def14a.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.   )
 
Filed by the Registrant [X]
 
Filed by a Party other than the Registrant [  ]
 
Check the appropriate box:

[   ]  Preliminary Proxy Statement
 
[   ]  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X]  Definitive Proxy Statement
 
[   ]  Definitive Additional Materials
 
[   ]  Soliciting Material Pursuant to §240.14a-12
 

COMTECH TELECOMMUNICATIONS CORP.
(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)(4) and 0-11.

 
1)
 
Title of each class of securities to which transaction applies:
———————————————————————————————————————
 
2)
 
Aggregate number of securities to which transaction applies:
———————————————————————————————————————
 
3)
 
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
———————————————————————————————————————
 
4)
 
Proposed maximum aggregate value of transaction:
———————————————————————————————————————
 
5)
 
Total fee paid:
———————————————————————————————————————

[  ]
 
Fee paid previously with preliminary materials:

[  ]
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 
1)
 
Amount Previously Paid:
———————————————————————————————————————
 
2)
 
Form, Schedule or Registration Statement No.:
———————————————————————————————————————
 
3)
 
Filing Party:
———————————————————————————————————————
 
4)
 
Date Filed:
———————————————————————————————————————
 
 
 

 

 

 
 
GRAPHIC
68 South Service Road, Suite 230
Melville, New York 11747
 
 
November 9, 2009
 
 
To Our Stockholders:
 
On behalf of the Board of Directors and management, I cordially invite you to attend the 2009 Annual Meeting of Stockholders of Comtech Telecommunications Corp. (“Comtech” or the “Company”).  The annual meeting will be held at 10:00 a.m. on December 9, 2009 at our corporate headquarters located at 68 South Service Road, Melville, New York, 11747.  The Notice of Annual Meeting of Stockholders, Proxy Statement and proxy card are enclosed.
 
I believe that the annual meeting provides an excellent opportunity for stockholders to become better acquainted with Comtech and its directors and officers.  I hope that you will be able to attend and I look forward to greeting as many stockholders as possible.
 
It is important that your shares are voted at the annual meeting.  Whether or not you are able to attend in person, the prompt execution and return of your enclosed proxy card in the envelope provided or submission of your proxy and voting instructions over the internet or by telephone will both assure that your shares are represented at the annual meeting and minimize the cost of proxy solicitations. Instructions for voting via the internet or by telephone are set forth on the enclosed proxy card. If you later decide to attend the annual meeting, you may revoke your proxy and vote in person.
 
 
Sincerely,
 
Fred Kornberg
Chairman, Chief Executive Officer and President

 
 

 
 

GRAPHIC
68 South Service Road, Suite 230
Melville, New York 11747


NOTICE OF 2009 ANNUAL MEETING OF STOCKHOLDERS

TIME AND DATE…………………
10:00 a.m. on December 9, 2009
 
PLACE…………………………….
Comtech Telecommunications Corp.
68 South Service Road (Lower Level Auditorium), Melville, NY 11747
 
ITEMS OF BUSINESS……………
(1) To elect two directors.
 
(2) To ratify the selection of our independent registered public accounting firm for the current fiscal year ending July 31, 2010.
 
(3) To approve an amendment to our 2000 Stock Incentive Plan (the “Plan”) increasing the number of shares of our Common Stock subject to awards under the Plan or with respect to which awards may be granted, changing the individual participant limits for performance unit awards, extending the term of the Plan until October 19, 2019, and reapproving the material terms of  performance criteria under the Plan.
 
(4) To transact such other business as may properly come before the annual meeting or any adjournment thereof.
 
The Board of Directors unanimously recommends that the stockholders vote “FOR” approval of Proposals 1, 2 and 3 to be presented to stockholders at the 2009 Annual Meeting.
 
RECORD DATE…………………..
All stockholders are invited to attend the annual meeting.  In order to vote, you must have been a stockholder at the close of business on October 12, 2009.
 
PROXY VOTING…………………
It is important that your shares be represented at the annual meeting regardless of the number of shares you hold in order that we have a quorum, whether or not you plan to be present at the annual meeting in person.  Please complete, sign, date and mail the enclosed proxy card in the accompanying envelope (to which you need affix no postage if mailed within the United States) or submit your proxy and voting instructions over the internet or by telephone.  Instructions for voting via the internet or by telephone are set forth on the enclosed proxy card.
 
 
By Order of the Board of Directors,
Patrick O’Gara
Secretary
November 9, 2009
 
 
 

 

GRAPHIC
2009 ANNUAL MEETING
PROXY STATEMENT

TABLE OF CONTENTS


    3
     
    6
     
    7
     
    8
     
    11
     
    12
     
    24
     
    26
     
    30
     
    31
     
    31
     
    35
     
    36
     
    37
     
    38
     
    39
     
    40
     
    40
     
    40
     
    41
     
    44
     
    45
     
    54
     
    54
     
    54
 
 
2

 

 
ABOUT THE PROXY STATEMENT
 

What is the purpose of the annual meeting?
 
At the annual meeting, our stockholders will be asked to consider and act upon the following matters:

·  
Election of two directors to our Board of Directors for a term expiring in 2012;

·  
Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the 2010 fiscal year;

·  
Approval of an amendment to our 2000 Stock Incentive Plan increasing the number of shares of our Common Stock subject to awards under the Plan or with respect to which awards may be granted, changing the individual participant limits for performance unit awards, extending the term of the Plan until October 19, 2019 and reapproving the material terms of performance criteria under the Plan; and

·  
Such other business as may properly come before the annual meeting or any adjournment thereof.

Who is entitled to vote at the annual meeting?

Only stockholders of record on October 12, 2009, the record date for the annual meeting, are entitled to receive notice of and vote at the annual meeting.

What are the voting rights of stockholders?

Each share of our Common Stock is entitled to one vote.  There is no cumulative voting.

How do stockholders vote?

Stockholders may vote at the annual meeting in person or by proxy.

If a stockholder gives a proxy, how are the shares voted?

Proxies received by us before the annual meeting will be voted at the annual meeting in accordance with the instructions contained on the proxy card.  The proxy card provides a way for you to direct how your shares will be voted.
 
If you do not give voting instructions on your proxy card, your shares will be voted by the persons named as proxies on your proxy card on each matter in accordance with the recommendation of the Board of Directors or, if no recommendation is made by the Board of Directors, in the discretion of the proxies.  Thus, for example, if you do not give instructions on your proxy card, and a nominee for director withdraws before the election (which is not now anticipated), your shares will be voted by the proxies for any substitute nominee as may be nominated by the Board of Directors.  The proxies named on the proxy card are Fred Kornberg, Chairman, Chief Executive Officer and President of Comtech (“CEO”) and Michael D. Porcelain, Senior Vice President and Chief Financial Officer of Comtech (“CFO”).  Under the rules that govern brokers and nominees who have record ownership of shares that are held in “street name” for account holders (who are the beneficial owners of the shares), brokers and nominees have the discretion to vote such shares on routine matters, but not on non-routine matters.  A change in the rule that eliminates broker discretionary voting in uncontested director elections will not take effect until after the 2009 annual meeting.  If a broker or nominee has not received voting instructions from an account holder and does not have discretionary authority to vote shares on a particular item, a “broker non-vote” occurs.
 
3

 
It is possible that matters other than those listed above may be brought before stockholders at the annual meeting.  If we were not aware of the matter a reasonable time before the mailing of this Proxy Statement, the proxies will vote your shares on the matter as recommended by the Board of Directors, or, if no recommendation is given, the proxies will vote your shares in their discretion.  In any event, the proxies will comply with the rules of the Securities and Exchange Commission (“SEC”) when acting on your behalf on a discretionary basis.  At the date of this Proxy Statement, we had not received any notice regarding any other matter to come before the annual meeting which was timely in accordance with our Bylaws.

How are proxies changed or revoked?

You may change any vote by proxy or revoke a proxy before it is exercised by filing with the Secretary of Comtech either a notice of revocation or a duly executed proxy bearing a later date or by attending the annual meeting and voting in person.  Attendance at the annual meeting will not by itself constitute revocation of a proxy.

How many shares are outstanding and what constitutes a quorum?

At the close of business on October 12, 2009, the record date for the annual meeting, 28,241,365 shares of Common Stock were outstanding.  Stockholders entitled to cast at least a majority of the votes that all stockholders are entitled to cast must be present at the annual meeting in person or by proxy to constitute a quorum for the transaction of business.  Withheld votes and shares voted as “abstentions” or subject to broker non-votes still count for purposes of determining whether a quorum is present.

What vote is required to approve each item?

Election of the Two Directors.  The two directors will be elected by plurality of the votes cast.  That means that the nominees receiving the greatest number of votes will be elected as directors, even if the number of votes received is less than a majority of the votes present at the annual meeting.

Ratification of Selection of Accounting Firm.  The ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal 2010 will require the affirmative vote of a majority of the shares voted in person or by proxy.

Amendment to 2000 Stock Incentive Plan and Reapproval of Performance Criteria.  Approval of the amendment to our 2000 Stock Incentive Plan increasing the number of shares of our Common Stock subject to awards under the Plan or with respect to which awards may be granted, changing the individual participant limits, extending the term of the Plan until October 19, 2019 and reapproving the material terms of performance criteria under the Plan, will require the affirmative vote of a majority of the shares voted in person or by proxy.

Other Matters.  Approval of any other matter that comes before the annual meeting or any adjournment thereof will require a different number of affirmative votes, depending on the nature of such matter.

How do withheld votes, abstentions and broker non-votes affect the outcome of a vote?

Withheld votes with respect to a nominee for election as director will not affect the outcome of the vote, so long as the particular nominee receives more votes than any nominee competing for the particular director seat.
 
Abstentions and broker non-votes will have no effect on the proposed (i) ratification of the appointment of KPMG LLP as our independent registered public accounting firm and (ii) amendment to our 2000 Stock Incentive Plan and reapproval of performance criteria under the Plan, as each of these items requires the affirmative vote of a majority of the shares voted in person or by proxy.
 
In the case of a proposal that requires the affirmative vote of a majority of the outstanding shares, both abstentions and broker non-votes will have the effect of a vote against the proposal.


 
4

 

What are our Board of Directors’ recommendations?

The Board of Directors unanimously recommends that you vote:

·  
FOR the election of the two nominees proposed for election as directors;

·  
FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2010; and

·  
FOR the amendment to our 2000 Stock Incentive Plan and reapproval of the material terms of the performance criteria under the Plan.
 
Other Information

We have enclosed our Annual Report for fiscal 2009 together with this Proxy Statement.  No material contained in the Annual Report is to be considered a part of the proxy solicitation material.  The annual meeting may be adjourned from time to time without notice other than by announcement at the annual meeting.  Our corporate website address is www.comtechtel.com.  The contents of our website are not incorporated by reference into this Proxy Statement.

 
5

 
 
PRINCIPAL STOCKHOLDERS OF COMTECH TELECOMMUNICATIONS CORP.
 

This table provides the number of shares beneficially owned by principal stockholders who beneficially own more than five percent of our outstanding Common Stock, as of the date stated in the below footnotes.  The information in this table is based upon the latest filings by each principal stockholder of either a Schedule 13D, Schedule 13G or Form 13F as filed by the respective stockholder with the SEC.
 
We calculate the stockholder’s percentage of the outstanding class assuming the stockholder beneficially owned that number of shares on October 12, 2009, the record date for the annual meeting.  Unless otherwise indicated, the stockholder had sole voting and sole dispositive power over the shares.

Name and Address of
Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent of
Class
 
Royce & Associates (1)
745 Fifth Avenue
New York, NY 10151
 
 
2,637,005
 
9.3
Fidelity Management & Research (2)
245 Summer Street 14th floor
Boston, MA  02210-113
 
2,333,258
8.3
Barclays Global Investors NA (CA) (3)
45 Fremont Street, 17th Floor
San Francisco, CA  94105
 
1,904,469
6.7
Citadel Investment Group LLC (4)
131 South Dearborn Street, 32nd Floor
Chicago, IL 60603
 
1,544,411
5.5

(1)  
The information is based upon a Form 13F filed by Royce & Associates with the SEC, reporting beneficial ownership as of June 30, 2009.
(2)  
The information is based upon a Form 13F filed by Fidelity Management & Research with the SEC, reporting beneficial ownership as of June 30, 2009.
(3)  
The information is based upon a Form 13F filed by Barclays Global Investors NA (CA) with the SEC, reporting beneficial ownership as of June 30, 2009.
(4)  
The information is based upon a Schedule 13G filed by Citadel Investment Group LLC with the SEC, reporting beneficial ownership as of September 16, 2009.
 
 
6

 
 
BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
 
The table below shows the beneficial ownership of our Common Stock of each of our current directors, CEO, CFO, and the three other highest paid executive officers (collectively, the Named Executive Officers (“NEOs”)) and all directors and executive officers as a group, as of October 12, 2009.  Unless otherwise indicated, our directors and executive officers had sole voting and sole dispositive power over their shares.

 
 
Name (Listed alphabetically, by category)
(1)
Shares Beneficially Owned
on October 12, 2009
 
Percent of
Class
Non-employee Directors:
     
Richard L. Goldberg
48,625
 
*
Edwin Kantor
47,000
 
*
Ira Kaplan
37,375
 
*
Gerard R. Nocita
38,125
 
*
Robert G. Paul
5,375
 
*
       
Executive Officers:
     
Jerome Kapelus
68,750
 
*
Fred Kornberg
604,874
 
2.1
Robert L. McCollum
196,028
 
*
Michael D. Porcelain
116,223
 
*
Daniel S. Wood
93,000
 
*
All Directors and executive officers as a group (13 persons)
1,526,605
 
5.2

_____________________
* Less than one percent

(1)  
Includes the following shares of our Common Stock with respect to which such persons have the right to acquire beneficial ownership within 60 days from such date:  Mr. Goldberg 43,125 shares; Mr. Kantor 44,500 shares; Mr. Kaplan 34,375 shares; Mr. Nocita 35,625 shares; Mr. Paul 5,375 shares; Mr. Kapelus 66,750 shares, Mr. Kornberg 265,000 shares; Mr. McCollum 105,000 shares, Mr. Porcelain 98,338 shares; Mr. Wood 93,000 shares;  and all directors and executive officers as a group 1,002,588 shares.  We calculated the percentage of the outstanding class beneficially owned by each person and by the group treating their shares subject to this right to acquire within 60 days as outstanding.
 
 
7

 
 
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MEETINGS
 
Summary of Our Corporate Guidelines

Our business is managed with the oversight of our Board of Directors, in accordance with the Delaware General Corporation Law and our Bylaws.  Members of our Board of Directors are kept informed of our business through discussions with our CEO and other officers, by reviewing materials provided to them, and by participating in regular and special meetings of our Board of Directors and its committees.  In addition, to promote open discussion among our non-employee directors, those directors meet in scheduled executive sessions without the participation of management or our CEO, who is our only employee director.
 
Our Board of Directors has a long-standing commitment to sound and effective corporate governance, the foundation of which is our Board of Directors’ policy that a substantial majority of the members of our Board of Directors should be independent.  Our Board of Directors, in their opinion, has determined that five of our six directors have no relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each, therefore, is an “independent director,” as that term is defined in the NASDAQ Marketplace Rules.  The five directors determined to be independent are Messrs. Goldberg, Kantor, Kaplan, Nocita and Paul.
 
Our Board of Directors has also adopted Corporate Governance Guidelines which are available on our website under the investor relations tab of www.comtechtel.com. These guidelines, in conjunction with the Company’s Certificate of Incorporation and Bylaws, and the charters of the committees of the Board of Directors, form the framework for the governance of the Company.   The following is a summary of the key components of our Corporate Governance Guidelines:

·  
Directors should have the highest professional and personal ethics and values, consistent with our long-standing values and standards.

·  
Directors must have sufficient time to carry out their duties and limit their service to no more than three other public company boards.

·  
Each director shall adhere to our Standards of Business Conduct and certify, in writing on an annual basis, that they have read and will abide by such standards.

·  
Unless requested by the Board of Directors to remain, any employee director is expected to offer to resign from the Board of Directors at the time he or she is no longer employed by Comtech.

·  
The Board of Directors shall hold executive sessions of independent directors as necessary, but at least once a year.

·  
The Board of Directors shall regularly consider succession plans addressing the potential resignation or unavailability of our CEO, and shall regularly consider and discuss with our CEO his plans addressing the potential resignation or unavailability of the executive officers reporting to our CEO.

·  
Directors are encouraged to talk directly to any member of management regarding any questions or concerns the directors may have. Senior management, as appropriate, are invited to attend Board of Director meetings.

·  
The Board of Directors and each committee shall conduct a self-evaluation annually.  The Nominating and Governance Committee shall oversee the annual self-evaluation of the Board of Directors and its committees.

·  
Directors and certain executive officers are encouraged to accumulate ownership of our common stock.

·  
The Board of Directors and each committee have the authority, at our expense, to retain independent advisors as the Board of Directors and any such committee deems necessary.
 
 
8

 

Committees of the Board of Directors

Nominating and Governance Committee
During calendar year 2009, the Board of Directors reconstituted our Nominating Committee as our Nominating and Governance Committee in order to enhance the Board of Director’s focus on corporate governance matters, including any potential stockholder concerns that might develop in this area.  There was no specific stockholder concern or other corporate governance matter in fiscal 2009, or earlier, that led to the establishment of the Nominating and Governance Committee.
 
The Nominating and Governance Committee will continue its historical role of identifying and evaluating candidates for election as members of our Board of Directors.  Its expanded responsibilities include, among others, reviewing matters concerning corporate governance policy, including responding to any stockholder concerns about corporate governance that might arise in the future, Board of Directors and committee self-evaluations, and any related-party transactions.
 
During fiscal 2009, our former Nominating Committee held one meeting.  No vacancy on the Board of Directors arose during fiscal 2009.
 
In seeking and evaluating prospective members of our Board of Directors, our Nominating and Governance Committee considers the nature and scope of our business activities, and the capacity of our Board of Directors to provide oversight and positive contributions in areas of particular significance to the long-term creation of stockholder value.  Areas of experience and capability that our Nominating and Governance Committee particularly believes should be represented on our Board of Directors include finance and accounting, and technology related to our business.  Our Nominating and Governance Committee believes that individual candidates should also demonstrate high levels of commitment, adequate availability to actively participate in our Board of Directors’ affairs, and high levels of integrity and sensitivity to current business and corporate governance trends.  Before recommending a candidate to our Board of Directors, all members of our Nominating and Governance Committee will participate in meetings with the candidate, and our Nominating and Governance Committee will seek to arrange meetings between the candidate and other members of our Board of Directors.
 
Candidates are typically identified by a member of our Board of Directors, and our Nominating and Governance Committee will consider individuals recommended by stockholders. A stockholder who wishes to recommend a candidate for consideration by the Nominating and Governance Committee should do so in writing addressed to the Nominating and Governance Committee Chairman at Comtech Telecommunications Corp., 68 South Service Road, Suite 230, Melville, NY 11747.  Candidates recommended by stockholders will be considered according to the same standards of perceived Comtech need and potential individual contribution as are applied to candidates from other sources.
 
Our Board of Directors has determined that each member of our Nominating and Governance Committee is an “independent director,” as that term is defined in the NASDAQ Marketplace Rules.  Our Nominating and Governance Committee’s Charter is available on our website at www.comtechtel.com, under the link for “Investor Relations.”

Audit Committee
Our Audit Committee functions include engaging our independent registered public accounting firm, directing investigations into accounting, finance and internal control matters, reviewing the plan and results of audits with our independent registered public accounting firm, overseeing our internal audit function, reviewing our internal accounting controls and approving services to be performed by our independent registered public accounting firm and related fees.  During fiscal 2009, our Audit Committee held seven meetings.
 
Our Board of Directors has determined that all members of our Audit Committee are qualified to be members of the Committee in accordance with NASDAQ Marketplace Rules and meet the criteria set forth in the rules of the SEC.  Our Board of Directors has determined that Messrs. Nocita and Paul qualify as “audit committee financial experts,” as defined by SEC rules, based on their education, background and experience.  Our Audit Committee’s Charter is available on our website at www.comtechtel.com, under the link “Investor Relations,” and is attached hereto as “Exhibit A.”
 
 
9

 

Executive Compensation Committee
Our Executive Compensation Committee (referred to throughout this proxy by name or by “ECC”) of our Board of Directors considers and authorizes remuneration arrangements for our executive officers.  Our ECC also constitutes our Stock Option Committee which administers our stock option plans.  Our ECC held nine meetings during the past fiscal year.
 
Our ECC determines the terms of performance-based awards for our executive officers, and negotiates the terms of any employment agreements with our executive officers.  In addition, our ECC monitors the aggregate share usage under our stock incentive programs and potential dilution of the stock option programs, except with respect to the application of our Company’s 2000 Stock Incentive Plan to non-employee directors.
 
Since fiscal 2008, Steven Hall & Partners, LLC (“SH&P”), an executive compensation consulting firm, has been retained by our ECC to advise it with respect to certain executive compensation matters.  Our ECC has the sole authority to set SH&P’s compensation and/or to terminate the services of SH&P.  During fiscal 2009, SH&P advised our ECC primarily on matters relating to SEC disclosure rules concerning executive compensation,  the structuring of annual incentive awards for tax efficiency, and change-in-control agreements for certain of our executive officers.  Our CEO, CFO, and other members of our management often work with SH&P to provide it information and, as requested either by SH&P or our ECC, to review SH&P’s consulting work product prior to presentation to our ECC. SH&P is independent and provides no services to us other than those relating to executive and director compensation.
 
Our ECC often requests our CEO and CFO to be present at meetings where executive compensation and corporate and individual performance are discussed and evaluated by the ECC or the Board of Directors.  At these meetings and at other times, these executives provide insight, suggestions and recommendations, as requested by the ECC, regarding executive compensation matters.  Our ECC also meets with our CEO to discuss his own compensation package, and his recommendations for other executives, but ultimately decisions regarding compensation for our CEO and other executive officers are made by our ECC.  Only ECC members are allowed to vote on decisions made regarding executive compensation, and these votes generally take place during the “executive session” portion of our ECC meetings, when members of management are not present.
 
Our Board of Directors has determined that each member of our ECC is an “independent director,” as that term is defined in the NASDAQ Marketplace Rules.  Our ECC does not currently have a charter.

Executive Committee
Except as limited by law, our Executive Committee has the authority to act upon all matters requiring Board of Directors approval.
 
Our Executive Committee’s primary function is to be available to take prompt action in circumstances where it is impractical to convene a meeting of our Board of Directors to respond to unanticipated and time-sensitive matters.  During fiscal 2009, the Executive Committee held two meetings.
 
 
10

 

Board of Directors Meetings

Our Board of Directors held seventeen meetings during fiscal 2009, including regularly scheduled and special meetings. All of the incumbent directors attended or participated in more than 75% of the total number of Board of Directors meetings and the total number of meetings held by committees of our Board of Directors on which each such director served, held during the periods in which the incumbent directors served on our Board of Directors and such committees.

Communications with Our Board of Directors

Stockholders may communicate with our Board of Directors or an individual director by writing to us at Comtech Telecommunications Corp., Attention: Corporate Secretary, 68 South Service Road, Suite 230, Melville, NY 11747.

Annual Meeting Attendance

Our Board of Directors has adopted a policy which encourages directors, if practicable and time permitting, to attend our annual meeting of stockholders, either in person, by telephone or by other similar means of live communications (including video conference or webcast).  All incumbent directors, who were serving as directors at the time, attended our 2008 Annual Meeting of Stockholders in person.
 
 
CODE OF ETHICS
 

We have adopted a written Standards of Business Conduct that applies to our Board of Directors, principal executive officer, principal financial officer, principal accounting officer, controller and to all of our other employees.  These standards are a guide to help ensure compliance with company’s high ethical standards.  A copy of the Standards of Business Conduct is maintained on our website at www.comtechtel.com, under the link “Investor Relations.”
 
We intend to post on our website, as required, any amendment to, or waiver from, any provision in our Standards of Business Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and that relates to any element of the standards enumerated in the rules of the SEC.

 
11

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 

Our ECC determines the compensation of all of our executive officers.  This discussion and analysis focuses on our Named Executive Officers and should be read in conjunction with the “Summary Compensation” table and other compensation tables in this Proxy Statement.

Objectives of Our Compensation Program for Named Executive Officers (“NEOs”)

The principal goals of our compensation program for executive officers are to help us attract, motivate and retain the talent required to develop and achieve our strategic and operating goals, with a view to maximizing stockholder value.  We intend for our executive officer compensation program to support our growth-oriented business strategy by motivating and rewarding management activities that create long-term stockholder value.  Our key executive officer compensation objectives are to:

·  
Attract and retain the key leadership talent required to successfully execute our business strategy;

·  
Align executive pay with performance, both annual and long-term;

·  
Ensure internal equity that reflects the relative contribution of each executive officer;

·  
Strongly link the interests of executives to those of our stockholders and other key constituencies;

·  
Keep our executive compensation practices transparent;

·  
Comply with applicable rules and regulations; and

·  
Administer executive compensation on a cost-effective and tax-efficient basis.

We seek to achieve these goals by placing a major portion of the executives’ total compensation at risk, in the form of an annual non-equity incentive plan award and stock option awards.  Non-equity incentives reward the achievement of specific pre-set financial and performance goals.  Bonuses are intended to reward achievement of subjective non-specific financial and performance goals.  Stock options create compensation opportunities intended to align management’s long-term interests with those of our stockholders.  Such cash and stock-based compensation components have been critical factors in attracting and retaining key employees and are intended to contribute to a high level of executive commitment to our business success.
 
Our ECC assesses performance of our NEOs in light of business conditions and based on the efforts and effectiveness of each individual NEO.  Our ECC also exercises its judgment as to the appropriate sharing between management and stockholders of the benefits of our business success.
 
We also intend that the levels of compensation available to executive officers be fair internally as compared to each other and competitive in the marketplace.  Our compensation program needs to be competitive so that we can retain our executive officers who have demonstrated their leadership, commitment, and overall worth to our organization.  These executives may be sought by other firms or may have other interests.  A competitive program likewise is critical to our ability to attract new executives who share our values and commitment and who have demonstrated the abilities needed to add value to us.

 
12

 

Elements of Our Compensation Program for NEOs

The table below lists the elements of our current compensation program for NEOs, and briefly explains the purpose of each element:

Major Elements of Our
Compensation Program
 
Brief
Description
 
How This Element
Promotes Our Objectives
 
Annual Compensation:
       
 - Salary
 
Fixed annual compensation
 
Intended to be competitive with marketplace in order to aid in recruitment and retention
 
 - Bonus
 
Opportunity to earn compensation for achieving subjective non-specific financial and performance goals and one-time awards such as sign-on bonuses
 
 
Motivate and reward achievement of corporate objectives that enhance stockholder value
 - Non-equity incentive plan compensation
 
Opportunity to earn performance-based compensation for achieving pre-set financial and performance goals; beginning in fiscal year 2010, a portion of awards may be paid in share units, to promote long-term equity ownership
 
 
Motivate and reward achievement of annual operating objectives and other pre-set performance objectives that enhance stockholder value
Long-term Compensation:
       
 - Stock options
 
Stock options, generally granted on an annual basis with vesting terms
 
Highly leveraged risk and reward aligned with creation of stockholder value; vesting terms promote retention
Other Compensation Elements:
       
 - Retirement savings
 
Qualified 401(k) plan, including employer matching contribution, intended to encourage savings for retirement
 
 
Program available to all employees; vesting terms of matching contributions promote retention
 - Severance payments and benefits
 
Payments and benefits provided to our CEO upon termination of employment in specified circumstances
 
 
Competitive employment agreement terms are intended to help retain our CEO
 - Severance payments and benefits after a change-in-control
 
Payments and benefits upon termination of an executive’s employment in specified circumstances
 
Intended to provide financial security to attract and retain executives under disruptive circumstances, such as a change-in-control, and to encourage management to identify, consider and pursue transactions that would benefit stockholders, but that might adversely impact management
 
 - Benefits
 
Health, life and disability benefits
 
Facilitate recruitment and retention
         
 - Perquisites
 
Modest personal benefits, such as automobile allowance
 
Intended to recognize senior employee status and provide additional compensation to executives at a relatively low cost


 
13

 

In addition to these elements, we currently utilize certain policies and practices as follows:

Employment Agreements
We currently have an employment agreement with our CEO.  This practice is intended to promote careful and complete documentation and understanding of employment terms, prevent uncertainty regarding those terms, promote good disclosure of those terms, help meet regulatory requirements under tax laws and other regulations, and discourage frequent renegotiation of the employment terms.  We recognize that such agreements can limit our ability to change certain employment and compensation terms or conditions.  The employment agreement also includes significant contractual restrictions intended to protect our business, particularly after termination of our CEO’s employment.  These business protections include obligations not to compete, not to hire away our employees, not to disparage us, and not to reveal confidential information.  As described elsewhere in this Proxy, the employment agreement contains provisions requiring us to make payments in connection with or shortly following a change-in-control.
 
Currently, we do not have employment agreements with other NEOs.  This is a result of our decision to rely on a relatively straight-forward compensation program, focused on the NEOs’ opportunity to share in the success of our fast-growing business, as our means to attract and retain employees.  In addition, we rely on our history of fair treatment of executives as a basis for not entering into employment agreements, other than with our CEO.
 
We have entered into change-in-control agreements with our other NEOs to provide them with severance benefits in the event of certain terminations of employment in connection with or shortly following a change-in-control. We have also entered into indemnification agreements with all of our NEOs that provide for indemnification by the Company against certain liabilities incurred in the performance of their duties.

Policies Regarding Hedging and Insider Trading
We have a policy that precludes executives from short selling or buying exchange-traded put options or call options associated with our stock, without the advance approval of our ECC.  We restrict these transactions because they could serve to “hedge” the executive’s risk of owning our stock and otherwise represent highly speculative transactions with respect to our stock.  We recognize that our executives may sell shares from time to time in the open market to realize value from their share-based compensation to meet financial needs and diversify their holdings, particularly in connection with exercises of stock options.  All such transactions are required to comply with our insider trading policy.

Equity Award Grant Practices
Our ECC typically grants stock options under the 2000 Stock Incentive Plan with an exercise price equal to 100% of fair market value, defined as the closing price of our Common Stock on the grant date.
 
Prior to fiscal 2010, our practice was to grant stock options, on an annual basis, to NEOs and other eligible employees, within the first few business days of August (which is the beginning of our fiscal year). For fiscal 2010, we granted our annual stock options in June 2009 rather than in August 2009 to better align the timing of our fiscal 2010 stock option grant with the timing of our annual business planning process.  Among other things, this change allowed us to better budget and forecast stock-based compensation expense for fiscal 2010.

Equity Ownership Guidelines
In the past, our CEO and other NEOs were encouraged to hold common stock acquired through the exercise of stock options or open-market purchases, but were not required to do so.
 
Effective August 1, 2009, we adopted equity ownership guidelines which require that our CEO, other NEOs and other executive officers and our directors to maintain certain levels of share ownership within a specified period of time.  In the case of our CEO, minimum equity ownership is equal to the lesser of three-times annual base salary or 50,000 shares.  In the case of our other NEOs, minimum equity ownership is equal to the lesser of two-times annual base salary or 20,000 shares. In order to facilitate compliance with the equity ownership guidelines, beginning with the settlement of our fiscal 2010 non-equity incentive plan awards, the ECC may designate that up to 25% of an annual non-equity incentive plan award be settled in share units as further described below under “Non-equity Incentive Plan Awards.”   Our current NEOs and other executive officers have until the first quarter of fiscal 2015 to meet these guidelines. However, the ECC will consider waiving or deferring an individual’s compliance with the equity ownership guidelines if it would impose an undue financial hardship on the individual or if the ECC determines that it is not in our best interests to apply these guidelines to that individual. The minimum number of shares of common stock required to be owned by directors will be finalized in early fiscal 2010.

 
14

 

Severance Payment and Change-in-control Benefits
Severance protection is provided to our CEO under the terms of his employment agreement, and is provided to the other NEOs under change-in-control agreements.  Severance protection is important to us and is intended to be fair and competitive to aid in attracting and retaining experienced executives.  Change-in-control protection is also intended to provide a number of important benefits to us.  First, it permits an executive to evaluate a potential change-in-control transaction while relatively free of concern for his or her own situation, minimizing the conflict between his or her own interests and those of our stockholders.  Second, change-in-control transactions take time to unfold, and a stable management team can help to preserve our operations in order to enhance the value delivered to the buyer – and thus the price paid to our stockholders – from a transaction.  Or, if a transaction falls through, keeping our management team intact can help us to continue our business without undue disruption.
 
In September 2008, the ECC reassessed our policies regarding severance payments and related benefits for senior executives in the event of a termination of employment following a change-in-control of Comtech.  The ECC reviewed a report from its independent compensation consultant, SH&P, providing background information.  In its report, SH&P reviewed the change-in-control severance practices of the following eight companies engaged in technology businesses reasonably similar to Comtech’s and, on average, of a size comparable to Comtech:  Arris Group, Inc., Axsys Technologies, Inc., CPI International, Inc., DRS Technologies, Inc., Kemet Corp., Powerwave Technologies, Inc., Rogers Corp., and Teledyne Technologies Inc.  SH&P also summarized survey information regarding prevalence of change-in-control practices, and provided analysis of the competitiveness and reasonableness of our then current and proposed change-in-control protections.  As a result of its review of this information, the ECC approved new change-in-control agreements providing a level of protection that the ECC viewed as more in line with prevailing practices.
 
The ECC did not benchmark the change-in-control severance policy against those of the other companies, but exercised its judgment to establish terms that would promote long-term service by executives that would continue through a change-in-control, and give an acquirer an opportunity to retain the management team after an acquisition.  However, the level of severance payment set by the ECC (2.5 times the sum of salary and annual incentive), was within the range determined by our consultant to represent market practice. The ECC believes that one of our greatest strengths is our management and workforce, so that an acquirer could be expected to pay more to acquire the Company with the team remaining intact after the acquisition.

Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code subjects public companies to limits on the deductibility of certain executive compensation to $1.0 million per year to each person who is, at the end of the fiscal year, our CEO or one of the three other most highly compensated officers listed in the “Summary Compensation” table, but excluding our CFO.  Certain forms of compensation are exempt from this deductibility limit, one of which is qualifying “performance-based compensation.”
 
As a matter of policy, we structure annual incentives for our NEOs so that they will be substantially deductible without limitation.  Certain taxable fringe benefits paid to our CEO for fiscal 2009 were non-deductible by us under Section 162(m), but the aggregate tax cost to us resulting from such lost deductions is not expected to exceed $30,000.
 
Our ECC retains authority and discretion to approve compensation that may be non-deductible, and may do so in circumstances in which it concludes that payment of such compensation serves to enhance our Company’s ability to attract, retain and appropriately reward executives and therefore is in the best interests of our Company and its stockholders.

 
15

 

Determination of Compensation Opportunities for NEOs

In general, our ECC intends that the total compensation opportunity for an executive will be competitive with market levels of compensation.
 
In the past, our ECC has considered compensation information relating to competitive companies in order to gauge market levels of compensation in the market for executive talent in which we compete.  Our ECC does not, however, benchmark executive compensation to market levels and has not obtained formal benchmarking studies in several years.  As discussed under the caption “Potential Termination and Change-in-control Payments,” in September 2008, our ECC considered and reviewed current market practices with regard to change-in-control protections of eight peer companies engaged in technology business reasonably similar to our business. However, as in the past, this review was undertaken for background information and not with a view toward benchmarking our policies against those of the other companies.
 
In making decisions regarding our executive officer compensation, ECC members draw upon their general knowledge and understanding of what executive officers of other companies are earning, particularly in our industry.  The elements of those pay packages and general industry trends are derived, in each case, from publicly available information such as other public company SEC filings and published reports on levels of executive compensation.  Our ECC uses this only to obtain a general understanding of what executive officers of other companies are earning.
 
The ECC sets pay opportunities for specific individuals based on the skills, experience, and long-term performance of the individual, and assessments with respect to the individual’s ability to add value to our Company.  Actual total compensation in a given year will vary upward or downward based primarily on the attainment of operating goals and the creation of stockholder value.
 
Our Company has experienced substantial long-term growth and success over the past 12 years.  One effect of this has been a conservative approach on the part of our ECC toward changing the structure of the program and the forms of awards under the program.  High levels of performance have resulted in the performance-based elements of the program – annual incentives and stock options – delivering a majority of compensation, with fixed portions of compensation – salary in particular – representing a smaller portion of compensation than would have been the case had our Company experienced slower growth or lower levels of performance.  Our ECC is satisfied that this allocation of compensation both has reflected the success of our Company and served to encourage such success, and has permitted the allocation among salary, annual incentive, and stock options to shift to a heavier weighting toward annual incentives and stock options in recent years.
 
The following elements comprise the cash compensation opportunities for NEOs:
 
Base Salary – Base salaries paid to our executive officers are intended to be generally competitive with those paid to executives holding comparable positions in the marketplace.
 
Our ECC reviews base salaries each year and, as appropriate, makes upward adjustments to the previous level of base salary based on the ECC’s assessment of the executive officer’s individual performance, taking into consideration the operating and financial performance of our Company’s operations for which the executive is responsible.  These adjustments involve a degree of subjective judgment on the part of our ECC, both as to the NEO’s performance and as to the competitiveness of salary levels for each of the NEO’s positions.
 
Bonuses – Our ECC has the ability to award annual cash bonuses intended to motivate and reward achievement of corporate objectives by creating the potential to earn compensation for achieving subjective non-specific financial and performance goals and also include certain one-time awards such as sign-on bonuses to a newly hired NEO.  Our ECC can also award cash bonuses to a NEO for extraordinary performance.  Because our non-equity incentive plan awards (discussed below) include certain personal goals, our ECC does not generally award annual cash bonuses (as defined) to NEOs.
 
 
16

 

Non-equity Incentive Plan Awards – Non-equity incentive plan compensation is intended to motivate and reward achievement of annual operating objectives and other pre-set performance objectives that enhance stockholder value.  In recent years, upon achievement and final approval by the ECC, annual non-equity incentive plan awards have been paid in cash.
 
Effective August 1, 2009, our ECC has reserved discretion to pay out a portion of fiscal 2010 and future non-equity incentive plan awards in the form of share units, with the number of share units to be granted in lieu of cash to be based on the fair market value of the common stock underlying the share units at the time of settlement of the fiscal 2010 awards, shortly after the end of fiscal year 2010.  Share units will not have vesting terms requiring further service on the part of the executive, but will be subject to cancellation in the event the executive engages in specified activities detrimental to the Company. Share units are intended to be settled by delivery of one share of our common stock for each share unit at the date three years after grant, subject to acceleration only upon death or a change-in-control. The ECC believes that by settling a portion of future non-equity incentive plan awards by granting share units, potential recipients will be able to more quickly meet our recently adopted equity ownership guidelines. In addition, although potential recipients will be fully vested in their share units, they retain ownership risks like our shareholders because the share units are intended to be settled by delivery of common stock three years after grant.
 
Effective August 1, 2009, our ECC has adopted guidelines that are intended to limit the dollar amount of non-equity incentive plan awards payable to each of our NEOs (including our CEO) and other executive officers to a percentage of salary that ranges from 300% to 500% of base salary.  Such limitations are primarily intended to go into effect upon an executive officer achieving actual results that are far in excess of original non-equity incentive plan award targets.  As such, once the maximum goals are reached, the executive officer’s annual non-equity incentive plan award would be limited.  The ECC believes that our executive officers will continue to be motivated, despite reaching a maximum award, because almost all of our executive officers have significant holdings of stock options and/or ownership of Comtech common stock.
 
Non-equity incentive plan compensation is paid to all of our executive officers who are subsidiary presidents pursuant to annually developed incentive plans (the “Incentive Compensation Plan”).  Under the Incentive Compensation Plan, these officers receive compensation up to a fixed percentage of each applicable subsidiary’s or subsidiaries’ pre-tax profit each year, subject to the attainment of financial performance goals (primarily operating profit, new orders and cash flow) and personal performance targets that are developed by our CEO and reviewed and approved by our ECC.  Our ECC sets final goals after considering the budget submitted for that year.
 
For the past several years, the non-equity incentive plan compensation for executive officers who were not subsidiary presidents (including our CFO and other Corporate Senior Vice Presidents), has been based on our ECC’s subjective assessment of their performance, with significant input from our CEO.  Effective for fiscal 2009, our ECC changed the structure of the non-equity incentive plan compensation for our executive officers who are not subsidiary presidents to be more aligned with the overall financial performance goals of our other NEOs. Financial performance goals for these executive officers in fiscal 2009 and fiscal 2010 were based on the aggregate targeted annual goals for the entire company.
 
This change was made in recognition of the fact that these executive officers are able to contribute substantially to the realization of these key business goals.  At the same time, we also believe our CFO plays a unique and significant role in ensuring the short-term and long-term integrity and oversight of our financial reporting practices. As such, we believe his incentives to perform well in that role should not solely be tied to achievement of annual operating results. In order to ensure our CFO remains properly incentivized, our CFO generally receives relatively lower targeted non-equity incentive plan compensation than certain of our other executive officers, and relatively higher annual stock option grants, which we view as an additional means to focus our CFO on maintaining sound long-term financial reporting practices. In addition, our CFO’s personal goals for fiscal 2009 and 2010, include, among others, a goal to reduce internal control deficiencies across the Company.  Our NEOs, other than our CEO, also have personal goals to reduce internal control deficiencies at their subsidiaries or group of subsidiaries.
 
 
17

 

Use of Financial Performance Measures

For the past several years, we have used “pre-tax profit” (also referred to as “pre-tax income”) as a primary financial performance measure for determining the amount of annual non-equity incentive plan awards. We view pre-tax profit as an effective measure of the overall success of executive officers in guiding and growing our business.  This performance measure has been used for a number of years for both planning purposes and in determining annual non-equity incentive plan compensation, during which period we have experienced outstanding growth.
 
Pre-tax profit, for this purpose, is not the same as the pre-tax income determined under U.S. Generally Accepted Accounting Principles (“GAAP”).  For both fiscal 2008 and fiscal 2009, the pre-tax profit measure has been adjusted to eliminate the effects of: (i) stock-based compensation recorded pursuant to Statement of Financial Accounting Standards (“SFAS”) 123(R), (ii) the amortization of newly acquired intangibles with finite lives, (iii) any adjustment required by the adoption of new accounting standards, (iv) certain costs associated with exit or disposal activities, and (v) the write off of purchased in-process research and development expense, and impairment loss on goodwill.  For fiscal 2009, the pre-tax profit measure also included adjustments to eliminate the effects of: (i) expenses in connection with a purchased business combination under EITF 95-3 or other accounting literature, (ii) expenses associated with termination of employees under FASB Staff Position FAS 146-1, and (iii) expenses related to potential change-in-control matters.  In the case of our CEO, pre-tax profit is calculated before recognition of the expense of the full annual incentive award potentially payable to our CEO.  In connection with the establishment of our annual goals for fiscal 2010, the ECC has adopted a similar definition of pre-tax profit as in fiscal 2009, except that such definition also includes the adjustment of the pre-tax profit measure to eliminate the effect of any business acquisition-related expense pursuant to SFAS No. 141R, which was required to be adopted by us on August 1, 2009.
 
Pre-tax profit is not the sole performance metric we consider in awarding annual incentives.  Our NEOs, other than our CEO, also have to achieve other financial performance goals based on operating profit, new orders and/or cash flows.  Our ECC also considers other factors, such as the individual performance of the executive officer based on the achievement of personal goals that were established at the beginning of the fiscal year.  Our ECC then makes a determination of the amount of annual incentive to be paid to the executive officer, up to a maximum level which, for fiscal 2009, was calculated as a pre-set percentage of pre-tax profit, and for fiscal 2010 is set as the lower of a pre-set percentage of pre-tax profit or a specified percentage of each NEO’s base salary.  Our ECC believes that its ability to exercise judgment in determining annual incentive awards is advantageous as compared to establishing a precise formula for calculating incentives which limits flexibility in determining the final amount payable.  Our ECC retains negative discretion to reduce any calculated award, except for contractually agreed upon amounts.
 
The annual incentive program is meant to incentivize performance that will benefit the Company.  At the same time, the ECC has sought for the program not to create distorted incentives that might impel undue risk taking.  Use of a broad financial measure – pre-tax profit – ameliorates these risks, because it reflects both revenue and expense incurred in generating revenue.  In addition, the ECC sets a number of personal goals for the NEOs other than our CEO to further broaden the focus and to support specific goals identified in our planning process.  Our annual cash incentive payouts are in all cases subject to a recoupment policy (often referred to as a “clawback” policy) which would require forfeiture of a specified portion of the annual incentive award under certain circumstances, including if the NEO were to engage in certain activities that would be grounds for termination for cause (this would include misconduct that would cause us to issue a restatement of the financial statements), or if the employee were to engage in competition or other specified activities detrimental to us.

Establishment of Original Target Goals

On an annual basis, the target level of quantitative performance measures for all of our NEOs, other than our CEO, in each case, is viewed by the ECC as challenging, but with a roughly even chance of being achieved.  The ECC views it as likely that the threshold level of performance would be achieved for these performance measures, but still substantially uncertain, and the ECC views it as very unlikely that the maximum performance level would be achieved for any of these performance goals.  With regard to the personal goals, achievement of all of the goals is viewed as challenging but with an approximately even chance of being achieved.  In establishing the original specific quantifiable number (e.g., new orders of a specified dollar amount) associated with the performance goal and the establishment of the individual personal goals, the ECC relies on information presented to and discussed with it by our CEO and our CFO, and the recommendations of our CEO.  In establishing original specific goals, the ECC considers prior fiscal years’ achievements, known opportunities and business planning for the year.  At the time of establishment of the original performance goals, definitions of the performance measures are clarified and agreed to as well, including any adjustments to be made.
 
18

 
Determination of Salary and Non-equity Incentive Plan Awards for Fiscal 2009

Our CEO
 
Salary – Effective with fiscal 2009, we agreed with our CEO to change his employment agreement.  We agreed to increase his base salary from $675,000 to $695,000 per year.  The increase in salary was authorized at a level in line with the usual merit increase, and also reflected the outstanding results achieved in fiscal 2008. Given overall difficult business conditions that currently exist and as part of our company-wide cost-reduction efforts, our ECC did not award the usual merit increase to our CEO for fiscal 2010.  As such, our CEO’s salary for fiscal 2010 will remain unchanged.
 
Non-Equity Incentive Plan Award – The employment agreement in effect for fiscal 2009 (which was entered into on September 17, 2007 and amended on September 16, 2008) entitled our CEO to receive a non-discretionary annual incentive payment equal to 3.0% of our pre-tax profit, capped at an amount which, when combined with base salary, will not exceed $1 million.  The maximum amount of salary and non-equity incentive award payable under the employment agreement was limited to $1.0 million to ensure that substantially all payments made pursuant to the employment agreement would be deductible without limitations under Internal Revenue Code Section 162(m).  Accordingly, the non-equity incentive plan award payable under our CEO’s employment agreement was limited to $305,000 for fiscal 2009.  The employment agreement also called for additional amounts of compensation as our ECC may determine at its discretion.
 
In determining additional amounts of compensation for fiscal 2009, our ECC specified early in fiscal 2009 that the formula would be 3.0% of pre-tax profit (as defined), less the incentive amount payable under the employment agreement, as a general guideline for determining the total amount of annual incentive payable to our CEO.  This discretionary award is authorized under our 2000 Stock Incentive Plan, under amendments adopted in 2006.  In using the 3.0% of pre-tax profit formula, our ECC has sought to reward our CEO for his efforts in growing our business.  The 3.0% level was the same level used in fiscal year 2008; however, it represented a reduction from the formula level set in fiscal 2007 which equaled 3.5% of pre-tax profit.  While a fixed percentage of pre-tax profit will produce incentive payouts that are greater in the event of higher pre-tax profit and lower in the event of lower pre-tax profit, the ECC does not view the formula, by itself, as fully adequate to gauge performance.  For this reason, our ECC takes into account other aspects of our performance in determining whether to exercise negative discretion to reduce the amount of the final cash incentive award to our CEO.
 
In determining the final cash incentive award to our CEO for fiscal 2009, the ECC considered certain key positive factors, including the fact that amidst the most challenging global economic environment in decades, we delivered record sales of $586.4 million and successfully integrated Radyne into our business. In addition, during fiscal 2009, we received multiple large orders from the U.S. Army, including a $281.5 million order, the single largest order that we received in our history.  The U.S. Army requested that the substantial majority of these orders be shipped in our fiscal 2010.   The ECC also considered negative factors, including the fact that because of the challenging global economic environment and the shift of sales to the U.S. Army from fiscal 2009 to fiscal 2010, our GAAP pre-tax profit in fiscal 2009 was $76.5 million, down from $118.2 million in fiscal 2008. This decline in profitability resulted in the pre-tax profit measure  (as defined under the heading “Use of Financial Performance Measures”) used for purposes of computing our CEO’s bonus, to approximate $95.1 million as compared to $132.8 million in fiscal 2008, representing a reduction of 28.3%.  In addition, the ECC also considered our 37.0% decline in GAAP diluted earnings per share and the negative 35% one-year total stockholder return realized by our shareholders.
 
As such, based on the aforementioned, despite the successes that we achieved in fiscal 2009 in an exceptionally challenging business environment, the ECC utilized its negative discretion and determined that the annual incentive payout to our CEO in fiscal 2009 (including the incentive award payable under the employment agreement) would equal 2.5% of pre-tax profit rather than the 3.0% target that was previously established.
 
Based on the aforementioned, our CEO was awarded an annual incentive of $2,366,026, representing a reduction of 40.6% from his fiscal 2008 annual incentive.  This award consists of $305,000 payable under our CEO’s employment contract and an additional amount of $2,061,026 payable as a non-equity cash-incentive award pursuant to our 2000 Stock Incentive Plan. The ECC believes that the final award in fiscal 2009 reflects the overall lower level of our consolidated performance, while still recognizing our CEO’s strong leadership which has allowed our stockholders to have generated annualized total stockholder returns as of the end of fiscal 2009 of 5% for three years, 19% for five years and 20% for ten years.
 
19

 
Our CFO
 
Salary – Effective with fiscal 2009, our CFO’s base salary was increased from $275,000 to $325,000 per year.  The increase reflects a higher than usual merit increase due to our CFO’s overall strong performance and the competitive market for experienced CFO’s as determined by our ECC.  Given overall difficult business conditions that currently exist and as part of our company-wide cost-reduction efforts, our ECC did not award the usual merit increase to our CFO for fiscal 2010.  As such, our CFO’s salary for fiscal 2010 will remain unchanged.
 
Non-Equity Incentive Plan Award –  Early in fiscal year 2009, the ECC established a maximum annual incentive formula for our CFO equal to 0.48125% of pre-tax profit (as defined under the heading “Use of Financial Performance Measures”). For our CFO, additional performance goals were also specified in terms of operating profit and free cash flows relating to the Company as a whole, and personal goals.  The pre-set weightings of these performance measures and actual achievement for fiscal 2009 are as set forth in the following table.

Fiscal 2009 Performance Measures and Actual Achievement

   
Operating
Profit
   
Free Cash
Flow
   
Personal
Goals
   
Total
 
2009 Performance Measures
                       
Michael D. Porcelain
    25.0%       50.0%       25.0%       100.0%  
                                 
2009 Actual Achievement
                               
Michael D. Porcelain
    0.0%       0.0%       80.0%       20.0%  

The percentages in this table represent the percentage of the total annual non-equity incentive goal and actual achievement related to each specific pre-set performance measure.  Except for personal goals, the percentage earned for each performance measure was decreased or increased proportionally based on the level of actual achievement of the goal which would have ranged from a minimum of 70% achievement up to a maximum of 150% achievement.  The personal goals can only be achieved at a maximum payout level of 25%.  Accordingly, the aggregate maximum bonus that could have been paid would equal 137.5% of his annual incentive target rate.  Achievement of less than 70% of any performance measure other than the personal goals, and with respect to the personal goals, failure to achieve each of the personal goals, would result in no credit for that particular performance measure or goal.
 
Personal goals achieved in fiscal 2009 included (i) the successful integration of Radyne, (ii) the preparation and related adoption of strategic plans with respect to certain product lines, (iii) reduction in control deficiencies and (iv) the successful issuance of our $200.0 million of convertible senior notes and the establishment of a new $100 million committed credit facility. The personal goal not achieved related to increasing an internal GAAP-based free cash flow measure by a certain percentage.  As indicated above, actual performance on pre-established performance goals resulted in aggregate achievement at a rate of 20.0%, so that, as a preliminary calculation, the annual incentive award was potentially earned at a rate of 0.07% of the specified pre-tax profit measure for a total annual incentive award of $64,593.
 
In determining the final annual non-equity incentive award to our CFO for fiscal 2009, the ECC considered the same positive and negative elements that it did for our CEO, including, in particular, the achievement of corporate expense synergies associated with our Radyne acquisition. In addition, the ECC considered the important role that our CFO played during the successful issuance of our $200.0 million of convertible senior notes and the establishment of a new $100.0 million committed credit facility in fiscal 2009.  As such, the ECC determined not to exercise the negative discretion it retains relative to the actual performance on pre-set performance goals and determined a final payout level for our CFO of $270,000.  The $270,000 award represents 0.2926% of pre-tax profit, as compared with the pre-set maximum percentage of pre-tax profit of 0.48125%, and as compared with our CFO’s bonus of 0.46568% of pre-tax profit for fiscal 2008. Our CFO’s fiscal 2009 annual non-equity plan incentive award of $270,000 represents a 55% reduction as compared to the $600,000 non equity incentive plan award in fiscal 2008.  The ECC believes that the final award in fiscal 2009 reflects the overall lower level of our consolidated performance, while still recognizing our CFO’s strong performance, including his focus on maintaining sound financial accounting practices and internal controls in the context of integrating the largest acquisition in the Company’s history.
 
 
20

 
 
Our Other NEOs
 
Salary – In fiscal 2009, Mr. McCollum’s base salary remained at its fiscal 2008 level, $375,000 per year. Mr. Wood’s base salary was increased from $305,000 to $314,140 per year, and Mr. Kapelus’ base salary was increased from $275,000 to $285,000, representing normal merit increases.  Given overall difficult business conditions that currently exist and as part of our company-wide cost-reduction efforts, our ECC did not award the usual merit increase to these NEO’s for fiscal 2010. As such, Messrs. McCollum, Wood and Kapelus’ salaries for fiscal 2010 will remain unchanged.
 
Our Other NEOs’ Non-equity Incentive Plan Awards – Annual non-equity incentives for Messrs. McCollum and Wood are calculated based on a pre-set percentage of pre-tax profit (as defined under the heading “Use of Financial Performance Measures”) of the operations for which they each are responsible. In the case of Mr. Kapelus, it was based on a pre-set percentage of pre-tax profit measure (as so defined) for the Company, as a whole.  Such amounts become payable only if pre-set performance goals have been met.  These performance goals were developed at the beginning of fiscal 2009 by our CEO and reviewed and approved by our ECC.
 
The maximum annual incentive award for each of Mr. McCollum and Mr. Wood for fiscal 2009 was 2.0625% of pre-tax profit of the operations for which they were responsible, and for Mr. Kapelus, 0.28135% of the Company’s pre-tax profit (as defined).  For each of these executives, additional performance goals were also specified.
 
For Messrs. McCollum and Wood, the financial performance goals related to operating profit, free cash flows and new orders relating to the operations under the executive’s supervision, and personal goals. In the case of Mr. Kapelus, financial performance goals related to consolidated operating profit and free cash flow, as well as personal goals.
 
The original weightings of these performance measures and actual achievement for fiscal 2009 are as set forth in the table below.

Fiscal 2009 Performance Measures and Actual Achievement

 
Operating
Profit
 
New
Orders
 
Free Cash
Flow
 
Personal
Goals
 
 
Total
2009 Performance Measures
                 
Robert L. McCollum
25.0%
 
25.0%
 
25.0%
 
25.0%
 
100.0%
Daniel S. Wood
25.0%
 
25.0%
 
25.0%
 
25.0%
 
100.0%
Jerome Kapelus
25.0%
 
 N/A
 
25.0%
 
50.0%
 
100.0%
                   
2009 Actual Achievement
                 
Robert L. McCollum
82.0%
 
77.3%
 
99.2%
 
60.0%
 
79.6%
Daniel S. Wood
0.0%
 
150.0%
 
0.0%
 
80.0%
 
57.5%
Jerome Kapelus
0.0%
 
N/A
 
0.0%
 
60.0%
 
30.0%

The percentages in this table represent the percentage of the total annual non-equity incentive goal and actual achievement related to each specific pre-set performance measure.  Except for personal goals, the percentage earned for each performance measure was decreased or increased proportionally based on the level of actual achievement of the goal which would have ranged from a minimum of 70% achievement up to a maximum of 150% achievement.  The personal goals can only be achieved at a maximum payout level of 25%.  Accordingly, the aggregate maximum bonus that could have been paid to any individual would equal 137.5% of his annual incentive target rate.  Achievement of less than 70% of any performance measure other than the personal goals, and with respect to the personal goals, failure to achieve each of the personal goals, would result in no credit for that particular performance measure or goal.
 
Our ECC established these specific performance goals to focus the executives’ performance on factors that are important to the success of the businesses they oversee or can meaningfully contribute to.  Personal goals for Messrs. McCollum and Wood include specific operational goals, including product development, marketing to targeted customers (including the U.S. government) or of specific products at pre-set levels, establishing marketing and other business relationships with targeted firms, providing a high level of technical support to customers, integration of acquisitions, and other goals that are consistent with our overall short-term and long-term business objectives.
 
21


Mr. McCollum achieved personal goals relating to the integration of Radyne Corporation, increased sales to a targeted customer, and product development goals related to two products. Mr. McCollum did not achieve two personal goals relating to achieving pre-defined levels of certain product line sales.
 
Mr. Wood achieved personal goals relating to product development, providing a high level of technical support to a customer, and two goals relating to establishing and growing certain sales and marketing relationships. Mr. Wood did not achieve a goal relating to achieving a pre-defined level of certain product line sales.
 
Mr. Kapelus achieved personal goals relating to greater investment community awareness of Comtech, completion of a financing transaction, and preparation of strategic plans with respect to certain product lines. Mr. Kapelus did not achieve two personal goals relating to acquisitions.
 
Ultimately, our ECC approved final fiscal 2009 non-equity incentive plan awards of $682,113 for Mr. McCollum, $224,681 for Mr. Wood and $62,286 for Mr. Kapelus, as compared to fiscal 2008 awards of $1,000,000, $750,000 and $450,000, respectively. Such amounts represented reductions of 31.8%, 70.0% and 86.2%, respectively, as compared to their fiscal 2008 awards.
 
In determining the actual achievement of the above goals, the ECC relied upon a financial schedule prepared by our CFO which was presented to them by our CEO.  In calculating any GAAP reported financial information, the ECC also relied on information audited by the Company’s independent registered public accounting firm.
 
In assessing the actual achievement of the personal goals, the ECC reviewed the achievement of each specific personal goal with our CEO.  In each case, the non-equity incentive award represented the amount of non-equity incentive award payable based upon achievement of performance goals at an aggregate percentage as set forth in the table above, without discretionary adjustments.  However, on the recommendation of Mr. McCollum, $200,000 of his preliminary non-equity incentive award, which was otherwise payable to him, was reallocated to the fiscal 2009 bonuses of other employees who work for operations for which Mr. McCollum is responsible.
 
The ECC believes that the final award in fiscal 2009 for each of these executives reflects their specific individual contributions to our consolidated financial performance, while still recognizing the overall lower level of our consolidated performance.

 
22

 

Determination of Long-Term Incentive Awards for Fiscal 2009

Long-Term Incentives.  We provide a substantial portion of compensation to our executive officers as long-term incentive compensation.  In fiscal 2009, this component of compensation was provided through grants of stock options under our 2000 Stock Incentive Plan.  The stock options align the executives’ interest with those of our stockholders by providing each executive with an opportunity to share in the appreciation of the value of our Common Stock.
 
We grant options with an exercise price equal to market price on the date of grant.  Our ECC generally values options as a component of total compensation based on the Black-Scholes fair value at the grant date, calculated for purposes of SFAS 123(R).
 
The fair value of options granted for fiscal 2009 is reflected in the table entitled “Grants of Plan-Based Awards for Fiscal 2009”; the grants on August 5, 2008 are the fiscal 2009 grants.  The vesting terms of our stock options, requiring three years of service in order to fully vest (vesting 25% after one year, 25% after two years, and 50% after three years), provide a strong inducement for our executive officers to remain in long-term service to Comtech.
 
Generally, the level of annual grants of stock options, for each respective NEO, is determined by our ECC in its discretion, on a subjective basis.  Consistent with prior years’ practice, the annual fiscal 2009 grants of long-term incentive awards for our NEOs were awarded early in fiscal 2009 (August 5, 2008).  As described earlier under the heading “Equity Award Grant Practices,” stock option grants for fiscal 2010 were made in June 2009 and represent a component of fiscal 2010 compensation, rather than fiscal 2009 compensation.
 
Our ECC awarded the largest individual stock option award to our CEO in recognition of his importance to our future.  In determining the annual stock option award for each of our respective NEOs, the ECC considered each individual NEO’s total compensation package with a view toward maintaining aggregate internal pay equity.  In the case of Mr. Porcelain, the ECC granted stock options with a greater value, as a percentage of base salary, than other NEOs for the reason earlier described under the heading “Non-equity Incentive Plan Awards” in the section entitled “Determination of Compensation Opportunities for NEOs.”  As in the past, this reflects the ECC’s view that our CFO’s compensation should be more heavily weighted towards long-term incentives.
 
In regard to the annual stock option grants for fiscal 2010, the ECC reduced the total value of stock-based compensation granted by not increasing the number of options granted to NEOs as compared to fiscal 2009, despite the fact that the aggregate fair value of the options was significantly lower from the level of the fiscal 2009 grants.  This reduced fair value is in line with the Company’s stock price and other measures of Company performance as of the June 2009 grant date and the ECC believes represents a fair adjustment to the value of total compensation for each NEO.
 
Our ECC values options as a component of compensation when the options are being granted.  The in-the-money value of unvested options represents one of our strongest tools for retention of executives; however, our ECC does not alter the level of its grants based on the built-up value of previously granted options or value realized by executives by exercising previously granted options.  When executives experience a build-up in value of options as a result of increasing market prices of stock, the benefits are aligned with the return experienced by stockholders.  Conversely, historically we have not issued increased numbers of options when the build-up in value of previously granted options was modest or previously granted options were underwater.
 
 
23

 

 
EXECUTIVE COMPENSATION
 

The table below provides information concerning the compensation of our NEO’s for the fiscal years ended July 31, 2009, 2008 and 2007.

Summary Compensation Table for Fiscal 2009

Name and Principal
Position
Fiscal
Year
Salary
Bonus
(1)
Option
Awards
Non-Equity
Incentive Plan
Compensation
(2)
All Other
Compensation
Total
                         
Fred Kornberg
                       
Chairman,
2009
$695,000
 
-
$1,679,074
 
$2,366,026
 
$75,898
 
$4,815,998
 
Chief Executive
2008
675,000
 
-
1,895,240
 
3,984,882
 
80,327
 
6,635,449
 
Officer and President
2007
625,000
 
-
1,406,906
 
3,766,260
 
97,403
 
5,895,569
 
                         
                         
Michael D. Porcelain
                       
Senior Vice President
2009
325,000
 
-
523,619
 
270,000
 
24,905
 
1,143,524
 
and Chief Financial
2008
275,000
 
-
445,911
 
600,000
 
12,265
 
1,333,176
 
Officer
2007
260,000
 
-
276,000
 
400,000
 
14,537
 
950,537
 
                         
                         
Robert L. McCollum
                       
Senior Vice President;
2009
375,000
 
-
283,247
 
682,113
 
33,465
 
1,373,825
 
President Comtech
2008
375,000
 
-
335,002
 
1,000,000
 
27,454
 
1,737,456
 
EF Data Corp.
2007
355,000
 
-
332,374
 
800,000
 
25,846
 
1,513,220
 
                         
                         
Daniel S. Wood
                       
Senior Vice President;
2009
314,140
 
-
420,051
 
224,681
 
14,024
 
972,896
 
President Comtech
2008
305,000
 
-
452,719
 
750,000
 
9,197
 
1,516,916
 
Mobile Datacom
2007
290,000
 
-
316,326
 
475,000
 
24,222
 
1,105,548
 
Corporation
                       
                         
                         
Jerome Kapelus
                       
Senior Vice President
2009
285,000
 
-
464,099
 
62,286
 
6,574
 
817,959
 
Strategy and Business
2008
275,000
 
-
411,810
 
450,000
 
2,559
 
1,139,369
 
Development 
2007
260,000
 
-
212,620
 
350,000
 
2,523
 
825,143
 
                         


See footnotes listed on next page.

 
24

 
 
(1)  
These amounts reflect the amount of expense we recognized for financial statement reporting purposes for the indicated fiscal year, in accordance with SFAS 123(R), for stock options, without regard to estimated forfeitures of such options.  These amounts include expense from options granted in fiscal years 2004 through 2009, including the fiscal 2010 option awards granted in June 2009, which remained unvested at any time in the indicated fiscal year, including the options granted during the indicated fiscal year.  Assumptions used in the calculation of these amounts for options granted in the 2007, 2008 and 2009 fiscal years are discussed in Note 1(j) to our consolidated audited financial statements for the fiscal year ended July 31, 2009, included in our Annual Report on Form 10-K, filed with the SEC on September 23, 2009.  For assumptions used in the calculation of expense for options granted prior to fiscal 2007, refer to the note relating to the stock-based compensation in the Form 10-K for the respective year-end.

(2)  
The table below shows the items comprising “All Other Compensation,” which include our matching contributions for each NEO participating in our 401(k) plan, premiums for term life insurance for NEOs paid directly by us, automobile allowances, financial planning services and unused vacation time paid out by us, and is based on information as of the calendar year ending within each applicable fiscal year.


Summary Compensation Table for Fiscal 2009, 2008 and 2007 – Details of All Other Compensation

Fiscal
Year
401(k)
Matching
Contribution
Term
Life
Insurance
Automobile
Allowance
Financial
Planning
Services
Unused
Vacation
Time
Paid Out
 
 
 
Housing
Expense
Total
“All Other”
Compensation
                               
                               
Fred Kornberg
2009
$2,000
 
$26,004
 
$5,125
 
-
 
$42,769
 
-
 
$75,898
 
 
2008
2,000
 
26,004
 
4,031
 
$9,350
 
38,942
 
-
 
80,327
 
 
2007
2,000
 
24,579
 
2,792
 
38,212
 
29,820
 
-
 
97,403
 
Michael D. Porcelain
2009
4,523
 
1,007
 
-
 
-
 
19,375
 
-
 
24,905
 
 
2008
2,000
 
746
 
-
 
-
 
9,519
 
-
 
12,265
 
 
2007
2,000
 
594
 
-
 
-
 
11,943
 
-
 
14,537
 
Robert L. McCollum
2009
2,288
 
10,754
 
6,000
 
-
 
14,423
 
-
 
33,465
 
 
2008
2,000
 
5,031
 
6,000
 
-
 
14,423
 
-
 
27,454
 
 
2007
2,000
 
4,192
 
6,000
 
-
 
13,654
 
-
 
25,846
 
Daniel S. Wood
2009
6,616
 
1,408
 
6,000
 
-
 
-
 
-
 
14,024
 
 
2008
2,000
 
1,197
 
6,000
 
-
 
-
 
-
 
9,197
 
 
2007
2,000
 
180
 
6,000
 
-
 
-
 
$16,042
 
24,222
 
Jerome Kapelus
2009
4,666
 
728
 
1,180
 
-
 
-
 
-
 
6,574
 
 
2008
2,000
 
559
 
-
 
-
 
-
 
-
 
2,559
 
 
2007
2,000
 
523
 
-
 
-
 
-
 
-
 
2,523
 
 
 
25

 
 
GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2009
 

   
(1)
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
(2)(3)
All Other Awards:
Number of Securities Underlying Options
 
Exercise or Base Price of Option Awards ($/share)
 
Grant Date
Fair Value of
Stock and
Option
Awards
 
Name
 
Grant Date
 
 
Threshold
 
(4)
Target
 
Maximum
 
Fred Kornberg
June 2, 2009
-
-
-
80,000
$29.61
$771,984
 
September 16, 2008
N/A
$3,984,882
 
N/A
-
-
-
 
August 5, 2008
-
-
-
80,000
46.69
1,284,104
Michael D. Porcelain
June 2, 2009
-
-
-
35,000
29.61
337,743
 
September 16, 2008
N/A
620,064
 
N/A
-
-
-
 
August 5, 2008
-
-
-
35,000
46.69
561,796
Robert L. McCollum
June 2, 2009
-
-
-
10,000
29.61
96,498
 
September 16, 2008
N/A
1,526,923
 
N/A
-
-
-
 
August 5, 2008
-
-
-
20,000
46.69
321,026
Daniel S. Wood
June 2, 2009
-
-
-
20,000
29.61
192,996
 
September 16, 2008
N/A
1,137,763
 
N/A
-
-
-
 
August 5, 2008
-
-
-
20,000
46.69
321,026
Jerome Kapelus
June 2, 2009
-
-
-
20,000
29.61
192,996
 
September 16, 2008
N/A
362,375
 
N/A
-
-
-
 
August 5, 2008
-
-
-
25,000
46.69
401,283

(1)  
As required by SEC proxy disclosures rules, the target levels shown in this column represent the amounts that would have been payable for fiscal 2009 assuming the applicable pre-tax profits were the same as achieved in fiscal 2008.  The actual payouts for fiscal 2009 for non-equity incentive plan awards are reflected in the “Summary Compensation” table for Fiscal 2009 under the column “Non-Equity Incentive Plan Compensation.”  The awards for Messrs. Kornberg, Porcelain, McCollum, Wood and Kapelus were granted under our 2000 Stock Incentive Plan, and as applicable, Mr. Kornberg’s employment agreement.

(2)  
Each option granted to NEOs in fiscal 2009 vests as to 25% of the underlying shares on each of the first and second anniversaries of the grant date, and as to the remaining 50% of the underlying shares on the third anniversary of the grant date.  The options granted are subject to accelerated vesting in the event of a change-in-control, except in limited circumstances.

(3)  
As described earlier under the heading “Equity Award Grant Practices,” stock option grants on June 2, 2009 represent a component of fiscal 2010 compensation rather than fiscal 2009 compensation.

(4)  
The September 16, 2008 awards for Messrs. Kornberg, Porcelain, McCollum, Wood and Kapelus did not have any thresholds or specified maximums and were based on a percentage of pre-tax profit of our Company or certain of its subsidiaries, subject to certain adjustments. However, the limits on cash incentive awards under the 2000 Stock Incentive Plan applied to a portion of the annual incentive award to Mr. Kornberg and to the full annual incentive awards to the other NEOs.  The 2000 Stock Incentive Plan imposes an annual limit of $4 million, but this limit is increased by the unused portion of any annual limit in previous years.
 
 
26

 

Additional Information Relating to Summary Compensation Table and Grants of Plan-Based Awards Table

The following provides background information to give a better understanding of the compensation amounts shown in the “Summary Compensation” table and “Grants of Plan-Based Awards” table above.

Fred Kornberg

Employment Agreement in Effect for Fiscal 2009
 
We employ Mr. Kornberg on terms specified in his employment agreement.  In September 2008, we amended and restated his employment agreement, primarily to enhance his protection in the event of termination by us without cause or by him for good reason, in either case within two years following a change-in-control.  As amended and restated, the term of the agreement will expire July 31, 2011.  The base salary under the agreement for fiscal 2009 had been set at $695,000 per annum.  The agreement permits base salary to be increased from time to time by our ECC.  The agreement also provides for incentive compensation, in an amount equal to 3.0% of pre-tax income, capped at an amount which, when combined with base salary expected to be payable in the same year, will not exceed $1.0 million.  Additional incentive amounts may be awarded by our ECC from time to time, in its discretion.  The agreement calls for our Company to provide an automobile or automobile allowance and term life insurance with a death benefit in an amount of five times base salary, but not less than $3.5 million.  The agreement also provides that Mr. Kornberg will participate in our benefit plans and programs for executives, and that we would pay his reasonable attorney’s fees and disbursements in any action to enforce provisions of the agreement.  Termination provisions of this agreement are described later under the heading “Potential Termination and Change-in-control Payments.”
 
Mr. Kornberg’s employment agreement includes covenants for the protection of our business, including a non-competition covenant and a prohibition on soliciting or hiring our employees, that remain in effect for two years following termination of employment (whether before or after a change-in-control).  The agreement also restricts his use and disclosure of confidential information and obligates him not to disparage us following termination of employment.
 
Non-Equity Incentive Plan Compensation
 
The amounts shown in the “Executive Compensation” and “Grant of Plan-Based Awards for Fiscal 2009” tables above as Non-Equity Incentive Plan Compensation results from cash-based annual incentive awards to Mr. Kornberg, including amounts payable as a discretionary cash incentive award under our 2000 Stock Incentive Plan and a mandatory amount payable under the terms of Mr. Kornberg’s employment agreement.  The fiscal 2009 cash incentive award represents a decrease of 40.6% from the amount earned in fiscal 2008 for the reasons enumerated earlier in “Compensation Discussion and Analysis” under the headings “Determination of Salary” and “Non-equity Incentive Plan Awards for Fiscal 2009.”
 
In aggregate, the non-equity incentive plan compensation for fiscal 2009 was payable based on 2.5% of our pre-tax profit (as defined and described earlier under the heading “Compensation Discussion and Analysis”) in fiscal 2009.  Under this formula, there is no designated “target” or “threshold” or “maximum” payout level.  The target level shown in the “Grants of Plan-Based Awards” table represents the amount that would have been payable for fiscal 2009 assuming pre-tax profit for the year was the same as achieved in fiscal 2008 (as required under SEC proxy disclosure rules).
 
 
27

 

Michael D. Porcelain

Non-Equity Incentive Plan Compensation
 
The non-equity incentive payable to Mr. Porcelain for fiscal 2009 was payable under a pre-established cash incentive award granted under our 2000 Stock Incentive Plan.  The target level shown for Mr. Porcelain in the “Grants of Plan-Based Awards for Fiscal 2009” table represents the amount that would have been payable for fiscal 2009, assuming pre-tax profit for the year was the same as was achieved in fiscal 2008 for the Company as a whole.  The applicable performance goals were developed by our CEO and approved by our ECC.  For Mr. Porcelain, the cash incentive award authorized for fiscal 2009 was equal to 0.35% of pre-tax profit for target level performance with respect to three factors: operating profit, free cash flows, and personal goals.  The maximum annual incentive would be 0.48125% of such pre-tax profit.  The same adjustment items apply to this pre-tax profit as described earlier under the heading “Compensation Discussion and Analysis.”  Under the pre-set terms of the performance goals, actual performance resulted in achievement at a rate of 20.0%, so that, as a preliminary calculation, the annual incentive award was potentially earned at a rate of 0.07% of the specified pre-tax profit.
 
The ECC determined not to exercise the negative discretion it retains relative to the actual performance on pre-established performance goals and determined a final payout level for our CFO which represents 0.2926% of pre-tax profit, still below the pre-set maximum percentage of pre-tax profit of 0.48125%.  As such, in its discretion, the ECC determined that the final payout level for fiscal 2009 would be $270,000 which reflects a reduction of 55% as compared to fiscal 2008. For reasons discussed elsewhere in this Proxy, the ECC believes this amount is appropriate given our overall lower level of our consolidated performance, while still recognizing our CFO’s strong performance including our CFO’s focus on maintaining sound financial accounting practices and internal controls during the integrating of the largest acquisition in the Company’s history.

Robert L. McCollum

Non-Equity Incentive Plan Compensation
 
The annual incentive payable to Mr. McCollum, who is a subsidiary president, was payable under a pre-set cash incentive award.  The target level shown for Mr. McCollum in the “Grants of Plan-Based Awards” table represents the amount that would have been payable for fiscal 2009, assuming pre-tax profit for the year was the same as was achieved in fiscal 2008 for the operations for which he was responsible.  The applicable performance goals were developed by our CEO and approved by our ECC.  For Mr. McCollum, the cash incentive award authorized for fiscal 2009 was equal to 1.5% of pre-tax profit for target level performance with respect to four factors: operating profit, free cash flows, new orders, and personal goals relating to the operations under Mr. McCollum’s supervision.  The maximum annual incentive would be 2.0625% of such pre-tax profit.  The same adjustment items apply to this pre-tax profit as described earlier under the heading “Compensation Discussion and Analysis.”  Under the pre-set terms of the performance goals, actual performance resulted in achievement at a rate of 79.65%, so that, as a preliminary calculation, the annual incentive award was potentially earned at a rate of approximately 1.1947% of the specified pre-tax profit, which figure was used to determine the final 2009 annual incentive payable to Mr. McCollum.
 
Our ECC consulted with Mr. McCollum regarding his annual incentive award for fiscal 2009.  He asked our ECC to consider making a downward adjustment to his annual incentive so that the amounts not paid due to this adjustment could be reallocated to the fiscal 2009 bonuses of other employees who work for operations for which Mr. McCollum is responsible.  Our ECC reduced Mr. McCollum’s final annual incentive amount by $200,000 for this purpose.  The total award in fiscal 2009 was $682,113 which represented a reduction of 31.8% as compared to the amount awarded in fiscal 2008 of $1,000,000.
 
 
28

 

Daniel S. Wood

Non-Equity Incentive Plan Compensation
 
The annual incentive payable to Mr. Wood, who is a subsidiary president, was payable under a pre-set cash incentive award.  The target level shown for Mr. Wood in the “Grants of Plan-Based Awards” table represents the amount that would have been payable for fiscal 2009, assuming pre-tax profit for the year was the same as was achieved in fiscal 2008 for the operations for which he was responsible.  The applicable performance goals were developed by our CEO and approved by our ECC.  For Mr. Wood, the cash incentive award authorized for fiscal 2009 was to equal 1.5% of the pre-tax profit for target level performance with respect to four factors: operating profit, free cash flows, new orders, and personal goals relating to the operations under Mr. Wood’s supervision.  The maximum annual incentive would be 2.0625% of such pre-tax profit.  The same adjustment items apply to this pre-tax profit as described earlier under the heading “Compensation Discussion and Analysis.”
 
Under the pre-set terms of the performance goals, actual performance resulted in achievement at a rate of 57.5%, so that, as a preliminary calculation, the annual incentive award was potentially earned at a rate of 0.8625% of the specified pre-tax profit, which figure was used to determine the final 2009 annual incentive award payable to Mr. Wood.   The total award in fiscal 2009 was $224,681 which represented a reduction of 70% as compared to the amount awarded in fiscal 2008 of $750,000.
 
Jerome Kapelus

The non-equity incentive payable to Mr. Kapelus for fiscal 2009 was payable under a pre-established cash incentive award granted under our 2000 Stock Incentive Plan.  The target level shown for Mr. Kapelus in the “Grants of Plan-Based Awards for Fiscal 2009” table represents the amount that would have been payable for fiscal 2009, assuming pre-tax profit for the year was the same as was achieved in fiscal 2008 for the Company, as a whole.  The applicable performance goals were developed by our CEO and approved by our ECC.  For Mr. Kapelus, the cash incentive award authorized for fiscal 2009 was equal to 0.225% of pre-tax profit for target level performance with respect to three factors: operating profit, free cash flows, and personal goals.  The maximum annual incentive would be 0.28125% of such pre-tax profit.  The same adjustment items apply to this pre-tax profit as described earlier under the heading “Compensation Discussion and Analysis.”
 
Under the pre-set terms of the performance goals, actual performance resulted in achievement at a rate of 30.0%, so that, as a preliminary calculation, the annual incentive award was potentially earned at a rate of 0.0675% of the specified pre-tax profit, which figure was used to determine the final 2009 annual incentive award payable to Mr. Kapelus.  The total award in fiscal 2009 was $62,286 which represented a reduction of 86.2% as compared to the amount awarded in fiscal 2008 of $450,000.
 
 
29

 
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END – FISCAL 2009

   
Option Awards Outstanding as of July 31, 2009
Name
 
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable (1)
   
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable (1)
 
Grant
Date (1)
 
Option
Exercise
Price
 
Option
Expiration
Date
                       
Fred Kornberg
    -       80,000  
6/2/2009
    $29.61  
6/2/2014
      -       80,000  
8/5/2008
    46.69  
8/5/2013
      25,000       75,000  
8/7/2007
    42.47  
8/7/2012
      30,000       60,000  
8/1/2006
    26.90  
8/1/2011
      105,000       -  
8/2/2005
    35.90  
8/2/2010
      -       31,500  
8/2/2004
    13.19  
8/2/2014
                             
Michael D. Porcelain
    -       35,000  
6/2/2009
    29.61  
6/2/2014
      -       35,000  
8/5/2008
    46.69  
8/5/2013
      8,750       26,250  
8/7/2007
    42.47  
8/7/2012
      12,500       12,500  
8/1/2006
    26.90  
8/1/2011
      21,000       -  
8/2/2005
    35.90  
8/2/2010
      11,913       5,175  
8/2/2004
    13.19  
8/2/2014
      9,000       -  
8/4/2003
    11.67  
8/4/2013
                             
Robert L. McCollum
    -       10,000  
6/2/2009
    29.61  
6/2/2014
      -       20,000  
8/5/2008
    46.69  
8/5/2013
      1,250       3,750  
8/7/2007
    42.47  
8/7/2012
      7,500       7,500  
8/1/2006
    26.90  
8/1/2011
      15,000       -  
8/2/2005
    35.90  
8/2/2010
      24,000       12,000  
8/2/2004
    13.19  
8/2/2014
      22,500       -  
8/4/2003
    11.67  
8/4/2013
      9,000       -  
8/6/2002
    3.58  
8/6/2012
                             
Daniel S. Wood
    -       20,000  
6/2/2009
    29.61  
6/2/2014
      -       20,000  
8/5/2008
    46.69  
8/5/2013
      6,250       18,750  
8/7/2007
    42.47  
8/7/2012
      14,000       14,000  
8/1/2006
    26.90  
8/1/2011
      30,000       -  
8/2/2005
    35.90  
8/2/2010
      4,000       1,500  
3/8/2005
    24.25  
3/8/2015
      9,000       4,500  
10/18/2004
    18.32  
10/18/2014
                             
Jerome Kapelus
    -       20,000  
6/2/2009
    29.61  
6/2/2014
      -       25,000  
8/5/2008
    46.69  
8/5/2013
      8,750       26,250  
8/7/2007
    42.47  
8/7/2012
      1,500       1,500  
8/1/2006
    26.90  
8/1/2011
      40,000       -  
2/21/2006
    30.30  
2/21/2011
                             
 
(1)  
Each option granted since August 1, 2005 vests as to 25% of the underlying shares on each of the first and second anniversaries of the grant date, and as to the remaining 50% of the underlying shares on the third anniversary of the grant date.  Each option granted prior to August 1, 2005 vests as to 20% of the underlying shares on each of the first five anniversaries of the grant date.  The options granted are subject to accelerated vesting in the event of a change-in-control, except in limited circumstances.
 
 
30

 
 
OPTION EXERCISES – FISCAL 2009
 

   
Option Awards
Name of Executive Officer
 
Number of Shares
Acquired on Exercise
 
(1)
Value Realized
on Exercise
Fred Kornberg
    159,568     $ 4,149,539  
Michael D. Porcelain
    8,642       274,185  
Robert L. McCollum
    -       -  
Daniel S. Wood
    -       -  
Jerome Kapelus
     -        -  


(1)  
Amounts reflect the difference between the exercise price of the options and the market value of the shares acquired upon exercise.  Market value is based on the actual selling price of shares sold by the NEO on the date of exercise or, if no shares were sold that day, on the closing price on the NASDAQ Global Select Market.


 
POTENTIAL TERMINATION AND CHANGE-IN-CONTROL PAYMENTS
 

Severance protection is provided to our CEO under the terms of his employment agreement, and is provided to the other NEOs under change-in-control agreements.  These protections are intended to be fair and competitive, to aid in attracting and retaining experienced executives.
 
In September 2008, we amended and restated our CEO’s employment agreement and the change-in-control agreements with Messrs. Porcelain, McCollum, Wood and Kapelus primarily to enhance their protection in the event of termination by us without cause or by them for good reason in the two years following a change-in-control.  We took these steps for several reasons.  In August 2008, Comtech acquired a publicly held company, and in doing so, we evaluated our existing terms for our executives in the event of essentially involuntary terminations following a change-in-control.  Our ECC sought the advice of its consultant, Steven Hall & Partners, regarding current practices with regard to change-in-control protections.  Our consultant provided us with information on these terms based on a review of eight peer companies engaged in technology businesses reasonably similar to our business: Arris Group, Inc., Axsys Technologies, Inc., CPI International, Inc., DRS Technologies, Inc., Kemet Corp., Powerwave Technologies, Inc., Rogers Corp., and Teledyne Technologies, Inc.  In addition, our consultant also provided information to us based on published surveys of change-in-control and termination practices of U.S. companies.  We concluded that our existing change-in-control policies were less favorable than other companies who compete with us for executive talent.
 
Based on our review, we made a number of changes to the terms protecting our CEO and the other NEOs (as well as certain other executives) with a view to setting terms that generally align with market practices.  Some terms of the new agreements fall short of market practices identified by our consultant.  For example, no post-termination health care (except for our CEO), outplacement services, or other perquisites are provided.  In addition, our ECC included terms that would potentially delay a termination by executives other than our CEO for Good Reason due to a change in job duties for one year after the change-in-control.  This term, which is more restrictive than under the earlier agreements, is intended to enable an acquirer, under certain limited circumstances, if it wishes to do so, to potentially retain the management team for a period of time after the change-in-control.  Our ECC set the severance payment level at 2.5 times the sum of salary and annual incentive, which is within the range of 2.0 to 2.5 times determined by our consultant to represent market practice.  Also, for our CEO, we extended the period following a termination during which he could elect to terminate employment and receive severance payments, to permit an acquirer to negotiate a longer post-termination service period if it should wish to retain our CEO.  Our ECC approved these actions in order to promote retention of management during negotiation of a change-in-control, to possibly enhance the value received by our stockholders upon a sale of Comtech from an acquirer that wishes to retain the management team, and to put management in a position to work for the success of any change-in-control transaction determined by the Board of Directors to be in the best interests of our stockholders.
 
31

 
Mr. Kornberg’s amended and restated employment agreement resulted in certain changes effective for fiscal 2009, a summary of which is as follows:

·  
In the event of termination of the agreement by us before a change-in-control, liquidated damages payable to Mr. Kornberg would include salary payable through the end of the term of the agreement.

·  
The period following a change-in-control during which Mr. Kornberg may elect to terminate his employment and receive a lump sum payment from the Company is two years.

·  
The lump sum severance payment payable upon a termination by Mr. Kornberg of his employment during the two years following a change-in-control would equal 2.5 times the sum of his (i) base salary then in effect plus (ii) average incentive compensation under his employment agreement and annual incentive awards under the 2000 Stock Incentive Plan actually paid or payable for performance in the three fiscal years preceding the year in which the change-in-control occurs.

·  
In the event that the amounts payable to Mr. Kornberg in connection with a change-in-control and his termination thereafter are subject to the golden parachute excise tax, we will make a “gross-up” payment to him such that the after-tax value retained by Mr. Kornberg after deduction of the excise tax and excise and income taxes on this additional payment, will be equal to an amount he would have retained if no excise tax had been imposed.

Messrs. Porcelain, McCollum, Wood and Kapelus’ amended and restated change-in-control agreements resulted in changes, effective for fiscal 2009, a summary of which is as follows:

·  
The term of the agreements is extended to July 31, 2010, subject to continuation of the term to a date that is twenty-four months after the occurrence of a change-in-control.

·  
The amount of severance payable upon a qualifying termination will be 2.5 times the sum of (i) the executive’s annual base salary and (ii) the amount equal to the executive’s average annual non-equity incentive award or bonus actually paid or payable for performance in the three fiscal years preceding the year of termination. A qualifying termination means a termination by us not for cause or a termination by the executive for good reason, in either case within 24 months after a change-in-control or at the direction of the acquiror within 90 days before a change-in-control.

·  
The executive’s right to terminate his employment for good reason will be delayed during the first year after a change-in-control due to the assignment to him of any duties inconsistent in any material adverse respect with his position, authority or responsibilities immediately prior to the change-in-control, if (i) Fred Kornberg continues to serve as the most senior executive officer relating to our businesses, and if (ii) the change in the executive’s position or duties that otherwise would constitute good reason results from the assignments to an executive-level position, with an executive title, and with full-time substantive duties and responsibilities of a nature similar to his prior duties and responsibilities, and with the executive either reporting to Mr. Kornberg in his capacity as the senior officer or reporting to the officer to whom the executive was reporting at the time of the change-in-control, which officer himself or herself reports to Mr. Kornberg.

·  
With respect to the executive’s annual incentive award for the fiscal year in progress at the date of his qualifying termination and his annual incentive award for any previously completed year for which a final annual incentive award has not yet been determined, vesting of any award based on pre-set performance goals based on the level of actual achievement of such performance goals through the earlier of the end of the performance period or the date of termination, and vesting of any discretionary award as of the date of termination based on a level consistent with the level of annual incentives (as a percentage of base salary) of other executives of comparable rank whose annual incentives are based on pre-set performance goals, but in an amount not less than the pro rata amount of the executive’s average prior years’ annual incentive amount referred to above.
 
 
32

 

·  
For a period of up to one year following the 24-month protected period after the change-in-control, termination of the executive’s employment by us not for cause or by the executive for good reason would entitle him to receive a severance benefit of 1.5 times the sum of his base salary and his average compensation plus annual incentive awards under the 2000 Stock Incentive Plan actually paid or payable for performance in the three fiscal years preceding the year in which the change-in-control occurs.

·  
The definition of “good reason” is modified so that good reason will arise if there occurs a material reduction in the executive’s annual incentive award actually paid below 80% of the annual incentive actually paid for the year before a change-in-control or a material reduction in the value of his annual equity awards.

·  
In the event that the amounts payable to the executive in connection with a change-in-control and his termination thereafter are subject to the golden parachute excise tax, we will make a “gross-up” payment to him such that the after-tax value retained by the executive, after deduction of the excise tax and excise and income tax on those additional payments, will equal the after-tax amount he would have retained if no excise tax had been imposed.

In addition to the changes described above for all of our NEO’s, we made changes to their respective agreements intended to clarify the provisions and respond to changes in accounting and tax rules, particularly to meet the requirements of Section 409A of the Internal  Revenue Code regulating post-termination payments.
 
The table on the following page summarizes the additional compensation that each of our NEOs would receive in the event of a termination or change-in-control as of July 31, 2009.  The table takes into consideration the circumstances of the event and the additional payments that each executive would be entitled to under the agreements described above and the 2000 Stock Incentive Plan.  The estimates on the following page do not include vested payments that are disclosed in the "Outstanding Equity Awards at Fiscal Year End—Fiscal 2009" table.  Benefits that are generally available to all salaried employees and are nondiscriminatory are excluded from these estimates.   The table provides estimates of payments assuming the specified events occurred on July 31, 2009.
 
None of the payments have actually been made to any of the executives.  The actual payments and benefits that will be made to each executive under each circumstance can only be known once an actual termination or change-in-control event occurs.
 
 
33

 

Incremental Value of Payments and Benefits Upon Change-in Control and Various Types of Terminations

 
Termination Scenario (As of July 31, 2009)
 
Mr.
Kornberg
   
Mr.
Porcelain
   
Mr.
McCollum
   
Mr.
Wood
   
Mr.
Kapelus
 
                           
Events Not Within Specified Period After a Change-in-control:
                         
                               
Termination by Us Without Cause
                             
Severance Payable
  $ 1,390,000       -       -       -       -  
Health and Life Insurance Continuation (2)
    53,050       -       -       -       -  
                                         
Events Within Specified Period of a Change-in-control:
                                         
Change-in-control – Assuming no Termination
Stock Option Vesting (1)
  $ 1,067,420     237,894     284,035     187,185     52,655  
                                         
Termination Without Cause or by Voluntary Resignation
Severance Payable
  $ 10,361,134       -       -       -       -  
Health and Life Insurance Continuation (2)
    53,400       -       -       -       -  
Non-equity Incentive Plan Award Payable (3)
    2,853,866       -       -       -       -  
Tax Gross-Up (3)
    -       -       -       -       -  
                                         
Termination Without Cause or Resignation for Good Reason
Severance Payable
    -     1,879,167     3,062,500     2,047,850     1,619,167  
Non-equity Incentive Plan Award Payable (3)
    -       444,073       1,522,825       537,280       259,523  
Tax Gross-Up (3)
    -       -       -       888,927       676,769  
                                         

(1)  
These amounts represent the aggregate in-the-money value of options as of July 31, 2009 which would become vested as a direct result of the termination event or change-in-control before the option’s stated vesting date.  This calculation of value does not attribute any additional value to options based on their remaining term and does not discount the value of awards based on the portion of the vesting period elapsed at the date of the termination event or change-in-control.  Market value and in-the-money value are based on the closing price of our common stock, $31.87, on July 31, 2009.

(2)  
Health benefits and life insurance continuation amounts are a good faith estimate based on the current plan in which executive officer is enrolled and will vary in amount for a given executive officer based on the actual plan and actual costs following termination of employment. Effective May 1, 2009, Mr. Kornberg voluntarily elected to discontinue participation in the Company’s medical insurance program and enroll in a non-Company sponsored healthcare plan, for which the Company will provide Mr. Kornberg a taxable monthly medical allowance of $1,250.

(3)  
The non-equity incentive plan awards represent the amount that would have been payable without the use of the ECC’s negative discretion. The tax gross-up amounts represent good-faith estimates.  The actual amounts for any NEO will be based on the actual amounts payable upon termination of employment and in-the-money values of options upon occurrence of a change-in-control.

 
34

 
 
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
 

The following table sets forth information as of July 31, 2009 regarding our compensation plans and the Common Stock we may issue under the plans.

Plan Category
 
Number of Securities
to be issued upon
exercise of
outstanding options,
warrants and rights
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
   
Number of securities
remaining available
for future issuance
under equity
compensation plans
 
 
Equity compensation plans approved by stockholders
    3,065,245     $ 33.26       849,687 (1)
                         
Equity compensation plans not approved by stockholders
    -       -       -  
                         
Total
    3,065,245     $ 33.26       849,687  

(1)  
Includes 343,298 shares available for issuance under the Comtech Telecommunications Corp. Employee Stock Purchase Plan.  That plan permits employees to purchase shares at a discount from fair market value of up to 15% of the market price of our Common Stock at the beginning or end of each calendar quarter.  506,389 shares remained available for issuance under the 2000 Stock Incentive Plan for either stock options, stock appreciation rights (which constitute options, warrants or rights for purposes of this table), restricted stock, share units, and other full-value awards.
 
 
35

 

DIRECTOR COMPENSATION TABLE FOR FISCAL 2009

Name (1)
 
Fees Earned or Paid
in Cash
   
Option Awards
(2)
   
All Other Compensation
   
Total
 
Richard L. Goldberg
  $ 40,000     $ 172,556       -     $ 212,556  
Edwin Kantor
    40,000       172,556       -       212,556  
Ira Kaplan
    45,000       172,556       -       217,556  
Gerard R. Nocita
    52,500       172,556       -       225,056  
Robert G. Paul
    40,000       87,444       -       127,444  

(1)  
Fred Kornberg, our Chairman of the Board of Directors, President and Chief Executive Officer, is not included in this table because he receives no separate compensation for his services as a Director.  His compensation is shown in the “Summary Compensation” table and related compensation tables above.

(2)  
The amounts in this column reflect the amount of expense we recognized for financial statement reporting purposes for fiscal 2009, in accordance with SFAS 123(R), for non-employee directors’ stock options, without regard to estimated forfeitures of such options.  For the non-employee directors, the amount includes expense from options granted in fiscal 2007 and 2008 which remained unvested at any time in fiscal 2009, as well as the options granted during fiscal 2009.  Assumptions used in the calculation of these amounts were the same as those stock options granted to employees, as discussed in footnote (1) to the “Summary Compensation” table.  As of July 31, 2009, the non-employee directors held the following number of outstanding options:  Mr. Goldberg: 71,250; Mr. Kantor: 72,625; Mr. Kaplan: 62,500; Mr. Nocita: 66,250; and Mr. Paul: 29,500.  On August 1, 2008, each non-employee director then serving received an annual grant (relating to fiscal 2009) of options to purchase 12,500 shares of our Common Stock at $48.89 per share; each of these grants had an aggregate fair value, measured in accordance with SFAS 123(R), of $188,875.  On June 2, 2009, each non-employee director then serving received an annual grant  (relating to fiscal 2010) of options to purchase 12,500 shares of our Common Stock at $29.61 per share; each of these grants had an aggregate fair value, measured in accordance with SFAS 123(R), of $108,779.

In fiscal 2009, each of our directors who is not an employee of our Company received an annual retainer of $40,000.  In addition, the Chairman of the Audit Committee received an additional annual retainer of $12,500 and our Chairman of the Executive Compensation Committee received an additional annual retainer of $5,000.  Under our policy then in effect for equity grants under our 2000 Stock Incentive Plan, we granted to each director, who is not an employee, an option to purchase: (i) 4,500 shares of Common Stock as of the date the director begins service on the Board of Directors and (ii) 12,500 shares of Common Stock on an annual basis. The exercise price of all such options is equal to the stock’s fair market value on the date of grant.  The options expire five years after the date of grant, and become exercisable as to 25% of the underlying shares on the first and second anniversaries of the date of grant and as to the remaining 50% of the underlying shares on the third anniversary of the date of grant, subject to accelerated vesting upon death of the director or a change-in-control. See additional information under the heading “Non-Employee Director Stock Option Grants” on page 50.
 
For fiscal 2010, each of our directors who is not an employee of our Company will receive an annual retainer of $40,000.  Our Chairman of the Audit Committee will also receive an additional annual retainer of $12,500 and our Chairman of the Executive Compensation Committee will receive and additional annual retainer of $5,000.
 
On June 2, 2009, the Board of Directors approved an amendment to our 2000 Stock Incentive Plan which changed the date on which non-employee directors of the Company received their annual stock option grant from August 1 of the current fiscal year to June 2 of the prior fiscal year.  This change was made in conjunction with our change in the timing of fiscal 2010 annual equity grants to employees, which is described above under the heading “Compensation Discussion & Analysis -- Equity Award Grant Practices.” Accordingly, during fiscal 2009, grants of options to non-employee directors occurred on August 1, 2008 and on June 2, 2009.

 
36

 
 
EXECUTIVE COMPENSATION COMMITTEE REPORT
 

Our Executive Compensation Committee has furnished the following report.  The information contained in the “Executive Compensation Committee Report” is not to be deemed to be “soliciting material” or to be “filed” with the SEC, nor is such information to be incorporated by reference into any future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference into such filings.

Our Executive Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-K of the Securities and Exchange Act of 1933 with management.

Based on such review and discussions, our Executive Compensation Committee recommended to our Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement and in our Annual Report on Form 10-K for the fiscal year ended July 31, 2009 for filing with the SEC.


Executive Compensation Committee

Ira Kaplan, Chairman
Edwin Kantor
Gerard R. Nocita

 
37

 
 
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 

During fiscal 2009, Messrs. Kaplan, Kantor and Nocita served as members of our Executive Compensation Committee.  No member of our Executive Compensation Committee is or was, during fiscal year 2009, an employee or an officer of Comtech or its subsidiaries.  No executive officer of Comtech served as a director or a member of the compensation committee of another company.


 
38

 
 
AUDIT COMMITTEE REPORT
 

Our Audit Committee has furnished the following report.

The information contained in the “Audit Committee Report” is not to be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor is such information to be incorporated by reference into any future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference into such filings.

The Audit Committee reviews Comtech’s financial reporting process on behalf of the Board of Directors.  Management is responsible for the financial statements and the reporting process, including the system of internal controls.  KPMG LLP (“KPMG”), Comtech’s independent registered public accounting firm, is responsible for expressing an opinion on the conformity of the audited financial statements with accounting principles generally accepted in the United States of America.

In fulfilling its responsibilities:

·  
The Audit Committee reviewed and discussed the audited financial statements contained in the 2009 Annual Report on SEC Form 10-K with Comtech’s management and with KPMG.

·  
The Audit Committee discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees).

·  
The Audit Committee received from KPMG written disclosures regarding the auditors’ independence, as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and discussed with KPMG its independence from Comtech and its management.

In reliance on the reviews and discussion noted above, the Audit Committee recommended to the Board of Directors (and the Board of Directors has approved) that the audited financial statements be included in Comtech’s Annual Report on SEC Form 10-K for the year ended July 31, 2009, for filing with the Securities and Exchange Commission.


Audit Committee

Gerard R, Nocita, Chairman
Edwin Kantor
Ira Kaplan
Robert G. Paul
 
 
39

 
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 

We lease a facility in Melville, New York from a partnership controlled by our CEO.  The lease, as amended, provides for our use of the premises as they now exist for a term of ten years, through December 2011.  We have a right of first refusal in the event of a sale of the facility.  The leased facility comprises 46,000 square feet.  The annual rental under the lease (approximately $603,000 in fiscal 2009) is subject to adjustments.  In addition, we sublease 1,150 square feet of the Melville, New York facility to a company principally owned by the son of our CEO.  The sublease commenced in August 2005 and expires in December 2011.  The annual rental under the sublease of $13,560 is subject to adjustment.

Mr. McCollum’s brother, Richard McCollum, is employed by our Company as a test technician and his aggregate compensation for fiscal 2009 of $59,326 was comparable with other Comtech employees in similar positions.

As of November 2009, the son of Mr. McCollum, Jason McCollum, is employed by our Company as a software engineer and his base salary of $88,000 is comparable with other Comtech employees in similar positions.

The son of Richard L. Burt, Brian Burt, is employed by our Company as a marketing manager and his aggregate compensation for fiscal 2009 of $84,603 was comparable with other Comtech employees in similar positions.  Richard L. Burt is a Senior Vice President and President of Comtech Systems, Inc.

Richard L. Goldberg, a director, is a Partner in the law firm of Proskauer Rose LLP.  Mr. Goldberg performed no legal services in his capacity as a lawyer to the Company.  However, other lawyers who are employed by or are partners in Proskauer Rose LLP render legal services to our Company.  During fiscal 2009, we paid an aggregate of $1,908,364 in fees to that law firm and expect fees at a comparable level in fiscal 2010.


 
VOTING OF PROXIES AND OTHER MATTERS
 

The Board of Directors does not know of any other matters to be presented at the annual meeting.  If other matters do come before the annual meeting, the persons acting pursuant to the proxy will vote on them in their discretion.

Proxies may be solicited by mail, telephone, telegram, and personally by directors, officers and other employees of Comtech.  The cost of soliciting proxies will be borne by Comtech.  A complete list of stockholders entitled to vote at the annual meeting will be available for inspection beginning November 27, 2009 at the Company’s headquarters located at 68 South Service Road, Suite 230, Melville, New York 11747.

 
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than ten percent of our Common Stock, if any, to file with the Securities and Exchange Commission reports of ownership, and reports of changes in ownership, of our equity securities.  Such persons must furnish copies of all such reports that they file to us.  Based solely on a review of such reports and written representations of our directors and executive officers, we are not aware that any such person failed to timely file such reports.

 
40

 
 
 PROPOSAL NO. 1 – ELECTION OF TWO DIRECTORS
 
 
Our Board of Directors is divided into three classes.  Members of our Board of Directors are elected for three-year terms, with the term of office of one class expiring at each Annual Meeting of Comtech’s stockholders.  Mr. Goldberg and Mr. Paul are in the class whose term of office expires in 2009, Mr. Kornberg and Mr. Kantor are in the class whose term of office expires in 2010 and Mr. Kaplan and Mr. Nocita are in the class whose term of office expires in 2011.

Information concerning the directors being nominated for re-election at the Annual Meeting, the incumbent directors whose terms of office will continue after the Annual Meeting, and our executive officers is set forth below.

Nominees for Election at the Annual Meeting

Name
Principal Occupation
Age
For Term
Expiring In
Served As
Director Since
         
Richard L. Goldberg (3)(4)
Partner, Proskauer Rose LLP, and Independent Business Advisor
73
2012
1983
         
Robert G. Paul (1)(3)
Private Investor
67
2012
2007

 
Incumbent Directors Whose Terms of Office Continue After the Annual Meeting
and Current Executive Officers

Name
Principal Occupation
Age
Term
Expiring In
Served As
Director Since
         
Fred Kornberg (4)
Chairman, Chief Executive Officer and President of Comtech
73
2010
1971
         
Edwin Kantor (1)(2)(4)
Investment Banker, Cantor Fitzgerald & Co.
77
2010
2001
         
Ira Kaplan (1)(2)(3)
Private Investor
73
2011
2002
         
Gerard R. Nocita (1)(2)(3)
Private Investor
73
2011
1993
         
Richard L. Burt
Senior Vice President; President of Comtech Systems, Inc.
68
_
_
         
Jerome Kapelus
Senior Vice President, Strategy and Business Development of Comtech
45
_
_
         
Larry Konopelko
Senior Vice President; President of Comtech PST Corp.
56
_
_
         
Robert L. McCollum
Senior Vice President; President of Comtech EF Data Corp.
60
_
_
         
Frank Otto
Senior Vice President, Operations of Comtech
60
_
_
         
Michael D. Porcelain
Senior Vice President and Chief Financial Officer of Comtech
40
_
_
         
Daniel S. Wood
Senior Vice President; President of Comtech Mobile Datacom Corporation
51
_
_
         

(1)  
Member of Audit Committee
(2)  
Member of Executive Compensation Committee
(3)  
Member of Nominating and Governance Committee
(4)  
Member of Executive Committee
 
 
41

 

Mr. Kornberg has been Chief Executive Officer and President of Comtech since 1976. Prior to that, he was the Executive Vice President of Comtech from 1971 to 1976 and the General Manager of the telecommunications transmission segment.

Mr. Kantor has been a director of Comtech since 2001.  He has been an Investment Banker with Cantor Fitzgerald & Co. since 2009.  Previously, he served as Chairman of BK Financial Services LLP from 2002 to 2009.  He served as Co-Chief Executive Officer of TPB Financial Services and was Co-Chairman and Co-Chief Executive Officer of HCFP/Brenner Securities from 1999 to 2001.  He was Vice Chairman of Barington Capital Group from 1993 to 1999.  Prior to joining Barington, Mr. Kantor spent 37 years in the securities industry with Drexel Burnham Lambert and its predecessor firms, where he held various positions, including serving as the firm's Vice Chairman.

Mr. Paul has been a director of Comtech since March 2007.  He serves on the boards of directors of Rogers Corporation and Kemet Corporation, and previously served on the board of directors of Andrew Corporation from 2003 to 2005.  He was the Group President, Base Station Subsystems, for Andrew Corporation from 2003 to 2004.  Mr. Paul was the President and Chief Executive Officer of Allen Telecom Inc. from 1989 to 2003.  He also served in various other capacities at Allen Telecom, which he joined in 1970, including Chief Financial Officer and President of the Antenna Specialists Division.

Mr. Goldberg has been a director of Comtech since 1983.  He has been a partner since 1990 in the law firm of Proskauer Rose LLP, which renders legal services to Comtech.  Prior to 1990, Mr. Goldberg was a partner since 1966 in the firm Botein Hays & Sklar.  Since November 2004, Mr. Goldberg has also been an independent business advisor.

Mr. Kaplan has been a director of Comtech since 2002.  He is a private investor.  Prior to his retirement in 2001, Mr. Kaplan held several executive positions at EDO Corporation for over 40 years, most recently as Executive Vice President and Chief Operating Officer from 2000 to 2001.  EDO Corporation is a supplier of military and commercial products and services.

Mr. Nocita has been a director of Comtech since 1993.  He is a private investor. He was Treasurer of the Incorporated Village of Patchogue from 1993 to 1996.  He was affiliated with Comtech from its inception in 1967 until 1993.

Mr. Kapelus has been Senior Vice President, Strategy and Business Development, since he joined Comtech in February 2006.  From 2000 until he joined the Company, Mr. Kapelus was a Managing Director in the Investment Banking Group at Bear Stearns & Company, where his clients included companies in the telecommunications equipment sector.  Prior to joining Bear Stearns & Company, Mr. Kapelus worked at firms that included Jeffries & Co. and The Bank of New York, where he provided investment banking and commercial banking services to various industries including communications service providers.

Mr. Konopelko has been Senior Vice President of Comtech since December 2006 and has been President of Comtech PST Corp. since June 2002.  He joined Comtech PST as Vice President and General Manager in July 2001.  Prior to joining Comtech PST, he was General Manager at MPD Technologies, Inc. from 1995 to 2001.

Mr. McCollum has been Senior Vice President of Comtech since 2000 and had been a Vice President since 1996.  He founded Comtech Communications Corp. in 1994 and had been its President since its formation.  In July 2000, Comtech combined Comtech Communications Corp. with Comtech EF Data Corp., and appointed Mr. McCollum President of the combined entities.

Mr. Otto has been Senior Vice President, Operations of Comtech since April 2008.  Prior to joining Comtech, Mr. Otto was employed by EDO Corporation where he served in various capacities since 1979.  His most recent position at EDO Corporation was Senior Vice President, Strategic Development which he held since March 2005.  From February 2004 through March 2005, Mr. Otto was Chief Operating Officer and from September 2002 through February 2004, Mr. Otto was Executive Vice President.

Mr. Porcelain has been Senior Vice President of Comtech and Chief Financial Officer since March 2006 and was previously Vice President of Finance and Internal Audit of Comtech from 2002 to March 2006.  Prior to joining Comtech, Mr. Porcelain was Director of Corporate Profit and Business Planning for Symbol Technologies, a mobile wireless information solutions company, where he was employed from 1998 to 2002.  Previously, he spent five years in public accounting holding various positions, including Manager in the Transaction Advisory Services Group of PricewaterhouseCoopers.
 
42


Mr. Wood has been Senior Vice President of Comtech since December 2006 and President of Comtech Mobile Datacom Corporation since April 2005.  He was hired in October 2004 and served as Executive Vice President of Operations of Comtech Mobile Datacom Corporation until his promotion to President.  Previously, Mr. Wood was employed at EDO Corporation for 15 years, where he held senior management positions, including Group Director, Finance, for EDO’s Systems and Analysis Group, and Director Contracts and Finance, for EDO’s Combat Systems Division.


Our Board of Directors recommends a vote FOR the reelection of Richard L. Goldberg and Robert G. Paul to our Board of Directors.


 
43

 
 
 PROPOSAL NO. 2 – RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
Our Board of Directors has selected KPMG LLP (“KPMG”) as our independent registered public accounting firm for the 2010 fiscal year, subject to ratification by our stockholders.  If our stockholders do not ratify such selection, it will be reconsidered by our Board of Directors.  Even if the selection is ratified, our Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if our Audit Committee determines that such a change would be in our stockholders’ best interests.  Representatives of KPMG are expected to be present at the Annual Meeting of Stockholders, with the opportunity to make a statement, should they so desire, and to be available to respond to appropriate questions.

Principal Accountant Fees and Services

The following is a summary of the fees billed to us for the fiscal year ended July 31, 2008 and fees billed to or payable by us for the fiscal year ended July 31, 2009 by KPMG for professional services rendered:

Fee Category
 
Fiscal 2009 Fees
   
Fiscal 2008 Fees
 
                 
Audit fees (1)
  $ 1,068,000     $ 636,000  
Audit-related fees (2)
    63,000       30,000  
Tax fees (3)
    134,000       100,000  
All other fees (4)
    187,000       438,000  
Total Fees
  $ 1,452,000     $ 1,204,000  
                 

     
(1)  
Audit fees consists of fees for assurance and related services that are reasonably related to the performance of the audit of our annual financial statements and review of the interim financial statements included in quarterly reports or services that are normally provided in connection with statutory and regulatory filings or engagements.  Audit fees include fees related to the audit of our report on internal control over financial reporting.  Our fiscal 2009 audit fees include fees relating to the audit of the opening balance sheet of Radyne Corporation which was acquired on August 1, 2008.  Our audit fees in fiscal 2008 reflect savings resulting from our Audit Committee’s decision to seek competitive proposals from other independent registered public accounting firms and their ultimate decision to retain KPMG.

(2)  
Audit-related fees consists of fees for assurance and related services that are reasonably related to the audit of our annual financial statements that are not reported under Audit Fees, including statutory audits of certain foreign subsidiaries and the audit of our 401(k) plan.

(3)  
Tax fees consists of fees billed for professional services regarding federal, state and international tax compliance, tax advice and tax planning.

(4)  
All other fees for fiscal 2009 includes, among other items, fees for a consent relating to the May 2009 issuance of $200.0 million of our 3.0% convertible senior notes. All other fees for fiscal 2008 consist of fees for due diligence services relating to our acquisition of Radyne Corporation.

Pre-Approval Policies

Our Audit Committee reviews each service on a case-by-case basis before approving the engagement of KPMG for all audit or permissible non-audit services.

Consideration of Non-Audit Services Provided by the Independent Registered Public Accounting Firm

Our Audit Committee has concluded that the non-audit services provided by KPMG are compatible with maintaining the independent registered public accounting firm’s independence.

Our Board of Directors recommends a vote FOR the ratification of the selection of
KPMG as our independent registered public accounting firm.
 
44

 
PROPOSAL NO. 3 – APPROVAL OF AMENDMENTS TO OUR 2000 STOCK INCENTIVE PLAN

Proposed Plan Amendment

At the Annual Meeting, stockholders will be asked to approve an amendment to our 2000 Stock Incentive Plan (the "2000 Plan").  Our stockholders approved the 2000 Plan and amendments at our Annual Meetings in 1999, 2006 and 2007.  The Board of Directors approved the amendment of the 2000 Plan to be voted on by stockholders at the Board  of Director’s meeting on September 22, 2009 to: (i) increase the number of shares as described below and under the caption – “Description of the 2000 Plan as Proposed to be Amended – Available Shares and Per Person Limits”; (ii) change the individual participant limits for performance unit awards as described under the caption – “Description of the 2000 Plan as Proposed to be Amended – Available Shares and Individual Participant Limits”; (iii) to extend the term of the 2000 Plan as described below; and (iv) reapprove the material terms of performance criteria under the Plan.

If our stockholders approve the amendment to the 2000 Plan, the number of shares reserved under the 2000 Plan will increase by 2,375,000 shares (approximately 8.4% of the shares of our Common Stock outstanding on October 12, 2009).  These additional shares will be available for any type of equity award under the 2000 Plan.  The amendment also will extend the life of the 2000 Plan for ten years; as currently in effect, the authority to grant further awards under the 2000 Plan expired on October 19, 2009.  In addition, the amendment modifies other provisions of the 2000 Plan to make performance units a more flexible type of award that may be used under the 2000 Plan and to maximize the tax-efficiency of some types of awards under the 2000 Plan.

The 2000 Plan helps us in a number of ways:

•  
To attract, retain, motivate and reward employees and non-employee directors
•  
To strengthen the mutuality of interests between our employees and directors and our stockholders
•  
Providing a means for qualifying awards under tax provisions so that performance-based compensation will be fully tax deductible by Comtech.

The Board of Directors and the ECC intend to continue to use awards linked to common stock and cash-based incentive awards to provide incentives for the achievement of important operational and/or financial performance objectives and to promote our long-term success.  In particular, we believe that in a competitive environment for qualified executive, technical, sales, marketing and other personnel, our ability to make equity-based awards will continue to be a key factor in the recruitment and retention of such personnel.  Therefore, we view the 2000 Plan as vital to our overall compensation program.

Information on the total number of shares available under our 2000 Plan (our only equity compensation plan with any awards outstanding or available for grant) and unissued shares deliverable under outstanding stock options and SARs as of July 31, 2009 is presented at page 34 under the heading “Securities Authorized for Issuance Under Equity Compensation Plans.”  Based on our equity award plans in effect and outstanding awards at October 12, 2009, if stockholders approve the amendment to the 2000 Plan, the total number of shares subject to outstanding awards and available for future awards under the 2000 Plan (our only continuing equity compensation plan) would be as follows:

       
Shares subject to outstanding awards
  
 3,003,820
 
Shares to be available for future equity awards (518,539 shares currently available and 2,375,000 proposed new shares)
  
2,893,539
 
 
  
   
Total shares
  
5,897,359
 
 
  
   
Percentage of outstanding shares*
  
 20.9
%

*
Outstanding shares (the denominator in this calculation) includes all Common Stock outstanding at October 12, 2009 and does not include issuance of unissued shares reserved for outstanding or future awards under the existing 2000 Plan share reservation and the proposed amendment to the 2000 Plan or shares that may be issued upon conversion of our $200.0 million 3.0% Convertible Senior Notes.
 
45

 
As of October 12, 2009, the weighted average exercise price and weighted average remaining contractual term of all outstanding awards was $33.50 and 3.04 years, respectively.  There were no full-value awards outstanding at October 12, 2009.
 
Reapproval of the Material Terms of Performance Criteria
 
As described in more detail below under the caption Reasons for Stockholder Approval, we are seeking stockholder reapproval of the materials terms of performance criteria to which grants of plan awards may be subject, to enable the ECC to structure certain awards under the 2000 Plan so that compensation paid in respect of such awards will qualify as "qualified performance based compensation" within the meaning of 162(m) of the Internal Revenue Code and the Treasury Regulations thereunder.
 
Overview of 2000 Plan Awards

The 2000 Plan authorizes a broad range of awards, including:

·  
stock options;
·  
stock appreciation rights ("SARs");
·  
restricted stock, a grant of actual shares subject to a risk of forfeiture and restrictions on transfer;
·  
performance units;
·  
other stock-based awards, which may include share units and deferred shares;
·  
performance shares or other stock-based performance awards; these are in effect deferred stock or restricted stock awards that may be earned by achieving specific performance objectives; and
·  
cash incentive awards earnable by achievement of specific performance objectives.

Vote Required for Approval

Approval of the amendment of the 2000 Plan and the reapproval of the material terms of the performance criteria under the 2000 Plan will require the affirmative vote of a majority of the shares voted on the proposal at the Meeting in person or by Proxy.

Reasons for Stockholder Approval

We seek approval of the amendment of the 2000 Plan by stockholders in order to meet requirements of the Nasdaq Global Marketplace and to satisfy requirements of tax law to help preserve our ability to claim tax deductions for compensation to executive officers.  In addition, the Board of Directors regards such stockholder approval to be consistent with corporate governance best practices.

Section 162(m) of the Code limits the deductions a publicly held company can claim for compensation in excess of $1 million in a given year paid to the Chief Executive Officer and the three most highly compensated executive officers serving on the last day of the fiscal year (other than our CFO) (these are referred to as the "named executive officers").  “Performance-based” compensation that meets certain requirements is not counted against the $1 million deductibility cap, and therefore remains fully deductible.  We are seeking reapproval of general business criteria upon which performance objectives for performance-based awards are based, described below under the headings — "Description of the 2000 Plan as Proposed To Be AmendedPerformance Goals."  Stockholder reapproval of general business criteria, without specific targeted levels of performance, will permit qualification of incentive awards for full tax deductibility for a period of approximately five years under Section 162(m).  Stockholder approval of the performance goal inherent in stock options and SARs (increases in the market price of stock) is not subject to a time limit under Section 162(m).

In addition, stockholder approval will permit designated stock options to qualify as incentive stock options (“ISOs”) under the Internal Revenue Code.  Such qualification can give the holder of the options more favorable tax treatment, as explained below.
 
 
46

 

Restriction on Repricing

The 2000 Plan includes a restriction providing that, without stockholder approval, we will not amend or replace options or SARs previously granted under the 2000 Plan in a transaction that constitutes a "repricing."  The transactions that would require stockholder approval include amending an outstanding option or SAR to reduce its exercise price, substituting a new option or SAR at a lower exercise price or base price for a surrendered option or SAR, issuing any other type of award or paying cash in exchange for the surrender of an option or SAR at a time that its exercise or base price exceeds the current market price of common stock or if the new award or cash has a value in excess of the then in-the-money value of the surrendered option or SAR.  Adjustments to the exercise price or number of shares subject to an option or SAR and similar adjustments to all types of awards, to reflect the effects of a stock split or other extraordinary corporate transaction, will not require separate stockholder approval, however.

Description of the 2000 Plan as Proposed To Be Amended

The following is a description of the 2000 Stock Incentive Plan, as proposed to be amended. As a summary, it is qualified in its entirety by reference to the 2000 Plan.  A copy of the 2000 Plan, restated to include the proposed amending language, is attached hereto as Exhibit B.

Administration

The 2000 Plan is administered and interpreted by a committee or subcommittee of the Board of Directors appointed from time to time by the Board of Directors (the “Committee”), consisting of two or more non-employee directors, each of whom is intended to be a non-employee director as defined in Rule 16b-3 under the Securities Exchange Act of 1934, and an outside director as defined under Code Section 162(m). Currently, our ECC serves as the Committee for the 2000 Plan.  With respect to stock option grants to non-employee directors, the 2000 Plan is administered by our Board of Directors and all references to the Committee are deemed to refer to our Board of Directors for this purpose.

Subject to the terms and limitations set forth in the 2000 Plan, the Committee has the full authority to administer and interpret the 2000 Plan, to grant discretionary awards under the 2000 Plan, to determine the persons to whom awards will be granted, to determine the types of awards to be granted, to determine the terms and conditions of each award, to determine the number of shares of Common Stock to be covered by each award and to make all other determinations in connection with the 2000 Plan and 2000 Plan awards as the Committee, in its sole discretion, deems necessary or desirable.

The terms and conditions of individual awards are set forth in written agreements which are consistent with the terms of the 2000 Plan. Approval of the amendment would authorize grants of equity awards under the 2000 Plan to be made until October 19, 2019 (such authorization expired on October 19, 2009.) Awards granted prior to the expiration of the 2000 Plan may extend beyond the applicable expiration date. Grants of cash incentive awards and other performance-based awards are authorized until the Annual Meeting of Stockholders in the fifth year following the year in which stockholders have most recently re-approved the performance criteria for such awards.

Eligibility and Types of Awards

All employees and consultants of Comtech and its affiliates (1,607 employees and consultants as of July 31, 2009) including prospective employees and consultants, are eligible to be granted under the 2000 Plan nonqualified stock options, SARs, restricted stock, performance shares, performance units, cash-based incentive awards and other stock-based awards and awards providing benefits similar to those listed above which are designed to meet the requirements of non-U.S. jurisdictions.

In addition, employees of Comtech and its affiliates that qualify as subsidiaries or parent corporations (within the meaning of Section 424 of the Code) are eligible to be granted ISOs under the 2000 Plan. Non-employee directors of Comtech are eligible to receive nondiscretionary grants of nonqualified stock options.
 
 
47

 

Available Shares and Per-Person Limits

As stated above, the proposed amendment would increase the number of shares of Common Stock reserved and available under the 2000 Plan. As amended, the aggregate number of shares of Common Stock which may be issued or used for reference purposes under the 2000 Plan or with respect to which awards may be granted may not exceed 8,962,500 shares of Common Stock.  The effect of the amendment is to increase the current number of shares available by 2,375,000; the aggregate number of shares specified in the 2000 Plan includes shares already issued under awards granted since the inception of the Plan.  If an award expires unexercised or is forfeited, terminated or canceled for any reason, or repurchased by us (this includes a settlement in cash), the number of shares counted against the share limit in respect of the award but not delivered will again be available for awards under the 2000 Plan.  Shares that are withheld by us from an award to pay the exercise price or tax withholding, or separately delivered to us by a participant to pay the exercise price or tax withholding, also will be available for future awards.

The maximum number of shares of Common Stock with respect to which any option, SAR or award of performance units (not treated as a cash incentive award) or performance shares or award of restricted stock for which the grant of such award or lapse of the relevant restriction period is subject to attainment of pre-established performance goals (in accordance with Code Section 162 (m)) which may be granted under the 2000 Plan during any fiscal year to any individual is 225,000 shares per type of award, provided that the maximum number of shares of Common Stock for all types of awards does not exceed 225,000 during any fiscal year (the “162(m) Per-Person Share Limit”).  To the extent that shares of Common Stock for which awards are permitted to be granted to an individual during a fiscal year are not covered by an award in a fiscal year, the number of shares of Common Stock available for awards to such individual will automatically increase in subsequent fiscal years until used.

For awards denominated in cash, including cash incentive awards, the 2000 Plan contains an annual per person limit, as required for compliance with Code Section 162(m). A participant may potentially earn cash incentive awards up to his or her “annual limit” in any fiscal year. The annual limit for each individual is $4.0 million plus the amount of the participant’s unused annual limit as of the close of the previous fiscal year. A participant uses up his or her annual limit in a given year based on the maximum potential amount of the incentive award authorized by the Committee, even if the actual amount earned is less than the maximum.

Under the current terms of the 2000 Plan, performance units, even if payable in cash, are subject to a separate $100,000 annual limit. The proposed amendment would eliminate this limit, providing instead that performance units payable solely in cash will be subject to the limit on cash incentive awards (together with any cash incentives granted) and performance units denominated in cash but payable in either cash or shares will be subject to the limit on share awards unless, in connection with the grant, the Committee specifies that the limit to be applied to the award will be the cash incentive award limit, even if the award is potentially settleable in share units.

The aggregate number of shares of Common Stock available under the 2000 Plan, the maximum number of shares that may be granted (including annual per-person limits on share grants), the number of shares underlying option grants and to which other awards relate, exercise prices, performance conditions tied to share price, and other award terms are subject to appropriate adjustment by the Committee in the event of changes in our capital structure or business by reason of certain corporate transactions or events, including stock splits, spin-offs, extraordinary dividends, and other equity restructurings.

On October 12, 2009, the closing price of our Common Stock in the NASDAQ Stock Market LLC exchange was $31.93 per share.
 
Awards Under the 2000 Plan

Stock Options.  The Committee may grant nonqualified stock options and ISOs to purchase shares of Common Stock. The Committee determines the number of shares of Common Stock subject to each option, the term of each option (up to ten years), the exercise price, the vesting schedule (if any), and the other material terms of each option. No ISO or nonqualified stock option which is intended to be performance based for purposes of Code Section 162(m) may have an exercise price less than the fair market value of the Common Stock at the time of grant. Any option with an exercise price that is less than the fair market value of the Common Stock at the time of grant is intended to be structured to comply with Code Section 409A (relating to deferred compensation).

 
48

 

Options are exercisable at such times and subject to such terms and conditions as determined by the Committee at grant, and the exercisability of such options may be accelerated by the Committee in its sole discretion (except as limited under Section 409A). Payment of an option’s exercise price may be made: (i) in cash or by check, bank draft or money order, (ii) to the extent allowable by law, through a broker-assisted “cashless exercise” procedure, or (iii) on such other terms and conditions as may be acceptable to the Committee, which may include net exercises in which option shares are withheld to satisfy the exercise price.

Stock Appreciation Rights.  The Committee may grant SARs either with a stock option which may be exercised only at such times and to the extent the related option is exercisable (“Tandem SAR”) or independent of a stock option (“Non-Tandem SARs”). An SAR is a right to receive a payment either in cash or common stock, as the Committee may determine, equal in value to the excess of the fair market value of one share of Common Stock on the date of exercise over the exercise price per share established in connection with the grant of the SAR. The exercise price per share covered by an SAR is the exercise price per share of the related option in the case of a Tandem SAR and is the fair market value of the Common Stock on the date of grant in the case of a Non-Tandem SAR.

Restricted Stock.  The Committee may award “restricted” shares of Common Stock. Upon the award of restricted stock, the recipient has all rights of a stockholder with respect to the shares, including the right to receive dividends, the right to vote the shares of restricted stock and, conditioned upon full vesting of shares of restricted stock, the right to tender such shares, subject to the conditions and restrictions generally applicable to restricted stock or specifically set forth in the recipient’s restricted stock agreement. The Committee may determine at grant that the payment of dividends, if any, shall be deferred until the expiration of the applicable restriction period. Recipients of restricted stock are required to enter into a restricted stock agreement with us which states the restrictions to which the shares are subject and the criteria or date or dates on which such restrictions will lapse.

Cash Incentive Awards, Performance Units and Performance Shares.  The Committee may grant performance shares entitling recipients to receive a fixed number of shares of Common Stock or the cash equivalent thereof, as determined by the Committee in its sole discretion, upon the attainment of performance goals established by the Committee during a performance period specified by the Committee. The Committee may grant performance units or cash incentive awards entitling recipients to receive a value payable in cash or, in the case of performance units, a cash amount that will be converted to shares of Common Stock at a specified date, to be settled at that date in shares or at a later date in cash or shares as determined by the Committee.  Cash incentive awards and performance units will be earned only by the attainment of performance goals established by the Committee for a specified performance cycle. The Committee may subject such grants of cash incentive awards, performance units and performance shares to vesting and forfeiture conditions as it deems appropriate.

Other Stock-Based Awards.  The Committee may grant awards of Common Stock and other awards that are valued in whole or in part by reference to, or are payable in or otherwise based on, Common Stock and may be granted either alone or in addition to or in tandem with stock options, stock appreciation rights, restricted stock, performance shares or performance units. Other stock-based awards may include awards in the nature of share units, each representing a right to receive a share of stock at a future date upon satisfaction of vesting and other conditions as may be specified by the Committee.  Other stock-based awards can also include deferred shares that are granted in lieu of cash incentive awards.