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 Underss.240.14a-12
FREQUENCY ELECTRONICS, INC.
---------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[X] 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:
_____________________________________________________________________________
[LOGO OF FREQUENCY ELECTRONICS]
FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
September 30, 2004
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Frequency
Electronics, Inc. will be held at the offices of the Company, 55 Charles
Lindbergh Boulevard, Mitchel Field, New York, 11553, on the 30th day of
September 2004, at 10:00 A.M., Eastern Daylight Savings Time, for the following
purposes:
1. To elect five (5) directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been elected and
shall have qualified; and
2. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record as of the close of business on August 27, 2004,
the date fixed by the Board of Directors as the record date for the meeting, are
entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors
/s/ Harry Newman
HARRY NEWMAN
Secretary
Mitchel Field, New York
August 27, 2004
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. YOUR VOTE
IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE TO ENSURE
THAT YOUR SHARES WILL BE REPRESENTED. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU
ATTEND THE MEETING.
FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
September 30, 2004
The accompanying Proxy is solicited by and on behalf of the Board of
Directors (the "Board") of Frequency Electronics, Inc., a Delaware corporation
(hereinafter called the "Company"), for use only at the Annual Meeting of
Stockholders to be held at the office of the Company, 55 Charles Lindbergh
Boulevard, Mitchel Field, New York 11553, on the 30th day of September 2004, at
10:00 A.M., Eastern Daylight Savings Time, or any adjournment or adjournments
thereof. The Company will mail this Proxy Statement and the accompanying Proxy
on or about August 27, 2004. Only stockholders of record as of the close of
business on August 27, 2004 are entitled to notice of, and to vote at, the
meeting.
The Board may use the services of the Company's directors, officers and
other regular employees to solicit proxies personally or by telephone and may
request brokers, fiduciaries, custodians and nominees to send proxies, proxy
statements and other material to their principals and reimburse them for their
out-of-pocket expenses in so doing. The cost of solicitation of proxies, which
it is estimated will not exceed $7,500, will be borne by the Company. Each proxy
executed and returned by a stockholder may be revoked at any time thereafter by
filing a later dated proxy or by appearing at the meeting and voting in person,
except as to any matter or matters upon which, prior to such revocation, a vote
shall have been cast pursuant to the authority conferred by such proxy.
Attendance at the meeting will not, in itself, constitute revocation of a proxy.
Dissenters are not entitled by law to appraisal rights.
VOTING SECURITIES
The Board has fixed the close of business on August 27, 2004, as the
record date for determination of stockholders entitled to notice of, and to vote
at, the meeting. On August 27, 2004, the Company had outstanding 8,440,832
shares of common stock, $1.00 par value per share ("Common Stock") (excluding
723,107 treasury shares), each of which entitled the holder to one vote. No
shares of preferred stock were outstanding as of such date. A quorum of
stockholders, present in person or by proxy, is constituted by a majority of the
outstanding shares.
A stockholder who abstains from voting on any or all proposals will be
included in the number of stockholders present at the meeting for the purpose of
determining the presence of a quorum. Broker non-votes also will be counted for
the purpose of determining the presence of a quorum.
Brokers who do not receive a stockholder's instructions are entitled to
vote on the election of directors. Broker non-votes and stockholder abstentions
will have no effect on the outcome of the election of directors.
It is expected that the following business will be considered at the
meeting and action taken thereon.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the annual meeting, stockholders will be asked to elect five (5)
directors ("Director(s)") to the Board to hold office until the next annual
meeting of stockholders and until their respective successors are elected and
qualified. Cumulative voting is not permitted. The accompanying Proxy will be
voted for the election of all five of the members of the Board, each of whose
principal occupations are set forth in the following table, if no direction to
the contrary is given. In the event that any such nominee
2
is unable or declines to serve, the Proxy may be voted for the election of
another person in his place. The Board knows of no reason to anticipate that
this will occur.
Nominees for Election as Directors
The director nominees are as follows:
Year First
Elected
Name Principal Occupation Age Director
---- -------------------- --- --------
Joseph P. Franklin Chairman of the Board 70 1990
(Major General, of Directors
U.S. Army - Ret.)
Martin B. Bloch President, Chief 68 1961
Executive Officer
and a Director
Joel Girsky President, Jaco 65 1986
Electronics, Inc., and a
Director
E. Donald Shapiro Dean Emeritus, 72 1998
New York University School
of Law and a Director
S. Robert Foley, Jr. Vice President for Laboratory 76 1999
(Admiral, U.S. Management, University of
Navy - Ret.) California, and a Director
All directors hold office for a one-year period or until their successors
are elected and qualified.
The Company's Board of Directors will consist of three (3) independent
members (Messrs. Foley, Girsky and Shapiro), as defined in the listing standards
of the American Stock Exchange ("AMEX") and two (2) officers of the Company
(Messrs. Bloch and Franklin). The composition of the Board will be in full
compliance with the new listing requirements of the AMEX as required under the
newly issued corporate governance rules promulgated by the Securities and
Exchange Commission ("SEC").
Directors' Fees
Effective July 31, 2004, directors who are not officers, retired officers
or affiliates of the Company receive an honorarium of $10,000 and $2,500 for
attendance at each Board meeting or meeting of a Board committee of which he is
a member ($1,500 if such attendance is telephonic). Prior to July 31, 2004, Mr.
Girsky did not receive compensation for his services and only Messrs. Shapiro
and Foley received the honorarium and a $2,500 meeting attendance fee. In
addition, effective January 1, 2004, the chairman of the Audit Committee will
receive a stipend of $10,000. Officers, including retired officers, do not
receive additional compensation for attendance at Board meetings or committee
meetings.
3
Business Experience of Directors
MARTIN B. BLOCH, age 68, has been a Director of the Company and of its
predecessor since 1961. He has served continuously since 1961 as the Company's
President and, except for December 1993 through April 1999, as its Chief
Executive Officer. Previously, he served as chief electronics engineer of the
Electronics Division of Bulova Watch Company.
JOSEPH P. FRANKLIN, age 70, has served as a Director of the Company since
March 1990. In December 1993, he was elected Chairman of the Board of Directors
and, from December 1993 through April 1999, served as Chief Executive Officer of
the Company. From August 1987 to November 1993, he was the chief executive
officer of Franklin S.A., a Spanish business consulting company located in
Madrid, Spain, specializing in joint ventures, and was a director of several
prominent Spanish companies. General Franklin was a Major General in the United
States Army until he retired in July 1987.
JOEL GIRSKY, age 65, has served as a Director of the Company since October
1986. He is the president and a director of Jaco Electronics, Inc., which is in
the business of distributing electronics components, and has served in such a
capacity for over thirty years. Mr. Girsky is the Chairman of the Company's
Compensation Committee.
E. DONALD SHAPIRO, age 72, has been The Joseph Solomon Distinguished
Professor of Law, New York University School of Law, since 1983 and Dean
Emeritus since 2000 and was previously Dean/Professor of Law from 1973 to 1983.
He is a director of Loral Space & Communications, Ltd., Vasomedical, Inc., nStor
Technologies, Inc. and Kramont Realty Trust. Mr. Shapiro became a member of the
Board of Directors in 1998 and serves as Chairman of the Company's Audit
Committee.
S. ROBERT FOLEY, Jr., age 76, is Vice President for Laboratory Management,
University of California. He served as Vice President of Raytheon International,
Inc. and President of Raytheon Japan from 1995 to 1998. Admiral Foley served in
the United States Navy for 35 years, including the position of
Commander-In-Chief of the Pacific Fleet. Admiral Foley is also a director of KEI
Pearson. Admiral Foley became a member of the Board of Directors in 1999.
Vote Required
Assuming the presence of a quorum at the Annual Meeting, the affirmative
vote of a plurality of the votes cast by holders of shares of common stock
represented at the meeting and entitled to vote is required for the election of
directors.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
OTHER BUSINESS
As of the date of this Proxy Statement, the only business which the Board
intends to present and knows that others will present at the meeting are
hereinabove set forth in Proposal No. 1. If any other matter or matters are
properly brought before the meeting or any adjournments thereof, it is the
intention of the persons named in the accompanying Proxy to vote the Proxy on
such matters in accordance with their judgment.
PROPOSALS OF STOCKHOLDERS
In accordance with the rules promulgated by the SEC, any stockholder who
wishes to submit a proposal for inclusion in the proxy material to be
distributed by the Company in connection with the 2005 Annual Meeting of
Stockholders must submit such proposal to the Company no later than April 29,
2005.
4
AUDIT AND NON-AUDIT FEES
The following table presents the aggregate fees billed for professional
services rendered by PricewaterhouseCoopers LLP in fiscal years 2003 and 2004.
Other than as set forth below, no professional services were rendered or fees
billed by PricewaterhouseCoopers LLP during fiscal years 2003 or 2004.
--------------------------------------------------------------------------------
Service 2003 2004
--------------------------------------------------------------------------------
Audit Fees (1) ................................ $ 286,360 $ 348,050
--------------------------------------------------------------------------------
Audit-Related Fees (2) ........................ - -
--------------------------------------------------------------------------------
Tax Fees (3) .................................. 92,845 135,750
--------------------------------------------------------------------------------
All Other Fees (4) ............................ - -
--------------------------------------------------------------------------------
TOTAL $ 379,205 $ 483,800
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_____________
(1) Audit fees consist of professional services rendered for the audit of the
Company's annual financial statements and the reviews of the quarterly
financial statements and issuance of consents and assistance with and review
of documents filed with the SEC.
(2) No other audit-related services were provided by PricewaterhouseCoopers LLP
other than those identified in (1) above.
(3) Tax fees consist of fees for services rendered to the Company for tax
compliance, tax planning and advice and representation before Internal
Revenue Service examiners of the Company's prior year tax returns.
(4) No other services were performed by PricewaterhouseCoopers LLP, in
connection with financial information systems design and implementation or
otherwise.
Pre-Approved Services
Prior to engaging PricewaterhouseCoopers LLP to render the above services,
and pursuant to its charter, the Audit Committee approved the engagement for
each of the services and determined that the provision of such services by the
external auditor was compatible with the maintenance of PricewaterhouseCoopers
LLP's independence in the conduct of its auditing services.
The Audit Committee will use the following procedures for the pre-approval
of all audit and permissible non-audit services provided by the independent
auditors.
Before engagement of the independent auditors for the next year's audit,
the independent auditors will submit a detailed description of services expected
to be rendered during that year within each of four categories of services to
the Audit Committee for approval.
Audit Services include audit work performed on the Company's financial
statements, as well as work that generally only the independent auditors can
reasonably be expected to provide, including statutory audits, comfort letters,
consents and assistance with and review of documents filed with the SEC.
Audit-Related Services are for assurance and related services that are
traditionally performed by the independent auditors, including due diligence
related to mergers and acquisitions, employee benefit plan audits, and special
procedures required to meet certain regulatory requirements and discussions
surrounding the proper application of financial accounting and/or reporting
standards.
Tax Services include all services, except those services specifically
related to the audit of the financial statements, performed by the independent
auditors' tax personnel, including tax analysis; assisting with coordination of
execution of tax related activities, primarily in the area of corporate
development; supporting other tax related regulatory requirements; and tax
compliance and reporting.
Other Services are those associated with services not captured in the
other categories. The Company generally does not request such services from the
independent auditors.
Prior to engagement, the Audit Committee pre-approves independent auditor
services within each category. The fees are budgeted and the Audit Committee
requires the independent auditors to report actual fees versus the budget
periodically throughout the year by category of service. During the year,
circumstances may arise when it may become necessary to engage the independent
auditors for
5
additional services not contemplated in the original pre-approval categories. In
those instances, the Audit Committee requires specific pre-approval before
engaging the independent auditors.
The Audit Committee may delegate pre-approval authority to one or more of
its members. The member(s) to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions to the Audit Committee
at its next scheduled meeting.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of August 27, 2004, information
concerning the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each of the Company's directors and nominees for
director, (iii) the Company's chief executive officer and the Company's four
most highly compensated other executive officers who were serving as executive
officers at the end of the last completed fiscal year, and (iv) all directors
and officers of the Company as a group:
Amount and Nature of
Name and Address of Beneficial Holder Beneficial Ownership Percent of Class
------------------------------------- -------------------- ----------------
DePrince Race & Zollo, Inc. (1)
201 S. Orange Ave.
Orlando, FL 32801 1,088,800 12.9%
Inverness Counsel, Inc. (2)
545 Madison Ave.
New York, NY 10022 676,206 8.0%
Dimensional Fund Advisors, Inc. (3)
1299 Ocean Ave.
Santa Monica, CA 90401 415,600 4.9%
Frequency Electronics, Inc.,
Employee Stock Ownership Plan (4)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 594,277 7.0%
Martin B. Bloch (5)(6)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 944,834 11.2%
Joseph P. Franklin (6)(7)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 98,747 1.2%
Michel Gillard (6)
Mont Saint-Martin 58
B-4000 Liege, Belgium 213,994 2.5%
Joel Girsky (8)
c/o Jaco Electronics, Inc.
145 Oser Avenue
Hauppauge, NY 11788 55,000 *
E. Donald Shapiro (8)
10040 E. Happy Valley Road
Scottsdale, AZ 85255 33,600 *
S. Robert Foley (8)
One Lakeside Dr.
Oakland, CA 94612 30,000 *
Markus Hechler (6)(9)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 105,218 1.3%
6
Amount and Nature of
Name and Address of Beneficial Holder Beneficial Ownership Percent of Class
------------------------------------- -------------------- ----------------
Oleandro Mancini (6)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 21,910 *
All executive officers
and directors as a group
(16 persons) (6)(9) 1,827,197 21.7%
*designates less than one (1%) percent.
_______________________________________
Notes:
(1) As reported in a Form 13F for the quarter ended June 30, 2004, filed by
DePrince Race & Zollo, Inc. DePrince Race & Zollo, Inc., an investment
advisor registered under the Investment Advisors Act of 1940, provides
investment advisory services on a discretionary basis to institutional
clients, most of whom are pension and profit sharing plans and trusts.
(2) As reported in a Form 13F for the quarter ended March 31, 2004, filed by
Inverness Counsel, Inc. ("Inverness"), which is an investment advisor
registered under the Investment Advisors Act of 1940. According to a
Schedule 13D filing dated December 30, 1997, Inverness originally
purchased 854,100 shares of Common Stock for and on behalf of clients of
Inverness, in the ordinary course of business for investment from the
personal funds of such clients. Inverness has the sole power to dispose or
to direct the disposition of such shares. Inverness does not possess, nor
does it share, the power to vote or to direct the vote of any of such
shares. Various officers and directors of Inverness own 35,950 shares, and
such persons individually have the exclusive right to dispose, or to
direct the disposition of, or to vote, or to direct the vote of, the
shares owned by them.
(3) As reported in a Schedule 13G dated June 30, 2004, filed by Dimensional
Fund Advisors Inc. ("Dimensional"), which is an investment advisor
registered under the Investment Advisors Act of 1940. Dimensional
furnishes investment advice to four investment companies registered under
the Investment Advisors Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. In its role
as investment advisor or manager, Dimensional possesses voting and/or
investment power over the 415,600 shares that are owned by such investment
companies, commingled group trusts and separate accounts. Dimensional
disclaims beneficial ownership of such securities.
(4) Includes 487,569 shares of stock held by the Frequency Electronics, Inc.
ESOP Trust (the "Trust") for the Company's Employee Stock Ownership Plan,
all of which shares have been allocated to the individual accounts of
employees of the Company (including the Named Officers as defined on page
13); also includes 121,095 shares held by the Trust under the Company's
Stock Bonus Plan (converted by amendment to the Employee Stock Ownership
Plan as of January 1, 1990).
(5) Includes 228,000 shares issuable on the full exercise of options granted
to Mr. Bloch on August 31, 1998, July 7, 1999 and March 1, 2001 under the
Senior ESOP, as that term is hereinafter defined. All of these options
were, by their terms, exercisable one year after issuance at an exercise
price of $7.125, $7.625 and $13.49, respectively (see the discussion of
the Senior ESOP included in the Compensation Committee Report, below).
(6) Includes the number of shares which, as at August 27, 2004, were deemed to
be beneficially owned by the persons named below, by way of their
respective rights to acquire beneficial ownership of such shares within 60
days through (i) the exercise of options; (ii) the automatic termination
of a trust, discretionary account, or similar arrangement; or (iii) by
reason of such person's having sole or shared voting powers over such
shares. The following table sets forth for each person named below the
total number of shares which may be so deemed to be beneficially owned by
him and the nature of such beneficial ownership:
7
--------------------------------------------------------------------------------------
Profit Sharing
Stock Bonus Plan & Trust ISOP or
Plan Shares ESOP Shares 401(k) NQSO
Name (a) (b) (c) Shares
--------------------------------------------------------------------------------------
Martin B. Bloch 22,317 4,204 1,305 -0-
--------------------------------------------------------------------------------------
Joseph P. Franklin -0- 4,030 962 -0-
--------------------------------------------------------------------------------------
Markus Hechler 2,707 5,967 1,245 61,000
--------------------------------------------------------------------------------------
Michel Gillard -0- -0- -0- 25,000
--------------------------------------------------------------------------------------
Oleandro Mancini -0- -0- 910 21,000
--------------------------------------------------------------------------------------
All Directors and
Officers as a Group
(16 persons) 27,540 45,393 10,027 346,250
--------------------------------------------------------------------------------------
(a) Includes all shares allocated under the Company's Stock Bonus Plan
("Bonus Plan") to the respective accounts of the named persons,
ownership of which shares is fully vested in each such person. No
Bonus Plan shares are distributable to the respective vested owners
thereof until after their termination of employment with the
Company. As of January 1, 1990, the Bonus Plan was amended to an
"Employee Stock Ownership Plan" (see the discussion of the Employee
Stock Ownership Plan contained in the Compensation Committee Report,
below; see also footnote (b) to the table).
(b) Includes all shares allocated under the Company's Employee Stock
Ownership Plan ("ESOP") to the respective accounts of the named
persons, ownership of which shares was fully vested in each such
person as at April 30, 2004. ESOP shares are generally not
distributable to the respective vested owners thereof until after
their termination of employment with the Company. However, upon the
attainment of age 55 and completion of 10 years of service with the
Company, a participant may elect to transfer all or a portion of his
vested shares, or the cash value thereof, to a Directed Investment
Account. Upon the allocation of shares to an employee's ESOP
account, such employee has the right to direct the ESOP trustees in
the exercise of the voting rights of such shares (see the discussion
of the ESOP included below in the Compensation Committee Report).
(c) Includes all shares allocated under the Company's profit sharing
plan and trust under section 401(k) of the Internal Revenue Code of
1986. This plan permits eligible employees, including officers, to
defer a portion of their income through voluntary contributions to
the plan. Under the provisions of the plan, the Company made
discretionary matching contributions of the Company's Common Stock.
All participants in the plan become fully vested in the Company
contribution after six years of employment. All of the Named
Officers in the table above, except Mr. Gillard, who is ineligible
to participate in the 401(k) plan, and Mr. Mancini, are fully vested
in the shares attributable to their accounts.
(7) Includes 23,000 shares issuable on the full exercise of options granted to
General Franklin on August 31, 1998, July 7, 1999 and October 30, 2001
under the Senior ESOP, as that term is hereinafter defined. All of these
options were, by their terms, exercisable one year after issuance at an
exercise price of $7.125, $7.625 and $11.10, respectively (see the
discussion of the Senior ESOP included in the Compensation Committee
Report, below).
(8) Includes shares issuable on the on the exercise of options granted to the
non-officer directors of the Company under the Independent Contractors
Stock Option Plan.
------------------------------------------------------------------------
Exercisable Grant Exercise
Name Share Date Price
------------------------------------------------------------------------
Joel Girsky 30,000 June 29, 1998 $12.81
------------------------------------------------------------------------
E. Donald Shapiro 30,000 June 29, 1998 $12.81
------------------------------------------------------------------------
S. Robert Foley 30,000 March 12, 1999 $7.34
------------------------------------------------------------------------
8
(9) Includes shares granted to the officers of the Company pursuant to a stock
purchase agreement in connection with the Company's Restricted Stock Plan:
---------------------------------------
Name Restricted
Stock
---------------------------------------
Markus Hechler 7,500
---------------------------------------
All Officers as a Group 22,500
(10 persons)
---------------------------------------
There are no beneficial owners known to the Company who have the right to
acquire further beneficial ownership, except as indicated above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and 10%
stockholders to file reports of ownership and reports of changes in ownership of
the Company's common stock and other equity securities with the SEC. Directors,
executive officers and 10% stockholders are required to furnish the Company with
copies of all Section 16(a) forms they file. Based on a review of the copies of
such reports furnished to it, the Company believes that during the fiscal year
ended April 30, 2004, the Company's directors, executive officers and 10%
stockholders complied with all Section 16(a) filing requirements applicable to
them, with the following exceptions:
On July 7, 2003, Markus Hechler acquired 7,500 shares of the Company's
common stock through the exercise of a stock option and immediately disposed of
such shares as stipulated by a divorce decree. Mr. Hechler attempted to timely
file a paper Form 4 but, unknown to Mr. Hechler, the SEC currently accepts only
electronic Form 4 filings. Upon receipt of appropriate identification codes from
the SEC, Mr. Hechler filed the Form 4 on October 2, 2003.
Through inadvertence, certain officers and directors did not timely file a
Form 4 upon receiving a stock option grant to acquire shares of the Company's
Common Stock. The grant was awarded on August 1, 2003 and the requisite Form 4
was not filed until October 24, 2003 for Markus Hechler, John Ho, Oleandro
Mancini, Thomas McClelland, Marvin Meirs, Alan Miller and Charles Stone.
Mr. Hugo Fruehauf acquired 3,650 shares of Common Stock of the Company on
October 31, 2003 but, through inadvertence, did not file a Form 4 until November
10, 2003.
CERTAIN INFORMATION AS TO COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the past fiscal year, four meetings of the Board were held. Each
incumbent Director attended all meetings of the Board, either in person or by
telephone. In addition, each incumbent director attended 75% or more of the
aggregate number of meetings of the Board committees on which he served during
the past fiscal year.
In addition to attendance at Board meetings, the Board of Directors
encourages, but does not require, all directors to attend annual meetings of the
Company's stockholders. Five members of the Board of Directors attended the
Company's 2003 Annual Meeting of Stockholders.
Audit Committee
In December 1983, the Board appointed an Audit Committee which presently
consists of three Directors, Messrs. Girsky, Foley and Shapiro. Each of these
directors is independent in accordance with the independence standards for audit
committee membership set forth in Section 10A(m)(3) of the Exchange Act and as
defined in Section 121A of the listing standards of the American Stock Exchange,
upon which the Company's Common Stock is listed and trades. The Board has
determined that each member of the Audit Committee is able to read and
understand fundamental financial statements. In addition, the Board has
determined that Joel Girsky satisfies the SEC's criteria for an "audit committee
financial expert."
9
The Audit Committee has procedures in place to receive, retain and handle
complaints received regarding accounting, internal controls or auditing matters
and to allow for the confidential and anonymous submission by anyone of concerns
regarding questionable accounting or auditing matters.
The purpose of the Audit Committee is to oversee the accounting and
financial reporting processes of the Company and the audits of the Company's
financial statements. The functions of the Audit Committee include, without
limitation, (i) responsibility for the appointment, compensation, retention and
oversight of the Company's independent auditors, (ii) review and pre-approval of
all audit and non-audit services provided to the Company by the independent
auditors, other than as may be allowed by applicable law, and (iii) review of
the annual audited and quarterly consolidated financial statements. The Amended
and Restated Charter of the Audit Committee, which describes all of the Audit
Committee's responsibilities, is attached to this Proxy Statement as Appendix A
and is posted on the Company's website at http://www.frequencyelectronics.com.
The Audit Committee held six meetings during the last fiscal year. The
Audit Committee's report appears on page 14 of this Proxy Statement.
Compensation Committee
Through August 27, 2004, the Compensation Committee consisted of four
Directors, Messrs. Girsky, Shapiro, Foley and Franklin. General Franklin is an
employee of the Company while the other three Directors are independent as
defined in Section 121A of the listing standards of the American Stock Exchange
("AMEX"). Consequently, General Franklin will resign from the Compensation
Committee on September 30, 2004, the effective date for complying with recently
promulgated director and committee independence rules of the AMEX. The
Compensation Committee determines cash remuneration arrangements for the highest
paid executives and oversees the Company's stock option, bonus and other
incentive compensation plans.
The report of the Compensation Committee appears on pages 11 and 13 of
this proxy statement. The Compensation Committee held one meeting during fiscal
year 2004.
DIRECTOR NOMINATIONS AND CORPORATE GOVERNANCE MATTERS
Director Nominations
The Company does not have a formal nominating or corporate governance
committee. New director nominations, which are infrequent, and compliance with
corporate governance rules, are reviewed and approved by the independent
directors. By Board resolution, the Company has determined that if a new
director is to be nominated, the independent directors of the Company (currently
Messrs. Foley, Girsky and Shapiro) will conduct interviews of qualified
candidates and, as appropriate, will recommend selected individuals to the
Board. The independent directors consider director candidates based on criteria
approved by the Board, including such individuals' backgrounds, skills,
expertise, accessibility and availability to serve constructively and
effectively on the Board. The Company may retain a director search firm to
assist it in identifying qualified director nominees.
Director Candidates Proposed by Stockholders
The Company will consider recommendations for director candidates
submitted in good faith by stockholders of the Company. A stockholder
recommending an individual for consideration by the Board (and the independent
directors) must provide (i) evidence in accordance with Rule 14a-8 of the
Exchange Act of compliance with the stockholder eligibility requirements, (ii)
the written consent of the candidate(s) for nomination as a director, (iii) a
resume or other written statement of the qualifications of the candidate(s) for
nomination as a director and (iv) all information regarding the candidate(s) and
the stockholder that would be required to be disclosed in a proxy statement
filed with the SEC if the candidate(s) were nominated for election to the Board,
including, without limitation, name, age, business and residence address and
principal occupation or employment during the past five years. Stockholders
should send the required information to the Company at 55 Charles Lindbergh
Boulevard, Mitchel Field, New York 11553, Attention: Corporate Secretary.
In order for a recommendation to be considered by the Company for the 2005
Annual Meeting of Stockholders, the Company's Corporate Secretary must receive
the recommendation no later than 5:00 p.m. local time on April 29, 2005. Such
recommendations must be sent via registered, certified or express mail (or other
means that allows the stockholder to determine when the recommendation was
received by the Company). The Company's Corporate Secretary will send properly
submitted
10
stockholder recommendations to the independent directors for consideration at a
future meeting. Individuals recommended by stockholders in accordance with these
procedures will receive the same consideration as other individuals evaluated by
the independent directors.
Communications with Directors
Stockholders and other interested parties may communicate directly with
any director, including any non-management member of the Board, by writing to
the attention of such individual at the following address: Frequency
Electronics, Inc., 55 Charles Lindbergh Boulevard, Mitchel Field, New York
11553, Attention: Corporate Secretary. The Company's Secretary will distribute
any stockholder communications received to the director(s) to whom the letter is
addressed or to all of the directors if addressed to the entire Board.
Communications that are intended for the non-management directors
generally should be marked "Personal and Confidential" and sent to the attention
of the Chairman of the Audit Committee. The Chairman will distribute any
communications received to the non-management member(s) to whom the
communication is addressed.
Executive Sessions of Independent Directors
The independent directors will regularly meet without any management
directors or employees present. Such executive sessions will be held at least
annually and as often as necessary to fulfill the independent directors'
responsibilities.
Code of Ethics
All directors, officers and employees of the Company must act ethically
and in accordance with the Company's Code of Ethics (the "Code of Ethics"). The
Code of Ethics satisfies the definition of "code of ethics" under the rules and
regulations of the SEC and is available on the Company's website at
http://www.frequencyelectronics.com. The Code of Ethics is also available in
print to anyone who requests it by writing to the Company at the following
address: Frequency Electronics, Inc., 55 Charles Lindbergh Boulevard, Mitchel
Field, New York 11553, Attention: Ethics Officer.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
Overall Policy
The members of the Compensation Committee include Messrs. Joel Girsky, E.
Donald Shapiro, S. Robert Foley and Joseph P. Franklin. (As noted above, General
Franklin will resign from the Compensation Committee effective September 30,
2004.) The Compensation Committee reviews and, with any changes it believes
appropriate, approves the Company's executive compensation.
The general goals of the Compensation Committee are to: (i) attract,
motivate, and retain effective and highly qualified executives; (ii) strengthen
the common interests of management and stockholders through executive stock
ownership; (iii) promote the Company's long- and short-term strategic goals and
human resource strategies; (iv) recognize and award individual contributions to
the Company's performance; and (v) reflect compensation practices of comparable
companies.
To achieve the foregoing goals, the Compensation Committee has structured
a comprehensive compensation program aimed at: (i) compensating executive
officers on an annual basis with a cash salary at a level sufficient to retain
and motivate them and to recognize and award individual merit; (ii) linking a
portion of executive compensation to long-term appreciation of the Company's
stock price by encouraging executive ownership of the Company's stock through
awards of shares of the Company's stock and grants of options to purchase
Company stock; and (iii) providing incentives to achieve corporate performance
goals by rewarding contributions to the Company's performance through cash
bonuses keyed to operating profit levels. These policies are implemented through
a reward system which includes base salary and long- and short-term incentive
compensation opportunities consisting of the following:
11
Base Salaries
The Compensation Committee annually reviews the base salaries of the CEO
and all other executive officers of the Company. The Compensation Committee
believes that the Company's executive officers, including those shown in the
Summary Compensation Table on page 15 (the "Named Officers") have been largely
responsible for the Company's past successes and for achieving the production
and engineering improvements that have maintained the Company's position at the
forefront of technical innovation. A base salary for each executive is
determined on the basis of such factors as: levels of responsibility; experience
and expertise; evaluations of individual performance; contributions to the
overall performance of the Company; time and experience with the Company;
internal compensation equity; external pay practices for comparable companies;
and existing base salary relative to position value.
Short-Term Incentives
The Company maintains two short-term incentive bonus plans, the Income
Pool Incentive Compensation Plan ("IPICP") and the Presidential Incentive Plan
("PIP"). They are designed to create incentives for superior performance and to
allow the Company's executive officers to share in the success of the Company by
rewarding the contributions of individual officers. The availability of funds
for distribution under these plans is dependent upon the performance of the
Company as a whole. Focused on short-term or annual business results, they
enable the Company to award designated executives with annual cash bonuses based
on their contributions to the profits of their particular divisions of the
Company.
In fiscal year 2004, the Compensation Committee approved the granting of
20,000 shares of the Company's common stock to its Chairman, General Joseph
Franklin. This grant is in connection with General Franklin's years of service
to the Company since December 1993.
Long-Term Incentives
As part of its comprehensive compensation program, the Company stresses
long-term incentives through awards of shares of its common stock under the
Employee Stock Ownership Plan ("ESOP") and through the grant of options to
purchase common stock through various employee stock option plans. Grants and
awards are aimed at attracting new personnel, recognizing and rewarding current
executive officers for special individual accomplishments, and retaining
high-performing officers and key employees by linking financial benefit to the
performance of the Company (as reflected in the market price of the Company's
common stock) and to continued employment with the Company. The number of shares
granted to executive officers under the Company's ESOP is determined on a
pro-rata basis. Grants of stock options are generally determined on an
individual-by-individual basis. The factors considered are the individual's
performance rating and potential for contributing to the Company's future
growth, the number of stock options previously granted to the individual and the
Company's financial and operational performance.
Supplemental Separation Benefits
The Company has an agreement with certain executive officers to provide
supplemental separation benefits. Under the agreement, in the event of a change
in control or ownership of part or all of the Company which gives rise to
discharge of any officer without cause and such officer is not offered the
opportunity to be hired by the new or successor management or company within 30
days at no less than the base salary earned before discharge, then such officer
will receive supplemental severance pay equal to one month's base salary for
each year of service at the Company up to a maximum of 15 months.
Chief Executive Officer
Pursuant to his employment agreement, Mr. Bloch's base annual salary is
$400,000, plus a fixed annual bonus of 6% of the pre-tax profit of the Company
with a cap on the pre-tax profit at $20,000,000, as well as separation benefits
in the event of a change in control or ownership of part or all of the Company,
continuation of disability, medical and life insurance, the cost of an annual
physical examination and a new automobile every three years. In addition, Mr.
Bloch was awarded stock options to purchase 180,000 shares of the Company's
common stock at the fair market value on March 1, 2001 ($13.49) for a period of
ten (10) years. In fiscal year 2004, the Compensation Committee increased Mr.
Bloch's compensation by $42,000 in the form of paying the premiums for
additional life insurance coverage, the beneficiaries of which are Mr. Bloch's
heirs.
12
In determining the compensation package for Mr. Bloch, the Compensation
Committee took into account the compensation packages for senior officers at
companies of comparable size and complexity, both public and private, as well as
its assessment of Mr. Bloch's individual performance, and his contribution to
the Company's past growth and accomplishments as well as contributions which it
is anticipated will be made by Mr. Bloch in the future. In this regard, the
Compensation Committee recognized Mr. Bloch's untiring efforts in developing
new, non-military technology applications, markets and marketing programs which
the Compensation Committee believes will continue to help position the Company
to compete more effectively in commercial as well as military markets. The
Compensation Committee noted that in prior years, under Mr. Bloch's leadership,
the Company redirected a significant portion of its resources to the design and
development of new products for the commercial communications marketplace. The
Compensation Committee believes that the investment in new products will result
in significant growth of revenues and profits in future periods.
Joel Girsky, Chairman, Compensation Committee
S. Robert Foley
E. Donald Shapiro
Joseph P. Franklin
Members of the Compensation Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As described above, members of the Compensation Committee are Joel Girsky,
Chairman, S. Robert Foley, E. Donald Shapiro and General Joseph P. Franklin. No
interlocking relationship exists between the Company's Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
Effective September 30, 2004, General Franklin, the Company's Chairman of
the Board, will no longer be a member of the Compensation Committee.
13
REPORT OF THE AUDIT COMMITTEE
The members of the Audit Committee have been appointed by the Board of
Directors. The Audit Committee is comprised of three non-employee directors,
each of whom satisfies the independence standards for audit committee membership
set forth in Section 10A(m)(3) of the Securities Exchange Act of 1934, as
amended, and the independence requirements of the AMEX. The Audit Committee is
governed by a charter that has been approved and adopted by the Board of
Directors and which is reviewed and reassessed annually by the Audit Committee.
The following Audit Committee Report does not constitute soliciting
material and shall not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent the Company
specifically incorporates this Audit Committee Report by reference therein.
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internals controls. In fulfilling its oversight responsibilities, the Audit
Committee reviewed the audited financial statements for the fiscal year ended
April 30, 2004, with management including a discussion of the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards. In
addition, management and the independent auditors have represented to the Audit
Committee that the financial statements were prepared in accordance with
generally accepted accounting principles.
The Audit Committee has received from and discussed with the independent
auditors their written disclosure and letter regarding their independence from
the Company as required by Independence Standards Board Standard No. 1. The
Audit Committee has also discussed with the independent auditors any matters
required to be discussed by Statement on Auditing Standards No. 61.
The Audit Committee discussed with the Company's independent auditors the
overall scope and plans for their audit. The Audit Committee met with the
independent auditors, with and without management present, to discuss the
results of their examination, their evaluation of the Company's internal
controls, and the overall quality of the Company's financial reporting. The
Audit Committee held five meetings during fiscal year 2004.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the fiscal year ended April 30, 2004 for filing with the Securities and
Exchange Commission.
E. Donald Shapiro, Chairman of Audit Committee
Joel Girsky
S. Robert Foley
Members of the Audit Committee
14
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid or accrued during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers (collectively, the "Named Officers") based
on salary and bonus earned during fiscal 2004.
----------------------------------------------------------------------------------------------------
Annual Compensation Long-Term
Compensation Awards
------------------------------------------------------------------
$Value of
Other Restricted
Name and Principal Annual Stock Securities
Position Compensation Awards Underlying
Year Salary Bonus (2) (3) Options
----------------------------------------------------------------------------------------------------
Martin B. Bloch 2004 $423,077 $40,000 $27,989 $2,492 -0-
President, Chief ---------------------------------------------------------------------------
Executive Officer 2003 415,385 -0- 24,742 2,923 -0-
---------------------------------------------------------------------------
2002 415,385 -0- 35,972 5,648 -0-
----------------------------------------------------------------------------------------------------
Joseph Franklin 2004 75,000 297,500(1) 8,455 2,358 -0-
Chairman of the Board ---------------------------------------------------------------------------
2003 100,000 -0- 10,541 3,105 -0-
---------------------------------------------------------------------------
2002 100,000 -0- 10,889 4,101 5,000(4)
----------------------------------------------------------------------------------------------------
Michel Gillard 2004 211,092 -0- 35,880 -0- -0-
President, Gillam-FEI ---------------------------------------------------------------------------
2003 177,481 -0- 26,492 -0- -0-
---------------------------------------------------------------------------
2002 175,410 -0- 23,418 -0- -0-
----------------------------------------------------------------------------------------------------
Markus Hechler 2004 190,385 36,000 18,872 3,042 8,000(5)
Executive Vice ---------------------------------------------------------------------------
President 2003 183,462 -0- 22,416 2,947 8,000(5)
---------------------------------------------------------------------------
2002 183,462 -0- 21,419 4,490 15,000(5)
----------------------------------------------------------------------------------------------------
Oleandro Mancini 2004 133,461 35,000 21,480 3,369 10,000(5)
Vice-President, ---------------------------------------------------------------------------
Business Development 2003 126,000 -0- 24,679 3,163 7,000(5)
---------------------------------------------------------------------------
2002 122,308 -0- 20,208 4,125 10,000(5)
----------------------------------------------------------------------------------------------------
Notes:
(1) In fiscal year 2004, General Franklin was awarded 20,000 shares of the
Company's Common Stock which had a value of $297,500 on the award date.
This grant was made in connection with General Franklin's years of service
to the Company since December 1993.
(2) The amounts shown in this column constitute (i) automobile allowance; (ii)
insurance premiums to provide term life insurance benefits (available to
all employees); (iii) the cost of medical insurance (available to all
employees); and (iv) the costs of medical reimbursements available to
officers.
(3) Represents the dollar value, as at the date of contribution, of shares of
Common Stock of the Company distributed under the Company's Profit Sharing
Plan and Trust under section 401(k) of the Internal Revenue Code
("401(k)"). In fiscal years 2004, 2003 and 2002, the Company made matching
contributions of Company Common Stock to the accounts of Named Officers in
amounts which varied from 189 to 270 shares in fiscal 2004, from 327 to
354 shares in fiscal 2003 and from 285 to 393 shares in fiscal 2002. The
average market value of the awarded shares at the time of allocation was
$12.48 in fiscal year 2004, $8.95 in fiscal year 2003 and $14.38 in fiscal
year 2002. Company matching contributions to the 401(k) plan are made in
proportion to the cash contributions of individual employees to the plan.
Mr. Gillard, who is not a resident of the United States, does not
participate in the 401(k) plan.
(4) Represents shares awarded under the Senior Executive Stock Option Plan.
The exercise prices of the awarded options are at the fair market value of
the Company's Common Stock on the date of grant. The options are fully
exercisable one year after date of grant.
15
(5) Represents shares awarded under the Company's 2001 Incentive Stock Option
Plan. The exercise prices of the awarded options are at the fair market
value of the Company's Common Stock on the date of grant. (See "Option
Grants in Fiscal 2004" below.) The options are exercisable in increments
of 25% annually (and cumulatively) beginning one year after date of grant.
Stock Options
Options Granted:
The following table sets forth certain information with respect to options
to acquire common stock that were granted during the fiscal year ended April 30,
2004, to each of the Named Officers under the Company's stock option plans.
OPTION GRANTS IN FISCAL 2004
Individual Grants
------------------------------------------------------------------------------------ Potential Realizable Value
No. of % of Total at Assumed Annual Rates of
Securities Options Exercise Stock Price Appreciation for
Underlying Granted to or Base Option Term
Options Employees in Price Expiration ----------------------------
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ---------- ------------ -------- ---------- ------ -------
Martin B. Bloch -0- - - - - -
Joseph Franklin -0- - - - - -
Michel Gillard -0- - - - - -
Markus Hechler 8,000 6.2% $9.575 7/31/13 $48,173 $122,081
Oleandro Mancini 10,000 7.8% $9.575 7/31/13 $60,217 $152,601
Option Exercises and Year-end Values:
The following table sets forth certain information with respect to options
exercised during fiscal 2004 by each Named Officer and option values as of April
30, 2004.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2004
AND FISCAL YEAR-END OPTION VALUES
No. of Securities
Underlying Value of
Unexercised Unexercised In-the-
Shares Options at Fiscal Money Options at
Acquired Year-End Fiscal Year-End ($)
on Value Exercisable (E)/ Exercisable (E)/
Name Exercise Realized ($) Unexercisable (U) Unexercisable (U)
---- -------- ------------ ----------------- -------------------
Martin B. Bloch -0- $ -0- 228,000 (E) $315,600 (E)
0 (U) $0 (U)
Joseph Franklin -0- -0- 26,500 (E) $154,150 (E)
2,500 (U) $6,250 (U)
Michel Gillard -0- -0- 18,750 (E) $0 (E)
6,250 (U) $0 (U)
Markus Hechler 7,500 $48,525 (1) 54,500 (E) $254,018 (E)
24,000 (U) $92,860 (U)
Oleandro Mancini -0- -0- 14,250 (E) $24,724 (E)
22,750 (U) $89,421 (U)
(1) The shares acquired upon Mr. Hechler's exercise of stock options
were immediately disposed as per the stipulation of a divorce decree. Mr.
Hechler did not receive a personal financial benefit from the exercise of these
stock options.
16
Securities Authorized for Issuance under Equity Compensation Plans:
The following table sets forth as of April 30, 2004, the number of shares
of Company Common Stock to be issued upon exercise of outstanding stock option
grants and the number of shares available for future issuance under such plans:
------------------------------------------------------------------------------------------
Plan Category Number of Weighted-average Number of securities
securities to be exercise price remaining available for
issued upon of outstanding future issuance under
exercise of options, equity compensation
outstanding warrants and plans (excluding
options, warrants rights securities reflected in
and rights column (a))
(a) (b) (c)
------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 412,250 $8.61 169,250
------------------------------------------------------------------------------------------
Equity compensation
plans not approved
by security holders 802,737 $12.62 219,500
(see Note)
------------------------------------------------------------------------------------------
Total 1,214,987 $11.26 388,750
------------------------------------------------------------------------------------------
Note: Equity compensation plans not approved by security holders consist of:
i- Independent Contractor Stock Option Plan- Under the terms of this
plan, adopted in fiscal year 1998, options to acquire shares of the
Company's Common Stock may be granted to individuals who provide
services to the Company but who are not employees. The option price,
number of shares, timing and duration of option grants is at the
discretion of the Independent Contractor Stock Option Committee. In
recent grants, the option price was equal to the then fair market
value of the Company's Common Stock, a portion of each grant was
immediately exercisable and the options expire in ten years from
date of grant.
ii- 1993 Non-Statutory Stock Option Plan- Under the terms of this plan,
adopted in fiscal year 1993, stock options may be granted to
employees, officers and directors of the Company at a price at least
equal to the fair market of the Company's Common Stock on the date
of grant. Options generally are exercisable over a four-year period
beginning one year after date of grant and expire ten years after
the grant date. After fiscal year 2003, no additional shares may be
issued from this plan.
iii- President's Employment Contract- Under the terms of an employment
contract, entered into in fiscal year 2001, Mr. Bloch, the Company's
President, CEO and Chief Scientist, was granted an option to acquire
180,000 shares of the Company's Common Stock at the then fair market
value of $13.49. The option is exercisable 25% per year and expires
in ten years from date of grant.
Long-term Incentive Plans
The Company does not maintain any compensation plans for its executive
officers or directors or for any of its other employees which provide
compensation intended to serve as incentive for performance to occur over a
period longer than one fiscal year other than the restricted stock and stock
option plans discussed in the Compensation Committee Report, above. Awards under
these plans are shown in the Summary Compensation Table, above.
Pension Benefits
The Company has no defined benefit or actuarial retirement plans in
effect. It has entered into certain Executive Incentive Compensation ("EIC")
agreements with key employees (including some officers) providing for the
payment of benefits upon retirement or death or upon the termination of
employment not for cause. The Company pays compensation benefits out of its
working capital but has also purchased whole life insurance (of which it is the
sole beneficiary) on the lives of certain of the participants to cover the
optional lump sum obligations under the EIC agreements upon the death of the
participant. The annual premiums paid during fiscal year 2004 were less than the
increase in cash surrender value of such insurance policies. The annual benefit
provided under the program in fiscal year 2004 upon retirement at age 65 or
death is as follows: Martin B. Bloch- $170,000, Markus
17
Hechler- $75,000, Oleandro Mancini- $35,000 and Thomas McClelland- $40,000. The
benefit described above is payable for ten years or the life of the participant,
whichever is longer. Two years after retirement or early retirement, the
participants can elect to receive the benefit, less benefits received during the
two-year period, in a lump sum under certain conditions. Upon voluntary
termination of employment or discharge not for cause, the participant would be
entitled to a lump sum payment, the amount of which varies based on the year in
which termination occurs and the nature of the termination as set forth in the
individual's EIC agreement. In conjunction with the program, the participants
are required to make certain covenants with the Company relating to, among other
things, nondisclosure of confidential information, noncompetition with the
Company and the providing of consulting services subsequent to retirement.
Performance Graph
The following graph compares the cumulative total shareholder return on
the Common Stock of the Company with the cumulative total return of the
companies listed in the Standards & Poors' Small Cap 600 Stock Index (the "S&P
600 Small Cap Index") and an industry peer group index (the "Peer Group Index").
The graph assumes that $100 was invested on May 1, 1999 in each of the Common
Stock of the Company, the stock of the companies comprising the S&P 600 Small
Cap Index and the common stock of the companies comprising the Peer Group Index,
including the reinvestment of dividends, through April 30, 2004. The Peer Group
Index consists of Aeroflex Inc., Anaren Inc., Ball Corp., Comtech
Telecommunications Corp., EDO Corp., Iteris Holdings, Inc., Merrimac Industries,
Inc., Scientific Atlanta, Inc., Skyworks Solutions, Inc., Symmetricom Inc. and
Trimble Navigation, Ltd.
Cumulative Total Shareholder Return for
Five-year Period Ended April 30, 2004
[GRAPHIC OMITTED]
Performance Graph Data Table:
-----------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
-----------------------------------------------------------------------------------------
Frequency Electronics $100.00 $219.88 $204.48 $172.22 $139.72 $191.28
-----------------------------------------------------------------------------------------
S&P 600 Small Cap $100.00 $120.50 $130.25 $151.79 $119.99 $167.92
-----------------------------------------------------------------------------------------
Peer Group $100.00 $267.04 $229.25 $140.89 $124.25 $196.34
-----------------------------------------------------------------------------------------
18
Employment Contracts and Change-In-Control-Arrangements
None of the Named Officers are employed by the Company pursuant to
employment agreements, other than Mr. Bloch as described in the Compensation
Committee Report above. As described in the Compensation Committee Report
beginning on page 11, the Company has provided supplemental separation benefits
for certain executive officers, including Mr. Bloch and Mr. Hechler, in the
event of a change in control or ownership of part or all of the Company. Such
benefits will be provided only if an officer is discharged without cause and is
not offered the opportunity to be hired by the new or successor management or
company within 30 days at no less than the base salary earned before discharge.
The Company does not have any other material compensatory plans or arrangements
with its employees with respect to any resignation, retirement or other
termination of such persons employed with the Company resulting from, or in any
way connected with, a change-in-control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended April 30, 2004, the Company purchased
component parts from Jaco Electronics, Inc. or one of its subsidiaries ("Jaco")
in the aggregate amount of approximately $4.9 million. This amount is
approximately 2% of Jaco's gross revenues for the comparable period. Mr. Joel
Girsky, an independent Board member, is the president of Jaco and the owner of
approximately 18% of Jaco's outstanding common stock.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K, including the
financial statements and the financial statement schedule thereto, for the
fiscal year ended April 30, 2004, is being mailed to stockholders concurrently
with the mailing of this Proxy Statement. For a charge of $50, the Company
agrees to provide a copy of the exhibits to the Form 10-K to any stockholders
who request such a copy.
By Order of the Board of Directors,
/s/ Harry Newman
HARRY NEWMAN
Secretary
Dated: August 27, 2004
19
FREQUENCY ELECTRONICS, INC.
Proxy - Annual Meeting of Stockholders - September 30, 2004
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of FREQUENCY ELECTRONICS, INC., hereby
revoking any proxy heretofore given, does hereby appoint GENERAL JOSEPH FRANKLIN
and HARRY NEWMAN, or either of them, proxies, with power of substitution, for
and in the name of the undersigned to attend the Annual Meeting of Stockholders
of the Company to be held at the offices of the Company, 55 Charles Lindbergh
Boulevard, Mitchel Field, New York on September 30, 2004 at 10:00 A.M., Eastern
Daylight Savings Time, and any adjournment thereof and there to vote upon all
matters specified in the notice of said meeting, as set forth on the reverse
hereof, and upon such other business as may properly and lawfully come before
the meeting, all shares of stock of said Company which the undersigned would be
entitled to vote if personally present at said meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED FOR ALL
PROPOSALS.
(Continued and to be SIGNED on the other side)
ANNUAL MEETING OF STOCKHOLDERS OF
FREQUENCY ELECTRONICS, INC.
September 30, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
| |
\/ Please detach along perforated line and mail in the envelope provided. \/
--------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE [x]
--------------------------------------------------------------------------------
1. Election of five (5) directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been elected
and shall have qualified.
NOMINEES:
[ ] FOR ALL NOMINEES O General Joseph P. Franklin
O Martin B. Bloch
[ ] WITHHOLD AUTHORITY O Joel Girsky
FOR ALL NOMINEES O E. Donald Shapiro
O Admiral S. Robert Foley
[ ] FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: (o)
--------------------------------------------------------------------------------
2. To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
All as described in the Proxy Statement dated August 27, 2004, receipt of which
is hereby acknowledged. The Board of Directors requests that you fill in, date
and sign the Proxy and return it in the enclosed postpaid envelope.
--------------------------------------------------------------------------------
To change the address on your account, please check the box
at right and indicate your new address in the address space [ ]
above. Please note that changes to the registered name(s) on [ ]
the account may not be submitted via this method.
--------------------------------------------------------------------------------
Signature of Stockholder [_______________________] Date: [___________]
Signature of Stockholder [_______________________] Date: [___________]
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as
such. If signer is a partnership, please sign in partnership name by
authorized person.
Appendix A
Audit Committee Charter of Frequency Electronics, Inc.
The Audit Committee is a committee of the Board of Directors (the "Board")
of Frequency Electronics, Inc. (the "Company").
I. PURPOSE
The primary purpose of the Audit Committee is to oversee the accounting
and financial reporting processes of the Company and the audits of the financial
statements of the Company. In this regard, the Audit Committee assists the Board
in fulfilling its oversight responsibilities by reviewing: the financial reports
and other financial information provided by the Company to any governmental body
or the public; the Company's systems of internal controls regarding finance and
accounting; and the Company's auditing, accounting and financial reporting
processes generally. Consistent with this function, the Audit Committee should
encourage continuous improvement of, and should foster adherence to, the
Company's policies, procedures and practices relating to auditing, accounting
and financial reporting. The Audit Committee's primary duties and
responsibilities are to:
o Serve as an independent and objective party to monitor the
Company's financial reporting process and internal control
system;
o Review and appraise the audit efforts of, and monitor the
independence of, the Company's independent accountants; and
o Provide an open avenue of communication among the independent
accountants, financial and senior management and the Board.
The Audit Committee will primarily fulfill its responsibilities by
carrying out the duties and activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom, in the judgment of the Board, shall be
independent in accordance with the requirements of the American Stock Exchange,
Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission (the "SEC"), and
free from any relationship that, in the opinion of the Board, would interfere
with the exercise of his or her independent judgment as a member of the Audit
Committee. In addition to and in furtherance of the foregoing, no individual may
serve as a member of the Audit Committee if:
1. Such director is currently an employee or was employed by the
Company or any of its affiliates at any time during the past three
years; or
2. Such director or an immediate family member of such director
received compensation from the Company or any of its affiliates in
excess of sixty thousand dollars ($60,000) during the current or any
of the past three fiscal years, other than compensation for board
service, payments arising solely from investments in the Company's
securities, compensation paid to an immediate family member who is a
non-executive employee of the Company or any of its affiliates,
benefits under a tax-qualified retirement plan or non-discretionary
compensation. An immediate family member shall include a person's
spouse, parents, children, siblings, in-laws and any person who
resides in such director's home; or
3. Such director's immediate family member is, or has been in any of
the past three years, employed by the Company or any of its
affiliates as an executive officer; or
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Appendix A
4. Such director is, or has an immediate family member who is, a
partner, controlling shareholder, or executive officer in any
organization to which the Company made, or from which the Company
received, payments (other than those arising solely from investments
in the Company's securities or payments under non-discretionary
charitable contribution matching programs) that were in excess of
five percent (5%) of the organization's consolidated gross revenues
for that year, or two hundred thousand dollars ($200,000), whichever
is greater, in any of the past three fiscal years; or
5. Such director is, or has an immediate family member who is, employed
as an executive of another entity where at any time during the three
most recent fiscal years, any of the Company's executives serve on
that entity's compensation committee; or
6. Such director is, or has an immediate family member who is, a
current partner of the Company's current independent accountants or
was a partner or employee of the Company's independent public
accountants who worked on the Company's audit at any time during any
of the past three fiscal years.
All members of the Audit Committee shall have a working familiarity with
fundamental financial and accounting practices and at least one member of the
Audit Committee shall have significant accounting or related financial
management expertise. In addition, at least one member of the Audit Committee
shall have past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable experience or
background which results in the individual's financial sophistication, including
serving or having served as a chief executive officer, chief financial officer
or other senior officer with financial oversight responsibilities. Also, at
least one member of the Audit Committee shall, in the judgment of the Board,
qualify as an "audit committee financial expert" in accordance with the rules
and regulations of the SEC.
The members of the Audit Committee shall be elected by the Board annually
or until their successors shall be duly elected and qualified. Unless a
Chairperson is elected by the full Board, the members of the Audit Committee may
designate a Chairperson by majority vote of the full Audit Committee membership.
III. MEETINGS
The Audit Committee shall meet at least four times during each fiscal
year, or more frequently as circumstances require. The dates for the Audit
Committee meetings generally are to be set at the time of the annual meeting of
the Board. Further, the members of the Audit Committee may agree, at any time,
to hold a telephone meeting of the Audit Committee, in lieu of a formal,
in-person meeting. As part of its job to foster open communication, the Audit
Committee should meet at least annually with management and the independent
accountants in separate executive sessions to discuss any matters that the Audit
Committee or each of these groups believe should be discussed privately. In
addition, the Audit Committee, or at least its Chairperson, should meet with the
independent accountants and management quarterly to review the Company's
financials consistent with the duties enumerated in Section IV below. The Audit
Committee may request any officer or employee of the Company or the Company's
outside counsel to attend a meeting of the Audit Committee or to meet with any
members of, or consultants to, the Audit Committee. The Audit Committee shall
report regularly to the full Board with respect to its activities and make
recommendations to the Board as appropriate.
A majority of the Audit Committee shall constitute a quorum for the
transaction of business. The Audit Committee may act by a majority vote of the
members present at a duly constituted meeting of the Audit Committee. In the
absence or disqualification of a member of the Audit Committee, the members
present, whether or not they constitute a quorum, may unanimously appoint
another independent member of the Board to act at the meeting in the place of an
absent or disqualified member. In the event of a "tie" vote on any issue voted
upon by the Audit Committee, the vote of the Chairperson of the Audit Committee
shall decide the issue.
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Appendix A
IV. AUTHORITY, RESPONSIBILITIES AND DUTIES
To fulfill its purpose, the Audit Committee shall have the following
authority and responsibilities:
Documents/Reports Review
1. Review and update this Charter periodically, but at least annually,
as conditions necessitate.
2. Review with management and the independent accountants the Company's
annual financial statements and any reports or other financial
information submitted to any governmental body, or the public,
including any certification, report, opinion or review rendered by
the independent accountants.
3. Review with financial management and the independent accountants the
Company's Quarterly Report on Form 10-Q prior to its filing.
4. Review earnings releases issued by the Company.
5. Prepare, with the assistance of management, the independent
accountants and, where appropriate, legal counsel, the Audit
Committee Report for inclusion in the Company's annual proxy
statement in accordance with applicable SEC regulations.
Independent Accountants
6. Be directly responsible for the appointment, compensation, retention
and oversight of the work of any independent public accounting firm
engaged (including resolution of disagreements between management
and the independent accountants regarding financial reporting) for
the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the Company. The
independent accountants shall report directly to the Audit
Committee.
7. Ensure the receipt from the independent accountants of a formal
written statement delineating all relationships between the
independent accountants and the Company, consistent with
Independence Standards Board Standard No. 1, and actively engage in
a dialogue with the independent accountants with respect to any
disclosed relationships or services that may impact the objectivity
and independence of the independent accountants.
8. Take, or recommend that the Board take, appropriate action to
oversee the independence of the independent accountants.
9. Review and evaluate the performance of the independent accountants
and replace any of the independent accountants when circumstances
warrant.
10. Periodically consult with the independent accountants out of the
presence of management about internal controls and the fullness and
accuracy of the Company's financial statements.
11. Meet with the independent accountants prior to the audit to review
the planning and staffing of the audit.
12. Review and preapprove all audit and non-audit services provided to
the Company by the independent accountants, other than as may be
permitted by applicable law. The Audit Committee may delegate to a
subcommittee consisting of one or more designated Audit Committee
members the authority to grant any preapproval of audit and
permitted non-audit services, provided that decisions of any such
subcommittee to grant preapprovals hereunder shall be presented to
the full Audit Committee at its next scheduled meeting.
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Appendix A
Financial Reporting Processes
13. In consultation with the independent accountants, review the
integrity of the Company's financial reporting processes, both
internal and external.
14. Consider the independent accountants' judgments about the quality
and appropriateness of the Company's accounting principles as
applied in its financial reporting.
15. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as proposed by
management or the independent accountants.
16. Discuss with the independent accountants any significant changes in
auditing standards or their audit scope.
Process Improvement
17. Establish regular and separate systems of reporting to the Audit
Committee by management and the independent accountants regarding
any significant judgments made in management's preparation of the
financial statements and the view of each as to the appropriateness
of such judgments.
18. Following completion of the annual audit, review separately with
each of management and the independent accountants any significant
difficulties encountered during the course of the audit, including
any restrictions on the scope of work or access to required
information.
19. Review any significant disagreement among management and the
independent accountants in connection with the preparation of the
financial statements.
20. Review with the independent accountants and management the extent to
which changes or improvements in financial or accounting practices,
as approved by the Audit Committee, have been implemented. (This
review should be conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided by the Audit
Committee.)
Other Authority and Responsibilities
21. Have the authority, to the extent it deems necessary or appropriate,
to retain outside legal, accounting or other advisors. The Company
shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to the independent
accountants for the purpose of rendering or issuing an audit report
or performing other audit, review or attest services and to any
advisors employed by the Audit Committee and for ordinary
administrative expenses of the Audit Committee that are necessary or
appropriate in carrying out its duties.
22. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
23. Serve as the Company's Qualified Legal Compliance Committee
("QLCC"), as such term is defined by the SEC in 17 C.F.R. 205, and,
in this capacity, perform the duties set forth on Appendix I to this
Charter.
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APPENDIX I
to Audit Committee Charter
Qualified Legal Compliance Committee
DUTIES AND RESPONSIBILITIES
The Qualified Legal Compliance Committee ("QLCC") of the Company has the
authority and responsibility to:
1. Adopt written procedures for the confidential receipt, retention and
treatment of any report of evidence of a material violation of any
applicable United States federal or state securities law, a material
breach of fiduciary duty arising under United States federal or
state law, or a similar material violation of any United States
federal or state law (a "Material Violation");
2. Inform the Company's chief legal officer and chief executive
officer, or the equivalents thereof, of any report of evidence of a
Material Violation, except if the QLCC believes that to do so would
be futile;
3. Determine whether an investigation is necessary regarding any report
of evidence of a Material Violation by the Company, its officers,
directors, employees, or agents and, if the QLCC determines an
investigation is necessary or appropriate, to:
a. notify the full Board of Directors;
b. initiate an investigation, which may be conducted either by
the chief legal officer (or equivalent) or by outside
attorneys; and
c. retain such additional expert personnel as the QLCC deems
necessary;
4. At the conclusion of any such investigation, to:
a. recommend, by a majority vote, that the Company implement an
appropriate response to evidence of a Material Violation; and
b. inform the Company's chief legal officer and chief executive
officer, or the equivalents thereof, and the Board of
Directors of the results of any such investigation and the
appropriate remedial measures to be adopted; and
5. By majority vote, to take all other appropriate action, including
the authority to notify the Securities and Exchange Commission in
the event that the Company fails in any material respect to
implement an appropriate response that the QLCC has recommended the
Company to take.
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