committee Chairman
receives an annual fee of $15,000, and other members of the Compensation
Committee receive $7,500 annually. The Nominating Committee Chairman receives an
annual fee of $15,000, and other members of the Nominating Committee receive
$7,500 annually.
Equity Compensation to Board Members
The Company grants options to purchase shares of the Company's Common Stock
to its outside directors on a periodic basis. No options were granted to its
outside directors during fiscal 2009.
Other
Board members are reimbursed for reasonable expenses in attending meetings
of the Board of Directors and for expenses incurred in connection with their
complying with our corporate governance policies. The Company also provides
directors' and officers' liability insurance and indemnity agreements for our
directors. No other compensation is provided to our directors.
DIRECTOR COMPENSATION TABLE
The following table provides information with respect to all compensation
awarded to, earned by or paid to each person who served as a director for all of
fiscal 2009. Other than as set forth in the table and the narrative that follows
it, to date we have not paid any fees to or reimbursed any expenses of our
11
directors, except for expenses incurred in connection with attendance at Board
meetings which in the aggregate are less than $10,000 each, made any equity or
non-equity awards to directors, or paid any other compensation to directors.
Fees Earned
or Paid in Option
Name Cash ($) Awards ($) Total ($)
----- -------- ---------- ---------
Rear Admiral Edward K. Walker, Jr. (Ret.) $148,500 (1) - $148,500
Dr. Edward A. Bogucz $61,000 - $61,000
Rear Admiral Robert M. Moore (Ret.) (Deceased) $73,500 - $73,500
John A. Thonet $63,500 - $63,500
Carlos C. Campbell $51,000 - $51,000
- ----------
<FN>
(1) Includes $75,000 paid to Mr. Walker under a consulting arrangement for
services relating to corporate governance and ethics.
</FN>
Compensation Committee Interlocks and Insider Participation
In fiscal 2009, our Compensation Committee consisted of Dr. Edward A.
Bogucz, Chairman and Messrs. Edward K. Walker, Jr. and Robert M. Moore
(deceased). None of these persons were our officers or employees during fiscal
2009 nor had any relationship requiring disclosures in this Annual Report. Mr.
Walker has a consulting arrangement with us for services relating to corporate
governance and ethics at an annual fee of $75,000.
Certain Relationships and Related Transactions
Effective October 12, 2006, and as a condition to entering into an
Administrative Agreement with the Department of the Navy, we entered into an
agreement with Lee N. Blatt which provides that all outstanding stock options
previously issued to him which are all vested and fully exercisable shall
continue to be exercisable by him or, following his death, by his designated
beneficiaries, on or before the expiration date of the specific option. In the
event of a "change of control" of the Company as defined in the Employment
Agreement all remaining payments due under the agreement become immediately due
and payable.
On June 25, 2009, a Special Committee of the Board of Directors authorized
an accelerated payment to Lee N. Blatt under the terms of his agreement with the
Company dated September 27, 2006 (the "Agreement"). The event which caused
acceleration was a change in control of the Company as defined in the Agreement
as the ownership change or acquisition of an aggregate of 20% or more of the
outstanding voting securities of the Company. The triggering event caused the
acceleration of $3,361,528 otherwise payable over the next 34 months so that the
full amount became immediately payable. Of this amount, $3,054,757 was
previously expensed by the Company so that the amount expensed in fiscal 2009
was $306,771, representing the imputed interest.
12
Prior to the acquisition of Micro Systems, Inc. ("MSI"), MSI had leased one
of its two buildings in Fort Walton Beach, Florida from MSI Investments, a
Florida General Partnership. MSI Investments is owned by four individuals, two
of whom are currently employees of MSI and one serves as a consultant.
On August 24, 2005, we amended our lease agreements with a partnership
partially owned by the children of the Company's former Chairman to incorporate
two individual leases into a single lease and extended the term of the initial
leases to August 31, 2010. During the fourth quarter of fiscal 2008, we decided
to close our manufacturing facility in Farmingdale, New York and transfer its
contracts and assets to our other facilities in Whippany, New Jersey; Woburn,
Massachusetts; Lancaster, Pennsylvania; and Jerusalem, Israel. On January 25,
2009, we entered into a modification of the lease to reduce the amount of space
we are leasing and reduce the annual rental payments remaining under the lease
to approximately $429,000 annually.
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 provide
indemnification for expenses, judgments, fines and amounts paid in settlement
actually incurred by the relevant officer or director, or on his or her behalf,
arising out of proceedings brought against such officer or director by reason of
his or her corporate status.
COMPENSATION DISCUSSION AND ANALYSIS
This section discusses the principles underlying our executive compensation
policies and decisions and the most important factors relevant to an analysis of
these policies and decisions. It provides qualitative information regarding the
manner and context in which compensation is awarded to and earned by our Named
Executive Officers ("NEOs") (as defined in the Summary Compensation Table below)
and places in perspective the data presented in the tables and narrative that
follow.
Compensation Philosophy and Overview
We believe that the most effective compensation program is one that is
designed to reward the achievement of our financial and strategic goals, and
which aligns executives' interests with those of our shareholders.
The compensation plans for our executive officers have three principal
elements: a base salary, a discretionary cash incentive bonuses linked to the
achievement of financial and strategic goals and equity-based incentive
compensation. In addition, we provide our executive officers a variety of
benefits that in most cases are available generally to all of our salaried
employees. We view the components of compensation as related but distinct.
Although the Compensation Committee of our Board of Directors (the "Committee")
reviews the total compensation of our executive officers, we do not believe that
significant compensation derived from one component of compensation should
13
necessarily negate or reduce compensation from other components. We do believe
that the executive compensation package should be fair and reasonable when taken
as a whole.
We have not adopted any formal policies or guidelines for allocating
compensation between long-term and currently paid out compensation or between
cash and non-cash compensation. However, our philosophy is to keep cash
compensation at a competitive level while providing the opportunity to be
significantly rewarded through equity if our company and our stock price perform
well over time.
We also believe that executive officers should have a percentage of their
equity compensation in the form of stock options or restricted stock vesting
over time.
Role of Executive Officers in Compensation Decisions
Our Chief Executive Officer annually reviews the performance of each of our
other executive officers. The conclusions reached by our Chief Executive Officer
and his recommendations based on these reviews, including with respect to salary
adjustments, incentive awards and equity award amounts, are presented by our
Chief Executive Officer to the Committee. The Committee can exercise its
discretion in modifying any recommended adjustments or awards to executives. The
Committee makes all final compensation decisions for each of our executive
officers.
Committee meetings typically have included, for all or a portion of each
meeting, not only the Committee members but also our Chief Executive Officer.
Role of the Compensation Committee
The Compensation Committee currently consists of Edward A. Bogucz, Chairman
and Edward K. Walker, Jr. Each member of the Compensation Committee is a
director who is not employed by us or any of our affiliates and is an
independent director under NASDAQ rules for Compensation Committee members.
The Committee ensures that our executive compensation and benefits program
is consistent with our compensation philosophy and our corporate governance
guidelines and is empowered to make decisions regarding executive officers'
total compensation, and subject to the approval of the Board, our Chief
Executive Officer's total compensation.
The Committee reviews our overall compensation strategy at least annually
to ensure that it promotes shareholder interests, supports our strategic and
tactical objectives and provides for appropriate rewards and incentives for our
executive officers. The Committee's most recent overall compensation review
occurred in July 2009.
Accounting and Tax Implications of Our Compensation Policies
In designing our compensation programs, the Committee considers the
financial accounting and tax consequences to the Company, as well as the tax
consequences to our employees. We account for equity compensation paid to our
employees under FASB's Accounting Standards Codification 718,
14
"Compensation-Stock Compensation" ("ASC 718"), which requires us to estimate and
record and expense over the service period of the award. The ASC 718 cost of our
equity awards is considered by management as part of our equity grant
recommendations to the Committee.
Section 162(m) of the Internal Revenue Code places a limit of $1 million on
the amount of compensation that we may deduct for income tax purposes in any one
year with respect to our five most highly compensated executive officers. The $1
million limit does not apply to compensation that is considered "performance
based" under applicable tax rules. Our executive stock options are intended to
qualify as "performance-based," so that compensation attributable to those
options is fully tax deductible.
We also consider the tax impact to employees in designing our compensation
programs, particularly our equity compensation programs. For example, employees
generally control the timing of taxation with respect to the exercise of stock
options.
Components of our Executive Compensation Program
Base Salary
We establish base salaries that are sufficient, in the Committee's
judgment, to retain and motivate our executives while taking into account the
unique circumstances of our Company. In determining appropriate salaries, the
Committee considers each executive's scope of responsibility and accountability
within our Company and reviews the executive's compensation, individually and
relative to other officers, as well as similarly situated companies. We had
entered into employment agreements with certain of our executives which provided
for adjustments as set forth more fully below in the section titled "Employment
Agreements." In fiscal 2009, there were no increases in any executive's salary
beyond what was called for in the individual employment agreements, such as
cost-of-living increases.
Effective July 22, 2009, we entered into an agreement (the "Levy
Termination Agreement") with Myron Levy terminating his employment agreement.
With the assistance of independent counsel, a special committee of the Board of
Directors consisting of independent directors authorized the Company to enter
into the Levy Termination Agreement. The Levy Termination Agreement provides
that in full satisfaction of all prior, current and future obligations to Mr.
Levy under the employment agreement, Mr. Levy is to receive an immediate lump
sum payment of $4,705,000 and thereafter monthly payments of $100,000 commencing
on September 1, 2009 for thirty-five (35) consecutive months through July 1,
2012. Payments are through a non-interest bearing promissory note. Mr. Levy also
shall continue as a consultant to the Company for three years at an annual
compensation of $50,000 and is to receive certain other benefits as provided in
the employment agreement, including medical reimbursement and insurance.
Effective July 22, 2009, the Board of Directors appointed Richard F.
Poirier as our Chief Executive Officer and President. Mr. Poirier's base salary
of $400,000 was determined by the Committee with the assistance of a consulting
firm specializing in executive compensation.
Discretionary Cash Incentive Bonuses
The Committee believes that discretionary cash bonus compensation for
executives should be directly linked to our overall corporate financial
performance, individual performance and our success in achieving both our
15
short-term and long-term strategic goals. In assessing the performance of our
Company and our executives during fiscal 2009, the Committee considered our
performance in the following areas:
o Increase levels of component integration and value added content;
o Enhancement of our manufacturing capabilities;
o Pursuit of selective commercial opportunities;
o Maintaining leadership in microwave technology;
o Strengthening and expanding customer relationships; and
o Maintaining our reputation for integrity.
In the first quarter of fiscal 2010, the Committee awarded Mr. Poirier a
performance payment of $125,000 for fiscal year 2009 based on his performance as
Vice President and General Manager of Herley New England. Mr. Garefino, our
Chief Financial Officer, was awarded a bonus of $25,000. These awards by the
Committee for fiscal 2009 are detailed in the Summary Compensation Table on page
18.
Our bonuses are structured to be deductible under Section 162(m) of the
Internal Revenue Code which denies publicly-held corporations a federal income
tax deduction for compensation in excess of $1 million paid to the CEO and the
four other most highly compensated officers during a fiscal year unless the
compensation is "performance-based." We believe that our process of awarding
cash bonuses satisfies this requirement; however, there can be no assurance that
any amounts paid as discretionary cash bonuses will be deductible.
Equity-Based Long-Term Incentive Compensation
We believe that our equity incentive compensation arrangements are an
important factor in developing an overall compensation program that is
competitive with our peer group of companies and that aligns the interests of
our executives with those of our shareholders.
We believe that stock options and restricted stock awards effectively align
the long-term interests of management with our shareholders. Additionally, we
believe that our executives should have a greater percentage of their equity
awards at risk as compared with our other employees. Since our executives do not
benefit from stock options and restricted stock awards unless the price of our
stock increases after the grant date as compared with the grant price, they
clearly provide our executives with an added incentive to build shareholder
value. We have not repriced the exercise price for stock options that have been
granted when the future stock price has decreased below the exercise price of
such stock options. The date of our awards of stock options and restricted stock
is established by the Committee at a meeting held prior to the date of grant.
Grants of stock options and stock awards vest over a period of years in order to
serve as an inducement for our executives to remain in the employ of our
Company. It is contemplated that we will continue to offer stock options and
stock awards as the principal component of our equity compensation arrangement
for our executives.
The number of shares of restricted stock and stock options awarded to our
executives is established by the Committee in consultation with our CEO, taking
into account a number of factors, including the position, job performance and
overall responsibility of each executive. Since the value of the restricted
stock awards and stock options granted to our executives are based upon the
price of our shares, the Committee believes that the granting of restricted
stock and stock options is a significant incentive to our executives to continue
16
to build shareholder value. The Committee also believes that the multi-year
vesting periods will be helpful in linking equity compensation to long-term
performance.
The only stock options granted to our named executive officers in fiscal
2009 were 50,000 options to Richard F. Poirier on July 22, 2009, at the time of
his appointment as President and Chief Executive Officer, which vest in equal
annual installments over a period of three years.
Retirement and other Executive Benefits and Perquisites
All of our executives are eligible to participate in our employee benefit
plans, including medical, dental, life insurance and 401(k) plans. These plans
are available to all salaried employees and do not discriminate in favor of
executive officers. It is generally our policy not to extend significant
perquisites to our executives that are not available to our employees generally.
We have no current plans to make changes to levels of benefits and perquisites
provided to executives.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Committee has reviewed and discussed with management the disclosures
set forth above under the heading "Compensation Discussion and Analysis" and,
based on such review and discussions, the Committee recommended to the Board
that such disclosure be included in our Proxy Statement and in the Annual Report
on Form 10-K/A for the fiscal year ended August 2, 2009.
The Compensation Committee: Edward A. Bogucz (Chairman)
John A. Thonet
Adm. Edward K. Walker, Jr. (Ret.)
Executive Compensation Tables
Summary Compensation Table
The following table sets forth the annual compensation awarded to, earned
by, or paid to our Chairman, our President and Chief Executive Officer
("Principal Executive Officer"), our Chief Financial Officer ("Principal
Financial Officer") and our other most highly compensated former executive
officers other than the Principal Executive Officer who were serving as
executive officers at the end of the last completed fiscal year as required
under SEC rules (collectively, the "Named Executive Officers" or "NEOs") for
services rendered for the fiscal years ended August 2, 2009, August 3, 2008 and
July 29, 2007.
17
Non-Equity
Name and Principal Option Incentive Plan All Other
Position Year Salary Bonus(2) Awards(3) Compensation Compensation(5) Total
------------------ ---- ------ ------- -------- -------------- -------------- -----
Richard F. Poirier 2009 $223,180 $125,000 $ 3,083 $ $ 9,667 $ 360,930
President and 2008 206,308 60,000 9,965 276,273
Chief Executive Officer 2007 203,414 60,000 8,760 272,174
Anello C. Garefino 2009 $211,120 $ 25,000 $ $ $ 11,886 $ 248,006
Chief Financial Officer 2008 182,652 15,000 10,350 208,002
2007 175,478 5,000 8,847 189,325
Myron Levy 2009 $769,398 $ $ $ $4,740,469 $5,509,867
Former Chairman of the Board and 2008 735,613(1) 300,000(4) 25,158 1,060,771
Chief Executive Officer(6) 2007 713,126 750,000(4) 18,677 1,481,803
Jeffrey L. Markel 2009 $380,727 $ $583,578 $ $1,364,196 $2,328,501
Former Chief Operating Officer(6) 2008 352,719(1) 543,350 300,000(4) 23,116 1,219,185
2007 47,116 299,346 - - 346,462
Kevin J. Purcell 2009 $233,210 $ $ 32,090 $ $ 10,449 $ 275,749
Former Chief Financial Officer(6) 2008 227,622 50,000 49,942 10,308 337,872
2007 220,000 10,000 75,871 14,660 320,531
<FN>
- ------------
(1) Includes a cost of living adjustment of $26,531 in fiscal 2008 for Mr. Levy
and $1,844 in fiscal 2008 for Mr. Markel under their employment agreements.
(2) Executive bonuses are paid at the discretion of the Board of Directors.
(3) Amounts represent the aggregate expense recognized for financial statement
reporting purposes in accordance with ASC 718 for stock options granted to
the NEOs (disregarding estimates of forfeitures for service-based vesting).
ASC 718 expense for the stock options is based on the fair value of the
options on the date of grant using the Black-Scholes option-valuation
model.
(4) Represents performance and incentive payments for fiscal 2008 and 2007.
(5) The amounts shown for Mr. Levy and Mr. Markel take into consideration
amounts paid on account of the termination of said NEOs employment
agreements with the Company. Mr. Levy will also receive monthly payments of
$100,000 commencing September 1, 2009 for thirty-five consecutive months
through July 1, 2012.
(6) Mr. Levy served as Chairman and Chief Executive Officer through July 22,
2009. Mr. Markel served as Chief Operating Officer through August 1, 2009.
Mr. Purcell served as Chief Financial Officer through January 12, 2009.
(7) The following table describes each component of the "All Other
Compensation" column in the "Summary Compensation Table" above. Other
compensation in 2008 for Mr. Markel includes reimbursement for relocation
expenses of $8,533.
</FN>
18
Matching Other Personal
Contribution Medical Employmnet Including
Fiscal to Employee Supplemental Insurance Settlement Personal
Name Year Savings Plan Life Insurance Benefits Payments Use of Auto Total
---- ------ ------------ -------------- --------- ---------- -------------- -----
Richard F. Poirier 2009 $9,200 $367 $100 $9,667
2008 9,000 365 600 9,965
2007 7,800 360 600 8,760
Anello C. Garefino 2009 $9,200 $2,586 $100 $11,886
2008 7,906 1,844 600 10,350
2007 6,802 1,445 600 8,847
Myron Levy 2009 $9,200 $6,858 $10,001 $4,705,000 $9,410 $4,740,469
2008 9,000 4,763 7,862 3,533 25,158
2007 8,800 4,572 1,552 3,753 18,677
Jeffrey L. Markel 2009 $9,200 $3,564 $1,350,000 $1,432 $1,364,196
2008 9,000 714 13,402 23,116
2007 - - - -
Kevin J. Purcell 2009 $9,200 $1,149 $100 $10,449
2008 9,000 606 702 10,308
2007 8,800 225 5,635 14,660
Grants of Plan-Based Awards in Fiscal 2009
The following table provides information with respect to each stock option
awarded to the Named Executive Officers in the fiscal year ended August 2, 2009.
All Other
Option Exercise Grant
Awards: or Base Date Fair
Number of Price of Value of
Securities Option Stock and
Grant Underlying Awards Option
Name Date Options (#) ($/Sh) Awards
Richard F. Poirier 7/21/2009 50,000 $10.39 $163,116
Outstanding Equity Awards at Fiscal 2008 Year End
The following table provides information with respect to each unexercised
stock option held by the Named Executive Officers as of August 2, 2009.
19
Option Awards
Number of Number of
securities securities
underlyling underlyling Option Option
unexercised options unexercised options Exercise Expiration
Name (#) exercisable (#) unexercisable Price ($) Date
---- ------------------- ------------------- --------- ----------
Richard F. Poirier 5,000 $19.83 12/23/2009
15,000 17.98 5/2/2010
50,000 10.39 7/21/2014
Anello C. Garefino 3,000 $19.83 12/23/2009
4,000 6,000 17.82 9/8/2012
Myron Levy 225,000 $10.45 5/18/2010
150,000 8.38 3/12/2011
250,000 13.10 12/3/2011
250,000 19.52 5/21/2012
200,000 17.98 5/2/2015
Jeffrey L. Markel 250,000 $15.77 10/29/2012
Option Exercises in Fiscal 2009
No stock options were exercised during fiscal 2009 by the Named Executive
Officers.
Employment Agreements
Myron Levy entered into an employment agreement with us, dated as of July
29, 2002 which, by its terms would have expired December 31, 2013, 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
employment agreement provided for an annual salary as of August 3, 2008 at the
rate of $739,300 as adjusted under the employment agreement for a semi-annual
cost of living adjustment based on the consumer price index. The employment
agreement also provided for minimum annual incentive compensation of 3% of our
pretax income as adjusted. At the end of the employment period, the employment
agreement had provided 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 agreement with Mr. Levy provided for certain payments
following death or disability, and also had provided that, in the event there is
a change in control, as defined, he has the option to terminate the agreement
and receive a lump-sum payment equal to the sum of the salary payable for the
remainder of the employment term, plus the annual incentive (based on the
average of the three highest annual incentive awarded during the ten preceding
years) for the remainder of the employment term. As of July 22, 2009, the amount
payable in the event of such termination would have been approximately
$8,357,000.
Effective July 22, 2009, we entered into an agreement (the "Levy
Termination Agreement") with Myron Levy terminating his employment agreement.
With the assistance of independent counsel, a special committee of the Board of
20
Directors consisting of independent directors authorized the Company to enter
into the Levy Termination Agreement. The Levy Termination Agreement provides
that in full satisfaction of all prior, current and future obligations to Mr.
Levy under the employment agreement, Mr. Levy is to receive an immediate lump
sum payment of $4,705,000 and thereafter monthly payments of $100,000 commencing
on September 1, 2009 for thirty-five (35) consecutive months through July 1,
2012. Payments are through a non-interest bearing promissory note. Mr. Levy also
shall continue as a consultant to the Company for three years at an annual
compensation of $50,000 and is to receive certain other benefits as provided in
the employment agreement, including medical reimbursement and insurance.
Mr. Jeffrey Markel entered into an employment agreement with us as of May
30, 2007 which, by its terms was to expire on July 31, 2011, subject to
extension for additional one-year periods annually beginning July 31, 2008 with
a final expiration date of July 31, 2012. The employment agreement provided for
an initial annual salary of $365,800 (adjusted for a semi-annual cost of living
adjustment based on the consumer price index), and an initial award of 250,000
non-qualified stock options at the closing stock price on the date prior to
execution of the agreement of $15.77 per share. The options vest 20% upon award
and 20% annually over the next four years. The employment agreement also
provided for incentive compensation to be paid at the discretion of the Board of
Directors, however, incentive compensation for the fiscal year ended August 3,
2008 is to be paid at a minimum of $300,000. The employment agreement also
provided for a consulting period of ten years at the end of the employment
period at an annual compensation of $100,000. In the event of a change in our
control, as defined, the executive has the option to terminate the agreement at
any time after July 31, 2010 and receive a lump-sum payment equal to the sum of:
(1) his salary payable for the remainder of the employment term, (2) the annual
bonuses (based on the average of the annual bonuses awarded during the term of
the employment agreement) for the remainder of the employment term, and (3) a
lump sum payment of $500,000 representing full consideration under the
consulting period.
On August 12, 2009, the Company entered into an agreement (the "Markel
Termination Agreement") with Jeffrey L. Markel terminating his employment
agreement, effective as of August 1, 2009. The Markel Termination Agreement
provides that in full satisfaction of all prior, current and future obligations
to Mr. Market under the employment agreement, Mr. Markel is to receive an
immediate lump sum payment of $1,350,000 as well as immediate vesting of 100,000
unvested options with an exercise price of $15.77. Mr. Markel also shall
continue as a consultant to the Company for three years at an annual
compensation of $67,667 and is to receive certain other benefits as provided in
the employment agreement, including medical care reimbursement.
Kevin J. Purcell entered into an employment agreement with us, dated as of
June 7, 2006, which expired June 6, 2009. The employment agreement provided for
an annual salary as of August 3, 2008 at the rate of $233,210, subject to review
by the Board of Directors, plus an annual bonus at the discretion of the Board
of Directors. After resigning his position as Chief Financial Officer on January
12, 2009, Mr. Purcell served as a consultant to the Company until June 6, 2009.
Estimate of Potential Payments upon Termination or Change in Control
The following table provides an estimate of the potential payments and
benefits that each of the currently employed NEOs would be entitled to receive
upon termination of employment under various circumstances and upon a change of
control. The table does not include payments the executive would be entitled to
receive in the absence of one of these specified events, such as from the
21
exercise of previously-vested stock options, which amount can be calculated from
the Outstanding Equity Awards at Fiscal 2009 Year End table. The table also does
not include benefits that are provided on a non-discriminatory basis to salaried
employees generally, including amounts payable under the Company's 401(k) plan.
Termination
Termination without cause or
without cause a constructive
prior to Change in termination after a
Name Benefit change in control control change in control
---- ------- ----------------- --------- -------------------
Richard F. Poirier Severance $ - $ 800,000 $ 800,000
Anello C. Garefino Severance $ - $ 466,420 $ 466,420
Equity Compensation Plan Information
The following table sets forth the indicated information as of January 29,
2010 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 2,008,693 $ 13.72 8,250
Equity compensation plans not
approved by security holders 1,182,107 $ 17.25 295,400
--------- -------
Total 3,190,800 $ 15.03 303,650
========= =======
The following information is provided about our restricted stock awards
and stock option plans:
2006 New Employee Stock Option Plan. The 2006 New Employee Stock Option
Plan covers 600,000 shares (as amended July 22, 2009) of the Company's common
stock. The plan as amended provides for the issuance of restricted stock or
granting of non-qualified stock options. Under the terms of the plan, the
exercise price for options granted under the plan will be the fair market value
at the date of grant. The fair value of restricted shares issued is based on the
closing price on the day prior to the date of issue. Vesting of the shares
issued is determined at the time of issue by the Compensation Committee or the
Board of Directors. 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. The options expire no later than ten years from the date of grant,
subject to certain restrictions. Options for 5,000 and 4,000 shares were granted
under the plan during fiscal years 2009 and 2008, respectively. Options for
28,000 shares were cancelled under the plan in fiscal 2009. Restricted stock
22
awards for 100,000 shares of common stock were issued in fiscal 2009 and
cancelled in January 2010. Options for ________ shares of common stock are
available for grant under the plan as of January 29, 2010 and options for
___________ shares were outstanding on that date.
2003 Stock Option Plan. The 2003 Stock Option Plan covers 1,000,000 shares
of the Company's common stock. Options granted under the plan are non-qualified
stock options. Under the terms of the plan, the exercise price for 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. The options
expire no later than ten years from the date of grant, subject to certain
restrictions. Options for 50,000 shares were granted under the plan during
fiscal 2009. No options were granted under the plan in fiscal 2008. Options for
90,700 shares were cancelled under the plan in fiscal 2009 and options for
__________ shares of common stock are available for grant and _________ were
outstanding at January 29, 2010.
2000 Stock Option Plan. The 2000 Stock Option Plan covers 1,500,000 shares
of the Company's common stock. Options granted under the plan are non-qualified
stock options. Under the terms of the plan, the exercise price for 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. The options
expire no later than ten years from the date of grant, subject to certain
restrictions. Options for 34,000 shares were granted under the plan in fiscal
2009 and options for 10,000 shares were cancelled. Options for ________ shares
of common stock are available for grant under the plan and ___________ were
outstanding at January 29, 2010.
1998 Stock Option Plan. The 1998 Stock Option Plan, which has now expired
with respect to the granting of new options, covers 2,250,000 shares of the
Company's common stock. The plan has expired with respect to the granting of new
options. Options which have been granted under the plan are non-qualified stock
options. Under the terms of the plan, the exercise price for 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. The options expire no
later than ten years from the date of grant, subject to certain restrictions.
Stock options for 226,000 shares were exercised in fiscal 2009. There are no
options available for grant under the plan. At January 29, 2010 options to
purchase ____________ shares of common stock were outstanding under this plan.
1997 Stock Option Plan. The 1997 Stock Option Plan, which has now expired
with respect to the granting of new options, covers 2,500,000 shares of the
Company's common stock. The plan has expired with respect to the granting of new
options. Options which have been granted under the plan are non-qualified stock
options. Under the terms of the plan, the exercise price for 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. The options expire no
later than ten years from the date of grant, subject to certain restrictions.
Stock options for 37,525 shares were exercised and options for 15,200 shares
were cancelled in fiscal 2009. There are no options available for grant under
the plan. At January 29, 2010 options to purchase __________ shares of common
stock were outstanding under this plan.
23
1996 Stock Option Plan. The 1996 Stock Option Plan, which has now
expired with respect to the granting of new options, covers 1,000,000 shares of
the Company's common stock. The plan has expired with respect to the granting of
new options. Options which have been granted under the plan are non-qualified
stock options. Under the terms of the plan, the exercise prices of the options
granted under the plan were at the fair market value at the date of grant. The
options expire not later than ten years from the date of grant. At January 29,
2010, non-qualified options to purchase _________ shares of common stock were
outstanding under this plan.
Employee Savings Plan
We maintain an Employee Savings Plan ("Plan") which qualified as a thrift
plan under Section 401(k) of the Internal Revenue Code ("Code"). Effective
August 1, 2006, the Plan was amended to allow employees to elect salary
deferrals up to the maximum dollar amounts permissible under Code Section 402(g)
not to exceed the limits of Code Section 401(k), 404 and 415. For the Plan year
beginning August 1, 2005, the Plan was amended to be considered a "Safe Harbor"
plan, where a contribution will be made to eligible participants in an amount
equal to 100% of the amount of each participant's elective deferral that does
not exceed 3% of compensation, plus 50% of the amount of the elective deferral
that exceeds 3% of compensation up to a maximum contribution of 5% of
compensation. Under the Safe Harbor provision, all contributions are 100% vested
when made. Additional Company contributions can be made depending on profits.
The aggregate benefit payable to an employee is dependent upon his rate of
contribution, the earnings of the fund, and the length of time such employee
continues as a participant. We recognized expenses of approximately $1,260,000,
$1,765,000 and $1,766,000 under the plans for fiscal 2009, 2008 and 2007,
respectively. The Company also contributed to a similar plan through its UK
subsidiary, EWST, whereby the Company matches employee elective contributions up
to a maximum of 5% of compensation. Expenses recognized for fiscal 2009, 2008
and 2007 were approximately $94,000, $86,000 and $75,000, respectively. For the
year ended August 2, 2009, $9,200 was contributed by us to this plan for each of
Messrs. Poirier, Garefino, Levy, Markel and Purcell. A total of $60,460 was
contributed for all officers and directors as a group.
Our Israeli subsidiaries provide for employee severance liabilities
pursuant to the Israeli severance pay law and labor agreements. Our liability is
fully provided for by monthly payments deposited with insurers and by a reserve
established by us to cover the portion of this liability not covered by our
deposits. In addition to recognizing an expense for the funding to the insurance
programs for this severance obligation, we also record as expense the net
increase in the unfunded severance liability. The liability for this unfunded
severance obligation was $2,231,000 and $1,651,000 at August 2, 2009 and August
3, 2008, respectively. The total expense recognized for employee severance
programs in Israel (both the funded and unfunded portion of the program) was
approximately $1,055,000, $458,000 and $228,000 for fiscal 2009, 2008 and 2007,
respectively.
PROPOSAL TWO
PROPOSAL TO AMEND HERLEY'S CERTIFICATE OF INCORPORATION
TO ELIMINATE ITS CLASSIFIED BOARD STRUCTURE
After careful consideration, the Board of Directors has unanimously
determined that it would be in the best interests of the Company and its
stockholders to amend our Certificate of Incorporation to declassify the Board
and provide for the annual election of all directors, as described below. The
Board is now asking our stockholders to approve this amendment to the
Certificate of Incorporation.
24
Current Classified Board Structure
Article 5 of our Certificate of Incorporation currently divides our
directors into three classes as nearly equal in size as possible, with members
of each class serving three-year terms of office. Consequently, at any given
annual meeting of stockholders, our stockholders have the ability to elect only
one class of directors, constituting roughly one-third of the entire Board.
Proposed Declassification of the Board
In December 2009, the Board of Directors voted to approve, and to recommend
that our stockholders approve at the 2010 Annual Meeting an amendment to our
Certificate of Incorporation that would eliminate the Board's classified
structure. If our stockholders approve the proposed amendment, directors who
have been elected to three-year terms prior to the effectiveness of the
amendment (including directors elected at this 2010 Annual Meeting) and whose
terms would otherwise extend beyond the 2011 Annual Meeting, have agreed to
resign their positions effective upon the election of directors at the next
Annual Meeting. Thus, beginning with the next Annual Meeting, the entire Board
will be elected annually.
Rationale for Declassification
The Board of Directors is committed to good corporate governance at Herley.
Accordingly, in determining whether to propose declassification as described
above, the Board carefully reviewed the various arguments for and against a
classified Board structure.
The Board recognizes that a classified structure may offer several
advantages, such as promoting Board continuity and stability, encouraging
directors to take a long-term perspective, and reducing our vulnerability to
coercive takeover tactics. The Board also recognizes, however, that a classified
structure may appear to reduce directors' accountability to stockholders, since
such a structure does not enable stockholders to express a view on each
director's performance by means of an annual vote. The Board also believes that
implementing annual elections for all directors would support our ongoing effort
to adopt "best practices" in corporate governance.
In view of the considerations described above, the Board of Directors, has
unanimously determined that it is in the best interests of Herley and its
stockholders to eliminate the classified Board structure as proposed.
Text and Legal Effectiveness of Proposed Amendment
Approval of this proposal will cause Article 5 of our Certificate of
Incorporation to be amended and restated in its entirety. A copy of Article 5 as
it is proposed to be amended and restated is attached to this proxy statement as
Appendix A.
If our stockholders approve the proposed amendment, it will become legally
effective upon the filing of a certificate of amendment to our Certificate of
Incorporation with the Secretary of State of the State of Delaware. Herley would
make that filing shortly after the 2010 Annual Meeting. If our stockholders do
not approve the proposed amendment, the Board of Directors will remain
classified.
25
In order to be approved, this proposal must receive the affirmative vote of
a majority of the shares of our common stock outstanding and entitled to vote at
the 2010 Annual Meeting.
The Board of Directors recommends that you vote FOR this proposal.
PROPOSAL THREE
ADOPTION OF THE HERLEY INDUSTRIES, INC.
2010 STOCK PLAN
Introduction
At the meeting, you will be asked to adopt the Herley Industries, Inc. 2010
Stock Plan, which covers 500,000 shares (the "2010 Stock Plan"). As of January
29, 2010, there were only ______ options or shares of common stock held by our
current officers, directors and employees under all of our existing plans.
Further, on that date, there were only ______ shares available for grant, under
all existing plans, to our over 1,000 current employees.
We believe that our long-term success depends upon our ability to attract
and retain qualified officers, employees and consultants and to motivate their
best efforts on our behalf. All of our officers, employees, directors and
consultants, as well as those of our subsidiaries or affiliates, are eligible to
participate in the 2010 Stock Plan. We believe that the 2010 Stock Plan will be
an important part of our compensation of officers, employees and consultants.
The 2010 Stock Plan is set forth as Exhibit B to this proxy statement. The
principal features of the 2010 Stock Plan are summarized below, but the summary
is qualified in its entirety by the full text of the 2010 Stock Plan.
Stock Subject to the 2010 Stock Plan
The stock to be offered under the 2010 Stock Plan consists of shares of our
common stock, whether authorized but unissued or reacquired. The 2010 Stock Plan
is divided into two separate equity programs: an option grant program and a
stock issuance program. Options granted under the 2010 Stock Plan shall be
non-qualified or incentive stock options and the exercise price is the fair
market value of the common stock on the date of grant except that for incentive
stock options it shall be 110% of the fair market value if the participant owns
10% or more of our common stock. Under the stock issuance program, the purchase
price per share shall be fixed by the Board of Directors or Committee but cannot
be less than the fair market value of the common stock on the issuance date.
Shares of common stock may be issued for past services rendered to us and all
shares of common stock issued thereunder shall vest upon issuance unless
otherwise directed by the Board or Committee. The number of shares issuable is
also subject to adjustments upon the occurrence of certain events, including
stock dividends, stock splits, mergers, consolidations, reorganizations,
recapitalizations, or other capital adjustments.
Administration of the 2010 Stock Plan
The 2010 Stock Plan is to be administered by our Board of Directors, the
Compensation Committee or a Stock Option Committee consisting of no fewer than
26
two "non-employee directors," as defined in the Securities Exchange Act of 1934.
We expect that our Compensation Committee will administer the 2010 Stock Plan.
Subject to the terms of the 2010 Stock Plan, the Board or the Committee may
determine and designate the individuals who are to be granted stock options or
qualify to receive shares of common stock under the 2010 Stock Plan, the number
of shares to be subject to options or to be purchased and the nature and terms
of the options to be granted. The Board or the Committee also has authority to
interpret the 2010 Stock Plan and to prescribe, amend and rescind the rules and
regulations relating to the 2010 Stock Plan. The committee may amend or modify
any grant in any manner not inconsistent with the terms of the 2010 Stock Plan.
Grant of Options
Our officers, directors, employees and consultants, as well as those of our
subsidiaries or affiliates, are eligible to participate in the 2010 Stock Plan.
The options granted under the 2010 Stock Plan shall be non-qualified or
incentive stock options. The exercise price for the options will be not less
than the fair market value of our common stock on the date of grant of the stock
option. The Committee must adjust the option price, as well as the number of
shares subject to option, in the event of stock splits, stock dividends,
recapitalization and certain other events involving a change in our capital.
Exercise of Stock Options
Stock options granted under the 2010 Stock Plan shall expire not later than
five years from the date of grant.
Stock options granted under the 2010 Stock Plan may become exercisable in
one or more installments in the manner and at the time or times specified by the
Committee.
Upon the exercise of a stock option, optionees may pay the exercise price
in cash, by certified or bank cashiers check or, at our option, in shares of
common stock valued at its fair market value on the date of exercise, or a
combination of cash and stock. Withholding and other employment taxes applicable
to the exercise of an option shall be paid by the optionee at such time as the
Board or the Committee determines that the optionee has recognized gross income
under the Internal Revenue Code of 1986, as amended, resulting from such
exercise. These taxes may, at our option, be paid in shares of common stock.
A stock option is exercisable during the optionee's lifetime only by him or
his permitted transferee and cannot be exercised by him or his permitted
transferee unless, at all times since the date of grant and at the time of
exercise, he is employed by us, any parent corporation or any of our
subsidiaries or affiliates, except that, upon termination of his employment
(other than (1) by death, (2) by total disability followed by death in the
circumstances provided below or (3) by total disability), an option may be
exercised for a period of three months after this termination but only to the
extent such option is exercisable on the date of such termination. In the
discretion of the Committee, options may be transferred to (1) members of the
optionee's family, (2) a trust, (3) a family limited partnership or (4) an
estate planning vehicle primarily for the optionee's family.
27
Upon termination of all employment by total disability, the optionee or his
permitted transferee may exercise such options at any time within twelve months
after his termination, but only to the extent such option is exercisable on the
date of such termination.
In the event of the death of an optionee (1) while our employee, or an
employee of any parent corporation or any subsidiary or affiliate, (2) within
three months after termination of all employment or provision of services (other
than for total disability) or (3) within twelve months after termination on
account of total disability of all employment with us, any parent corporation or
any subsidiary or affiliate, the optionee's estate or any person who acquires
the right to exercise such option by bequest or inheritance or by reason of the
death of the optionee may exercise the optionee's option at any time within the
period of three years from the date of death. In the case of clauses (1) and (3)
above, the option shall be exercisable in full for all the remaining shares
covered by it, but in the case of clause (2) the option shall be exercisable
only to the extent it was exercisable on the date of such termination of
employment.
Stock Issuance Program
Shares of common stock may be issued at the discretion of the Board or
Committee under the stock issuance program through direct and immediate
issuances. Each such stock issuance shall comply with the terms specified below.
Issuances
Shares of common stock may be issued for past or future services rendered,
or to be rendered, to us (or any parent or subsidiary) as the Board or Committee
may deem appropriate in each individual instance.
Vesting Provisions
a. Shares of common stock issued under the stock issuance program shall
vest at the discretion of the Board or Committee.
b. The participant shall have full stockholder rights with respect to any
shares of common stock issued to the participant under the stock issuance
program. Accordingly, the participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
Change in Control
All unvested options shall automatically vest in full if and when either of
the following stockholder approved transactions to which the company is a party
are consummated: (i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or (ii) the sale, transfer or other disposition of all or
substantially all of the company's assets in complete liquidation or dissolution
of the company. However, the shares subject to an outstanding option shall not
vest on such an accelerated basis if and to the extent: (i) such option is
assumed by the successor company (or parent thereof) in the corporate
28
transaction or (ii) such option is to be replaced with a cash incentive program
of the successor company which preserves the spread existing on the unvested
option shares at the time of the corporate transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those unvested option shares or (iii) the acceleration of such option is subject
to other limitations imposed by the Board or Committee at the time of the option
grant.
U.S. Federal Tax Matters
Restricted Stock. Employees generally recognize as taxable income the fair
market value of restricted stock on the date the restricted period ends. We are
entitled to a corresponding tax deduction at the same time.
Stock Options. Stock options may be granted in the form of incentive stock
options or non- qualified stock options. Incentive stock options are eligible
for favorable tax treatment under the U.S. Internal Revenue Code (the "Code").
To meet the Code requirements, the maximum value of incentive stock options that
first become exercisable in any one year is limited to $100,000. Under the Code,
persons do not realize compensation income upon the grant of a stock option
(whether an incentive stock option or non-qualified stock option). At the time
of exercise of a non-qualified stock option, the holder will realize
compensation income in the amount of the spread between the exercise price of
the option and the fair market value of our stock on the date of exercise. At
the time of exercise of an incentive stock option, no compensation income is
realized other than "tax preference income" for purposes of the alternative
minimum tax. If the shares acquired on exercise of an incentive stock option are
held for at least two years after grant of the option and one year after
exercise, the excess of the amount realized on sale over the exercise price will
be taxed as capital gains. If the shares acquired on exercise of the incentive
stock option are disposed of within less than two years after grant or one year
of exercise, the holder will realized compensation income equal to the excess of
the fair market value of shares on the date of exercise over the option price.
Additional amounts realized will be taxed as capital gains. We will generally be
entitled to a deduction under the Code at the time equal to the amount of
compensation income realized by the holder of an option.
Recommendation of the Board
Our Board of Directors believes that it is in our best long-term interests
to have available for issuance under a stock plan a sufficient number of shares
to attract, retain and motivate our highly-qualified officers, employees,
directors and consultants by tying their interests to our stockholders'
interests. As previously indicated, as of January 29, 2010, there were only
______ options or shares of common stock held by our current officers, directors
and employees under our existing plans and only _______ shares available for
grant under these plans to our over 1,000 current employees.
The affirmative vote of a majority of the votes in person or by proxy at
the Annual Meeting is required for approval by stockholders of the 2010 Stock
Plan. An abstention will be counted as a vote against this proposal and broker
non-votes will have no effect on the vote.
We recommend a vote FOR approval of the 2010 Stock Plan.
29
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the audited financial
statements with our management. The Audit Committee also discussed with Marcum
LLP, our independent auditors, the matters required to be discussed by Statement
on Auditing Standards No. 61, "Communication with Audit Committees," as may be
modified or supplemented. The Audit Committee has received the written
disclosures and the letter from Marcum LLP required by Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees," as may
be modified or supplemented, and has discussed with Marcum LLP its independence.
Based upon the review and discussions referred to above, the Audit Committee
recommended to our Board of Directors that the audited financial statements be
included in our Annual Report on Form 10-K for the fiscal year ended August 2,
2009 for filing with the SEC.
The Audit Committee has also reviewed and discussed the fees paid to Marcum
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.
This Audit Committee report shall not be deemed incorporated by reference
in any document previously or subsequently filed with the SEC that incorporates
by reference all or any portion of this proxy statement, except to the extent
that we specifically request that this report be specifically incorporated by
reference.
The Audit Committee for fiscal 2009:
Robert M. Moore (Chairman) (deceased)
Edward A. Bogucz
Carlos C. Campbell
Audit and Related Fees
Marcum LLP is our independent registered public accounting firm and
performed the audit of our consolidated financial statements for fiscal years
2009 and 2008. The following table sets forth fees for the audits of the fiscal
years ended August 2, 2009 and August 3, 2008 performed by Marcum LLP:
2009 2008
---- ----
Audit Fees (1) $ 480,643 $ 638,500
Audit-related Fees (2) $ 16,965 $ 28,179
<FN>
- ---------------
(1) Audit Fees includes fees for professional services provided in connection
with the audits of our financial statements, the review of our quarterly
financial statements, Sarbanes-Oxley 404 related services, consents, and
audit services provided in connection with other statutory or regulatory
filings. All such services were pre-approved by the Audit Committee.
(2) Audit-related fees include the audit of our 401(k) plan.
</FN>
The Audit Committee has sole authority to appoint, determine funding for,
retain and oversee our independent auditors and to pre-approve all audit
services and permissible non-audit services.
30
Marcum LLP did not render any other non-audit related services during
fiscal years 2009 and 2008.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and persons who beneficially own more than 10% of our common
stock (collectively, "Reporting Persons") to file initial reports of ownership
and reports of changes in ownership of our common stock with the Securities and
Exchange Commission. Reporting Persons are required by SEC regulations to
furnish us with copies of all Section 16(a) reports they file. To our knowledge,
based solely on our review of the copies of such reports received or written
representations from certain Reporting Persons that no other reports were
required, we believe that during fiscal 2009, all Reporting Persons timely
complied with all applicable filing requirements.
CORPORATE GOVERNANCE - CODE OF ETHICS
We have adopted a Corporate Code of Business Ethics (the "Code") that
applies to all employees, including our principal executive officer, principal
financial officer and directors of the Company. The Code is broad in scope and
is intended to foster honest and ethical conduct, including accurate financial
reporting, compliance with laws and the like. If any substantive amendments are
made to the Code or if there is any grant of waiver, including any implicit
waiver, from a provision of the Code to our Chief Executive Officer or Chief
Financial Officer, we will disclose the nature of such amendment or waiver in a
report on Form 8-K.
FINANCIAL STATEMENTS AND INCORPORATION BY REFERENCE
A copy of our Annual Report to Stockholders for the fiscal year ended
August 2, 2009 has been provided to all stockholders as of the Record Date.
Stockholders are referred to the report for financial and other information
about us, but such report, is not incorporated in this proxy statement and is
not a part of the proxy soliciting material.
COMMON STOCK PERFORMANCE
The following graph sets forth the cumulative total stockholder return to
our stockholders during the five-year period ended August 2, 2009, as well as an
overall stock market index (NASDAQ Composite Index) and the Company's peer group
index (S&P Aerospace & Defense Index):
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Herley Industries, Inc., The NASDAQ Composite Index
and The S&P Aerospace & Defense Index
- ----------------------------------------------------------------------------------------------
7/04 7/05 7/06 7/07 7/08 7/09
- ----------------------------------------------------------------------------------------------
Herley Industries, Inc. 100.00 103.94 57.07 75.59 84.36 64.79
NASDAQ Composite 100.00 115.65 114.22 140.13 124.32 106.33
S&P Aerospace & Defense 100.00 117.71 137.61 178.48 154.53 119.28
<FN>
*$100 invested on 7/31/04 in stock or index, including reinvestment of
dividends.
Fiscal year ending July 31.
</FN>
31
MISCELLANEOUS INFORMATION
As of the date of this Proxy Statement, the Board of Directors does not
know of any business other than that 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.
We will pay the cost of soliciting proxies in the accompanying form. In
addition to solicitation by use of the mails, certain of our officers and
regular employees may solicit proxies by telephone, telegraph or personal
interview. We may also request brokerage houses and other custodians and
nominees and fiduciaries, to forward soliciting material to the beneficial
owners of stock held of record by such persons, and may make reimbursement for
payments made for their expense in forwarding soliciting material to such
beneficial owners.
Proposals of stockholders intending to be presented at the next Annual
Meeting of Stockholders pursuant to SEC Rule 14a-8 must be received at our
principal office not later than ________, 2010 to be included in the proxy
statement for that meeting.
By Order of the Board of Directors,
JOHN A. THONET
Chairman of the Board
Dated: February 11, 2010
Lancaster, Pennsylvania
32
EXHIBIT A
PROPOSED AMENDMENT AND RESTATEMENT OF ARTICLE FIVE
OF HERLEY'S CERTIFICATE OF INCORORATION
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors.
(a) Term of Directors At the Annual Meeting of Stockholders for the fiscal
year ending August 1, 2010, and each Annual Meeting of Stockholders thereafter,
all directors shall be elected to hold office for a one-year term expiring at
the next Annual Meeting of Stockholders. Subject to prior death, retirement,
resignation, disqualification or removal from office, a director shall hold
office until his or her term has expired and his or her successor has been duly
elected and qualified.
(b) Vacancies Except as otherwise required by law, any vacancy on the Board
of Directors (resulting from death, retirement, resignation, disqualification,
removal from office or any other reason) and any newly created directorships
(resulting from an increase in the authorized number of directors or any other
reason) may be filled by a majority of the remaining directors then in office,
even if less than a quorum, or by a sole remaining director.
(c) Number of Directors The number of directors of the Corporation shall
not be less than three nor more than twelve. The exact number of directors is to
be determined from time to time by a resolution adopted by not less than a
majority of the members of the Board then in office. No decrease in the number
of authorized directors constituting the Board of Directors shall shorten the
term of any incumbent director.
(d) Meaning of Term Board Wherever the term "Board of Directors" is used in
this Certificate of Incorporation, such term shall mean the Board of Directors
of the Corporation; provided, however, that to the extent any committee of
directors of the Corporation is lawfully entitled to exercise the powers of the
Board of Directors, such committee may exercise any right or authority of the
Board of Directors under this Certificate of Incorporation.
As used in this Certificate of Incorporation, (i) the term "other entity"
shall include any individual, corporation, partnership, person or entity and any
other entity with which it or its "affiliate" or "associate" as those terms are
defined in Rule 12b-2 (or any successor rule) of the General Rules and
Regulations under the Securities Exchange Act of 1934, together with the
successors and assigns of such persons in any transaction or series of
transactions not involving a public offering of the Corporation's stock within
the meaning of the Securities Act of 1933; and (ii) the term "continuing
director" shall mean a member of the initial Board of Directors of the
Corporation, or a member of the Board of Directors of the Corporation who was
elected by the public stockholders prior to the time that such other entity
acquired shares of stock of the Corporation entitling such other entity to
exercise in excess of ten percent (10%) of the total voting power of all classes
of stock of the Corporation entitled to vote in the election of directors, or a
member of the Board of Directors of the Corporation who was elected or nominated
for election by a majority of continuing directors.
EXHIBIT B
HERLEY INDUSTRIES, INC.
2010 STOCK PLAN
I. GENERAL PROVISIONS
A. PURPOSE OF THE PLAN
This 2010 Stock Plan (the "Plan") is intended to promote the interests of
HERLEY INDUSTRIES, INC., a Delaware corporation ("Corporation"), by providing
eligible persons in the employ or service of the Corporation or its affiliates
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
continue in such employ or service.
Unless otherwise defined herein, all capitalized terms shall have the
meaning assigned to them in the attached Appendix.
B. STRUCTURE OF THE PLAN
The Plan shall be divided into two (2) separate equity programs:
(i) the Option Grant Program under which eligible persons ("Optionees")
may, at the discretion of the Board, be granted options to purchase shares of
common stock; and
(ii) the Stock Issuance Program under which eligible persons
("Participants") may, at the discretion of the Board, be issued shares of common
stock directly, either through the immediate purchase of such shares or as a
bonus for services rendered to the Corporation (or any Parent or Subsidiary).
The provisions of Articles One and Four shall apply to both equity programs
under the Plan and shall accordingly govern the interests of all persons under
the Plan.
C. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Corporation's Board of Directors
("Board"), or in the discretion of the Board, a committee consisting of no less
than two Non-Employee Directors or persons meeting such other requirements as
may be imposed by Rule 16(b) under the 1934 Act ("Committee").
The Board or Committee shall have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the Plan and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Board shall be final and binding on all parties who
have an interest in the Plan or any option or stock issuance thereunder.
D. ELIGIBILITY
The persons eligible to participate in the Plan are:
1. Officers, directors, employees and consultants; and
2. consultants and other independent advisors who provide services to the
Corporation, or any parent or subsidiary of the Corporation.
The Board or Committee shall have full authority to determine, (i) with
respect to the grants made under the Option Grant Program, described in Article
Two below, which eligible persons are to receive the option grants, the time or
times when those grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Qualified Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding, and (ii) with
respect to stock issuances made under the Stock Issuance Program, described in
Article Three, which eligible persons are to receive such stock issuances, the
time or times when those issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid by the Participant for such
shares.
The Board or Committee shall have the absolute discretion either to grant
options in accordance with the Option Grant Program or to issue stock in
accordance with the Stock Issuance Program.
E. STOCK SUBJECT TO THE PLAN
The stock issuable under the Plan shall be shares of the Corporation's
authorized but unissued or reacquired common stock. The maximum number of shares
of common stock which may be issued under the Plan is 500,000 shares.
Shares of common stock subject to outstanding options shall be available
for subsequent issuance under the Plan to the extent (i) the options expire or
terminate for any reason prior to exercise in full, or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of common stock reserved for issuance under the
Plan.
If there is any change to the common stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding common stock as a class without the
Corporation's receipt of consideration, then appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, and (ii) the number and/or class of securities and the exercise price per
share in effect under each outstanding option in order to prevent the dilution
or enlargement of benefits thereunder.
II. OPTION GRANT PROGRAM
A. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Board, and which shall be subject to the provisions of the Plan.
1. Exercise Price.
a. The exercise price per share shall be fixed by the Board in
accordance with the following provisions:
(i) The exercise price per share shall not be less than the Fair Market
Value per share of common stock on the option grant date.
(ii) If the Optionee is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of common stock on the option grant date for Incentive Options.
b. The exercise price is payable in cash or check made payable to the
Corporation upon exercise of the option, subject to the provisions of Section I
of Article Four and the documents evidencing the option. If the common stock is
registered under Section 12 of the Securities Exchange Act of 1934, as amended
("34 Act") at the time the option is exercised, then the exercise price may also
be paid as follows:
(i) in shares of common stock held for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested shares, through a
special sale and remittance procedure pursuant to which the Optionee shall
concurrently provide irrevocable instructions (x) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
shares plus all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise and (y) to
the Corporation to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale.
Except to the extent the foregoing sale and remittance procedure is used,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
2. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Board or Committee and set forth in the documents evidencing
the option grant. However, no option shall have a term in excess of five (5)
years measured from the option grant date.
3. Effect of Termination of Service.
a. The following provisions shall govern the exercise of any vested option
held by the Optionee at the time of cessation of Optionee's employment or
rendering of services to the Corporation (collectively "Service") or death:
(i) Should the Optionee cease to remain in Service for any reason other
than death, Disability or Misconduct, then the Optionee shall have a period of
three (3) months following the date of such cessation of Service during which to
exercise each option held by such Optionee to the extent exercisable on the date
of such termination.
(ii) Should Optionee's Service terminate by reason of Disability, then the
Optionee shall have a period of twelve (12) months following the date of such
cessation of Service during which to exercise each outstanding option held by
such Optionee to the extent exercisable on the date of such termination.
(iii) If the Optionee dies while holding an outstanding option, then the
personal representative of his or her estate or the person or persons to whom
the option is transferred pursuant to the Optionee's will or the laws of
inheritance shall have a twelve (12)-month period following the date of the
Optionee's death to exercise such option to the extent exercisable on the date
of such termination.
(iv) Under no circumstances, however, shall any such option be exercisable
after the specified expiration of the option term.
(v) All vested options shall terminate upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the option
term.
b. The Board or Committee shall have the discretion, exercisable either at
the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain exercisable
following Optionee's cessation of Service or death from the limited period
otherwise in effect for that option to such greater period of time as it shall
deem appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised, during the applicable post-Service
exercise period, not only with respect to the number of vested shares of common
stock for which such option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option had the
Optionee continued in Service.
4. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person
exercises the option, pays the exercise price and becomes the recordholder of
the purchased shares.
5. Limited Transferability of Options. During the lifetime of the Optionee,
the option shall be exercisable only by the Optionee and shall not be assignable
or transferable other than by will or, following the Optionee's death, by the
laws of descent and distribution.
B. CORPORATE TRANSACTION
1. All unvested options shall automatically vest in full if and when either
of the following stockholder approved transactions to which the Corporation is a
party are consummated: (i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or (ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation. However, the shares subject to an outstanding
option shall not vest on such an accelerated basis if and to the extent: (i)
such option is assumed by the successor corporation (or parent thereof) in the
Corporate Transaction or (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to those unvested option shares or (iii) the acceleration of such
option is subject to other limitations imposed by the Board or Committee at the
time of the option grant.
2. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction, had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to (i) the number and class of securities
available for issuance under the Plan following the consummation of such
Corporate Transaction and (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
3. The Board or Committee shall have the discretion, exercisable either at
the time the option is granted or at any time while the option remains
outstanding, to structure one or more options so that those options shall
automatically accelerate and vest in full (and any repurchase rights of the
Corporation with respect to the unvested shares subject to those options shall
immediately terminate) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed in the Corporate Transaction.
4. The Board or Committee shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on basis should the Optionee's Service
terminate by reason of the Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than misconduct ("Involuntary Termination") within
a designated period (not to exceed one year) following the effective date of any
Corporate Transaction in which the option is assumed and the repurchase rights
applicable to those shares do not otherwise terminate. Any option so accelerated
shall remain exercisable for the fully-vested option shares until the expiration
or sooner termination of the option term.
5. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar ($100,000.00) limitation
is not exceeded. To the extent such dollar limitation is exceeded, the
accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
6. The grant of options under the Plan shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
III. STOCK ISSUANCE PROGRAM
A. STOCK ISSUANCE TERMS
Shares of common stock may be issued at the discretion of the Board or
Committee under the Stock Issuance Program through direct and immediate
issuances without any intervening option grants. Each such stock issuance shall
comply with the terms specified below.
1. Issuances.
Shares of common stock may be issued under the Stock Issuance Program for
past or future services rendered, or to be rendered, to the Corporation (or any
Parent or Subsidiary) as the Board may deem appropriate in each individual
instance.
2. Vesting Provisions.
a. Shares of common stock issued under the Stock Issuance Program shall
vest at the discretion of the Board of Directors or Committee.
b. The Participant shall have full stockholder rights with respect to any
shares of common stock issued to the Participant under the Stock Issuance
Program. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
IV. MISCELLANEOUS
A. ADJUSTMENTS DUE TO STOCK SPLITS, MERGERS, CONSOLIDATION, ETC.
If, at any time, the Corporation shall take any action, whether by stock
dividend, stock split, combination of shares or otherwise, which results in a
proportionate increase or decrease in the number of shares of common stock
theretofore issued and outstanding, the number of shares which are reserved for
issuance under the Plan and the number of shares which, at such time, are
subject to options shall, to the extent deemed appropriate by the Board or
Committee, be increased or decreased in the same proportion, provided, however,
that the Corporation shall not be obligated to issue fractional shares.
Likewise, in the event of any change in the outstanding shares of common
stock by reason of any recapitalization, merger, consolidation, reorganization,
combination or exchange of shares or other corporate change, the Board or
Committee shall make such substitution or adjustments, if any, as it deems to be
appropriate, as to the number or kind of shares of common stock or other
securities which are reserved for issuance under the Plan and the number of
shares or other securities which, at such time are subject to Options.
In the event of a change of control, at the option of the Board Committee,
(a) all options outstanding on the date of such change of control shall, for a
period of sixty days following such change of control, become immediately and
fully exercisable, and (b) an Optionee will be permitted to surrender for
cancellation within sixty days after such change of control any option or
portion of any option which was granted more than six months prior to the date
of such surrender, to the extent not yet exercised, and to receive a cash
payment in an amount equal to the excess, if any, of the Fair Market Value (on
the date of surrender) of the shares of common stock subject to the option or
portion thereof surrendered, over the aggregate purchase price for such shares
under the option.
B. EFFECTIVE DATE AND TERM OF PLAN
1. The Plan shall become effective on ____________, 2010, provided that no
Incentive Options may be granted unless the Plan is first approved by the
Corporation's stockholders. The Board may grant options and issue shares under
the Plan at any time after the effective date of the Plan and before the date
fixed herein for termination of the Plan.
2. The Plan shall terminate upon the earliest of (i) the expiration of the
ten (10)-year period measured from the date the Plan is adopted by the Board,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as vested shares or (iii) the termination of all outstanding
options in connection with a Corporate Transaction. All options and unvested
stock issuances outstanding at the time of a clause (i) termination event shall
continue to have full force and effect in accordance with the provisions of the
documents evidencing those options or issuances.
C. AMENDMENT OF THE PLAN
The Board or Committee shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects, except for those
persons ineligible to participate. However, no such amendment or modification
shall adversely affect the rights and obligations with respect to options or
unvested stock issuances at the time outstanding under the Plan unless the
Optionee or the Participant consents to such amendment or modification. In
addition, certain amendments may require stockholder approval pursuant to
applicable laws and regulations.
D. WITHHOLDING
The Corporation's obligation to deliver shares of common stock upon the
exercise of any options or upon the issuance of shares issued under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
E. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the Plan
and the issuance of any shares of common stock (i) upon the exercise of any
option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's obtaining all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of common stock issued pursuant to it.
F. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
APPENDIX
The following definitions shall be in effect under the Plan:
Board shall mean the Corporation's Board of Directors.
Change of Control shall mean:
(i) any person who is not currently such becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding voting securities;
or
(ii) three or more directors, whose election or nomination for election is
not approved by a majority of the Incumbent Board (as defined in the Plan), are
elected within any single 12-month period to serve on the Board of Directors; or
(iii) members of the Incumbent Board cease to constitute a majority of the
Board of Directors without the approval of the remaining members of the
Incumbent Board; or
(iv) any merger (other than a merger where the Company is the survivor and
there is no accompanying change in control under subparagraphs (i), (ii) or
(iii) of this paragraph (b), consolidation, liquidation or dissolution of the
Company, or the sale of all or substantially all of the assets of the Company.
Code shall mean the Internal Revenue Code of 1986, as amended.
Common Stock shall mean the Corporation's common stock, $.10 par value.
Corporate Transaction shall mean either of the following stockholder-approved
transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of
the Corporation's assets in complete liquidation or dissolution of the
Corporation.
Corporation shall mean Herley Industries, Inc., a Delaware corporation.
Disability shall mean the inability of Optionee to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment and shall be determined by the Plan Administrator on the basis of
such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute Permanent Disability in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
Eligibility. Incentive Options may only be granted to Employees other than the
Chairman, Chief Executive Officer and directors.
Employee shall mean an individual who is in the employ of the Corporation (or
any Parent or Subsidiary), subject to the control and direction of the employer
entity as to both the work to be performed and the manner and method of
performance.
Exercise Date shall mean the date on which the option shall have been exercised.
Exercise Price shall mean the exercise price payable per Option Share as
specified in the Grant Notice.
Expiration Date shall mean the date on which the option expires as specified in
the Grant Notice.
Fair Market Value per share of common stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the common stock is at the time traded on the NASDAQ Global or
SmallCap Market, then the Fair Market Value shall be the closing selling price
per share of common stock on the date in question, as the price is reported by
the National Association of Securities Dealers on the NASDAQ Global or SmallCap
Market. If there is no closing selling price for the common stock on the date in
question, then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the common stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be the closing selling price per share of common
stock on the date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the common stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the common stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the common stock is at the time neither listed on any Stock
Exchange nor traded on the NASDAQ Global Market, then the Fair Market Value
shall be determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
Grant Date shall mean the date of grant of the option as specified in the Grant
Notice.
Grant Notice shall mean the Notice of Grant of Stock Option accompanying the
Agreement, pursuant to which Optionee has been informed of the basic terms of
the option evidenced hereby.
Incentive Option shall mean an option which satisfies the requirements of Code
Section 422.
Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure by
such person of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
1934 Act shall mean the Securities Exchange Act of 1934, as amended.
Non-Employee Director shall have the meaning provided under Rule 16(b) or any
successor rule under the 1934 Act.
Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
Option Agreement shall mean the option agreement issued pursuant to the Grant
Notice.
Option Shares shall mean the number of shares of common stock subject to the
option.
Optionee shall mean the person to whom the option is granted as specified in the
Grant Notice.
Parent shall mean any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation, provided each corporation in
the unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased Shares,
provided and only if Optionee obtains the Corporation's prior written consent to
such transfer, (ii) a transfer of title to the Purchased Shares effected
pursuant to Optionee's will or the laws of intestate succession following
Optionee's death or (iii) a transfer to the Corporation in pledge as security
for any purchase-money indebtedness incurred by Optionee in connection with the
acquisition of the Purchased Shares.
Plan shall mean the Corporation's 2010 Stock Plan.
Plan Administrator shall mean either the Board or a committee of the Board
acting in its capacity as administrator of the Plan.
Purchase Agreement shall mean the stock purchase agreement pursuant to the Grant
Notice.
Service shall mean the Optionee's performance of services for the Corporation
(or any Parent or Subsidiary) in the capacity of an Employee.
Stock Exchange shall mean the NASDAQ Global Market System, American Stock
Exchange or the New York Stock Exchange.
Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
Vesting Commencement Date shall mean the date on which the Option Shares
commence to vest as specified in the Grant Notice.
Vesting Schedule shall mean the vesting schedule specified in the Grant Notice
pursuant to which the Optionee is to vest in the Option Shares in a series of
installments over his or her period of Service.
PROXY
HERLEY INDUSTRIES, INC.
SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING
MARCH 23, 2010
The undersigned hereby appoints JOHN A. THONET and EDWARD A. BOGUCZ, 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 on March 23, 2010 and any
adjournments thereof.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, OR EITHER OF THEM, AS
SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR
THE PROPOSALS SET FORTH.
(Continued and to be signed on reverse side)
SEE REVERSE SIDE
1. Election of the following nominees, as set forth in the proxy statement:
Gerald A. Gagliardi
Rear Adm. Edward K. Walker, Jr. (Ret.)
[ ] FOR all nominees listed above [ ] WITHHOLD authority to vote
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(Instruction: To withhold authority to vote for any individual nominee,
print the nominee's name on the line provided above).
The Board of Directors recommends a vote FOR the following proposals:
2. Proposal to amend our Certificate of Incorporation to eliminate the
classified board structure, as set forth in the Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to ratify and approve our 2010 Stock Plan, as set forth in the
Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Upon such other business as may properly come before the meeting or any
adjournment thereof.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
SIGNATURE(S)__________________________ _____________________
DATED: _____________, 2010