FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
October 16, 2003
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, on the 16th day of October 2003,
at 10:00 A.M., Eastern Daylight Savings Time, for the following purposes:
1. To elect eight (8) directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been elected and
shall have qualified;
2. To consider and act upon ratifying the appointment of
PricewaterhouseCoopers LLP as independent auditors for the fiscal year
commencing May 1, 2003.
3. 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 25, 2003
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 28, 2003
If you do not expect to be present at the meeting, please fill in, date and
sign the enclosed Proxy and return it promptly in the enclosed, stamped
envelope.
FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 16, 2003
The accompanying Proxy is solicited by and on behalf of the board of
directors 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 16th day of October 2003, at 10:00 A.M., Eastern
Daylight Savings Time, or any adjournment or adjournments thereof. The Company
will mail this Proxy Statement and the form of Proxy on or about August 28,
2003. Only stockholders of record as of the close of business on August 25, 2003
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 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. Dissenters are not
entitled by law to appraisal rights.
VOTING SECURITIES
On August 25, 2003, the Company had outstanding 8,356,349 shares of common
stock, $1.00 par value ("Common Stock") (excluding 807,591 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 and the ratification of the independent
auditors. Broker non-votes and stockholder abstentions will have no effect on
the outcome of the election of directors. With respect to the ratification of
the independent auditors, a stockholder abstention or a broker non-vote will
have the same effect as if such stockholder or broker voted against this
proposal.
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 a Board of eight
(8) directors ("Director(s)") 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 form of Proxy will be voted
for the re-election of all eight of the present 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 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.
The nominees are as follows:
Nominees for Election as Directors
Year First
Elected
Name Principal Occupation Age Director
Joseph P. Franklin Chairman of the Board 69 1990
(Major General, of Directors
U.S. Army - Ret.)
Martin B. Bloch President, Chief 67 1961
Executive Officer
and a Director
Michel Gillard President, Gillam-FEI 62 2000
and a Director
Joel Girsky President, Jaco 64 1986
Electronics, Inc. and a
Director
John C. Ho (1) Director 70 1968
E. Donald Shapiro Dean Emeritus, 71 1998
New York School
of Law and a Director
Marvin Meirs (2) Director 65 1998
S. Robert Foley, Jr. Chairman, Blue Ribbon 75 1999
(Admiral, U.S. Oversight Committee,
Navy - Ret.) Los Alamos National Lab
and a Director
All directors hold office for a one-year period or until their successors
are elected and qualified.
(1) John Ho retired from his position as Vice President of Research and
Development effective May 1, 1997. He has been retained as a
consultant to the Company.
(2) Marvin Meirs retired from his position as Vice President of
Engineering effective May 1, 1999. He has been retained as a
consultant and part-time employee.
Directors' Fees
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
of Directors' meeting or meeting of a committee of which he is a member.
Officers, including retired officers, do not receive additional compensation for
attendance at Board of Directors' meetings or committee meetings.
BUSINESS EXPERIENCE OF DIRECTORS
MARTIN B. BLOCH, age 67, 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 69, has served as a Director of the Company since
March 1990. In December 1993, he was elected Chairman of the Board of Directors
and Chief Executive Officer of the Company. He relinquished the CEO position in
April 1999. 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.
MICHEL GILLARD, age 62, became an officer and director of the Company when
Gillam-FEI was acquired by the Company in September 2000. Gillam-FEI, a company
engaged in the design, manufacture and marketing of wireline and network
synchronization systems, was founded by Mr. Gillard in 1974. Mr. Gillard has
served as president of Gillam-FEI since its inception.
JOEL GIRSKY, age 64, 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.
JOHN C. HO, age 70, was employed by the Company and its predecessor from
1961 until his retirement on May 1, 1997. Mr. Ho served as a Vice President from
1963 to 1997 and as a Director since 1968. Prior to joining the Company, Mr. Ho
held various engineering positions with International Telephone and Telegraph
Company and Bulova Watch Company. Mr. Ho continues to serve the Company as a
consultant.
E. DONALD SHAPIRO, age 71, has been The Joseph Solomon Distinguished
Professor of Law, New York 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. 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.
MARVIN MEIRS, age 65, joined the Company in 1966 in an engineering
capacity. He served as Vice President for Engineering of the Company from 1978
through his date of retirement, May 1, 1999. Mr. Meirs became a member of the
board of directors in 1998. Mr. Meirs continues to serve the Company as a
consultant and part-time employee.
S. ROBERT FOLEY, Jr., age 75, is the Chairman of the Blue Ribbon Oversight
Committee at Los Alamos National Laboratory. 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 URS Corp. 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.
PROPOSAL NO. 2
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
appointed the firm of PricewaterhouseCoopers LLP, independent accountants, to be
the Company's external auditors for the fiscal year commencing May 1, 2003, and
recommends to stockholders that they vote for ratification of that appointment.
It is anticipated that a representative of PricewaterhouseCoopers LLP will
be present at the meeting. Such representative will be given the opportunity to
make a statement and will be available to respond to appropriate questions.
Audit and Non-Audit Fees
The following table presents the fees for professional audit services
rendered by PricewaterhouseCoopers LLP for the audit of the Company's annual
financial statements for the year ended April 30, 2003, and fees billed for
other services rendered by PricewaterhouseCoopers LLP
Audit fees, including audit-related services $286,360
Financial information systems
design and implementation $0
All other fees(2):
Tax Advisory Services(1) $92,845
(1) Tax Advisory Services include preparation of annual corporate federal
and state tax returns, including amended returns for prior years, advice
regarding European and Asian operations and implementing certain tax-favored
agreements between the parent company and its subsidiaries.
(2) The Audit Committee considered whether the provision of these non-audit
services was compatible with maintaining the independence of
PricewaterhouseCoopers LLP as the Company's independent auditors. The Committee
has concluded the independent
auditors are independent from the Company and its management.
Vote Required
The affirmative vote of a majority of the shares of common stock
represented at the meeting and entitled to vote is required for the ratification
of PricewaterhouseCoopers LLP as the Company's independent auditors for the 2004
fiscal year.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 3
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. 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 form of 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 2004 Annual Meeting of
Stockholders must submit such proposal to the Company no later than April 29,
2004.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of August 25, 2003, 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:
Name and Address Amount and Nature of
of Beneficial Holder Beneficial Ownership Percent of Class
-------------------- -------------------- ----------------
DePrince Race & Zollo, Inc. (1)
201 S. Orange Ave
Orlando, FL 32801 1,191,400 14.3%
Inverness Counsel, Inc. (2)
545 Madison Ave.
New York, NY 10022 807,991 9.7
Dimensional Fund Advisors (3)
1299 Ocean Ave
Santa Monica, CA 90401 456,700 5.5
Frequency Electronics, Inc.,
Employee Stock Ownership Plan (4)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 621,238 7.4
Martin B. Bloch (5)(6)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 949,628 11.4
Joseph P. Franklin (6)(7)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 129,803 1.6
Michel Gillard (6)
Mont Saint-Martin 58
B-4000 Liege, Belgium 207,744 2.5
Joel Girsky (8)
c/o Jaco Electronics, Inc.
145 Oser Avenue
Hauppauge, NY 11788 55,000 *
John C. Ho
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 38,924 *
E. Donald Shapiro (8)
10040 E. Happy Valley Road
Scottsdale, AZ 85255 30,000 *
Marvin Meirs (6)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 35,750 *
S. Robert Foley (8)
58 Katelyn Hills Dr.
Falmouth, MA 02540 30,000 *
Name and Address Amount and Nature of
of Beneficial Holder Beneficial Ownership Percent of Class
-------------------- -------------------- ----------------
Markus Hechler (6)(9)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 106,919 1.3
Oleandro Mancini (6)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 12,390 *
Thomas McClelland (6)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 35,031 *
All executive officers
and directors as a group (15
persons) (6)(9) 1,804,908 21.6%
*designates less than one (1%) percent.
________________________________
Notes:
(1) As reported in a Form 13F for the quarter ended March 31, 2003, filed by
DePrince Race & Zollo, Inc. on May 5, 2003. 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 June 30, 2003 filed by
Inverness Counsel, Inc. ("Inverness"), which is an investment advisor
registered under the Investment Advisors Act of 1940. According to the
Schedule 13D filing dated December 30, 1997, Inverness originally purchased
854,100 shares of 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 March 31, 2003 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 456,700 shares that are owned by such investment
companies, commingled group trusts and separate accounts. Dimensional
disclaims beneficial ownership of such securities.
(4) Includes 500,143 shares of stock held by the F.E.I. ESOP 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 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 25, 2003, 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.
Stock Bonus Profit Sharing
Name Plan Shares ESOP Shares Plan & Trust ISOP or NQSO
401(k) Shares
(a) (b) (c)
----------------------------------- ------------- ---------------- -----------
Martin B. Bloch 22,317 4,198 1,105 -0-
------------------------------------------------------------------------------
Joseph P. Franklin -0- 4,025 773 -0-
------------------------------------------------------------------------------
Marvin Meirs 1,481 5,081 188 8,375
------------------------------------------------------------------------------
Markus Hechler 2,707 5,962 1,001 58,250
------------------------------------------------------------------------------
Michel Gillard -0- -0- -0- 18,750
------------------------------------------------------------------------------
Oleandro Mancini -0- -0- 640 11,750
------------------------------------------------------------------------------
Thomas McClelland 258 5,947 657 14,000
------------------------------------------------------------------------------
All Directors and
Officers as a Group 27,540 45,351 7,695 298,250
(15 persons)
(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, 2003. 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. 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 6 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 67,548 shares issuable on the full exercise of options granted to
General Franklin on December 6, 1993, 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 $4.375, $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.
Name Exercisable Grant Exercise
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
------------------ -------------- ------------------ -----------------
(9) Includes shares granted to the officers of the Company pursuant to a stock
purchase agreement in connection with the 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 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, 2003, the Company's
directors, executive officers and 10% stockholders complied with all Section
16(a) filing requirements applicable to them, except that, through inadvertence,
Michel Gillard did not file on a timely basis a Form 4 upon receiving additional
shares from the Company during the fiscal year ended April 30, 2003. This report
has subsequently been filed with the SEC.
Certain Relationships and Related Transactions
----------------------------------------------
Joel Girsky, one of the Company's directors and Chairman of the Company's
Compensation Committee, is President, a director and owner of approximately 15%
of the outstanding stock of Jaco Electronics, Inc. During the year ended April
30, 2003, the Company purchased component parts from Jaco or one of its
subsidiaries in the aggregate amount of $1.9 million.
Certain Information as to Committees and Meetings of the Board of Directors
---------------------------------------------------------------------------
During the past fiscal year, four meetings of the Board were held, one of
which was conducted by teleconference. Each incumbent Director attended all
meetings of the Board.
In December 1983, the Board appointed an Audit Committee which presently
consists of three Directors, Messrs. Girsky, Foley and Shapiro. Messrs. Foley
and Shapiro are independent as defined in Section 121(A) of the listing
standards of the American Stock Exchange, upon which the Company's Common Stock
is listed and trades. Mr. Girsky is not independent as defined by such listing
standards, because of Mr. Girsky's position as President and owner of
approximately 15% of the outstanding stock of Jaco Electronics, Inc. As
discussed above, the Company purchased component parts from Jaco or one of its
subsidiaries in the aggregate amount of $1.9 million. The Board has determined
that Mr. Girsky's membership on the Audit Committee is in the best interests of
the Company because of Mr. Girsky's long service on the Board, his extensive
knowledge of the electronic components business and his other business
experience and financial skills.
The function of the Audit Committee is to insure the integrity and
credibility of the Company's financial information system and the published
reports flowing out of that system. The Audit Committee held four meetings
during the last fiscal year. The Audit Committee's report appears on page 12 of
this proxy statement.
The Compensation Committee presently consists of four Directors, Messrs.
Girsky, Shapiro, Foley and Franklin. The 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 10 and 11 of this proxy statement. The
Compensation Committee held one meeting during fiscal year 2003.
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. The 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 shareholders 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:
Base Salaries
-------------
The 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 13 (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.
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 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 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
Committee recognized Mr. Bloch's untiring efforts in developing new,
non-military technology applications, markets and marketing programs which the
Committee believes will continue to help position the Company to compete more
effectively in commercial as well as military markets. The 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 Company and the
Committee believe 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
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. 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, 2003, 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 four meetings during fiscal 2003.
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, 2003 for filing with the Securities and
Exchange Commission. The Audit Committee and the Board have also recommended,
subject to shareholder approval, the selection of the Company's independent
auditors.
E. Donald Shapiro, Chairman of Audit Committee
Joel Girsky
S. Robert Foley
Members of the Audit Committee
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 2003.
Annual Compensation Long-Term
Compensation Awards
---------------------------------- ------------------------
(4) $Value of
Other Restricted
Name and Principal Annual Stock
Position Year Salary Bonus Compensation Awards(5) Options
---------------------- ---- ---------- ---------- ------------ ------------- ----------
Martin B. Bloch (1) 2003 $415,385 -0- $24,742 $2,923 -0-
---- ---------- ---------- ------------ ------------- ----------
President, Chief 2002 415,385 -0- 35,972 5,648 -0-
---- ---------- ---------- ------------ ------------- ----------
Executive Officer 2001 522,933 $350,000 27,209 7,948 180,000(6)
---------------------------------------------------------------------------------------
Markus Hechler, 2003 183,462 -0- 22,416 2,947 8,000(7)
---- ---------- ---------- ------------ ------------- ----------
Executive Vice 2002 183,462 -0- 21,419 4,490 15,000(7)
---- ---------- ---------- ------------ ------------- ----------
President 2001 162,884 75,000 21,966 7,392 10,000(7)
---------------------------------------------------------------------------------------
Michel Gillard (2) 2003 177,481 -0- 26,492 -0- -0-
---- ---------- ---------- ------------ ------------- ----------
President, Gillam-FEI 2002 175,410 -0- 23,418 -0- -0-
---- ---------- ---------- ------------ ------------- ----------
2001 94,671 20,000 6,639 -0- 25,000(7)
---------------------------------------------------------------------------------------
Oleandro Mancini (3) 2003 126,000 -0- 24,679 3,163 7,000(7)
---- ---------- ---------- ------------ ------------- ----------
Vice-President, 2002 122,308 -0- 20,208 4,125 10,000(7)
---- ---------- ---------- ------------ ------------- ----------
Business Development 2001 87,692 25,000 10,111 -0- 10,000(7)
---------------------------------------------------------------------------------------
Thomas McClelland 2003 125,881 -0- 24,221 3,062 7,000(7)
---- ---------- ---------- ------------ ------------- ----------
Vice President, 2002 132,029 -0- 21,515 4,274 5,000(7)
---- ---------- ---------- ------------ ------------- ----------
Commercial Products 2001 112,125 36,000 7,985 7,413 5,000(7)
Notes:
(1) In prior fiscal years, Mr. Bloch voluntarily reduced his $325,000 base
salary to $263,250. In fiscal 2001, Mr. Bloch received a payment of
$130,625 in restored salary for fiscal years 1998 and 1999 as a result of
the Company's return to profitability.
(2) Mr. Gillard became an officer and director of the Company in October 2000
after Gillam-FEI was acquired. His compensation and benefits are shown only
from the date of acquisition.
(3) Mr. Mancini joined the Company during the second quarter of fiscal 2001.
(4) 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.
(5) 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 2003, 2002 and 2001, the Company made matching
contributions of Company common stock to the accounts of Named Officers in
amounts which varied from 327 to 354 shares in fiscal 2003, from 285 to 393
shares in fiscal 2002 and from 76 to 386 shares in fiscal 2001. The average
market value of the awarded shares at time of allocation was $8.95 in
fiscal 2003, $14.38 in fiscal 2002 and $20.55 in fiscal 2001. Company
matching contributions to the 401(k) plan are made in proportion to the
cash contributions of individual employees to the plan. Mr. Gillard, who is
not a resident of the United States, does not participate in the 401(k)
plan.
(6) Represents shares awarded under the Senior Executive Stock Option Plan. The
exercise prices of the awarded options are at the fair market value of the
Company's common stock on the date of grant. The options are fully
exercisable one year after date of grant.
(7) Represents shares awarded under the Employee Stock Option Plans. The
exercise prices of the awarded options are at the fair market value of the
Company's common stock on the date of grant. (See Option Grants in Fiscal
2003 below.) The options are exercisable in increments of 25% annually (and
cumulatively) beginning one year after date of grant.
Stock Options
-------------
Options Granted: The following table sets forth certain information with
respect to options to acquire common stock that were granted during the fiscal
year ended April 30, 2003, to each of the Named Officers under the Company's
stock option plans.
OPTION GRANTS IN FISCAL 2003
Individual Grants
-------------------------------------------------------------------
No. of % of Total Potential Realizable Value
Securities Options Exercise at Assumed Annual Rates of
Underlying Granted to or Base Stock Price Appreciation for
Options Employees in Price Expiration Option Term
Name Granted Fiscal Year ($/Sh) Date ----------------------------
5% ($) 10% ($)
Martin B. Bloch -0- - - - - -
Markus Hechler 8,000 6.75% $6.615 7/26/12 $33,281 $84,341
Michel Gillard -0- - - - - -
Thomas McClelland 7,000 5.9% $6.615 7/26/12 29,121 73,798
Oleandro Mancini 7,000 5.9% $6.615 7/26/12 29,121 73,798
Option Exercises and Year-end Values:
-------------------------------------
The following table sets forth certain information with respect to options
exercised during fiscal 2003 by each Named Officer and option values as of April
30, 2003.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2003
AND FISCAL YEAR-END OPTION VALUES
No. of Securities
Underlying Value of
Unexercised Unexercised In-the-
Shares Options at Fiscal Money Options at
Acquired year-end Fiscal Year-end ($)
on Value Exercisable (E)/ Exercisable (E)/
Name Exercise Realized ($) Unexercisable (U) Unexercisable (U)
---- -------- ------------ ----------------- -----------------
Martin B. Bloch -0- $ -0- 138,000 (E) $127,800 (E)
90,000 (U) $0 (U)
Markus Hechler -0- -0- 61,250 (E) $187,053 (E)
24,250 (U) $27,880 (U)
Michel Gillard -0- -0- 12,500 (E) $0 (E)
12,500 (U) $0 (U)
Thomas McClelland -0- -0- 16,500 (E) $31,676 (E)
14,500 (U) $28,195 (U)
Oleandro Mancini -0- -0- 7,500 (E) $0 (E)
19,500 (U) $0 (U)
Securities Authorized for Issuance under Equity Compensation Plans:
-------------------------------------------------------------------
The following table sets forth as of April 30, 2003, the number of shares
of Company 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 securities Weighted-average Number of securities remaining
to be issued upon exercise price of available for future issuance
exercise of outstanding options, under equity compensation plans
outstanding options, warrants and rights (excluding securities reflected
warrants and rights in column (a))
(a) (b) (c)
---------------------------- ---------------------- --------------------- -------------------------------
Equity compensation plans
approved by security 343,750 $7.76 297,750
holders
---------------------------- ---------------------- --------------------- -------------------------------
Equity compensation plans
not approved by security 824,162 $12.52 298,000
holders (see Note)
---------------------------- ---------------------- --------------------- -------------------------------
Total 1,167,912 $11.12 595,750
---------------------------- ---------------------- --------------------- -------------------------------
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.
iii- President's Employment Contract- Under the terms of an employment contract,
adopted in fiscal year 2001, 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
of the plan upon the death of the participant. The annual premiums paid during
fiscal 2003 were less than the increase in cash surrender value of such
insurance policies. The annual benefit provided under the program in fiscal 2003
upon retirement at age 65 or death is as follows: Martin B. Bloch- $170,000,
Markus Hechler- $60,000, Oleandro Mancini- $25,000 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, 1998 in each of the common stock of the
Company, the stock of the companies comprising the S&P 600 Small Cap Index and
the stocks of the companies comprising the Peer Group Index, including the
reinvestment of dividends through April 30, 2003. The Peer Group Index consists
of Aeroflex Inc., Anaren Inc., Ball Corp., Comtech Telecommunications Corp., EDO
Corp., Merrimac Industries, Inc., Odetics, Inc., Scientific Atlanta, Inc.,
Skyworks Solutions, Inc., Symmetricom Inc. and Trimble Navigation, Ltd.
Cumulative Total Shareholder Return for
Five-year Period Ended April 30, 2003
Performance Graph is Graphical Material and is NOT electronically filed
with this submission. A paper copy of the graph is filed with Form SE.
Performance Graph Data Table:
1998 1999 2000 2001 2002 2003
--------------------------------------------------------------------------------
Frequency Electronics $100.00 $49.43 $108.70 $101.08 $85.13 $69.07
--------------------------------------------------------------------------------
S&P 600 Small Cap $100.00 $85.71 $103.27 $111.63 $130.09 $102.84
--------------------------------------------------------------------------------
Peer Group $100.00 $131.43 $350.96 $301.30 $185.17 $163.29
--------------------------------------------------------------------------------
Employment Contracts and Change-In-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 10, 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.
ANNUAL REPORT
A copy of the Company's combined Annual Report and Form 10-K/A, including
the financial statements and the financial statement schedule thereto, for the
fiscal year ended April 30, 2003 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/A to any Stockholders
who request such a copy.
By Order of the Board of Directors,
/s/HARRY NEWMAN
---------------
HARRY NEWMAN
Secretary
Dated: August 28, 2003
Appendix A
A-1
Performance Graph is Graphical Material and is NOT electronically filed
with this submission. A paper copy of the graph is filed with Form SE.