FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
October 5, 1998
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 5th day of October
1998, 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
PricewaterhouseCoopers LLP as independent auditors for the fiscal year
commencing May 1, 1998.
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 20, 1998 are entitled to notice of, and to vote
at, the meeting.
By order of the Board of Directors
HARRY NEWMAN
Secretary
Mitchel Field, New York
August 26, 1998
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.
<PAGE>
FREQUENCY ELECTRONICS, INC.
55 Charles Lindbergh Boulevard
Mitchel Field, New York 11553
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 5, 1998
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 5th day of October 1998, 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,
1998. Only stockholders of record as of the close of business on August 20, 1998
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 $75,000, 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 20, 1998, the Company had outstanding 7,729,221 shares of
common stock, $1.00 par value ("Common Stock") (excluding 1,280,038 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 six (6) 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 six 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:
<PAGE>
Nominees for Election as Directors
Year First
Elected
Name Principal Occupation Age Director
Joseph P. Franklin Chief Executive Officer, 64 1990
(Major General, Chairman of the Board
U.S.A. - Ret) of Directors
Martin B. Bloch President, Chief 62 1961
Scientist and a
Director
Joel Girsky President, Jaco 59 1986
Electronics, Inc. and a
Director
John C. Ho (1) Director 65 1968
E. Donald Shapiro Joseph Solomon
Distinguished Professor
of Law, New York School
of Law and a Director 66 1998
Marvin Meirs Vice President, Engineering
and a Director 60 1998
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.
BUSINESS EXPERIENCE OF DIRECTORS
MARTIN B. BLOCH, age 62, has been a Director of the Company and of its
predecessor since 1961. He is currently President and Chief Scientist of the
Company as well as President of FEI Communications, Inc., a subsidiary of the
Company. Registrant, which is engaged in the manufacture and sale of time and
frequency control products for commercial and non-U.S. defense and space.
Previously, he served as chief electronics engineer of the Electronics Division
of Bulova Watch Company.
JOSEPH P. FRANKLIN, age 64, has served as a Director of the Company since
March 1990. In December 1993, he was elected Chairman of the Board of Directors
and Chief Executive Officer. He has been the chief executive officer of Franklin
S.A., since August 1987, 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 59, 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 seven years. He has been a director since 1983 of
Nastech Pharmaceuticals Company which manufactures and distributes certain
drugs.
<PAGE>
JOHN C. HO, age 65, was employed by the Company and its predecessor from
1961 until his retirement effective 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 66, is the Joseph Solomon Distinguished Professor
of Law, New York School of Law. He is a director of Loral Space &
Communications, Ltd., Bank Leumi Trust Co., United Industrial Corporation and
other corporations. Mr. Shapiro became a member of the board of directors in
1998.
MARVIN MEIRS, age 60, joined the Company in 1966 in an engineering
capacity. He has served as Vice President for Engineering of the Company since
1978. Mr. Meirs became a member of the board of directors in 1998.
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 six (6) 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
The Board has appointed the firm of PricewaterhouseCoopers LLP, as
independent auditors for the fiscal year commencing May 1, 1998. Stockholders
are requested to signify their approval or disapproval of the appointment.
It is anticipated that a representative of PricewaterhouseCoopers LLP,
the principal auditors of the Company for the current year, 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.
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 1998 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.
<PAGE>
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, 1999.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of August 20, 1998, 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.
545 Madison Ave.
New York, NY 10022 854,100 11.05%
Frequency Electronics, Inc.,
Employee Stock Ownership Plan (1)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 782,556 10.12
Martin B. Bloch (2)(3)(5)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 853,340 11.04
Joseph P. Franklin (3)(4)(5)(6)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 137,348 1.78
John C. Ho
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 15,000 *
<PAGE>
Amount and Nature of
Name and Address of Beneficial Holder Beneficial Ownership Percent of Class
E. Donald Shapiro
New York School of Law
New York, NY -0- *
Joel Girsky
c/o Jaco Electronics, Inc.
145 Oser Avenue
Hauppauge, NY 11788 -0- *
Leonard Martire (3)(5)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 4,000 *
Alfred Vulcan (3)(5)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 22,115 *
Marvin Meirs (3)(5)
55 Charles Lindbergh Blvd
Mitchel Field, NY 11553 34,642 *
All executive officers
and directors as a group (11
persons) (3)(5) 1,234,571 16.36
*designates less than one (1%) percent.
Notes:
(1) Includes 661,461 shares of stock held by the F.E.I. ESOP Trust for the
Company's Employee Stock Ownership Plan, 446,831 of which shares have been
allocated to the individual accounts of employees of the Company (including the
Named Officers as defined on page 14) and 214,630 of which shares have not yet
been allocated; 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).
(2) Includes 150,000 shares issuable on the full exercise of options granted to
Mr. Bloch on March 27, 1991 under the Senior ESOP, as that term is hereinafter
defined. All of these options were, by their terms, exercisable upon issuance at
an exercise price of $3.34 (see the discussion of the Senior ESOP included in
the Compensation Committee Report, below).
(3) Includes the number of shares which, as at August 20, 1998, 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.
<PAGE>
- ------------------- ------------------- ------------------- -------------------
Stock Bonus
Name Plan Shares ESOP Shares ISOP Shares
(a) (b)
- ------------------- ------------------- ------------------- -------------------
Martin B. Bloch 22,315 3,896 -0-
- ------------------- ------------------- ------------------- -------------------
Joseph P. Franklin -0- 2,348 -0-
- ------------------- ------------------- ------------------- -------------------
Leonard Martire -0- 4,286 36,975
- ------------------- ------------------- ------------------- -------------------
Marvin Meirs 1,481 4,286 1,875
- ------------------ ------------------- ------------------- -------------------
Alfred Vulcan 1,532 3,708 1,875
- ------------------- ------------------- ------------------- -------------------
Mark Hechler 2,706 4,286 49,875
- ------------------- ------------------- ------------------- -------------------
All Directors and
Officers as a Group 28,810 31,379 131,196
(11 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, 1998. 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).
(4) Includes 37,500 shares issuable on the full exercise of options granted to
General Franklin on December 6, 1993 under the Senior ESOP, as that term is
hereinafter defined.
(5) 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
---------------------------- -----------------
Martin B. Bloch 15,000
---------------------------- -----------------
Joseph P. Franklin 15,000
---------------------------- -----------------
Leonard Martire 7,500
---------------------------- -----------------
Marvin Meirs -0-
---------------------------- -----------------
Alfred Vulcan 15,000
---------------------------- -----------------
Mark Hechler 15,000
---------------------------- -----------------
All Officers as a Group 82,500
(8 persons)
---------------------------- -----------------
(6) Includes 30,000 shares held by the Franklin Family Trust over which General
Franklin has no direct control.
There are no beneficial owners known to the Company who have the right to
acquire further beneficial ownership, except as indicated above.
<PAGE>
Compliance with Section 16(a) of the Exchange Act
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, 1998 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. 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, Ho and Franklin. 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 one meeting during the last fiscal year.
The Compensation Committee, which presently consists of three Directors,
Messrs. Girsky, Ho and Franklin, met one time in 1998. 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 8 through 13 of this proxy
statement.
During fiscal 1994, a Stock Option Committee was formed which
consolidated all of the separate committees that previously administered the
various plans. The Stock Option Committee is designed to include, among its
members, all outside directors.
Presently the members are Messrs. Girsky, Ho and Franklin.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
Overall Policy
The members of the Compensation Committee include Messrs. Joel Girsky,
John C. Ho 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.
<PAGE>
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 14 (the "Named Officers") have been largely responsible for the
Company's past successes, for developing and implementing the Company's program
of consolidating and restructuring operations to achieve significant cost
reductions and production and engineering improvements, and for achieving and
maintaining the Company's position at the forefront of technical innovation in
the area of the Company's operations. 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.
In determining a base salary for Mr. Bloch, the Compensation Committee
took into account base salaries 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 fiscal 1998, revenues
had increased by 15% and operating profit before the one-time litigation
settlement and inventory writedowns and reserves, increased by almost 50% from
the fiscal 1997 level. Continuing investment in research and development for
commercial products under Mr. Bloch's leadership was highlighted as the
principal reason for the successful transition to a commercial company and the
marked improvement in the results in recent years. It should be noted that Mr.
Bloch's base salary of $325,000, was determined at a time when he was the chief
executive officer and whose resignation as such in December 1993 was wholly
unanticipated. However, the members of the Compensation Committee did not
believe that this change in his managerial status had reduced the value of his
overall contribution to the Company because the consequent reallocation of his
time had resulted in at least comparable value to the Company.
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.
In prior fiscal years, General Franklin and Mr. Bloch voluntarily reduced
their base salaries to $202,500 and $263,250, respectively. In any fiscal year
during which the Company achieves an operating profit of at least $1 million
(excluding certain one-time adjustments), these salary reductions are restored
to the executive officers as a component of their annual bonuses. Also during
fiscal 1996, the salaries of all other officers were reduced by 10%. During
fiscal 1998, the salaries of the other officers were restored to fiscal 1995
levels.
<PAGE>
The non-employee members of the Committee took note of these salary
reductions in approving the awards of incentive bonuses to the senior officers
of the Company based on the Company's fiscal 1998 performance and the incentive
compensation plans described below.
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 and selling and administrative 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,
General Franklin determines the amount to be awarded to each of the members of
the Executive Committee. The members of such committee may recommend to General
Franklin, 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 General Franklin, based upon an evaluation of the performance,
level of responsibility and leadership of the individual executive in relation
to the Company's operating results. For the fiscal years ended April 30, 1998,
1997 and 1996, the Company accrued approximately $335,000, $340,000 and $75,000,
respectively, to be distributed under the terms of the IPICP.
The Presidential Incentive Plan
The 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. Funds are 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 years ended April 30, 1998, 1997 and 1996, the Company has
accrued approximately $155,000, $160,000 and $50,000, respectively, to be used
as awards under this plan.
<PAGE>
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 Incentive 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 maintained by the Company
for all of its employees including its executive officers. The ultimate value of
any awards of stock made under this plan is dependent upon the market value of
the Company's common stock at such time as the shares are 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 1,071,000
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
are 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.
An employee's right to receive shares allocated to his 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 30,1998, each of the Named Officers, with the
exception of General Franklin, 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.
<PAGE>
The beneficial stock ownership table on page 7 shows the allocation of
ESOP shares to the accounts of each of the Named Officers as of April 30, 1998.
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.
The Incentive 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.
Under the terms of the ISOPs, eligible employees could be granted options
to purchase shares of the Company's common stock. Under the terms of each of the
ISOPs, 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 Stock Option 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 the case where the President or Chairman have
made awards, the Stock Option Committee will be informed each time awards are
made.
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 fair market value on the date of grant
of the option. The Stock Option 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.
<PAGE>
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 Stock Option Committee authorized the
grant of an aggregate of 112,500 shares of Restricted Stock to the then nine
Company Officers at an option price of $4.00 per share. (See the Restricted
Stock table on page 7.) The Stock Option Committee did not authorize any persons
to purchase any shares under this plan during fiscal 1998 or 1997.
Independent Contractor Stock Option Plan
During fiscal 1998, the Company established an Independent Contractor
Stock Option Plan under which up to 200,000 shares may be granted. The Stock
Option 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, 1998, the Company granted options to acquire 112,500 shares at a
price of $15.75, the then fair market value of the Company's common stock. Of
the shares granted, 22,750 are exercisable immediately, 29,750 are exercisable
one year from grant date, 30,000 are exercisable two years from grant date, and
30,000 are exercisable three years from grant date. For the year ended April 30,
1998, the Company recognized compensation expense of $208,000 as a result of
these stock option grants.
Supplemental Separation Benefits
During 1996, the Company agreed to provide supplemental separation
benefits to certain executive officers. 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
John C. Ho
Joseph P. Franklin
Members of the Compensation Committee
<PAGE>
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 all of
the Company's Chief Executive Officers and each of the Company's four other most
highly compensated executive officers (collectively, the "Named Executive
Officers") based on salary and bonus earned in 1998.
- --------------------------------------------------------------------------------
Annual Compensation Long-Term
Compensation Awards
----------------------------- ---------------------------
$Value of
Restricted
Name and Principal Stock
Position Year Salary Bonus Awards(6) Options
- -------------------- ---- ---------- ---------- ---------- ----------
Martin B. Bloch, 1998 $308,889 $62,750 $12,528 -0-
President, ---- ---------- ---------- ---------- ----------
Chief Scientist (1) 1997 295,062 88,000 6,936 -0-
---- ---------- ---------- ---------- ----------
1996 309,621 67,250 2,971 15,000 (7)
- --------------------------------------------------------------------------------
Joseph P. Franklin 1998 210,653 47,500 12,528 -0-
Chairman of the ---- ---------- ---------- ---------- ----------
Board, C.E.O. (2) 1997 222,041 42,500 6,936 -0-
---- ---------- ----------- ---------- ----------
1996 220,236 27,500 2,964 15,000 (7)
- --------------------------------------------------------------------------------
Leonard Martire, Vice 1998 140,860 10,000 12,528 -0-
President, Space ---- ---------- ----------- ---------- ----------
Systems and Business 1997 137,740 27,000 6,936 -0-
Development (3) ---- ---------- ----------- ---------- ----------
1996 132,949 12,000 2,971 7,500 (7)
- --------------------------------------------------------------------------------
Marvin Meirs 1998 133,302 30,000 12,528 -0-
Vice President ---- ---------- ----------- ---------- ----------
Engineering (5) 1997 119,156 40,000 6,936 -0-
---- ---------- ----------- ---------- ----------
1996 121,335 22,500 2,971 -0- (7)
- --------------------------------------------------------------------------------
Alfred Vulcan, Vice 1998 126,065 30,000 12,528 -0-
President, Systems ---- ---------- ----------- ---------- ----------
Engineering(4) 1997 115,935 40,000 6,936 -0-
---- ---------- ------------ ---------- ----------
1996 127,466 22,500 2,971 15,000 (7)
- --------------------------------------------------------------------------------
Notes:
(1) For the fiscal years ended April 30, 1998, 1997, and 1996, the
salary shown for Mr. Bloch includes aggregates of $30,452, $21,687, and $26,683,
respectively, for: (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. Effective August 1, 1994, Mr. Bloch's base
salary of $325,000 was reduced to $292,500 and on August 1, 1995, to $263,250.
(2) For the fiscal years ended April 30, 1998, 1997, and 1996, the
salary shown for General Franklin includes aggregates of $12,047, $19,541, and
$11,245, respectively, for: (i) automobile allowance; (ii) insurance premiums to
provide term life insurance benefits (available to all employees); and (iii) the
costs of medical reimbursements available to officers. Effective August 1, 1994,
General Franklin's base salary of $250,000 was reduced to $225,000 and, on
August 1, 1995, to $202,500.
(3) For the fiscal years ended April 30, 1998, 1997, and 1996, the
salary shown for Mr. Martire includes aggregates of $18,086, $21,417, and
$12,703, respectively, for: (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.
<PAGE>
(4) For the fiscal years ended April 30, 1998, 1997, and 1996, the
salary shown for Mr. Meirs includes aggregates of $19,455, $14,877, and $16,800,
respectively, for: (i) automobile allowance; (ii) insurance premiums to provide
term life insurance benefits (available to all employees); (iii) the cost of
medical insurance (available to all employees); and (iv) the costs of medical
reimbursements available to officers.
(5) For the fiscal years ended April 30, 1998, 1997, and 1996, the
salary shown for Mr. Vulcan includes aggregates of $12,988, $12,087, and
$20,037, respectively, for: (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.
(6) Represents the dollar value, as at the date of allocation, of
shares of common stock of the Company allocated under the Company's Employee
Stock Ownership Plan ("ESOP") as at December 31, 1997, 1996, and 1995, (the
"Grant Dates"), respectively. Awards made under the ESOP are not
performance-based, but are awarded to all employees of the Company in proportion
to the percentage which their 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 is 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 eighty-three (783),
eight hundred sixty-seven (867) and six hundred ninety-nine (699) shares of the
Company's common stock were allocated to the ESOP accounts of each of the Named
Officers as at December 31, 1997, 1996, and 1995, respectively, except General
Franklin at December 31, 1995. In General Franklin's case, six hundred
ninety-seven (697) shares were allocated to his ESOP account at December 31,
1995. The market price of the Company's common stock as at each of the foregoing
Grant Dates was $16 at December 31, 1997, $8 at December 31, 1996, and $4 1/4 at
December 31, 1995. (See the discussion under the caption "The Employee Stock
Ownership Plan and Trust" included in the Compensation Committee Report, above.)
(7) Represents shares pursuant to a Stock Purchase Agreement dated
October 10, 1995 under the Restricted Stock Plan at a purchase price of $4.00
per share. (Refer to the Restricted Stock Plan discussion included in the
Compensation Committee Report above.) During fiscal 1998, Mr. Meirs exercised
his option to purchase 15,000 shares at the indicated exercise price.
<PAGE>
Stock Options
Options Granted:
The following table sets forth certain information with respect to options to
acquire common stock that were granted during the fiscal year ended April 30,
1998, to each of the Named Officers under the Company's stock option plans.
OPTION GRANTS IN FISCAL 1998
Individual Grants
- --------------------------------------------------------------------------------
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
No. of % of Total Price
Securities Options Appreciation
Underlying Granted to Exercise or For Option
Options Employees in Base Price Term
Name Granted Fiscal Year ($/Sh) Expiration Date 5%($) 10%($)
- ---- ---------- ------------ ---------- --------------- ------ ------
Martin B. Bloch 0 0.00%
Joseph P. Franklin 0 0.00%
Leonard Martire 4,500 4.35% $10.167 July 25, 2007 28,773 72,916
Marvin Meirs 7,500 7.25% $10.167 July 25, 2007 47,955 121,527
Alfred Vulcan 7,500 7.25% $10.167 July 25, 2007 47,955 121,527
Option Exercises and Year-end Values:
The following table sets forth certain information with respect to options
exercised during fiscal 1998 by each Named Officer and option values as of April
30, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND FISCAL YEAR-END OPTION VALUES
Value of
No. of Securities Unexercised
Underlying In-the-Money
Unexercised Options Options at
Shares at Fiscal year-end Fiscal Year-end($)
Acquired on Value Exercisable (E)/ Exercisable (E)/
Name Exercise Realized ($) Unexercisable (U) Unexercisable(U)
- ---- ----------- ------------ ------------------- ----------------
Martin B. Bloch 0 0 165,000 (E) $2,099,625 (E)
Joseph P. Franklin 0 0 52,500 (E) $ 645,938 (E)
Leonard Martire 9,000 194,625 44,475 (E) $ 553,374 (E)
3,375 (U) $ 20,108 (U)
Marvin Meirs 20,000 275,000 1,875 (E) $ 11,171 (E)
5,625 (U) $ 33,514 (U)
Alfred Vulcan 13,500 193,844 16,875 (E) $ 193,046 (E)
5,625 (U) $ 33,514 (U)
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.
<PAGE>
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 1998 were less than the increase in cash
surrender value of such insurance policies. The annual benefit provided under
the program in fiscal 1998 upon retirement at age 65 or death is as follows:
Martin B. Bloch - $100,000, Leonard Martire - $40,000, Marvin Meirs- $50,000,
and Alfred Vulcan- $50,000. 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' 500 Stock Index (the "S&P Index") and
an industry peer group index (the "Peer Group Index"). The graph assumes that
$100 was invested on May 1, 1993 in each of the common stock of the Company, the
stock of the companies comprising the S&P Index and the stocks of the companies
comprising the Peer Group Index, including the reinvestment of dividends through
April 30, 1998. The Peer Group Index consists of Alpha Industries, Inc., Anaren
Microwave, Inc., Aeroflex Inc., Ball Corp., Burr-Brown Corp., California
Microwave, Datum Inc., EDO Corp., Genrad Inc., Kollmorgen Corp., Odetics, Inc.,
Scientific Atlanta, Inc., and Trimble Navigation, Inc.
Cumulative Total Shareholder Return for
Five-Year Period Ended April 30, 1998
[GRAPHIC OMITTED]
Performance graph is Graphical Material and is NOT electronically filed with
this submission. A paper copy of the graph is filed with Form SE.
<PAGE>
Employment Contracts and Change-In-Arrangements
None of the Named Officers are employed by the Company pursuant to
employment agreements. As described in the Compensation Committee Report
beginning on page 8, 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, 1998 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,
HARRY NEWMAN
Secretary
Dated: August 26, 1998
<PAGE>
APPENDIX
Performance Graph is Graphical Material and is NOT
electronically filed with this submission. A paper copy
of the graph is filed with Form SE.
