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 Under ss.240.14a-12
FREQUENCY ELECTRONICS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO OF FREQUENCY ELECTRONICS]
FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
September 29, 2005
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 29th day of
September 2005, at 10:00 A.M., Eastern Daylight Savings Time, for the following
purposes:
1. To elect six (6) 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 Holtz Rubenstein
Reminick LLP as independent auditors for the fiscal year commencing
May 1, 2005.
3. To consider and act upon adoption of the Frequency Electronics, Inc.
2005 Stock Award Plan.
4. 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 26, 2005,
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
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HARRY NEWMAN
Secretary
Mitchel Field, New York
August 26, 2005
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 29, 2005
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 29th day of September 2005, 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 26, 2005. Only stockholders of record as of the close of
business on August 26, 2005 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.
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 26, 2005, as the record
date for determination of stockholders entitled to notice of, and to vote at,
the meeting. On August 26, 2005, the Company had outstanding 8,526,600 shares of
common stock, $1.00 par value per share ("Common Stock") (excluding 637,340
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.
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 six (6)
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 six 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 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 71 1990
(Major General, of Directors
U.S. Army - Ret.)
Martin B. Bloch President, Chief 69 1961
Executive Officer
and a Director
Joel Girsky President, Jaco 66 1986
Electronics, Inc., and a
Director
E. Donald Shapiro Dean Emeritus, 73 1998
New York University School
of Law and a Director
S. Robert Foley, Jr. Vice President for Laboratory 77 1999
(Admiral, U.S. Management, University of
Navy - Ret.) California, and a Director
Richard Schwartz Trustee, Cooper Union and 69 2004
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 four (4) independent
members (Messrs. Foley, Girsky, Shapiro and Schwartz), 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 is in full
compliance with the listing requirements of the AMEX as required under 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
receives a stipend of $10,000. Company officers do not receive additional
compensation for attendance at Board meetings or committee meetings.
Business Experience of Directors
MARTIN B. BLOCH, age 69, 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 71, 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 66, 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 73, 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 77, 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.
RICHARD SCHWARTZ, age 69, is a trustee and chairman of the Finance
Committee of Cooper Union in New York City. Prior to his retirement in 2000, Mr.
Schwartz was Chief Executive Officer and Chairman of ATK. He served in senior
executive positions at ATK and predecessor companies since 1990. Prior to that
Mr. Schwartz had been president of the Rocketdyne division of Rockwell
International, a company he first joined in 1957. Mr. Schwartz also serves on
the board of directors of Astronautics Corporation of America.
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 Holtz Rubenstein Reminick LLP, independent accountants, to
be the Company's external auditors for the fiscal year commencing May 1, 2005,
and recommends to stockholders that they vote for ratification of that
appointment.
It is anticipated that a representative of Holtz Rubenstein Reminick 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 aggregate fees billed for professional
services rendered by Holtz Rubenstein Reminick LLP in fiscal years 2005 and
2004. Other than as set forth below, no professional services were rendered or
fees billed by Holtz Rubenstein Reminick LLP during fiscal years 2005 and 2004.
Service 2005 2004
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Audit Fees (1) $191,225 -
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Audit-Related Fees (2) 53,374 $29,709
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Tax Fees (3) 10,463
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All Other Fees (4) - -
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TOTAL $255,062 $29,709
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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) Other audit-related services provided by Holtz Rubenstein Reminick LLP
include the annual audit of the Company's employee benefit plans as
well as accounting consultations regarding significant transactions
during the fiscal year.
(3) Tax fees consist of fees for services rendered to the Company for tax
compliance, tax planning and advice.
(4) No other services were performed by Holtz Rubenstein Reminick LLP, in
connection with financial information systems design and
implementation or otherwise.
Pre-Approved Services
Prior to engaging Holtz Rubenstein Reminick 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 Holtz
Rubenstein Reminick 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 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.
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 Holtz Rubenstein Reminick LLP as the Company's independent auditors for the
2006 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
APPROVAL OF THE FREQUENCY ELECTRONICS, INC.
2005 STOCK AWARD PLAN
The Board has adopted, subject to approval by the Stockholders of the
Company, a new stock award plan entitled, "Frequency Electronics, Inc. 2005
Stock Award Plan" (the "2005 Stock Plan"). If approved by shareholders, the 2005
Stock Plan will be used to provide stock-based incentive compensation to the
Company's eligible employees, directors and independent contractors. The 2005
Stock Plan is intended to meet the objective of balancing shareholder concerns
about dilution with the Company's need to continue to provide appropriate
incentives to achieve Company performance objectives. The Board of Directors
believes that the fundamental objectives of a long-term incentive compensation
program are to align the interests of management and the shareholders and to
create long-term shareholder value. The Company's Board of Directors believes
that the 2005 Stock Plan increases its ability to achieve these objectives by
allowing for several different forms of long-term incentive awards, which will
help the Company recruit, reward, motivate and retain talented personnel.
Key terms of the 2005 Stock Award Plan include:
o The Company will increase the shares available for grant under its
stock compensation plans by a net amount of 100,750 shares of Common
Stock. This is achieved by having a share reserve of 400,000 shares
under the 2005 Stock Plan and the elimination of available share
reserves for a total of 299,250 shares under prior stock compensation
plans of the Company.
o The Company will terminate and will no longer make grants under any of
its existing equity compensation plans, including those plans which
have not received stockholder approval.
o The 2005 Stock Plan does not permit the grant of stock option or stock
appreciation right awards with an exercise price less than fair market
value of Common Stock on the date of grant.
o The 2005 Stock Plan permits the grant of stock based awards other than
stock options, including the grant of "full value" awards such as
restricted stock, stock units and performance shares.
o The 2005 Stock Plan will permit the qualification of awards under the
plan (payable in either stock or cash) as "performance-based
compensation" within the meaning of Section 162(m) of the Internal
Revenue Code (the "Code"). See "Federal Income Tax Information" below
for a more detailed discussion of the application of Section 162(m).
o Any shares not issued in connection with awards outstanding under
existing stock compensation plans of the Company will become available
for issuance under the 2005 Stock Plan. As of April 30, 2005,
1,273,537 shares of the Company's Common Stock are issuable upon
exercise of outstanding options (as described in more detail below
under the section heading "Shares Available for Awards").
o Any shares not issued in connection with awards granted under the 2005
Stock Plan, (as described in more detail below under the section
heading "Shares Available for Awards") will become available for
reissuance under the 2005 Stock Plan.
As shown in the table on page 25 under the caption, Securities Authorized
for Issuance under Equity Compensation Plans, as of April 30, 2005, an aggregate
of 1,273,537 shares of the Company's common stock ("Common Stock") are issuable
upon exercise of outstanding options and the Company has available 299,250
shares for issuance under existing equity compensation plans. The Board of
Directors has approved the 2005 Stock Plan, subject to approval from the
Company's stockholders at the annual meeting. If the stockholders approve the
2005 Stock Plan, the Company will terminate the Company's other equity
compensation plans as to new awards. If the stockholders do not approve the 2005
Stock Plan, the Company's existing equity compensation plans will remain in
effect in accordance with their current terms.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the proposal. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes will be counted towards
a quorum, but will not be counted for any purpose in determining whether this
matter has been approved. The Company's named executive officers and directors
have an interest in this proposal.
Material Features of the 2005 Stock Award Plan
The material features of the 2005 Stock Plan are outlined below. This
summary is qualified in its entirety by reference to the complete text of the
2005 Stock Plan. Any stockholder who wishes to obtain a copy of the actual plan
document may receive one upon written request to the Company at 55 Charles
Lindbergh Boulevard, Mitchel Field, New York 11553, Attention: Investor
Relations.
Background and Purpose
The terms of the 2005 Stock Plan provide for the grant of stock options,
stock appreciation rights, restricted stock, stock units, bonus stock, dividend
equivalents, other stock-related awards and performance awards that may be
settled in cash, stock, or other property.
The purpose of the 2005 Stock Plan is to provide a means by which
employees, directors, and independent contractors of the Company and those of
its subsidiaries and other designated affiliates, which are referred to together
as affiliates, may be given an opportunity to purchase Common Stock, to assist
in retaining the services of such persons, to secure and retain the services of
persons capable of filling such positions, and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
affiliates.
Shares Available for Awards
The total number of shares of Common Stock that may be subject to awards
under the 2005 Stock Plan is equal to 400,000 shares, plus (i) the number of
shares with respect to which awards granted under the 2005 Stock Plan terminate
without the issuance of the shares or where the shares are forfeited or
repurchased; (ii) the number of shares with respect to which awards previously
granted under the prior plans terminate without the issuance of the shares or
where the shares are forfeited or repurchased; (iii) with respect to awards
granted under the 2005 Stock Plan or the prior plans, the number of shares which
are not issued as a result of the award being settled for cash or otherwise not
issued in connection with the exercise or payment of the award and (iv) the
number of shares that are surrendered or withheld in payment of the exercise
price of any award or any tax withholding requirements in connection with any
award granted under the 2005 Stock Plan or the prior plans.
Limitations on Awards
The 2005 Stock Plan imposes individual limitations on certain awards, in
part to comply with Section 162(m) of the Internal Revenue Code of 1986. Under
these limitations, no more than 200,000 shares of stock may be granted to an
individual during any fiscal year pursuant to any awards granted under the 2005
Stock Plan. The maximum amount that may be earned by any one participant as a
Performance Award (payable in cash) or other cash award for a performance period
is $1,000,000.
Capitalization Adjustments
In the event that a dividend or other distribution (whether in cash, shares
of Common Stock, or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, share
exchange, liquidation, dissolution or other similar corporate transaction or
event affects Common Stock, so that an adjustment, substitution or exchange is
determined to be appropriate by the plan administrator, then the plan
administrator is authorized to adjust any or all of (1) the kind and number of
shares available under the 2005 Stock Plan, (2) the kind and number of shares
subject to limitations on awards described in the preceding paragraph, (3) the
kind and number of shares subject to all outstanding awards, (4) the exercise
price of options or any purchase price relating to other awards and (5) other
affected terms of awards. The plan administrator is authorized to adjust
performance conditions and other terms of awards in response to unusual or
nonrecurring events, or in response to changes in applicable laws, regulations,
or accounting principles.
Eligibility
The persons eligible to receive awards under the 2005 Stock Plan consist of
officers, directors, employees, and independent contractors of the Company and
those of its affiliates. However, incentive stock options may be granted under
the 2005 Stock Plan only to Company employees, including officers, and those of
its affiliates.
Administration
The Board of Directors will administer the 2005 Stock Plan unless it
delegates administration of the 2005 Stock Plan to one or more committees of the
Board of Directors. Together, the Board of Directors and any committee(s)
delegated to administer the 2005 Stock Plan are referred to as the plan
administrator. If a committee is delegated to administer the 2005 Stock Plan,
then the committee members may be "non-employee directors" as defined by Rule
16b-3 of the Securities Exchange Act, "outside directors" for purposes of
Section 162(m), and independent as defined by the American Stock Exchange or any
other national securities exchange on which any of the securities of the Company
may be listed for trading in the future. Subject to the terms of the 2005 Stock
Plan, the plan administrator is authorized to select eligible persons to receive
awards, determine the type and number of awards to be granted and the number of
shares of Common Stock to which awards will relate, specify times at which
awards will be exercisable or may be settled (including performance conditions
that may be required as a condition thereof), set other terms and conditions of
awards, prescribe forms of award agreements, interpret and specify rules and
regulations relating to the 2005 Stock Plan, and make all other determinations
that may be necessary or advisable for the administration of the 2005 Stock
Plan. The plan administrator may amend the terms of outstanding awards, in its
discretion; provided that any amendment that adversely affects the rights of the
award recipient must receive the approval of such recipient.
Stock options and stock appreciation rights
The plan administrator is authorized to grant stock options, including both
incentive stock options, which are referred to as ISOs, and non-qualified stock
options. In addition, the plan administrator is authorized to grant stock
appreciation rights, which entitle the participant to receive the appreciation
in Common Stock between the grant date and the exercise date of the stock
appreciation right. The plan administrator determines the exercise price per
share subject to an option and the grant price of a stock appreciation right.
However, the per share exercise price of an option or stock appreciation right
must not be less than the fair market value of a share of Common Stock on the
grant date. The plan administrator generally will fix the maximum term of each
option or stock appreciation right, the times at which each stock option or
stock appreciation right will be exercisable, and provisions requiring
forfeiture of unexercised stock options or stock appreciation rights at or
following termination of employment or service, except that no ISO may have a
term exceeding ten years. Stock options may be exercised by payment of the
exercise price in any form of legal consideration specified by the plan
administrator, including cash, shares (so long as the plan administrator
determines that the payment with shares will not cause a financial accounting
charge), and outstanding awards or other property having a fair market value
equal to the exercise price. The plan administrator determines methods of
exercise and settlement and other terms of the stock appreciation rights.
Restricted Stock and Stock Units
The plan administrator is authorized to grant restricted stock and stock
units. Restricted stock is a grant of shares of Common Stock, which may not be
sold or disposed of and which may be forfeited in the event of certain
terminations of employment or service, prior to the end of a restricted period
specified by the plan administrator. A participant granted restricted stock
generally has all of the rights of one of the Company's stockholders, unless
otherwise determined by the plan administrator. An award of a stock unit confers
upon a participant the right to receive shares of Common Stock at the end of a
specified period, and may be subject to possible forfeiture of the award in the
event of certain terminations of employment prior to the end of a specified
period. Prior to settlement, an award of a stock unit carries no voting or
dividend rights or other rights associated with share ownership, although
dividend equivalents may be granted, as discussed below.
Dividend Equivalents
The plan administrator is authorized to grant dividend equivalents
conferring on participants the right to receive, currently or on a deferred
basis, cash, shares of Common Stock, other awards, or other property equal in
value to dividends paid on a specific number of shares of Common Stock or other
periodic payments. Dividend equivalents may be granted alone or in connection
with another award, may be paid currently or on a deferred basis and, if
deferred, may be deemed to have been reinvested in additional shares of Common
Stock, awards or otherwise as specified by the plan administrator.
Bonus Stock and Awards in Lieu of Cash Obligations
The plan administrator is authorized to grant shares of Common Stock as a
bonus free of restrictions for services performed for the Company or to grant
shares of Common Stock or other awards in lieu of the Company's obligations to
pay cash under the 2005 Stock Plan or other plans or compensatory arrangements,
subject to such terms as the plan administrator may specify.
Other Stock-Based Awards
The plan administrator is authorized to grant awards under the 2005 Stock
Plan that are denominated or payable in, valued by reference to, or otherwise
based on or related to shares of Common Stock. Such awards might include
convertible or exchangeable debt securities, other rights convertible or
exchangeable into shares of Common Stock, purchase rights for shares of Common
Stock, awards with value and payment contingent upon the Company's performance
or any other factors designated by the plan administrator, and awards valued by
reference to the book value of shares of Common Stock or the value of securities
of or the performance of specified subsidiaries or business units. The plan
administrator determines the terms and conditions of such awards.
Performance Awards
The right of a participant to exercise or receive a grant or settlement of
an award, and the timing thereof, may be subject to such performance conditions,
including subjective individual goals, as may be specified by the plan
administrator. In addition, the 2005 Stock Plan authorizes specific performance
awards, which represent a conditional right to receive cash, shares of Common
Stock, or other awards upon achievement of certain pre-established performance
goals and subjective individual goals during a specified fiscal year.
Performance awards granted to persons whom the plan administrator expects will,
for the year in which a deduction arises, be "covered employees" (as defined
below) may, if and to the extent intended by the plan administrator, be subject
to provisions that should qualify such awards as "performance-based"
compensation not subject to the limitation on tax deductibility by the Company
under Section 162(m). For purposes of Section 162(m), the term "covered
employee" means the Company's chief executive officer and its four highest
compensated officers as of the end of a taxable year as disclosed in the
Company's filings with the Securities and Exchange Commission. If and to the
extent required under Section 162(m), any power or authority relating to a
performance award intended to qualify under Section 162(m) is to be exercised by
a committee which will qualify under Section 162(m), rather than the Board of
Directors.
Subject to the requirements of the 2005 Stock Plan, the plan administrator
will determine performance award terms, including the required levels of
performance with respect to specified business criteria, the corresponding
amounts payable upon achievement of such levels of performance, termination and
forfeiture provisions, and the form of settlement. One or more of the following
business criteria based on the Company's consolidated financial statements,
and/or those of its affiliates, or for its business units (except with respect
to the total shareholder return and earnings per share criteria), will be used
by the plan administrator in establishing performance goals for performance
awards designed to comply with the performance-based compensation exception to
Section 162(m): (1) earnings per share; (2) revenues or margins; (3) cash flow;
(4) operating margin; (5) return on net assets, investment, capital, or equity;
(6) economic value added; (7) direct contribution; (8) net income; pretax
earnings; earnings before interest and taxes; earnings before interest, taxes,
depreciation and amortization; earnings after interest expense and before
extraordinary or special items; operating income; income before interest income
or expense, unusual items and income taxes, local, state or federal and
excluding budgeted and actual bonuses which might be paid under any of the
Company's ongoing bonus plans; (9) working capital; (10) management of fixed
costs or variable costs; (11) identification or consummation of investment
opportunities or completion of specified projects in accordance with corporate
business plans, including strategic mergers, acquisitions or divestitures; (12)
total stockholder return; and (13) debt reduction. For covered employees, the
performance goals and the determination of their achievement shall be made in
accordance with Section 162(m).
Other Terms of Awards
Awards may be settled in the form of cash, shares of Common Stock, other
awards, or other property in the discretion of the plan administrator. Awards
under the 2005 Stock Plan are generally granted without a requirement that the
participant pay consideration in the form of cash or property for the grant (as
distinguished from the exercise), except to the extent required by law. The plan
administrator may require or permit participants to defer the settlement of all
or part of an award in accordance with such terms and conditions as the plan
administrator may establish, including payment or crediting of interest or
dividend equivalents on deferred amounts, and the crediting of earnings, gains,
and losses based on deemed investment of deferred amounts in specified
investment vehicles. The plan administrator is authorized to place cash, shares
of Common Stock, or other property in trusts or make other arrangements to
provide for payment of the Company's obligations under the 2005 Stock Plan. The
plan administrator may condition any payment relating to an award on the
withholding of taxes and may provide that a portion of any shares of Common
Stock or other property to be distributed will be withheld (or previously
acquired shares of Common Stock or other property be surrendered by the
participant) to satisfy withholding and other tax obligations. Awards granted
under the 2005 Stock Plan generally may not be pledged or otherwise encumbered
and are not transferable except by will or by the laws of descent and
distribution, or to a designated beneficiary upon the participant's death,
except that the plan administrator may, in its discretion, permit transfers of
awards subject to any applicable legal restrictions. The plan administrator may
cancel awards granted under the 2005 Stock Plan in exchange for a payment of
cash or other property. The plan administrator, in its sole discretion, will
determine the terms of any exchange of or purchase of an award.
Acceleration of Vesting; Change in Control
The plan administrator, in its discretion, may accelerate the vesting,
exercisability, lapsing of restrictions, or expiration of deferral of any award,
including if the Company undergoes a "change in control," as defined in the 2005
Stock Plan. In addition, the plan administrator may provide in an award
agreement that the performance goals relating to any performance-based award
will be deemed to have been met upon the occurrence of any "change in control."
The award agreement may provide for the vesting of an award upon a change of
control, including vesting if a participant is terminated by the Company or its
successor without "cause" or terminates for "good reason."
To the extent the Company undergoes a corporate transaction, the 2005 Stock
Plan provides that outstanding awards may be assumed, substituted for or
continued in accordance with their terms. If the awards are not assumed,
substituted for or continued, to the extent applicable, such awards will
terminate immediately prior to the close of the corporate transaction. The plan
administrator may, in its discretion, either cancel the outstanding awards in
exchange for a cash payment or vest all or part of the award contingent on the
corporate transaction.
Amendment and Termination
The Board of Directors may amend, alter, suspend, discontinue, or terminate
the 2005 Stock Plan or the plan administrator's authority to grant awards
without further stockholder approval, except stockholder approval must be
obtained for any amendment or alteration if such approval is required by law or
regulation or under the rules of any stock exchange or quotation system on which
shares of Common Stock are then listed or quoted. Unless earlier terminated by
the Board of Directors, the 2005 Stock Plan will terminate on the earlier of (1)
ten years after the later of (x) its adoption by the Board of Directors and (y)
the approval of an increase in the number of shares reserved under the 2005
Stock Plan by the Board of Directors (contingent upon such increase being
approved by the Company's stockholders) and (2) such time as no shares of Common
Stock remain available for issuance under the 2005 Stock Plan and no further
rights or obligations with respect to outstanding awards are outstanding under
the 2005 Stock Plan. Amendments to the 2005 Stock Plan or any award require the
consent of the affected participant if the amendment has a material adverse
effect on the participant.
Federal Income Tax Consequences of Awards
The information set forth below is a summary only and does not purport to
be complete. In addition, the information is based upon current federal income
tax rules and therefore is subject to change when those rules change. Moreover,
because the tax consequences to any recipient may depend on his or her
particular situation, each recipient should consult the recipient's tax adviser
regarding the federal, state, local, and other tax consequences of the grant or
exercise of an award or the disposition of stock acquired as a result of an
award. The 2005 Stock Plan is not qualified under the provisions of Section
401(a) of the Code and is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974.
Nonqualified Stock Options
Generally, there is no taxation upon the grant of a nonqualified stock
option where the option is granted with an exercise price equal to the fair
market value of the underlying stock on the grant date. On exercise, an optionee
will recognize ordinary income equal to the excess, if any, of the fair market
value on the date of exercise of the stock over the exercise price. If the
optionee is an employee of the Company or one of its affiliates, that income
will be subject to withholding tax. The optionee's tax basis in those shares
will be equal to their fair market value on the date of exercise of the option,
and the optionee's capital gain holding period for those shares will begin on
that date.
Subject to the requirement of reasonableness, the provisions of Section
162(m) and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a tax deduction equal to the taxable ordinary income
realized by the optionee.
Incentive Stock Options
The 2005 Stock Plan provides for the grant of stock options that qualify as
"incentive stock options," which are referred to as ISOs, as defined in Section
422 of the Code. Under the Code, an optionee generally is not subject to
ordinary income tax upon the grant or exercise of an ISO. In addition, if the
optionee holds a share received on exercise of an ISO for at least two years
from the date the option was granted and at least one year from the date the
option was exercised, which is referred to as the Required Holding Period, the
difference, if any, between the amount realized on a sale or other taxable
disposition of that share and the holder's tax basis in that share will be
long-term capital gain or loss.
If, however, an optionee disposes of a share acquired on exercise of an ISO
before the end of the Required Holding Period, which is referred to as a
Disqualifying Disposition, the optionee generally will recognize ordinary income
in the year of the Disqualifying Disposition equal to the excess, if any, of the
fair market value of the share on the date the ISO was exercised over the
exercise price. However, if the sales proceeds are less than the fair market
value of the share on the date of exercise of the option, the amount of ordinary
income recognized by the optionee will not exceed the gain, if any, realized on
the sale. If the amount realized on a Disqualifying Disposition exceeds the fair
market value of the share on the date of exercise of the option, that excess
will be short-term or long-term capital gain, depending on whether the holding
period for the share exceeds one year.
For purposes of the alternative minimum tax, the amount by which the fair
market value of a share of stock acquired on exercise of an ISO exceeds the
exercise price of that option generally will be an adjustment included in the
optionee's alternative minimum taxable income for the year in which the option
is exercised. If, however, there is a Disqualifying Disposition of the share in
the year in which the option is exercised, there will be no adjustment for
alternative minimum tax purposes with respect to that share. If there is a
Disqualifying Disposition in a later year, no income with respect to the
Disqualifying Disposition is included in the optionee's alternative minimum
taxable income for that year. In computing alternative minimum taxable income,
the tax basis of a share acquired on exercise of an ISO is increased by the
amount of the adjustment taken into account with respect to that share for
alternative minimum tax purposes in the year the option is exercised.
The Company is not allowed an income tax deduction with respect to the
grant or exercise of an incentive stock option or the disposition of a share
acquired on exercise of an incentive stock option after the Required Holding
Period. However, if there is a Disqualifying Disposition of a share, the Company
is allowed a deduction in an amount equal to the ordinary income includible in
income by the optionee, subject to Section 162(m) and provided that amount
constitutes an ordinary and necessary business expense for the Company and is
reasonable in amount, and either the employee includes that amount in income or
the Company timely satisfies its reporting requirements with respect to that
amount.
Stock Awards
Generally, the recipient of a stock award will recognize ordinary
compensation income at the time the stock is received equal to the excess, if
any, of the fair market value of the stock received over any amount paid by the
recipient in exchange for the stock. If, however, the stock is not vested when
it is received (for example, if the employee is required to work for a period of
time in order to have the right to sell the stock), the recipient generally will
not recognize income until the stock becomes vested, at which time the recipient
will recognize ordinary compensation income equal to the excess, if any, of the
fair market value of the stock on the date it becomes vested over any amount
paid by the recipient in exchange for the stock. A recipient may, however, file
an election with the Internal Revenue Service, within 30 days of his or her
receipt of the stock award, to recognize ordinary compensation income, as of the
date the recipient receives the award, equal to the excess, if any, of the fair
market value of the stock on the date the award is granted over any amount paid
by the recipient in exchange for the stock.
The recipient's basis for the determination of gain or loss upon the
subsequent disposition of shares acquired from stock awards will be the amount
paid for such shares plus any ordinary income recognized either when the stock
is received or when the stock becomes vested.
Subject to the requirement of reasonableness, the provisions of Section
162(m) and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a tax deduction equal to the taxable ordinary income
realized by the recipient of the stock award.
Stock Appreciation Rights
The Company may grant stock appreciation rights separate from any other
award, which is referred to as stand-alone stock appreciation rights, or in
tandem with options, which is referred to as tandem stock appreciation rights,
under the 2005 Stock Plan.
With respect to stand-alone stock appreciation rights, where the rights are
granted with a strike price equal to the fair market value of the underlying
stock on the grant date and where the recipient may only receive the
appreciation inherent in the stock appreciation rights in shares of Common
Stock, the recipient will recognize ordinary compensation income equal to the
fair market value of the stock on the day the right is exercised and the shares
of Common Stock are delivered. If the recipient may receive the appreciation
inherent in the stock appreciation rights in cash and the stock appreciation
right has been structured to conform to the requirements of Section 409A of the
Code, the cash will be taxable as ordinary compensation income to the recipient
at the time that the cash is received.
The Company has not granted and does not plan to grant any tandem stock
appreciation rights, due to the adverse tax consequences of such awards under
Section 409A of the Code.
Subject to the requirement of reasonableness, the provisions of Section
162(m), and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a tax deduction equal to the taxable ordinary income
realized by the recipient of the stock appreciation right.
Stock Units
Generally, the recipient of a stock unit structured to conform to the
requirements of Section 409A of the Code or an exception to Section 409A of the
Code will recognize ordinary compensation income at the time the stock is
delivered equal to the excess, if any, of the fair market value of the shares of
Common Stock received over any amount paid by the recipient in exchange for the
shares of Common Stock. To conform to the requirements of Section 409A of the
Code, the shares of Common Stock subject to a stock unit award may only be
delivered upon one of the following events: a fixed calendar date, separation
from service, death, disability or a change of control. If delivery occurs on
another date, unless the stock units qualify for an exception to the
requirements of Section 409A of the Code, in addition to the tax treatment
described above, there will be an additional twenty percent excise tax and
interest on any taxes owed.
The recipient's basis for the determination of gain or loss upon the
subsequent disposition of shares acquired from stock units, will be the amount
paid for such shares plus any ordinary income recognized when the stock is
delivered.
Subject to the requirement of reasonableness, the provisions of Section
162(m) and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a tax deduction equal to the taxable ordinary income
realized by the recipient of the stock award.
Dividend Equivalents
Generally, the recipient of a dividend equivalent award will recognize
ordinary compensation income at the time the dividend equivalent award is
received equal to the fair market value of the dividend equivalent award
received. Subject to the requirement of reasonableness, the provisions of
Section 162(m) and the satisfaction of a tax reporting obligation, the Company
will generally be entitled to a tax deduction equal to the taxable ordinary
income realized by the recipient of the dividend equivalent.
Section 162 Limitations
Section 162(m) denies a deduction to any publicly held corporation for
compensation paid to certain "covered employees" in a taxable year to the extent
that compensation to such covered employee exceeds $1 million. It is possible
that compensation attributable to stock awards, when combined with all other
types of compensation received by a covered employee from the Company, may cause
this limitation to be exceeded in any particular year. For purposes of Section
162(m), the term "covered employee" means the Company's chief executive officer
and its four highest compensated officers as of the end of a taxable year as
disclosed in the Company's filings with the Securities and Exchange Commission.
Certain kinds of compensation, including qualified "performance-based"
compensation, are disregarded for purposes of the Section 162(m) deduction
limitation. In accordance with Treasury regulations issued under Section 162(m),
compensation attributable to certain stock awards will qualify as
performance-based compensation if the award is granted by a committee of the
Board of Directors consisting solely of "outside directors" and the stock award
is granted (or exercisable) only upon the achievement (as certified in writing
by the committee) of an objective performance goal established in writing by the
committee while the outcome is substantially uncertain, and the material terms
of the 2005 Stock Plan under which the award is granted is approved by
stockholders. A stock option or stock appreciation right may be considered
"performance-based" compensation as described in the previous sentence or by
meeting the following requirements: the incentive compensation plan contains a
per-employee limitation on the number of shares for which stock options and
stock appreciation rights may be granted during a specified period, the material
terms of the plan are approved by the shareholders, and the exercise price of
the option or right is no less than the fair market value of the stock on the
date of grant.
The regulations under Section 162(m) require that the directors who serve
as members of the committee must be "outside directors." The 2005 Stock Plan
provides that directors serving on the committee may be "outside directors"
within the meaning of Section 162(m). This limitation would exclude from the
committee directors who are (i) current employees of the Company or those of one
of its affiliates, (ii) former employees of the Company or those of one of its
affiliates who is receiving compensation for past services (other than benefits
under a tax-qualified pension plan), (iii) current and former officers of the
Company or those of one of its affiliates, (iv) directors currently receiving
direct or indirect remuneration from the Company or one of its affiliates in any
capacity other than as a director, and (v) any other person who is not otherwise
considered an "outside director" for purposes of Section 162(m). The definition
of an "outside director" under Section 162(m) is generally narrower than the
definition of a "non-employee director" under Rule 16b-3 of the Exchange Act.
Stock Option Plan Benefits
Benefits obtained by employees of the Company under its stock option plans
are made on a discretionary basis by the plan administrator. Accordingly, it is
not possible to determine the benefits that will be received by executive
officers and other employees of the Company under the 2005 Stock Plan in fiscal
year 2006. As of August 26, 2005, no shares had been issued on the basis of the
proposed 2005 Stock Plan subject to this proposal. (See the table on page 25
titled Option Grants in Fiscal 2005 for a list of options granted to Named
Officers under prior plans.)
Vote Required
An affirmative vote by the holders of a majority of the Company's shares
present or represented by proxy at the Annual Meeting is required for approval
of the 2005 Stock Plan. PROXIES SOLICITED HEREBY WILL BE VOTED FOR THE PROPOSAL
UNLESS A VOTE AGAINST THE PROPOSAL IS SPECIFICALLY INDICATED.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 4
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 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 2006 Annual Meeting of
Stockholders must submit such proposal to the Company no later than April 28,
2006.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of August 26, 2005, 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 of Beneficial Holder Number of Shares Percent of Class
(1)
------------------------------------- ---------------- ----------------
DePrince Race & Zollo, Inc. (2)
201 S. Orange Ave.
Orlando, FL 32801 1,256,200 14.7%
Inverness Counsel, Inc. (3)
545 Madison Ave.
New York, NY 10022 868,834 10.2%
AWM Investment Company, Inc. (4)
153 East 53rd St
New York, NY 10022 459,100 5.4%
Dimensional Fund Advisors, Inc. (5)
1299 Ocean Ave.
Santa Monica, CA 90401 424,800 5.0%
Frequency Electronics, Inc.,
Employee Stock Ownership Plan (6)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 582,053 6.8%
Name and Address of Beneficial Holder Number of Shares Percent of Class
(1)
------------------------------------- ---------------- ----------------
Martin B. Bloch (7)(8)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 738,424 8.7%
Joseph P. Franklin (8)(9)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 101,287 1.2%
Joel Girsky (10)
c/o Jaco Electronics, Inc.
145 Oser Avenue
Hauppauge, NY 11788 55,000 *
E. Donald Shapiro (10)
10040 E. Happy Valley Road
Scottsdale, AZ 85255 33,600 *
S. Robert Foley (10)
One Lakeside Dr.
Oakland, CA 94612 30,000 *
Richard Schwartz
4427 Golf Course Dr.
Westlake Village, CA 91362 - -
Michel Gillard (8)
Mont Saint-Martin 58
B-4000 Liege, Belgium 213,994 2.5%
Markus Hechler (8)(11)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 113,221 1.3%
Hugo Fruehauf (8)
1515 South Manchester Blvd.
Anaheim, CA 92802 17,252 *
Oleandro Mancini (8)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 28,901 *
All executive officers
and directors as a group
(16 persons) (8)(11) 1,583,062 18.6%
*designates less than one (1%) percent.
--------------------------------
Notes:
(1) Based on 8,526,600 shares outstanding as of August 26, 2005.
(2) As reported in a Form 13F for the quarter ended June 30, 2005, 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.
(3) As reported in a Form 13F for the quarter ended June 30, 2005, 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.
(4) As reported in a Form 13F for the quarter ended March 31, 2005, filed by
Austin W. Marxe and David M. Greenhouse, officers of AWM Investment
Company, Inc., an institutional investment manager. Marxe and Greenhouse
share sole voting and investment power over 459,100 shares of Company
Common Stock. Marxe and Greenhouse are managing members of various funds
owning the Company's Common Stock. The principal business of each Fund is
to invest in equity and equity-related securities.
(5) As reported in a Form 13F for the quarter ended June 30, 2005, filed by
Dimensional Fund Advisors Inc. ("Dimensional"), which is an investment
advisor registered under the Investment Advisors Act of 1940. Per a
Schedule 13G filing dated December 31, 2004, 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 424,800 shares that are owned by such investment
companies, commingled group trusts and separate accounts. Dimensional
disclaims beneficial ownership of such securities.
(6) Includes 460,958 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
24); 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).
(7) Includes 198,000 shares issuable on the full exercise of options granted to
Mr. Bloch: 18,000 shares granted on August 31, 1998 at an exercise price of
$7.125 under the Senior ESOP, as that term is hereinafter defined, and
180,000 shares granted on March 1, 2001 at an exercise price of $13.49, per
terms of Mr. Bloch's employment agreement. (See the discussion on the Chief
Executive Officer included in the Compensation Committee Report, below).
(8) Includes the number of shares which, as at August 26, 2005, 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
401(k) or NQSO
(a) (b) (c) Shares
------------------- --------------- ------------- ---------------- ----------
Martin B. Bloch 22,317 4,205 1,567 30,000
------------------- --------------- ------------- ---------------- ----------
Joseph P. Franklin -0- 4,031 1,001 20,000
------------------- --------------- ------------- ---------------- ----------
Michel Gillard -0- -0- -0- 25,000
------------------- --------------- ------------- ---------------- ----------
Markus Hechler 2,707 5,968 1,497 68,750
------------------- --------------- ------------- ---------------- ----------
Hugo Fruehauf -0- -0- 587 7,500
------------------- --------------- ------------- ---------------- ----------
Oleandro Mancini -0- -0- 1,151 27,750
------------------- --------------- ------------- ---------------- ----------
All Directors and
Officers as a Group 26,060 40,320 11,859 406,625
(16 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, 2005. 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. Messrs Bloch, Franklin and Hechler are fully
vested in the shares attributable to their accounts. Mr. Gillard, who
is a citizen and resident of Belgium, is ineligible to participate in
the 401(k) plan.
(9) Includes 3,000 shares issuable on the full exercise of options granted to
General Franklin on August 31, 1998 under the Senior ESOP, as that term is
hereinafter defined, at an exercise price of $7.125. (See the discussion of
the Senior ESOP included under Equity Compensation Plan Information,
below).
(10) Includes shares issuable 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
------------------- -------------- ------------------ ------------
(11) 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, 2005, the Company's directors, executive officers and 10%
stockholders complied with all Section 16(a) filing requirements applicable to
them, with the following exceptions:
Through inadvertence, General Joseph Franklin, Chairman of the Board of
Directors, did not timely file a Form 4 upon exercising a stock option grant by
which he acquired 6,000 shares of the Company's Common Stock. The exercise date
was May 4, 2004 and the requisite Form 4 was not filed until May 12, 2004.
Mr. Thomas McClelland, Vice President, sold 1,082 shares of the Company's
Common Stock in a series of four transactions. The first three sales, consisting
of an aggregate of 82 shares, were initiated during August 2004 by Mr.
McClelland's broker to meet margin requirements. The fourth sale of 1,000 shares
occurred on September 7, 2004. The required Form 4 was filed on September 13,
2004.
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. Three members of the current Board of Directors attended
the Company's 2004 Annual Meeting of Stockholders.
Audit Committee
In December 1983, the Board appointed an Audit Committee which presently
consists of three directors, Messrs. Foley, Girsky 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 both E. Donald Shapiro, chairman, and Joel Girsky satisfy the
SEC's criteria as "audit committee financial experts."
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 posted on the Company's website at
http://www.frequencyelectronics.com.
The Audit Committee held five meetings during the last fiscal year. The
Audit Committee's report appears on page 22 of this Proxy Statement.
Compensation Committee
The Compensation Committee consists of three directors, Messrs. Foley,
Girsky and Shapiro. 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 20 and 21 of this
proxy statement. The Compensation Committee held one meeting during fiscal year
2005.
DIRECTOR NOMINATIONS AND CORPORATE GOVERNANCE MATTERS
Director Nominations
Due to the relatively small size of its Board of Directors, 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, Shapiro and Schwartz) 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 2006
Annual Meeting of Stockholders, the Company's Corporate Secretary must receive
the recommendation no later than 5:00 p.m. local time on April 28, 2006. 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 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. Annually, the Company's
directors review the Code of Ethics and the report of the Company's Ethics
Committee.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
Overall Policy
The members of the Compensation Committee include Messrs. Joel Girsky, E.
Donald Shapiro and S. Robert Foley. 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:
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 18 (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 ("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 and certain
key employees 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 or employee without cause, then
such officer or employee will receive supplemental severance pay equal to one
and one-half times the employee's average base salary plus cash bonus from the
previous five calendar years prior to the change of control if such discharge
occurs in the first year after the change of control. If discharge occurs more
than one year but less than two years after the change of control, then the
employee will receive two-thirds of the five-year average of base salary and
bonus.
Chief Executive Officer
Pursuant to his employment agreement, Mr. Bloch's base annual salary is
$400,000. Mr. Bloch receives additional compensation of $42,000 in the form of
Company-paid premiums for life insurance coverage, the beneficiaries of which
are Mr. Bloch's heirs. Mr. Bloch's employment agreement provides 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. Mr. Bloch was awarded stock
options to purchase an aggregate of 228,000 shares of the Company's common
stock. The grants were made at the fair market value on August 31, 1998 (18,000
shares at $7.125), July 7, 1999 (30,000 shares at $7.625) and March 1, 2001
(180,000 shares at $13.49). The options are exercisable for a period of ten (10)
years from the date of grant.
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, his contributions 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
applications and markets based on the Company's technology, including the
successful integration of the technologies and capabilities of recently acquired
subsidiaries. The Compensation Committee believes these efforts position the
Company to compete more effectively on U.S. government programs and in
world-wide commercial markets. The Compensation Committee believes that the
investment in new products and acquisition of new technologies and manufacturing
facilities will result in significant growth of revenues and profits in future
periods.
Joel Girsky, Chairman, Compensation Committee
S. Robert Foley
E. Donald Shapiro
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 and E. Donald Shapiro. 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.
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 with management the audited financial statements for the
fiscal year ended April 30, 2005, 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 2005.
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, 2005 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
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 2005.
Annual Compensation Long-Term
Compensation Awards
--------------------------------------- ------------------------
$Value of
Other Restricted Securities
Annual Stock Underlying
Name and Principal Position Year Salary Bonus Compensation Awards Options
(3) (4)
------------------------------ ------- ----------- ----------- ----------------- ----------- ------------
Martin B. Bloch 2005 $415,385 $345,000 $61,718 $3,439 -0-
President, Chief ------- ----------- ----------- ----------------- ----------- ------------
Executive Officer 2004 423,077 40,000 27,989 2,492 -0-
------- ----------- ----------- ----------------- ----------- ------------
2003 415,385 -0- 24,742 2,923 -0-
=========================================================================================================
Michel Gillard (1) 2005 226,102 -0- 38,431 -0- -0-
President, Gillam-FEI ------- ----------- ----------- ----------------- ----------- ------------
2004 211,092 -0- 35,880 -0- -0-
------- ----------- ----------- ----------------- ----------- ------------
2003 177,481 -0- 26,492 -0- -0-
=========================================================================================================
Markus Hechler 2005 190,962 18,000 21,560 3,313 7,500(5)
Executive Vice ------- ----------- ----------- ----------------- ----------- ------------
President 2004 190,385 36,000 18,872 3,042 8,000(5)
------- ----------- ----------- ----------------- ----------- ------------
2003 183,462 -0- 22,416 2,947 8,000(5)
=========================================================================================================
Hugo Fruehauf (2) 2005 155,000 22,830 11,957 3,178 2,500(5)
President, FEI-Zyfer, Inc. ------- ----------- ----------- ----------------- ----------- ------------
2004 150,026 -0- 13,477 4,305 15,000(5)
=========================================================================================================
Oleandro Mancini 2005 136,539 18,000 22,186 3,172 17,500(5)
Vice-President, ------- ----------- ----------- ----------------- ----------- ------------
Business Development 2004 133,461 35,000 21,480 3,369 10,000(5)
------- ----------- ----------- ----------------- ----------- ------------
2003 126,000 -0- 24,679 3,163 7,000(5)
=========================================================================================================
Notes:
(1) Mr. Gillard's euro-denominated base compensation has remained the same in
each of the three-years presented above. The dollar-denominated increases
are due solely to the effect of changes in the rate of exchange between the
euro and the dollar.
(2) Mr. Fruehauf became an officer of the Company upon the acquisition of
FEI-Zyfer, Inc. on May 9, 2003.
(3) 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. In the case of Mr. Bloch, this amount also includes $34,063 for
the payment of premiums for life insurance policies, the beneficiaries of
which are Mr. Bloch's heirs.
(4) 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 2005, 2004 and 2003, the Company made matching
contributions of Company Common Stock to the accounts of Named Officers in
amounts which varied from 242 to 262 in fiscal year 2005, from 189 to 270
shares in fiscal year 2004 and from 327 to 354 shares in fiscal year 2003.
The average market value of the awarded shares at the time of allocation
was $13.13 in fiscal year 2005, $12.48 in fiscal year 2004 and $8.95 in
fiscal year 2003. Company matching contributions to the 401(k) plan are
made in proportion to the cash contributions of individual employees to the
plan. Mr. Gillard, who is not a resident of the United States, does not
participate in the 401(k) plan.
(5) Represents shares awarded under the Company's 2001 Incentive Stock Option
Plan. The exercise prices of the awarded options are at the fair market
value of the Company's Common Stock on the date of grant. (See "Option
Grants in Fiscal 2005" below.) The options are exercisable in increments of
25% annually (and cumulatively) beginning one year after date of grant.
Stock Options
Options Granted:
The following table sets forth certain information with respect to options
to acquire common stock that were granted during the fiscal year ended April 30,
2005, to each of the Named Officers under the Company's stock option plans.
OPTION GRANTS IN FISCAL 2005
Individual Grants
------------------------------------------------------------------------- Potential Realizable Value
No. of % of Total at Assumed Annual Rates of
Securities Options Exercise Stock Price Appreciation for
Underlying Granted to or Base Option Term
Options Employees in Price Expiration -----------------------------
Name Granted Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ------- ------------ -------- ---------- ------ -------
Martin B. Bloch -0- - - - - -
Michel Gillard -0- - - - - -
Markus Hechler 7,500 7.4% $14.40 12/21/14 $67,921 $172,124
Hugo Fruehauf 2,500 2.5% $14.40 12/21/14 $22,640 $57,375
Oleandro Mancini 7,500 7.4% $14.40 12/21/14 $67,921 $172,124
Oleandro Mancini 10,000 9.9% $11.22 4/26/15 $70,562 $178,818
Option Exercises and Year-end Values:
The following table sets forth certain information with respect to options
exercised during fiscal 2005 by each Named Officer and option values as of April
30, 2005.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2005
AND FISCAL YEAR-END OPTION VALUES
No. of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Fiscal Options at Fiscal
Acquired Year-End Year-End ($)
on Value Exercisable (E)/ Exercisable (E)/
Name Exercise Realized ($) Unexercisable (U) Unexercisable (U)
---- -------- ------------ ----------------- ------------------
Martin B. Bloch -0- $-0- 228,000 (E) $194,040 (E)
0 (U) $0 (U)
Michel Gillard -0- -0- 25,000 (E) $0 (E)
0 (U) $0 (U)
Markus Hechler -0- -0- 64,750 (E) $169,343 (E)
21,250 (U) $32,315 (U)
Hugo Fruehauf -0- -0- 21,750 (E) $72,315 (E)
1,250 (U) $475 (U)
Oleandro Mancini -0- -0- 23,500 (E) $24,640 (E)
31,000 (U) $34,865 (U)
Equity Compensation Plan Information
Securities Authorized for Issuance under Equity Compensation Plans:
The following table sets forth as of April 30, 2005, 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 exercise price remaining available
(see Notes below) be issued upon of outstanding for future issuance
exercise of options, under equity
outstanding warrants and compensation plans
options, rights (excluding securities
warrants and reflected in column
rights (a))
(a) (b) (c)
------------------------------------- ----------------- -------------------
Equity compensation
plans approved by
security holders 459,300 $9.38 109,750
------------------------------------- ----------------- -------------------
Equity compensation
plans not approved
by security holders 814,237 $12.82 189,500
------------------------------------- ----------------- -------------------
Total 1,273,537 $11.58 299,250
-----------------------------------------------------------------------------
Notes:
Equity compensation plans approved by security holders consist of:
1. 2001 Incentive Stock Option Plan- Under the terms of this plan, adopted in
fiscal year 2002 and approved by shareholders on October 3, 2001, 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 2011, no additional shares may be issued
from this plan.
2. Senior Executive Stock Option Plan (Senior ESOP)- Under the terms of this
plan, adopted in fiscal year 1989 and approved by shareholders on October
13, 1988, stock options may be granted to the Company's President, Chairman
of the Board and the president of any subsidiary with gross sales in excess
of $30 million. Stock options may be granted at a price at least equal to
the fair market value of the Company's Common Stock on the date of grant.
Vesting and the terms of exercise of the stock options are at the
discretion of the Company's Board of Directors. No additional options may
be granted under the plan after December 14, 1997 and no option awards may
be exercised after August 2008.
3. Restricted Stock Plan- Under the terms of this plan, adopted in fiscal year
1990 and approved by shareholders on October 12, 1989, the Company may sell
its Common Stock to certain key management employees, including officers
and directors, at a purchase price as determined by the Board of Directors
but not less than the par value of the Common Stock. Any shares acquired
under the plan may not be sold or transferred, except in the event of a
change in control as defined. No additional restricted stock may be sold
under the plan after December 31, 1998.
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 2005 were less than the increase in cash surrender value
of such insurance policies. The annual benefit provided under the program in
fiscal year 2005 upon retirement at age 65 or death is as follows: Martin B.
Bloch- $170,000, Markus Hechler- $75,000 and Oleandro Mancini- $35,000. 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, 2000 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, 2005. 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, 2005
[THE FOLLOWING TABLE REPRESENTS A LINE GRAPH IN THE SOURCE DOCUMENT]
Performance Graph Data Table:
--------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005
--------------------------------------------------------------------------------
Frequency Electronics 100.00 92.99 78.32 63.54 86.99 74.66
--------------------------------------------------------------------------------
S&P 600 Small Cap 100.00 108.09 125.97 99.58 139.36 153.89
--------------------------------------------------------------------------------
Peer Group 100.00 85.85 52.76 43.82 69.10 73.26
--------------------------------------------------------------------------------
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 20, the Company has provided supplemental separation benefits
for certain executive officers, including Mr. Bloch, Mr. Hechler and Mr.
Mancini, 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 Annual Report on Form 10-K, including the financial
statements and the financial statement schedule thereto, for the fiscal year
ended April 30, 2005, 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
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HARRY NEWMAN
Secretary
Dated: August 26, 2005