FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
October 9, 2002
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Frequency
Electronics, Inc. will be held at the offices of the Company, 55 Charles
Lindbergh Boulevard, Mitchel Field, New York, on the 9th day of October 2002, at
10:00 A.M., Eastern Daylight Savings Time, for the following purposes:
1. To elect eight (8) directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been elected and
shall have qualified;
2. To consider and act upon ratifying the appointment of
PricewaterhouseCoopers LLP as independent auditors for the fiscal year
commencing May 1, 2002.
3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The transfer books will not be closed. Only stockholders of record as of
the close of business on August 23, 2002 are entitled to notice of, and to vote
at, the meeting.
By order of the Board of Directors
/s/ Harry Newman
----------------
HARRY NEWMAN
Secretary
Mitchel Field, New York
August 26, 2002
If you do not expect to be present at the meeting, please fill in, date and
sign the enclosed Proxy and return same promptly in the enclosed, stamped
envelope.
FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 9, 2002
The accompanying Proxy is solicited by and on behalf of the board of
directors of Frequency Electronics, Inc., a Delaware corporation (hereinafter
called the "Company"), for use only at the Annual Meeting of Stockholders to be
held at the office of the Company, 55 Charles Lindbergh Boulevard, Mitchel
Field, New York 11553, on the 9th day of October 2002, at 10:00 A.M., Eastern
Daylight Savings Time, or any adjournment or adjournments thereof. The Company
will mail this Proxy Statement and the form of Proxy on or about August 26,
2002. Only stockholders of record as of the close of business on August 23, 2002
are entitled to notice of, and to vote at, the meeting.
The Board may use the services of the Company's directors, officers and
other regular employees to solicit proxies personally or by telephone and may
request brokers, fiduciaries, custodians and nominees to send proxies, proxy
statements and other material to their principals and reimburse them for their
out-of-pocket expenses in so doing. The cost of solicitation of proxies, which
it is estimated will not exceed $7,500, will be borne by the Company. Each proxy
executed and returned by a Stockholder may be revoked at any time thereafter by
filing a later dated proxy or by appearing at the meeting and voting except as
to any matter or matters upon which, prior to such revocation, a vote shall have
been cast pursuant to the authority conferred by such proxy. Dissenters are not
entitled by law to appraisal rights.
VOTING SECURITIES
On August 23, 2002, the Company had outstanding 8,341,635 shares of common
stock, $1.00 par value ("Common Stock") (excluding 822,304 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.
It is expected that the following business will be considered at the
meeting and action taken thereon.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
It is proposed to elect a Board of eight (8) directors ("Director(s)") to
hold office until the next annual meeting of Stockholders and until their
respective successors are elected and qualified. Cumulative voting is not
permitted. It is intended that the accompanying form of Proxy will be voted for
the re-election of all eight of the present members of the Board, each of whose
principal occupations are set forth in the following table, if no direction to
the contrary is given. In the event that any such nominee is unable or declines
to serve, the Proxy may be voted for the election of another person in his
place. The Board knows of no reason to anticipate that this will occur. The
nominees are as follows:
Nominees for Election as Directors
Year First
Elected
Name Principal Occupation Age Director
Joseph P. Franklin Chairman of the Board 68 1990
(Major General, of Directors
U.S. Army - Ret.)
Martin B. Bloch President, Chief 66 1961
Executive Officer
and a Director
Michel Gillard President, Gillam-FEI 61 2000
and a Director
Joel Girsky (3) President, Jaco 63 1986
Electronics, Inc. and a
Director
John C. Ho (1) Director 69 1968
E. Donald Shapiro Dean Emeritus, 70 1998
New York School
of Law and a Director
Marvin Meirs (2) Director 64 1998
S. Robert Foley, Jr. Chairman, Blue Ribbon 74 1999
(Admiral, U.S. Oversight Committee,
Navy - Ret.) Los Alamos National Lab
and a Director
All directors hold office for a one-year period or until their successors
are elected and qualified.
(1) John Ho retired from his position as Vice President of Research and
Development effective May 1, 1997. He has been retained as a consultant to
the Company.
(2) Marvin Meirs retired from his position as Vice President of Engineering
effective May 1, 1999. He has been retained as a consultant and part-time
employee.
Directors' Fees
Directors who are not officers, retired officers or affiliates of the
Company receive an honorarium of $10,000 and $2,500 for attendance at each Board
of Directors' meeting or meeting of a committee of which he is a member.
Officers, including retired officers, do not receive additional compensation for
attendance at Board of Directors' meetings or committee meetings.
BUSINESS EXPERIENCE OF DIRECTORS
MARTIN B. BLOCH, age 66, has been a Director of the Company and of its
predecessor since 1961. He is currently President and Chief Executive Officer of
the Company as well as President of FEI Communications, Inc., a subsidiary of
the Company which is engaged in the manufacture and sale of time and frequency
control products for commercial communications applications. Previously, he
served as chief electronics engineer of the Electronics Division of Bulova Watch
Company.
JOSEPH P. FRANKLIN, age 68, has served as a Director of the Company since
March 1990. In December 1993, he was elected Chairman of the Board of Directors
and served as Chief Executive Officer of the Company through April 1999. In
August 1987, he became the chief executive officer of Franklin S.A., a Spanish
business consulting company located in Madrid, Spain, specializing in joint
ventures, and was a director of several prominent Spanish companies. General
Franklin was a Major General in the United States Army until he retired in July
1987.
MICHEL GILLARD, age 61, became an officer and director of the Company when
Gillam-FEI was acquired in September 2000. Gillam-FEI, a company engaged in the
design, manufacture and marketing of wireline and network synchronization
systems, was founded by Mr. Gillard in 1974.
JOEL GIRSKY, age 63, 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.
JOHN C. HO, age 69, was employed by the Company and its predecessor from
1961 until his retirement on May 1, 1997. Mr. Ho served as a Vice President from
1963 to 1997 and as a Director since 1968. Prior to joining the Company, Mr. Ho
held various engineering positions with International Telephone and Telegraph
Company and Bulova Watch Company. Mr. Ho continues to serve the Company as a
consultant.
E. DONALD SHAPIRO, age 70, is Dean Emeritus and the former Joseph Solomon
Distinguished Professor of Law, New York School of Law. He is a director of
Loral Space & Communications, Ltd., United Industrial Corporation, Vasomedical,
Inc. and Kramont Realty Trust. Mr. Shapiro became a member of the board of
directors in 1998.
MARVIN MEIRS, age 64, joined the Company in 1966 in an engineering
capacity. He served as Vice President for Engineering of the Company from 1978
through his date of retirement, May 1, 1999. Mr. Meirs became a member of the
board of directors in 1998. Mr. Meirs continues to serve the Company as a
consultant and part-time employee.
S. ROBERT FOLEY, Jr., age 74, is the Chairman of the Blue Ribbon Oversight
Committee at Los Alamos National Laboratory. He served as Vice President of
Raytheon International, Inc. and President of Raytheon Japan from 1995 to 1998.
Admiral Foley served in the United States Navy for 35 years, including the
position of Commander-In-Chief of the Pacific Fleet. Admiral Foley is also a
director of URS Corp. Admiral Foley became a member of the board of directors in
1999.
No Director or executive officer or any associate of a Director or
executive officer is an adverse party in litigation with the Company or any of
its subsidiaries or has a material interest adverse to the Company or any of its
subsidiaries.
Vote Required
In order for Proposal No. 1 respecting the election of eight (8) directors
to be adopted, the holders of at least a plurality of the shares represented at
the Annual Meeting must vote for such adoption in person or by proxy.
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
Upon recommendation of the Audit Committee, the Board has appointed the
firm of PricewaterhouseCoopers LLP, as independent auditors for the fiscal year
commencing May 1, 2002. Stockholders are requested to signify their approval or
disapproval of the appointment.
It is anticipated that a representative of PricewaterhouseCoopers LLP will
be present at the meeting. Such representative will be given the opportunity to
make a statement and will be available to respond to appropriate questions.
Audit and Non-Audit Fees
The following table presents the fees for professional audit services
rendered by PricewaterhouseCoopers LLP for the audit of the Company's annual
financial statements for the year ended April 30, 2002, and fees billed for
other services rendered by PricewaterhouseCoopers LLP
Audit fees, including audit-related services $216,407
Financial information systems
design and implementation $0
All other fees(2):
Tax Advisory Services(1) $130,000
Other 3,500
----------
$133,500
(1) Tax Advisory Services include preparation of annual corporate federal
and state tax returns, including amended returns for prior years, advice
regarding European and Asian operations and implementing certain tax-favored
agreements between the parent company and its subsidiaries.
(2) The Audit Committee considered whether the provision of these non-audit
services was compatible with maintaining the independence of
PricewaterhouseCoopers LLP as the Company's independent auditors. The Committee
has concluded the independent auditors are independent from the Company and its
management.
Vote Required
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 the
ratification of PricewaterhouseCoopers LLP as the Company's independent auditors
for the 2003 fiscal year.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 3
OTHER BUSINESS
As of the date of this Proxy Statement, the only business which the Board
intends to present and knows that others will present at the meeting are
hereinabove set forth. If any other matter or matters are properly brought
before the meeting or any adjournments thereof, it is the intention of the
persons named in the accompanying form of Proxy to vote the Proxy on such
matters in accordance with their judgment.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the next annual
meeting of Stockholders of the Company must be received by the Company for
inclusion in its Proxy Statement and form of Proxy relating to that meeting by
May 1, 2003.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of August 23, 2002, information
concerning the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each of the Company's directors and nominees for
director, (iii) the Company's chief executive officer and the Company's four
most highly compensated other executive officers who were serving as executive
officers at the end of the last completed fiscal year, and (iv) all directors
and officers of the Company as a group:
Amount and Nature of
Name and Address of Beneficial Holder Beneficial Ownership Percent of Class
------------------------------------- -------------------- ----------------
Inverness Counsel, Inc. (1)
545 Madison Ave.
New York, NY 10022 854,100 10.3%
DePrince Race & Zollo, Inc. (2)
201 S. Orange Ave
Orlando, FL 32801 671,400 8.0
Dimensional Fund Advisors (3)
1299 Ocean Ave
Santa Monica, CA 90401 562,400 6.5
Frequency Electronics, Inc.,
Employee Stock Ownership Plan (4)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 658,719 7.9
Martin B. Bloch (5)(6)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 950,887 11.4
Joseph P. Franklin (6)(7)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 128,891 1.6
Michel Gillard (6)
Mont Saint-Martin 58
B-4000 Liege, Belgium 195,244 2.3
Joel Girsky (8)
c/o Jaco Electronics, Inc.
145 Oser Avenue
Hauppauge, NY 11788 55,000 *
John C. Ho
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 24,500 *
E. Donald Shapiro (8)
10040 E. Happy Valley Road
Scottsdale, AZ 85255 30,000 *
Marvin Meirs (6)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 34,250 *
S. Robert Foley (8)
58 Katelyn Hills Dr.
Falmouth, MA 02540 22,500 *
Amount and Nature of
Name and Address of Beneficial Holder Beneficial Ownership Percent of Class
------------------------------------- -------------------- ----------------
Markus Hechler (6)(9)
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553 100,825 1.2
Leonard Martire (6)(9)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 40,603 *
Thomas McClelland (6)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 27,924 *
All executive officers
and directors as a group (15
persons) (6)(9) 1,734,861 20.8%
*designates less than one (1%) percent.
--------------------------------
Notes:
(1) As reported in a Schedule 13D dated December 30, 1997 filed by Inverness
Counsel, Inc. ("Inverness"), which is an investment advisor registered
under the Investment Advisors Act of 1940. Inverness purchased 854,100
shares of stock for and on behalf of clients of Inverness, in the ordinary
course of business for investment from the personal funds of such clients.
Inverness has the sole power to dispose or to direct the disposition of
such shares. Inverness does not possess, nor does it share, the power to
vote or to direct the vote of any of such shares. Various officers and
directors of Inverness own 35,950 shares, and such persons individually
have the exclusive right to dispose, or to direct the disposition of, or to
vote, or to direct the vote of, the shares owned by them.
(2) As reported in a Form 13F for the quarter ended June 30, 2002, filed by
DePrince Race & Zollo, Inc. on August 5, 2002. 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 Schedule 13G dated January 30, 2002 filed by Dimensional
Fund Advisors Inc. ("Dimensional"), which is an investment advisor
registered under the Investment Advisors Act of 1940. Dimensional furnishes
investment advice to four investment companies registered under the
Investment Advisors Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. In its role as
investment advisor or manager, Dimensional possesses voting and/or
investment power over the 562,400 shares that are owned by such investment
companies, commingled group trusts and separate accounts. Dimensional
disclaims beneficial ownership of such securities.
(4) Includes 537,624 shares of stock held by the F.E.I. ESOP Trust for the
Company's Employee Stock Ownership Plan, all of which shares have been
allocated to the individual accounts of employees of the Company (including
the Named Officers as defined on page 17); also includes 121,095 shares
held by the Trust under the Stock Bonus Plan (converted by amendment to the
Employee Stock Ownership Plan as of January 1, 1990).
(5) Includes 228,000 shares issuable on the full exercise of options granted to
Mr. Bloch on August 31, 1998, July 7, 1999 and March 1, 2001 under the
Senior ESOP, as that term is hereinafter defined. All of these options
were, by their terms, exercisable one year after issuance at an exercise
price of $7.125, $7.625 and $13.49, respectively (see the discussion of the
Senior ESOP included in the Compensation Committee Report, below).
(6) Includes the number of shares which, as at August 23, 2002, were deemed to
be beneficially owned by the persons named below, by way of their
respective rights to acquire beneficial ownership of such shares within 60
days through, (i) the exercise of options; (ii) the automatic termination
of a trust, discretionary account, or similar arrangement; or (iii) by
reason of such person's having sole or shared voting powers over such
shares. The following table sets forth for each person named below the
total number of shares which may be so deemed to be beneficially owned by
him and the nature of such beneficial ownership.
Stock Bonus Profit Sharing
Name Plan Shares ESOP Shares Plan & Trust ISOP or NQSO
401(k) Shares
(a) (b) (c)
------------------------------------------------------------------------------
Martin B. Bloch 22,317 4,184 778 -0-
------------------------------------------------------------------------------
Joseph P. Franklin -0- 4,010 426 -0-
------------------------------------------------------------------------------
Michel Gillard -0- -0- -0- 6,250
------------------------------------------------------------------------------
Marvin Meirs 1,481 5,081 188 6,875
------------------------------------------------------------------------------
Leonard Martire -0- 5,947 656 24,500
------------------------------------------------------------------------------
Markus Hechler 2,707 5,947 671 45,000
------------------------------------------------------------------------------
Thomas McClelland 258 5,947 657 14,000
------------------------------------------------------------------------------
All Directors and
Officers as a Group 27,540 45,235 4,898 229,500
(15 persons)
(a) Includes all shares allocated under the Company's Stock Bonus Plan
("Bonus Plan") to the respective accounts of the named persons,
ownership of which shares is fully vested in each such person. No
Bonus Plan shares are distributable to the respective vested owners
thereof until after their termination of employment with the Company.
As of January 1, 1990 the Bonus Plan was amended to an "Employee Stock
Ownership Plan" (see the discussion of the Employee Stock Ownership
Plan contained in the Compensation Committee Report, below; see also
footnote (b) to the table).
(b) Includes all shares allocated under the Company's Employee Stock
Ownership Plan ("ESOP") to the respective accounts of the named
persons, ownership of which shares was fully vested in each such
person as at April 30, 2002. ESOP shares are generally not
distributable to the respective vested owners thereof until after
their termination of employment with the Company. However, upon the
attainment of age 55 and completion of 10 years of service with the
Company, a participant may elect to transfer all or a portion of his
vested shares, or the cash value thereof, to a Directed Investment
Account. Upon the allocation of shares to an employee's ESOP account,
such employee has the right to direct the ESOP trustees in the
exercise of the voting rights of such shares (see the discussion of
the ESOP included below in the Compensation Committee Report).
(c) Includes all shares allocated under the Company's profit sharing plan
and trust under section 401(k) of the Internal Revenue Code. This plan
permits eligible employees, including officers, to defer a portion of
their income through voluntary contributions to the plan. Under the
provisions of the plan, the Company made discretionary matching
contributions of the Company's common stock. All participants in the
plan become fully vested in the Company contribution after 6 years of
employment. All of the Named Officers in the table above are fully
vested in the shares attributable to their accounts.
(7) Includes 65,936 shares issuable on the full exercise of options granted to
General Franklin on December 6, 1993, August 31, 1998, July 7, 1999 and
October 30, 2001 under the Senior ESOP, as that term is hereinafter
defined. All of these options were, by their terms, exercisable one year
after issuance at an exercise price of $4.375, $7.125, $7.625 and $11.10,
respectively (see the discussion of the Senior ESOP included in the
Compensation Committee Report, below).
(8) Includes shares issuable on the on the exercise of options granted to the
non-officer directors of the Company under the Independent Contractors
Stock Option Plan.
Name Exercisable Grant Exercise
Share Date Price
--------------------------------------------------------------------
Joel Girsky 30,000 June 29, 1998 $12.81
--------------------------------------------------------------------
E. Donald Shapiro 30,000 June 29, 1998 $12.81
--------------------------------------------------------------------
S. Robert Foley 22,500 March 12, 1999 $7.34
--------------------------------------------------------------------
(9) Includes shares granted to the officers of the Company pursuant to a stock
purchase agreement in connection with the Restricted Stock Plan:
Name Restricted
Stock
------------------------------ -----------------
Leonard Martire 7,500
------------------------------ -----------------
Markus Hechler 15,000
------------------------------ -----------------
All Officers as a Group 30,000
(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
-------------------------------------------------------
Any person who is an officer, director, or the beneficial owner, directly
or indirectly, of more than 10% of the outstanding common stock of the Company
is required under Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") to file certain reports with the Securities and
Exchange Commission (the "Commission") disclosing his or her holdings or
transactions in any securities of the Company. For purposes of this discussion,
all such persons required to file such reports will be referred to as "Reporting
Persons". Every Reporting Person must file an initial statement of his or her
beneficial ownership of the Company's securities on the Commission's Form 3
within ten days after he or she becomes a Reporting Person. Thereafter (with
certain limited exceptions), all changes in a Reporting Person's beneficial
ownership of the Company's securities must be reported on the Commission's Form
4 on or before the 10th day after the end of the month in which such change
occurred. The Company knows of no person who was a Reporting Person during the
fiscal year ended April 30, 2002 or during the current fiscal year, who has
failed to file any reports required to be filed on Forms 3 or 4 with respect to
his or her holdings or transactions in the Company's securities since the
Company became publicly-held in 1982.
Certain Information as to Committees and Meetings of the Board of Directors
---------------------------------------------------------------------------
During the past fiscal year, four meetings of the Board were held, one of
which was conducted by teleconference. Each incumbent Director attended all
meetings of the Board.
In December 1983, the Board appointed an Audit Committee which presently
consists of three Directors, Messrs. Girsky, Foley and Shapiro. Messrs. Foley
and Shapiro are independent as defined in Section 121(A) of the listing
standards of the American Stock Exchange, upon which the Company's Common Stock
is listed and trades. Mr. Girsky is not independent as defined in such listing
standards, because of Mr. Girsky's position as President and owner of
approximately 15% of the outstanding stock of Jaco Electronics, Inc. During the
year ended April 30, 2002, the Company purchased component parts from Jaco or
one of its subsidiaries in the aggregate amount of $2.5 million. The Board has
determined that Mr. Girsky's membership on the Audit Committee is in the best
interests of the Company because of Mr. Girsky's long service on the Board, his
extensive knowledge of the electronic components business and his other business
experience and financial skills.
The function of the Audit Committee is to insure the integrity and
credibility of the Company's financial information system and the published
reports flowing out of that system. The Audit Committee held four meetings
during the last fiscal year. The Audit Committee's report appears on page 16 of
this proxy statement.
The Compensation Committee presently consists of four Directors, Messrs.
Girsky, Shapiro, Foley and Franklin. The committee determines cash remuneration
arrangements for the highest paid executives and oversees the Company's stock
option, bonus and other incentive compensation plans. The report of the
Compensation Committee appears on pages 10 through 15 of this proxy statement.
The Compensation Committee held one meeting during fiscal year 2002.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
Overall Policy
The members of the Compensation Committee include Messrs. Joel Girsky, E.
Donald Shapiro, S. Robert Foley and Joseph P. Franklin. The Committee reviews
and, with any changes it believes appropriate, approves the Company's executive
compensation.
The general goals of the Compensation Committee are to: (i) attract,
motivate, and retain effective and highly qualified executives; (ii) strengthen
the common interests of management and shareholders through executive stock
ownership; (iii) promote the Company's long and short-term strategic goals and
human resource strategies; (iv) recognize and award individual contributions to
the Company's performance and (v) reflect compensation practices of comparable
companies.
To achieve the foregoing goals, the Compensation Committee has structured a
comprehensive compensation program aimed at: (i) compensating executive officers
on an annual basis with a cash salary at a level sufficient to retain and
motivate them and to recognize and award individual merit; (ii) linking a
portion of executive compensation to long-term appreciation of the Company's
stock price by encouraging executive ownership of the Company's stock through
awards of shares of the Company's stock and grants of options to purchase
Company stock, and; (iii) providing incentives to achieve corporate performance
goals by rewarding contributions to the Company's performance through cash
bonuses keyed to operating profit levels. These policies are implemented through
a reward system which includes base salary and long and short-term incentive
compensation opportunities consisting of the following:
Base Salaries
The Committee annually reviews the base salaries of the CEO and all other
executive officers of the Company. The Compensation Committee believes that the
Company's executive officers, including those shown in the Summary Compensation
Table on page 17 (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.
During the prior fiscal year, the Compensation Committee completed an
in-depth review of the compensation package provided to Mr. Bloch. The
Compensation Committee determined that it would be in the best interests of the
Company to enter into a formal written multi-year employment agreement with Mr.
Bloch. Accordingly, after reviewing Mr. Bloch's outstanding contributions to the
Company over the past thirty-eight years and in line with the compensation of
comparable positions in the industry and the region, the Compensation Committee
recommended that an employment agreement and stock option agreement be entered
into with Mr. Bloch as of August 8, 2000. The employment agreement provides a
base annual salary of $400,000, plus a fixed annual bonus of 6% of the pre-tax
profit of the Company with a cap on the pre-tax profit at $20,000,000, as well
as separation benefits in the event of a change in control or ownership of part
or all of the Company, continuation of disability, medical and life insurance,
the cost of an annual physical examination and a new automobile every three
years. In addition, Mr. Bloch was awarded stock options to purchase 180,000
shares of the Company's common stock at the fair market value on March 1, 2001,
($13.49) for a period of ten (10) years.
In determining the compensation package for Mr. Bloch, the Compensation
Committee took into account the compensation packages for senior officers at
companies of comparable size and complexity, both public and private, as well as
its assessment of Mr. Bloch's individual performance, and his contribution to
the Company's past growth and accomplishments as well as contributions which it
is anticipated will be made by Mr. Bloch in the future. In this regard, the
Committee recognized Mr. Bloch's untiring efforts in developing new,
non-military technology applications, markets and marketing programs which the
Committee believes will continue to help position the Company to compete more
effectively in commercial as well as military markets. The Committee noted that
in prior years, under Mr. Bloch's leadership, the Company redirected a
significant portion of its resources to the design and development of new
products for the commercial communications marketplace. The Company and the
Committee believe that the investment in new products will result in significant
growth of revenues and profits in future periods.
Upon the election of General Franklin to the position of Chairman of the
Board of Directors and Chief Executive Officer the factors noted above were also
taken into consideration in awarding his base salary. Based on General
Franklin's special qualifications, the responsibilities involved and the
compensation of comparable positions in the industry and the region, the
non-employee members of the Compensation Committee awarded a base salary of
$250,000. Effective May 1, 1999, General Franklin requested a reduction in his
duties to the Company to pursue other interests. His principal responsibilities
with respect to Frequency Electronics are in the areas of corporate development
and investor relations. In recognition of this reduced role, General Franklin's
compensation was reduced to $100,000.
In prior fiscal years, General Franklin and Mr. Bloch voluntarily reduced
their base salaries to $202,500 and $263,250, respectively. In fiscal years
2000, 1999 and 1998, during which the Company achieved net income of at least $1
million (excluding certain one-time adjustments), these salary reductions were
restored to the executive officers. Mr. Bloch deferred receipt of the fiscal
1998 and 1999 salary reductions until fiscal 2001.
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.
The Income Pool Incentive Compensation Plan
-------------------------------------------
The IPICP authorizes the establishment of an income pool based upon the
"Operating Profits" of the Company. Operating Profits are defined as follows:
net sales minus cost of sales, selling and administrative expenses and research
and development expenses in accordance with Generally Accepted Accounting
Principles consistently applied. The amount of income pool available for
distribution under the IPICP is calculated in accordance with the following
formula: the amount of Operating Profit divided by 1,000,000, squared, and
multiplied by $20,000 (provided however that the income pool may not exceed 12%
of Operating Profits). Persons eligible to receive cash awards under the IPICP
include the Executive Committee, excluding the CEO, and any other employee who
is recommended by such Executive Committee and approved by the CEO. All of the
Company's executive officers including all of the Named Officers comprise the
Executive Committee. For any fiscal year when there are funds available for
distribution under this plan, Mr. Bloch determines the amount to be awarded to
each of the members of the Executive Committee. The members of such committee
may recommend to Mr. Bloch, for his approval, designated individuals, who are
not members of such committee, to share in such distribution. Under the terms of
the plan, the entire income pool is not required to be distributed each year and
any undistributed portions of such pool are not carried forward to future
periods. The recipients of cash bonuses under the IPICP, and the amount of such
bonuses, are approved by Mr. Bloch, based upon an evaluation of the performance,
level of responsibility and leadership of the individual executive in relation
to the Company's operating results. During fiscal year 2002, the Company did not
record an accrual under the IPICP due to the small operating profit realized,
which included certain one-time gains. For the fiscal years ended April 30, 2001
and 2000, the Company accrued approximately $450,000 and $65,000, respectively,
to be distributed under the terms of the IPICP..
The Presidential Incentive Plan
-------------------------------
The Presidential Incentive Plan (PIP) is designed to provide the president
with incentive compensation by way of annual cash payments based upon the
Company's earnings before income taxes. Under the terms of Mr. Bloch's
employment agreement as described above, he is entitled to an annual bonus of 6%
of the pre-tax profit of the Company with a cap on pre-tax profit of $20
million. For the fiscal year ended April 30, 2002, the Company did not record an
accrual under the PIP since profits for the year included certain one-time
gains. For the year ended April 30, 2001, the Company accrued $520,000 to be
distributed under the terms of the employment agreement. In prior years, funds
were made available to the PIP based upon the following formula: consolidated
pre-tax profits divided by 1,000,000, squared, and multiplied by $5,000. For the
year ended April 30, 2000 the Company accrued approximately $110,000 to be used
as awards under this plan..
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, described below, and through the grant of options
to purchase common stock through various Employee Stock Option Plans, also
described below. 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, as described below. 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.
The Employee Stock Ownership Plan and Trust
-------------------------------------------
The Employee Stock Ownership Plan ("ESOP") is a qualified plan under
Section 401(a) of the Internal Revenue Code maintained by the Company for all of
its eligible employees including its executive officers. The value of the awards
of stock made under this plan was dependent upon the market value of the
Company's common stock at such time as the shares were distributed to the
recipients. The Compensation Committee believes that awards of stock under this
plan provide employees with a long-term focus since distribution of the stock is
not made until after termination of employment and is forfeitable until certain
lapse of time and continued employment criteria are met. The ESOP was
established as of January 1, 1990 through the amendment of the Company's
previously existing Stock Bonus Plan and was funded at inception with 1,071,652
shares of the Company's common stock (the "ESOP Shares") to be allocated
annually to the employees of the Company over a period of ten years. Allocations
were made under the ESOP to each employee's account in proportion to the
percentage which such person's annual base salary bears to the aggregate annual
compensation of all members during the fiscal year for which the allocation was
made, provided however that not more than $48,000 in annual salary is counted
towards any employee's percentage participation. The Company's executives
therefore cannot benefit under this plan to any extent greater than any other
employee of the Company who earns an annual salary of $48,000 or more.
The Company decided that once the initial ESOP shares had been distributed,
no new shares would be acquired for the ESOP. Accordingly, in December 1999, the
Company made the last distribution of shares to employee accounts. After that
date, any increase in the number of shares held by a participant will result
only from the redistribution of shares which are forfeited by participating
employees who leave the Company prior to 100% vesting in the shares in their
account.
An employee's right to receive shares allocated to his or her account is
20% vested after completion of three years of employment with yearly increases
in the percentage vested until after seven years of employment, at which time an
employee's right to receive 100% of the shares allocated to his or her account
is vested. Determination of the vesting period is made in accordance with the
employee's years of employment with the Company and not from the time of any
particular allocation of shares to his account. Accordingly, the right to
receive all shares allocated to an employee at any time after he or she has been
employed by the Company for seven or more years, is fully vested at the time of
such allocation. As of April 30, 2002, each of the Named Officers have more than
seven years of service and, therefore, have the vested right to receive 100% of
the shares allocated to their respective accounts.
All ESOP Shares, whether or not allocated to an employee's account, are
held in trust by the trustees who administer the ESOP until distribution to the
respective employee. ESOP Shares are distributed only after 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. Voting of allocated shares is by the ESOP trustees
at the direction of the employees in proportion to the number of shares
allocated in their respective accounts.
The beneficial stock ownership table on pages 6 and 7 shows the allocation
of ESOP shares to the accounts of each of the Named Officers as of August 23,
2002. The dollar value of the annual allocation of shares, as at the date of
allocation, is included in the Summary Compensation Table. Awards under this
plan are not tied to any performance criteria other than those relating to
percentage of aggregate annual compensation of all members, lapse of time, and
continued employment with the Company.
Profit Sharing Plan
-------------------
The Company adopted a profit sharing plan and trust under section 401(k) of
the Internal Revenue Code. This plan allows all eligible employees, including
officers, to defer a portion of their income through voluntary contributions to
the plan. In accordance with the provisions of the plan, the Company can make
discretionary matching contributions in the form of cash or common stock. For
the years ended April 30, 2002 and 2001, the Company made contributions to the
accounts of participating officers of the Company in the aggregate amount of
1,170 and 2,594 shares of common stock with an approximate value at the date of
issuance of $16,800 and $53,000, respectively. There were no such contributions
in fiscal 2000.
Employee Stock Option Plans
---------------------------
Grants of stock options are an integral part of the Company's long-term
incentive compensation program. The Compensation Committee believes that
ownership of options to purchase the Company's stock helps executives view the
Company and its operations and achievements from the perspective of a
stockholder with an equity stake in the business. All options granted to the
Company's executives have exercise prices equal to the fair market value of the
Company's common stock on the date of grant. The value to an executive of such
options is, therefore, tied to the future market value of the Company's stock
since he or she will benefit from such options only when the market price of the
stock increases above the exercise price of the option. Moreover any benefit to
an option holder is limited to the extent that all stockholders benefit from
such increase in the market value of the stock. In addition options become
exercisable only after one year from grant and then only in 25% cumulative
increments annually. The Compensation Committee believes that this staggered
approach to exercisability provides an incentive to executives to increase
shareholder value over the long term since the full benefit of the options
cannot be realized unless stock price appreciation occurs over a number of
years.
The employee stock option plans are both Nonqualified Stock Option ("NQSO")
plans and Incentive Stock Option ("ISO") plans. Under the terms of the plans,
eligible employees may be granted options to purchase shares of the Company's
common stock. Under the terms of each of the plans, all options granted
thereunder are mandated to have a term of ten years and an exercise price equal
to the market price of the Company's common stock on the date of grant, and to
be exercisable, commencing one year from the date of grant, at a cumulative rate
of: 25% of the total shares subject to the option in the second year; 50% of the
total shares subject to the option in the third year; 75% of the total shares
subject to the option in the fourth year and the remainder of the total shares
subject to option in the fifth year.
The President (or, in his absence, the Chairman of the Board of Directors)
and the Compensation Committee each have full authority to determine awards of
stock options to individuals. The President, Chairman, and members of the
Committee will recuse themselves from considering and approving awards where
they are personally involved. In cases where the President or Chairman make
awards, the Compensation Committee will be informed.
The Senior Executive Stock Option Plan
--------------------------------------
The Company established a Senior Executive Stock Option Plan in 1987
("Senior ESOP") for the President or Chairman of the Board of Directors of the
Company or of any subsidiary of the Company which produces gross sales for two
consecutive fiscal years in excess of $30,000,000. The Senior ESOP provides that
eligible employees may be granted options to purchase shares of the Common Stock
of the Company, exercisable after one year of continuous employment from date of
grant. The option price must be at least equal to the fair market value of the
Company's common stock on the date of grant of the option. The Compensation
Committee administers the Senior ESOP and has the discretion to determine which
eligible employees shall be granted stock options and the number of shares
subject to such options. General Franklin and Mr. Bloch have received grants of
options under this plan.
The Restricted Stock Plan
-------------------------
The Company maintains a Restricted Stock Plan which it established in 1989
(the "Restricted Stock Plan") for key employees (including all officers and
directors who are employees). The Restricted Stock Plan provides that eligible
employees ("Participants") may enter into restricted stock purchase agreements
to purchase shares of the Common Stock of the Company, subject to various
forfeiture restrictions ("Restricted Stock"). A total of 250,000 shares of
Common Stock were made available for purchase under the Restricted Stock Plan.
The Compensation Committee has the authority to determine (i) those who may
purchase Restricted Stock, (ii) the time or times at which Restricted Stock may
be purchased, (iii) the number of shares of Restricted Stock which may be
purchased, (iv) the duration of the restrictions on the Restricted Stock, (v)
the manner and type of restrictions to be imposed on the Restricted Stock, and
(vi) the purchase price to be paid for the Restricted Stock (which purchase
price may not be less than the $1 per share par value of the Common Stock on the
date the Restricted Stock is purchased), and (vii) the method of payment of the
purchase price. During fiscal 1996, the Compensation Committee authorized the
purchase of an aggregate of 112,500 shares of Restricted Stock to the then nine
Company Officers at a purchase price of $4.00 per share. (See the Restricted
Stock table on page 9.) The Compensation Committee did not authorize any persons
to purchase any shares under this plan during fiscal years 2002, 2001, or 2000.
Independent Contractor Stock Option Plan
----------------------------------------
During fiscal 1998, the Company established an Independent Contractor Stock
Option Plan under which up to 350,000 shares may be granted. The Compensation
Committee determines to whom options may be granted from among eligible
participants, the timing and duration of option grants, the option price, and
the number of shares of common stock subject to each option. During the year
ended April 30, 2002, the Company did not grant any options under this plan.
During the year ended April 30, 2001, the Company granted options to acquire
6,000 shares at a price of $15.80, the fair market value of the Company's common
stock at the date of grant. Of the shares granted, 2,000 were exercisable
immediately and the balance may be exercised over the next two years. During the
year ended April 30, 2000, the Company granted options to acquire 12,000 shares
at a price of $7.625 and $9.25, the fair market value of the Company's common
stock at the date of each grant. Of the shares granted, 3,900 were exercisable
immediately and the balance may be exercised over the next two to three years.
For the years ended April 30, 2002, 2001, and 2000, the Company recognized
compensation expense of $45,000, $310,000 and $170,000, respectively, as a
result of these stock option grants.
Supplemental Separation Benefits
--------------------------------
The Company has an agreement with certain executive officers to provide
supplemental separation benefits. Under the agreement, in the event of a change
in control or ownership of part or all of the Company which gives rise to
discharge of any officer without cause and such officer is not offered the
opportunity to be hired by the new or successor management or company within 30
days at no less than the base salary earned before discharge, then such officer
will receive supplemental severance pay equal to one month's base salary for
each year of service at the Company up to a maximum of 15 months.
Joel Girsky
S. Robert Foley
E. Donald Shapiro
Joseph P. Franklin
Members of the Compensation Committee
Report of the Audit Committee
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 Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The 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 Committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditors' independence from management and the
Company including the matters in the written disclosures required by the
Independence Standards Board and considered the compatibility of nonaudit
services with the auditors' independence.
The Committee discussed with the Company's independent auditors the overall
scope and plans for their audit. The 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 Committee held four
meetings during fiscal 2002.
In reliance on the reviews and discussions referred to above, the 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 year ended April 30, 2002 for filing with the Securities and Exchange
Commission. The Committee and the Board have also recommended, subject to
shareholder approval, the selection of the Company's independent auditors.
E. Donald Shapiro, Chairman of Audit Committee
Joel Girsky
S. Robert Foley
Members of the Audit Committee
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid or accrued during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers (collectively, the "Named Officers") based
on salary and bonus earned during fiscal 2002.
Annual Compensation Long-Term
Compensation Awards
---------------------------------------- -----------------------------
------------ ------------ -------------- --------------- -------------
(4) $Value of
Other Restricted
Name and Principal Annual Stock
Position Year Salary Bonus Compensation Awards(5) Options
----------------------- -------- ----------- ----------- -------------- --------------- -------------
Martin B. Bloch (1) 2002 $415,385 -0- $35,972 $5,648 -0-
President, Chief -------- ----------- ----------- -------------- --------------- -------------
Executive Officer 2001 522,933 $350,000 27,209 7,948 180,000(6)
-------- ----------- ----------- -------------- --------------- -------------
2000 364,027 65,000 26,527 8,279 30,000(6)
----------------------- -------- ----------- ----------- -------------- --------------- -------------
Markus Hechler, 2002 183,462 -0- 21,419 4,490 15,000(7)
Executive Vice -------- ----------- ----------- -------------- --------------- -------------
President 2001 162,884 75,000 21,966 7,392 10,000(7)
-------- ----------- ----------- -------------- --------------- -------------
2000 143,077 15,000 14,906 8,279 -0-
----------------------- -------- ----------- ----------- -------------- --------------- -------------
Michel Gillard (2) 2002 175,410 -0- 23,418 -0- -0-
President, Gillam-FEI -------- ----------- ----------- -------------- --------------- -------------
2001 94,671 20,000 6,639 -0- 25,000(7)
----------------------- -------- ----------- ----------- -------------- --------------- -------------
Thomas McClelland 2002 132,029 -0- 21,515 4,274 5,000(7)
Vice President, -------- ----------- ----------- -------------- --------------- -------------
Commercial Products 2001 112,125 36,000 7,985 7,413 5,000(7)
-------- ----------- ----------- -------------- --------------- -------------
2000 105,009 8,000 8,160 8,279 -0-
----------------------- -------- ----------- ----------- -------------- --------------- -------------
Leonard Martire, 2002 129,231 -0- 17,268 4,143 5,000(7)
Vice President, -------- ----------- ----------- -------------- -------------- --------------
Marketing and Sales 2001 130,154 36,000 11,886 7,578 5,000(7)
-------- ----------- ----------- -------------- --------------- -------------
2000 129,231 30,000 6,158 8,279 10,000(7)
----------------------- -------- ----------- ----------- -------------- --------------- -------------
Joseph Franklin (3) 2002 100,000 -0- 10,889 4,101 5,000(6)
Chairman of the -------- ----------- ----------- -------------- --------------- -------------
Board 2001 100,000 36,000 8,571 2,903 -0-
-------- ----------- ----------- -------------- --------------- -------------
2000 133,510 15,000 4,050 8,279 20,000(6)
----------------------- -------- ----------- ----------- -------------- --------------- -------------
Notes:
(1) In prior fiscal years, Mr. Bloch voluntarily reduced his $325,000 base
salary to $263,250. In fiscal 2001, Mr. Bloch received a payment of
$130,625 in restored salary for fiscal years 1998 and 1999 as a result of
the Company's return to profitability. In fiscal 2000, Mr. Bloch received a
payment of $64,125 in restored salary for that year.
(2) Mr. Gillard became an officer and director of the Company in October 2000
after Gillam-FEI was acquired. His compensation and benefits are shown only
from the date of acquisition.
(3) Beginning in fiscal 2000, General Franklin requested a reduction in his
duties to enable him to pursue other interests. He remains Chairman of the
Board of Directors and continues to be involved in corporate development
activities. His compensation was reduced to reflect this reduced role.
(4) The amounts shown in this column constitute (i) automobile allowance; (ii)
insurance premiums to provide term life insurance benefits (available to
all employees); (iii) the cost of medical insurance (available to all
employees); and (iv) the costs of medical reimbursements available to
officers. General Franklin has elected not to receive medical insurance
coverage through the Company.
(5) Represents the dollar value, as at the date of allocation, of shares of
common stock of the Company allocated under the Company's stock ownership
plans. In fiscal years 2002 and 2001, the Company made matching
contributions of Company common stock to the Profit Sharing Plan and Trust
under section 401(k) of the Internal Revenue Code ("401(k)"). The number of
shares awarded to Named Officers varied from 285 to 393 shares In fiscal
2002 and from 76 to 386 shares in fiscal 2001 each year. The average market
value of the awarded shares at time of allocation was $14.38 in fiscal 2002
and $20.55 in fiscal 2001. In fiscal year 2000, the stock allocations were
made in accordance with the Company's Employee Stock Ownership Plan
("ESOP"). Awards made under the 401(k) and ESOP are not performance-based,
but are awarded to all employees of the Company. For the 401(k) plan,
Company matching contributions are made in proportion to the cash
contributions of individual employees to the plan. With respect to the
ESOP, contributions were made based on the percentage which a participant's
annual salary bears to the aggregate annual salaries of all eligible
employees of the Company, provided however that not more than $48,000 in
annual salary was counted towards any employee's percentage participation.
Distribution of shares allocated to an employee's account is not made until
after termination of employment. Seven hundred ninety-eight (798) shares of
the Company's common stock were allocated to the ESOP accounts of each of
the Named Officers on December 31, 1999 at which time the market price of
the Company's common stock was $10.375. (See the discussion under the
caption "The Employee Stock Ownership Plan and Trust" included in the
Compensation Committee Report, above.)
(6) Represents shares awarded under the Senior Executive Stock Option Plan. The
exercise prices of the awarded options are at the fair market value of the
Company's common stock on the date of grant. (See Option Grants in Fiscal
2002 on page 19.) The options are fully exercisable one year after date of
grant.
(7) Represents shares awarded under the Employee Stock Option Plans. The
exercise prices of the awarded options are at the fair market value of the
Company's common stock on the date of grant. (See Option Grants in Fiscal
2002 on page 19.) The options are exercisable in increments of 25% annually
(and cumulatively) beginning one year after date of grant.
Stock Options
Options Granted:
----------------
The following table sets forth certain information with respect to options
to acquire common stock that were granted during the fiscal year ended April 30,
2002, to each of the Named Officers under the Company's stock option plans.
OPTION GRANTS IN FISCAL 2002
Individual Grants
-----------------------------------------------------------------------
No. of % of Total Potential Realizable Value
Securities Options Exercise at Assumed Annual Rates of
Underlying Granted to or Base Stock Price Appreciation for
Options Employees in Price Expiration Option Term
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ------- ----------- ------ ---- ------ -------
Martin B. Bloch -0- - - - - -
Markus Hechler 15,000 12.3% $11.10 10/31/11 $104,711 $265,358
Michel Gillard -0- - - - - -
Thomas McClelland 5,000 4.1% $11.10 10/31/11 34,904 88,453
Leonard Martire 5,000 4.1% $11.10 10/31/11 34,904 88,453
Joseph Franklin 5,000 4.1% $11.10 10/31/11 34,904 88,453
Option Exercises and Year-end Values:
-------------------------------------
The following table sets forth certain information with respect to options
exercised during fiscal 2002 by each Named Officer and option values as of April
30, 2002.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2002
AND FISCAL YEAR-END OPTION VALUES
No. of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Fiscal Options at Fiscal
Acquired year-end Year-end ($)
on Value Exercisable (E)/ Exercisable (E)/
Name Exercise Realized ($) Unexercisable (U) Unexercisable (U)
---- -------- ------------ ----------------- -----------------
Martin B. Bloch -0- $ -0- 93,000 (E) $255,000 (E)
135,000 (U) $0 (U)
Markus Hechler -0- -0- 55,000 (E) $348,788 (E)
30,000 (U) $67,263 (U)
Michel Gillard -0- -0- 6,250 (E) $0 (E)
18,750 (U) $0 (U)
Thomas McClelland -0- -0- 11,500 (E) $51,169 (E)
12,500 (U) $29,506 (U)
Leonard Martire -0- -0- 25,500 (E) $143,655 (E)
16,500 (U) $49,344 (U)
Joseph Franklin -0- -0- 61,500 (E) $465,000 (E)
5,000 (U) $8,250 (U)
Securities Authorized for issuance under Equity Compensation Plans:
-------------------------------------------------------------------
The following table sets forth as of April 30, 2002, the number of shares
of Company stock to be issued upon exercise of outstanding stock option grants
and the number of shares available for future issuance under such plans.
Plan Category Number of securities Weighted-average Number of securities remaining
to be issued upon exercise price of available for future issuance
exercise of outstanding options, under equity compensation plans
outstanding options, warrants and rights (excluding securities reflected
warrants and rights in column (a))
(a) (b) (c)
---------------------------- --------------------- ---------------------- -------------------------------
Equity compensation plans
approved by security 165,750 $8.99 281,500
holders
---------------------------- --------------------- ---------------------- -------------------------------
Equity compensation plans
not approved by security 917,662 $12.11 280,000
holders (see Note)
---------------------------- --------------------- ---------------------- -------------------------------
Total 1,083,412 $11.63 561,500
---------------------------- --------------------- ---------------------- -------------------------------
Note: Equity compensation plans not approved by security holders consist of:
i- Independent Contractor Stock Option Plan- Under the terms of this
plan, adopted in fiscal 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 1993, stock options may be granted to employees,
officers and directors of the Company at a price at least equal to the
fair market of the Company's common stock on the date of grant.
Options generally are exercisable over a four-year period beginning
one year after date of grant and expire ten years after the grant
date.
iii- President's Employment Contract- Under the terms of an employment
contract, adopted in fiscal 2001, the Company's President, CEO and
Chief Scientist was granted an option to acquire 180,000 shares of the
Company's common stock at the then fair market value of $13.49. The
option is exercisable 25% per year and expires in ten years from date
of grant.
Long-term Incentive Plans
The Company does not maintain any compensation plans for its executive
officers or directors or for any of its other employees which provide
compensation intended to serve as incentive for performance to occur over a
period longer than one fiscal year other than the restricted stock and stock
option plans discussed in the Compensation Committee Report, above. Awards under
these plans are shown in the Summary Compensation Table, above.
Pension Benefits
The Company has no defined benefit or actuarial retirement plans in effect.
It has entered into certain Executive Incentive Compensation ("EIC") agreements
with key employees (including some officers) providing for the payment of
benefits upon retirement or death or upon the termination of employment not for
cause. The Company pays compensation benefits out of its working capital but has
also purchased whole life insurance (of which it is the sole beneficiary) on the
lives of certain of the participants to cover the optional lump sum obligations
of the plan upon the death of the participant. The annual premiums paid during
fiscal 2002 were less than the increase in cash surrender value of such
insurance policies. The annual benefit provided under the program in fiscal 2002
upon retirement at age 65 or death is as follows: Martin B. Bloch- $170,000,
Markus Hechler- $60,000, Leonard Martire- $40,000 and Thomas McClelland-
$40,000. The benefit described above is payable for ten years or the life of the
participant, whichever is longer. Two years after retirement or early
retirement, the participants can elect to receive the benefit, less benefits
received during the two-year period, in a lump sum under certain conditions.
Upon voluntary termination of employment or discharge not for cause, the
participant would be entitled to a lump sum payment, the amount of which varies
based on the year in which termination occurs and the nature of the termination
as set forth in the individual's EIC agreement. In conjunction with the program,
the participants are required to make certain covenants with the Company
relating to, among other things, nondisclosure of confidential information,
noncompetition with the Company and the providing of consulting services
subsequent to retirement.
Performance Graph
The following graph compares the cumulative total shareholder return on the
common stock of the Company with the cumulative total return of the companies
listed in the Standards & Poors' Small Cap 600 Stock Index (the "S&P 600 Small
Cap Index") and an industry peer group index (the "Peer Group Index"). The graph
assumes that $100 was invested on May 1, 1997 in each of the common stock of the
Company, the stock of the companies comprising the S&P 600 Small Cap Index and
the stocks of the companies comprising the Peer Group Index, including the
reinvestment of dividends through April 30, 2002. The Peer Group Index consists
of Adaptive Broadband, Inc., Aeroflex Inc., Alpha Industries, Inc., Anaren
Microwave, Inc., Ball Corp., Comtech Telecom Corp., Datum Inc., EDO Corp.,
Odetics, Inc., Scientific Atlanta, Inc., Symmetricom Inc., Trimble Navigation,
Inc. and Truetime, Inc.
Cumulative Total Shareholder Return for
Five-year Period Ended April 30, 2002
Performance Graph is Graphical Material and is NOT electronically filed
with this submission. A paper copy of the graph is filed with Form SE.
Performance Graph Data Table:
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------
Frequency Electronics $100.00 $247.72 $122.35 $269.01 $250.04 $210.48
----------------------------------------------------------------------------------
S&P 600 Small Cap $100.00 $146.75 $125.78 $151.56 $163.83 $190.92
----------------------------------------------------------------------------------
Peer Group $100.00 $146.80 $183.03 $494.95 $395.84 $242.77
----------------------------------------------------------------------------------
Employment Contracts and Change-In-Arrangements
None of the Named Officers are employed by the Company pursuant to
employment agreements other than Mr. Bloch as described in the Compensation
Committee Report above. As described in the Compensation Committee Report
beginning on page 10, the Company has provided supplemental separation benefits
for certain executive officers, including the Named Officers, in the event of a
change in control or ownership of part or all of the Company. Such benefits will
be provided only if an officer is discharged without cause and is not offered
the opportunity to be hired by the new or successor management or company within
30 days at no less than the base salary earned before discharge. The Company
does not have any other material compensatory plans or arrangements with its
employees with respect to any resignation, retirement or other termination of
such persons employed with the Company resulting from, or in any way connected
with, a change-in-control of the Company.
ANNUAL REPORT
A copy of the Company's combined Annual Report and Form 10-K, including the
financial statements and the financial statement schedule thereto, for the
fiscal year ended April 30, 2002 is being mailed to Stockholders concurrently
with the mailing of this Proxy Statement. For a charge of $50, the Company
agrees to provide a copy of the exhibits to the Form 10-K to any Stockholders
who request such a copy.
By Order of the Board of Directors,
/s/ Harry Newman
----------------
HARRY NEWMAN
Secretary
Dated: August 26, 2002
Appendix A
A-1
Performance Graph is Graphical Material and is NOT electronically filed
with this submission. A paper copy of the graph is filed with Form SE.