UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2))
[x] Definitive Proxy Statement
[x] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-12
Commission File No. 33-18978
TEL-INSTRUMENT ELECTRONICS CORP
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(Name of Registrant as specified in its charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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Persons who are to respond to the collection of information contained in this
form are not required to respond unless the form displays a currently valid OMB
control number.
1
Tel-Instrument Electronics Corp
728 Garden St.
Carlstadt, NJ 07071
November 5, 2004
Dear Shareholder:
I am pleased to invite you to attend the annual meeting of shareholders of
Tel-Instrument Electronics Corp, to be held at the Company's facilities at 728
Garden St., Carlstadt, NJ on Wednesday, December 8, 2004, at 4:00 p.m. EST.
At the meeting you will be asked to vote for the election of directors and
to ratify the appointment of BDO Seidman, LLP as the Company's independent
registered public accounting firm for the fiscal year ending March 31, 2005. The
accompanying material contains the Notice of Annual Meeting, the Proxy
Statement, which includes information about the matters to be acted upon at the
Annual Meeting, and the related Proxy Card. We have also enclosed our Annual
Report for fiscal 2004 and our Quarterly Report for the June 30, 2004 quarter.
I hope you will be able to attend the annual meeting. Whether or not you
are able to attend in person, I urge you to read the enclosed materials, sign
and date the enclosed proxy and return it promptly in the enclosed envelope. If
you do attend in person, you may withdraw your proxy and vote personally on any
matters properly brought before the annual meeting.
Sincerely,
/s/ Harold K. Fletcher
----------------------
Harold K. Fletcher
Chairman of the Board
2
Tel-Instrument Electronics Corp
728 Garden St.
Carlstadt, NJ 07072
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NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
December 8, 2004
The Annual Meeting of shareholders of Tel-Instrument Electronics Corp,
will be held at the Company's principal office, 728 Garden St., Carlstadt, NJ,
on December 8, 2004 at 4:00 p.m. EST, for the following purposes, as more fully
described in the accompanying Proxy Statement:
1. To elect six directors for one year terms.
2. To ratify the appointment of BDO Seidman, LLP as the Company's
Independent Registered Public Accounting firm for fiscal year
2005.
To act upon such other business as may properly come before
the meeting, or at any adjournment or postponement thereof.
Shareholders of record at the close of business on November 1, 2004, are
entitled to notice of, and to vote at, the meeting, or at any adjournment
thereof.
Whether or not you plan to attend the meeting in person, please vote as
soon as possible by marking, dating, and signing the enclosed proxy card exactly
as your name appears thereon and promptly return it in the envelope provided,
which requires no postage if mailed in the United States. Proxies may be revoked
at any time before they are exercised, in the manner set forth below, and, if
you attend the meeting in person, you may withdraw your proxy and vote
personally on any matter properly brought before the meeting.
This Proxy Statement and the accompanying form of Proxy Card are being
mailed beginning on or about November 5, 2004 to Stockholders entitled to vote.
The Company's annual report for fiscal 2004 and quarterly report for the June
30, 2004 quarter, which contain consolidated financial statements, are being
mailed with this Proxy Statement, but are not a part of the proxy soliciting
materials.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Harold K. Fletcher
--------------------------------
Harold K. Fletcher
Chairman of the Board
Carlstadt, NJ
November 5, 2004
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TABLE OF CONTENTS
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INFORMATION CONCERNING SOLICITATION AND VOTING.................................5
Proxies.....................................................................5
Record Date and Outstanding Common Stock....................................5
Voting and Solicitation.....................................................6
Revocability of Proxies.....................................................6
Householding of Proxy Materials.............................................6
PROPOSAL NO. 1 - ELECTION OF DIRECTORS.........................................7
General.....................................................................7
Vote Required...............................................................7
Information Regarding the Nominees..........................................8
CORPORATE GOVERNANCE, BOARD MEETINGS AND COMMITTEES............................9
Code of Conduct.............................................................9
Audit Committee.............................................................9
Compensation Committee.....................................................10
Nominating Committee.......................................................10
Compensation of Directors..................................................11
Compliance with Section 16(a) of the Exchange Act..........................11
PROPOSAL NO. 2 -RATIFICATION OF BDO SEIDMAN, LLP AS INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM.............................................12
Fees Paid to BDO Seidman, LLP..............................................12
Policy on Audit Committee Pre-Approval of Audit and Permissible
Non-Audit Services.......................................................12
Audit Committee Report.....................................................13
SECURITY OWNERSHIP............................................................14
COMPENSATION COMMITTEE INTERLOCKS & INSIDER PARTICIPATATION...................16
COMPENSATION COMMITTEE REPORT.................................................16
EXECUTIVE COMPENSATION........................................................19
PERFORMANCE GRAPH.............................................................21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................22
SHAREHOLDER PROPOSALS.........................................................23
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Tel-Instrument Electronics Corp
728 Garden St.
Carlstadt, NJ 07072
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
December 8, 2004
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INFORMATION CONCERNING SOLICITATION AND VOTING
Proxies
This Proxy Statement is furnished in connection with the solicitation of
proxies by Tel-Instrument Electronics Corp (the "Company") for use at the annual
meeting of shareholders to be held at 4:00 p.m. EST, on Wednesday, December 8,
2004 at the Company's facilities at 728 Garden St., Carlstadt, NJ, or at any
adjournment or postponement thereof. The Annual Report, which includes our
audited financial statements for the fiscal year ended March 31, 2004, and our
Quarterly Report for the quarter ended June 30, 2004, have been mailed to you
with this Proxy Statement, but are not part of the proxy soliciting material.
You may vote at the meeting in person or by proxy. We recommend that you
vote by proxy, even if you plan to attend the meeting. You can always change
your vote at the meeting. Giving us your proxy means you authorize us to vote
your shares at the meeting in the manner you direct. You may vote for some, all,
or none of the director candidates. You may also vote for or against the other
proposals, or you may abstain from voting.
All shares of common stock represented at the meeting by properly executed
and returned proxies, unless such proxies have previously been revoked, will be
voted at the annual meeting and, where the manner of voting is specified on the
proxy, will be voted in accordance with such specifications. Shares represented
by properly executed and returned proxies, on which no specification has been
made, will be voted for the election of the nominees for director named herein,
and for the ratification of BDO Seidman, LLP as the Company's independent
registered public accounting firm for the fiscal year ending March 31, 2005. If
any other matters are properly presented at the annual meeting for action,
including a question of adjourning or postponing the annual meeting from time to
time, the persons named in the proxies and acting hereunder, will have
discretion to vote on such matters in accordance with their best judgment. The
Company is unaware of any matters which will be submitted to Shareholders for
action, other than as stated in the Proxy card.
The Notice of Annual Meeting, this Proxy Statement, and the related proxy
card are first being mailed to shareholders on or about November 5, 2004.
Record Date and Outstanding Common Stock
The Board of Directors has fixed the close of business on November 1,
2004, as the Record Date for determining the holders of outstanding common stock
entitled to notice of, and to vote at, the annual meeting. On that date, there
were 2,144,151 shares of common stock issued, outstanding, and entitled to vote.
5
Voting and Solicitation
Each shareholder is entitled to one vote, exercisable in person or by
proxy, for each share of common stock held of record on the record date.
Shareholders are entitled to vote their shares for each proposal, but do not
have the right to cumulate votes in the election of directors.
The presence in person or by proxy, of a majority of the shares of common
stock outstanding and entitled to vote is necessary to constitute a quorum for
the transaction of business at a meeting. An affirmative vote of a majority of
the shares of common stock present in person or by proxy, at a meeting where
there is a duly constituted quorum is necessary to adopt any matter submitted
for vote. All votes will be tabulated by the inspector of election for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions, and broker non-votes.
Proxies on which no specification has been made, including broker non
votes, will be counted for quorum purposes and voted for the election of the
nominees listed below, the ratification of the appointment of BDO Seidman, LLP
as independent registered public accounting firm, and, if any, for other matters
that are properly raised at the meeting, we will use our best judgment to vote
your proxy. As of the date of this Proxy Statement, we are unaware of any other
matters to be voted on. If you mark the Proxy Card indicating withholding of
your vote, the equivalent to abstaining, your proxy will be counted in
determining the quorum, but will not be a vote cast and, therefore, it will have
the effect of a vote cast "against" the proposal.
Tel will pay the expenses incurred in connection with the solicitation of
proxies, and we are soliciting proxies principally by mail. In addition,
directors, officers, and regular employees may solicit proxies, personally or by
telephone, for which they will receive no consideration other than their regular
compensation. We will also request brokerage houses, nominees, custodians, and
fiduciaries to forward soliciting material to the beneficial owners of shares of
common stock held by them, as of the record date, and will reimburse such
persons for their reasonable expenses so incurred.
Revocability of Proxies
Any shareholder who executes and returns a proxy may revoke it at any time
before it is voted by (a) executing a later-dated proxy relating to the same
shares and delivering it to our Corporate Secretary before the vote at the
meeting, (b) filing a written notice of revocation bearing a later date than his
proxy, with our Corporate Secretary, before the vote at the meeting, or (c)
appearing in person at the meeting, filing a written notice of revocation and
voting in person the shares to which the proxy relates. Any written notice or
subsequent proxy should be delivered to Tel-Instrument Electronics Corp, 728
Garden St., Carlstadt, NJ 07072, Att: Joseph P. Macaluso.
Householding of Proxy Materials
In an effort to reduce printing costs and postage fees, we have adopted a
practice approved by the SEC called "householding." Under this practice,
stockholders who have the same address and last name and who do not participate
in electronic delivery of proxy materials, will receive only one copy of our
proxy materials unless one or more of these stockholders notifies us that they
wish to continue receiving individual copies. Stockholders who participate in
householding will continue to receive separate proxy cards.
If you share an address with another stockholder and receive only one set
of proxy materials and would like to request a separate copy of these materials,
please send your request to the Company, 728 Garden Street, Carlstadt, NJ, Attn:
Joseph P. Macaluso.
6
PROPOSAL NO. 1: ELECTION OF DIRECTORS
General
The six director candidates named below have been nominated for one-year
terms. Please see "Nominating Committee" below for the Company's nominating
procedures.
Each candidate currently serves as a director. None of the candidates,
except Harold K. Fletcher, Chairman of the Board and CEO of the Company and
Robert J. Melnick, Vice President, is employed by the Company. Directors are
elected annually, and until their successors have been elected and qualified.
Pursuant to the By-Laws, the directors may elect a director to fill a term
until the following Annual Meeting of Shareholders, providing there is an
opening. On May 19, 2004, in accordance with the By-Laws, the Board unanimously
elected Robert A. Rice as a director to serve until this Annual Meeting. Mr.
Rice is a nominee described below.
It is intended that votes will be cast pursuant to the enclosed proxy card
for the election of the nominees listed in the table below, except for those
proxies that withhold such authority. Shareholders do not have cumulative voting
rights with respect to the election of directors, and proxies cannot be voted
for a greater number of directors than the number of nominees. If any of the
nominees shall be unable or unwilling to serve as a director, it is intended
that the proxy will be voted for the election of such other person or persons as
the proxies may recommend in the place of such nominee. We have no reason to
believe that any of the nominees will not be candidates or will be unable to
serve.
Vote Required
The six nominees receiving the highest number of affirmative votes of the
shares entitled to vote at the annual meeting shall be elected to the Board of
Directors. The officers and directors, who own over 50% of the outstanding
Common Stock (See "Security Ownership" below), have stated that they will vote
their shares for the six nominees listed below. The Board of Directors
recommends that shareholders vote FOR the nominees listed below. Unless you
indicate otherwise, your proxy will be voted for the election of the nominees
listed below.
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Information Regarding the Nominees
Director
Name (age) Position Since
- ---------- -------- -------
Harold K. Fletcher Chairman of the Board, 1982
(79) President and Chief
Executive Officer of the
Company since 1982;
George J. Leon Director; Investment 1986
(60) Manager and beneficiary of
the George Leon Family Trust
(investments) since 1993;
Robert J. Melnick Director; Vice President of 1998
(70) the Company since 1999; Marketing
and Management Consultant for the
Company since 1991;
Jeffrey C. O'Hara, CPA Director; Independent Financial 1998
(46) Consultant from 2001; Chief
Financial Officer from 1999-2000
of Alarm Security Group; Independent
Financial Consultant from 1996 to 1998;
Robert A. Rice Director as of May 2004; President and 2004
(49) Owner of Spurwink Cordage, Inc since
1998 (textile manufacturing).
Robert H. Walker Director; Currently and since 1990 1984
(68) member of Board of Directors of.
Robotic Vision Systems, Inc. (RVSI),
Executive Vice President of RVSI,
1983-1998.
8
CORPORATE GOVERNANCE, BOARD MEETINGS AND COMMITTEES
The Board of Directors is responsible for supervision of the overall
affairs of the Company. The Board held 6 meetings during the fiscal year 2004
and each of the incumbent directors attended at least 75 percent of the Board
meetings except for Mr. Rice, who was elected a director in May 2004, after the
end of the 2004 fiscal year. Three of the six Directors are independent under
Section 121(A) of the Rules of the American Stock Exchange (the "Amex").
To assist it in carrying out its duties, the Board has delegated certain
authority to committees. The Board has established standing Audit and
Compensation Committees, and has delegated nominating responsibility to the
three Directors who are independent under Section 121(A) of the Rules of the
Amex. Our Audit and Compensation Committees consist of only non-employee
directors.
Code of Conduct
Tel has had corporate governance standards and policies, regulating
officer, director and employee conduct for many years. In fiscal 2004, we
reviewed our standards and policies and incorporated them into our new Code of
Business Conduct, which we believe satisfies the rules recently promulgated by
the SEC and the Amex. The Code applies to all employees, including our Chief
Executive Officer and our Principal Accounting Officer, and is available to any
shareholder free of charge, by submitting a written request to the Company, 728
Garden Street, Carlstadt, NJ 07072, Attn: Joseph P. Macaluso.
Audit Committee
The Audit Committee is responsible for reviewing the Company's financial
statements, overseeing the Company's accounting, audits, internal controls, and
adherence to its Business Conduct Guidelines. The Committee also recommends to
the Board of Directors the selection of the Company's independent registered
public accounting firm and reviews and evaluates the independent auditor's
compensation, services performed, and procedures for ensuring its independence
with respect to the Company. The Board of Directors has adopted the charter
written for the Audit Committee, a copy of which is attached as Appendix A to
this Proxy Statement, and the Committee's report is set forth below
During fiscal 2004, the Audit Committee was composed of Messrs. Robert H.
Walker, George J. Leon, and Jeffrey C. O'Hara, who are not officers or employees
of the Company. In February 2004, the Company's shares were listed on the Amex
and, shortly thereafter, Mr. O'Hara, who is independent under the Securities
Exchange Act of 1934, but not under Section 121(A) of the Amex Rules, withdrew
as a member. During fiscal year 2004, all members of the Committee attended all
four of the Audit Committee meetings. In the opinion of the Board, and as
"independent" is defined under the listing standards of the Amex, Messrs. Walker
and Leon are independent of management and free of any relationship which might
interfere with their exercise of independent judgment as members of this
committee. The Company is exempt, at the present time, from the Amex Rules
requiring an Audit Committee of three members.
9
Compensation Committee
The Compensation Committee, which consisted during fiscal 2004 of George
J. Leon, Robert H. Walker and Jeffrey C. O'Hara, is responsible for (1)
reviewing and evaluating employee stock and other compensation programs and
plans, (2) determining the compensation of the Chief Executive Officer, and (3)
approving compensation arrangements, including Keyman incentive compensation and
stock option grants, for Tel's management and employees.
The Compensation Committee's Report is set forth below. The Compensation
Committee met three times during the 2004 fiscal year, and all members attended
all meetings. Messrs. Leon and Walker are independent, as defined in the Amex
Rules. In February 2004, the Company listed its stock on the Amex and, shortly
thereafter, Mr. O'Hara withdrew as a member. Mr. O'Hara is independent under the
Exchange Act, but is not independent under Amex Rule 121(A).
Nominating Committee
On September 29, 2004, the Board of Directors designated George J. Leon,
Robert A. Rice and Robert H. Walker, each of whom is not an employee of the
Company, and is an independent director under the Rules of the Amex, to act as a
Nominating Committee of the Board pursuant to a "Procedures Resolution" adopted
by the Board. A copy of this Procedures Resolution is attached to this Proxy
Statement as Exhibit B.
The Nominating Committee has continued the Company's past practice, of the
independent directors meeting prior to the Annual Shareholder's Meeting, and at
any other time appropriate, to consider candidates for nominees as directors.
Candidates for director should have a commitment to enhancing long term
shareholder value and possess a high level of personal and professional ethics
and sound business judgment. In addition, they should have (a) experience in
business, finance, technology or administration, (b) familiarity with the
Company, its technology, business and industry, and (c) appreciation of the
relationship of the Company's business to changing needs in our society. In
order to identify director candidates, the Committee relies on its and the
Board's personal business experience and contacts, and its evaluation of any
recommended candidates. The Committee does not intend to retain consultants to
identify candidates, or to pay fees in this connection.
The Board of Directors unanimously concluded that it is not appropriate to
have a specific policy with regard to director candidates recommended by
Shareholders, because (a) the officers and directors own over 50% of the
outstanding shares, (b) the remaining shares are limited and relatively widely
held, and (c) Shareholders have not submitted recommendations in the past. The
Committee will consider any Shareholder recommendations, if made in accordance
with the following paragraph, by Shareholders owning more than 5% of the
outstanding stock for over 1 year, and will make its recommendations for
nominees based on the criteria set forth above.
If a shareholder (or shareholders), who have owned at least 5% of the
outstanding Common Stock, for at least 1 year, wishes to submit to the
Nominating Committee a recommendation for a nominee as a director, for
consideration in connection with the 2005
10
Macaluso, not later than July 8, 2005. The written recommendation must (a)
identify the annual meeting, he may send his recommendation to the Company,
attention Joseph P.Macaluso, not later than July 8, 2005. The written
recommendation must (a) identify the nominee, (b) identify the shareholder or
shareholders making the recommendation, (c) provide a written consent of both
the recommending shareholder and the recommended nominee to be identified in the
Proxy Statement, and (d) provide proof that the security holder or group
satisfies the ownership and holding period specified above. The Committee will
consider shareholder recommendations, but is not obligated to submit the
recommendations to the Board or the shareholders.
The six candidates for Directors being submitted to Shareholders pursuant
to this Proxy Statement were recommended to the Board by the Nominating
Committee.
Compensation of Directors
Directors who are not employees or officers of the Company, receive $1,250
in cash and options, at the then market price, to purchase 1,000 shares, for
attendance at each in-person meeting, and $625 in cash and options at the then
market price to purchase 500 shares for attendance at each formal telephonic
meeting of the Board, or of a standing committee. During fiscal 2004,
non-employee directors received the following compensation pursuant to this
plan.
Cash Compensation Stock Options
----------------- -------------
George J. Leon $10,625 11,000
Jeffrey C. O'Hara $11,250 11,500
Robert H. Walker $10,625 11,000
Compliance with Section 16(a) of the Exchange Act
The Company first became subject to Section 16(a) of the Securities
Exchange Act of 1934 in February 2004, when its shares were listed for trading
on the Amex. Section 16(a) requires reports to be filed with the SEC, relating
to stock ownership of officers, directors, and beneficial owners, of 10% or more
of the Company stock. For the fiscal year ended March 31, 2004, the Company
believes, based on reports filed with it, that all required reports under
Section 16(a) have been filed.
11
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF BDO SEIDMAN, LLP
AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BDO Seidman, LLP currently serves as the Company's independent registered
public accounting firm and that firm conducted the audit of the Company's
consolidated financial statements for the fiscal year ended March 31, 2004. The
Audit Committee has appointed BDO Seidman, LLP to serve as independent
registered public accounting firm to audit the Company's consolidated financial
statements for the fiscal year ending March 31, 2005 and recommended to the
Board that its appointment be submitted to the shareholders for ratification.
The Board concurred with this appointment and with its recommendation. Even if
the appointment is ratified, the Audit Committee may, in its discretion, direct
the appointment of different auditors at any time during the year if it
determines that such a change would be in the best interests of the Company and
its shareholders.
A representative of BDO Seidman, LLP is expected to attend the meeting and
will be available to answer stockholder questions, or have the opportunity to
make a statement, if he or she wishes to do so.
Fees Paid to BDO Seidman
For the fiscal years ended March 31, 2004 and 2003, professional services were
performed by BDO Seidman, LLP, and fees were paid to it by the Company, as
follows:
2004 2003
---- ----
Audit Fees $65,750 $62,500
Audit-Related Fees - -
------- -------
Total Audit and Audit-Related Fees 65,750 62,500
Tax Fees - -
All Other Fees - -
------- -------
Total $65,750 $62,500
======= =======
Audit Fees. This category includes the audit of the Company's consolidated
financial statements, and reviews of the financial statements included in the
Company's Quarterly Reports on Form 10-Q. It also includes advice on accounting
matters which arose during, or as a result of, the audit or the review of
interim financial statements, and services which are normally provided in
connection with regulatory filings, or in an auditing engagement.
Audit Related Fees. No fees were paid in this category in 2004 or 2003.
Tax Fees. The Company paid no fees in this category to BDO Seidman in 2004 and
2003.
All Other Fees. The Company paid no fees, in this category, in 2004 and 2003.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services
The Audit Committee has established a policy which requires it to specifically
pre-approve all audit and permissible non-audit services, including
audit-related and tax services, if any, to be provided by the independent
auditor. Preapproval is generally provided for up to one year and is
12
detailed as to the particular service or category of service to be performed,
and is subject to a detailed budget. The auditor and management are required to
report periodically to the Audit Committee regarding the extent of services
performed and the amount of fees paid to date, in accordance with the
pre-approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO RATIFY THE SELECTION OF
BDO SEIDMAN, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL
YEAR 2005. THE AFFIRMATIVE VOTE OF A MAJORITY PRESENT IN PERSON OR BY PROXY WILL
RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP. THE OFFICERS AND DIRECTORS, WHO OWN
OVER 50% OF THE OUTSTANDING STOCK, HAVE STATED THAT THEY WILL VOTE THEIR SHARES
FOR RATIFICATION. UNLESS YOU INDICATE OTHERWISE, YOUR PROXY WILL BE VOTED "FOR"
RATIFICATION.
Audit Committee Report
The Audit Committee:
o reviewed and discussed the audited financial statements with respect
to the year ended March 31, 2004 with management and with BDO
Seidman, LLP, the Company's independent auditors;
o discussed with BDO Seidman, LLP, the Company's independent auditors,
the matters required to be discussed by Statement on Auditing
Standards No. 61, Communications with Audit Committees, as amended
by Statement on Auditing Standards No. 90, Audit Committee
Communications; and
o discussed with BDO Seidman, LLP their independence, including
receipt and review of the written disclosures, and the letter from
BDO Seidman, LLP required by Independence Standards Board Standard
No. 1, (Independence Discussions with Audit Committees).
Based upon the foregoing review and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in Tel's Annual Report on Form 10K, for the year ended March 31, 2004,
for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee
/s/ Robert H. Walker /s/ George J. Leon
-------------------- ------------------
Chairman
13
SECURITY OWNERSHIP
The following table sets forth information known to the Company with respect to
the beneficial ownership as of October 6, 2004, of the Company's Common Stock,
$.010 par value, of (i) all persons who are beneficial owners of five percent
(5%) or more of the Company's Common Stock, (ii) each director and nominee,
(iii) the named Officers, and (iv) all current directors and executive officers
as a group.
Number of Shares Percentage
Name and Address Beneficially Owned of Class (1)
- ---------------- ------------------ -- ---------
Named Directors and Officers
Harold K. Fletcher, Director 503,102 (2) 23.4%
and Chief Executive Officer
728 Garden Street
Carlstadt, NJ 07072
George J. Leon, Director 315,367 (3) 14.7%
116 Glenview
Toronto, Ontario, Canada M4R1P8
Robert J. Melnick, Director 34,400 (4) 1.6%
and Vice-President
57 Huntington Road
Basking Ridge, NJ 07920
Jeffrey C. O'Hara, Director 116,240 (5) 5.4%
853 Turnbridge Circle
Naperville, IL 60540
Robert A. Rice, Director 76,000 3.5%
5 Roundabout Lane
Cape Elizabeth, ME 04107
Robert H. Walker, Director 33,243 (6) 1.5%
27 Vantage Court
Port Jefferson, NY 11777
Donald S. Bab, Secretary 77,034 (7) 3.6%
770 Lexington Ave.
New York, New York 10021
All Officers and Directors 1,186,559 (8) 53.9%
as a Group (9 persons)
(1) The class includes 2,144,151 shares outstanding plus shares outstanding
under Rule 13d-3(d)(1) under the Exchange Act. The common stock, deemed to
be owned by the named parties, includes stock which is not outstanding but
is subject to currently exercisable options held by the individual named.
The foregoing information is based on reports made by the named
individuals.
(2) Includes 24,681 shares owned by Mr. Fletcher's wife, and 4,254 shares
owned by his son. Mr. Fletcher disclaims beneficial ownership of the
shares owned by his wife and son.
14
(3) Includes 308,267 shares owned by the George Leon Family Trust, of which
Mr. Leon is a beneficiary and 13,300 shares subject to currently
exercisable stock options. Mr. Leon acts as manager of the trust assets
pursuant to an informal family, oral arrangement and disclaims beneficial
ownership of the shares owned by the Trust.
(4) Includes 9,400 shares subject to currently exercisable stock options owned
by Mr. Melnick.
(5) Includes 5,740 shares subject to currently exercisable stock options owned
by Mr. O'Hara.
(6) Includes 6,060 shares subject to currently exercisable stock options owned
by Mr. Walker.
(7) Includes 6,400 shares subject to currently exercisable stock options. Mr.
Bab also has a 7% convertible debenture in the face amount of $7,500 which
is convertible into common stock at $1.50 per share.
(8) Includes 57,760 shares subject to currently exercisable options held by by
all executive officers and directors of the Company (including those
individually named above).
15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2004, the Compensation Committee was composed of Messrs.
Leon, O'Hara, and Walker, none of whom was or is an officer or employee of the
Company, and none of whom had a material business relationship with, or a loan
from, the Company.
All three members were independent as defined under the Securities
Exchange Act of 1934. In February 2004, the Company listed its shares on the
Amex. Messrs. Leon and Walker are independent, under the rules of the Amex, but
Mr. O'Hara is not, and, accordingly, withdrew from the Committee. The Company
has no compensation committee interlocks or insider participation to report.
COMPENSATION COMMITTEE REPORT
Overview
The Compensation Committee approves or endorses all compensation paid or
awarded to senior executives, including the Chief Executive Officer. The
Committee is made up only of non-employee directors who do not participate in
any of the compensation plans they administer, except that stock options granted
to directors are granted under the Employee Stock Option Plan, which is approved
by the Committee.
The Company's success depends on developing, motivating, and retaining
executives who have the skills and expertise to lead the organization. The
executive compensation program is designed to help achieve these objectives, and
is comprised of the following three main components:
o Competitive base salaries
o Short-term rewards
o Long-term incentives
Competitive Base Salaries
Each year the Committee evaluates the Company's salary structure, based on
salaries paid by competitive companies; the Company's business performance, and
general financial and economic factors. Specific weights are not given to these
factors. Within the salary structure so determined, we determine individual
executive salaries based on individual performance, level of responsibility,
contribution to Company results, and experience. Based on this analysis, the
Committee recommends the CEO's salary to the Board of Directors and endorses
salaries for other senior executives.
Short-Term Rewards
The Company has a key man incentive compensation program. Each year the
Committee determines upon a percentage of operating profits to be distributed
among senior employees. The percentage determined is based on the general
performance of the Company, and the amount of operating profits available for
shareholders and for reinvestment in the business.
16
The percentage of operating profits so determined is then distributed to
senior employees and to a category entitled "other", based on (a) the amount of
the employee's base salary, (b) his contribution to the Company, (c) the results
of that contribution, (d) an estimated amount of "special effort" on behalf of
the Company, (e) his technical expertise, leadership, and management skills, and
(f) the level of the overall compensation paid employees performing similar work
in competitive companies.
A small portion of the overall incentive compensation is paid to "other"
employees upon the recommendation of the CEO, based on the foregoing criteria
and special circumstances for the fiscal year.
Long-Term Rewards
The Company grants long-term incentive awards, with a view toward
long-term corporate performance and to develop and retain qualified employees.
The Company uses stock options as long-term incentive awards, granted
pursuant to the Company's Incentive Stock Option Plans which also provide the
employee with tax benefits. The options, generally, have an exercise price equal
to the market price at the time of grant, a number of limitations. and a
five-year duration, with 20% of the awarded options vesting at the end of each
of the first three years, and 40% at the end of the fourth year on a cumulative
basis.
The number of options granted to an employee is based on individual
performance and level of responsibility. For this purpose, the Committee
measures performance, in the same way as described above, for short-term awards.
The Committee and the Board also consider the total outstanding shares and
options, in determining the maximum number of options to grant in any year. The
Company does not have required levels for equity holdings of senior management.
CEO Compensation
Within the framework described above, the Committee determines the CEO's
compensation by considering his contributions to the Company's business, the
difficulty and progress of the business, the amount of revenues and profit
earned, the return to shareholders, and his experience. The Committee does not
think narrow quantitative measures or formulas, are sufficient for determining
the CEO's compensation and the Committee does not give specific weights to the
factors considered, but the primary factors are the CEO's contributions and
business results.
In determining the CEO's total compensation, the Committee considered Mr.
Fletcher's level of responsibility, his leadership, and his overall contribution
as CEO. The Committee also considers the Company's financial resources in
determining the CEO's overall compensation.
17
Summary
The Compensation Committee is responsible for seeing that the Company's
compensation program serves the best interests of its shareholders and
employees. The Committee's determination also considers compensation paid other
employees in comparable corporations.
In the opinion of the Committee, the Company continues to have an
appropriate and competitive compensation program, which has served the Company
and shareholders well. The combination of base salary, short-term bonuses, and
emphasis on long term incentives, provides a balanced and stable foundation for
effective executive leadership.
Submitted by the Compensation Committee
George J. Leon, Chair
Jeffrey C. O'Hara
Robert H. Walker
18
EXECUTIVE COMPENSATION
The following table and accompanying notes set forth information concerning
compensation for the fiscal years ended March 31, 2004, 2003, and 2002.
Name and Principal Stock (2) Other
position (1) Year Salary Options Compensation
- --------------------------------------------------------------------------------
Harold K. Fletcher 2004 $154,400 $14,500 (3)
Chairman of the Board 2003 $147,000 35,000 options (3) $26,000
President and Chief 2002 $140,000 $24,000
Executive Officer
Charles R. Palanzo (4) 2004 $134,300 15,000 options $11,300
Chief Operating Officer 2003 $ 86,671 35,000 options $87,100 (5)
2002 -- -- --
(1) Robert J. Melnick, Vice President and director, serves pursuant to a
consulting contract that provided $98,700, $95,600, and $88,300 in
compensation for each of the fiscal years 2004, 2003, and 2002,
respectively, and has received, in fiscal 2004, options to purchase 4,000
shares of common stock, exercisable at the market price on the date of
grant.
(2) Represents bonus based on the Company's profitability. The 2004 bonus is
estimated. The Company also pays medical and life insurance premiums for
all its employees, which are not included above.
(3) In addition, this amount includes $1,500 for the Company match in the
Company's 401K Plan.
(4) The options are exercisable at 110% of the market price on the date of
grant. Options are exercisable 20% at each of the first, second, and third
anniversary of the grant, and at 40% at the fourth year, cumulatively.
(5) Mr. Palanzo started with the Company in August 2002, he was paid for the
eight months of fiscal year 2003 pursuant to an agreement which provides
for an annual salary of $130,000.
(6) Relocation expenses
Stock Option Grants
The following table sets forth information regarding grants of stock options to
executive officers during 2004.
Grant Date
Individual Grants Value
----------------------------------------------------------------------------- -----------------
% of Total Options
Number of Granted to Exercise
Securities Underlying Employees in Price Expiration Grant Date
Name Options Granted Fiscal Year Per Share Date Present Value ($)
- ---- --------------- ----------- --------- ---- -----------------
Charles R. Palanzo 15,000 (1) 15 $1.82 5/9/08 12,900 (2)
(1) The stock options granted to Mr. Palanzo on May 9, 2003 were Incentive
Stock options granted pursuant to the Company's 1998 Stock Plan. Such
options become exercisable cumulatively at a rate of 20%, 20%, 20%, and
40% on May 9, 2004, May 9, 2005, May 9, 2006, and May 9, 2007,
respectively.
19
(2) The fair value of these options on the date of grant was estimated using
the Black-Scholes option-pricing model with the following assumptions:
volatility of 50%; risk-free interest rate of 3.5%, expected life of 5
years; and no future dividends. The dollar amount in this column is not
intended to forecast potential future appreciation, if any, of the
Company's Common Shares.
Aggregate Option Held and Year-End Option Table
The following table provides information on options held (no options were
exercised) during 2004, by the named executive officers, and the value of each
of their respective unexercised options at March 31, 2004.
Aggregated Option Held in Last Fiscal Year and FY-end Option Values
(A) (B) (C) (D) (E)
Number of Value of Unexercised
Unexercised Options In-the-Money Options
FY-End (#) FY-End ($) (1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
Harold K. Fletcher --- --- 7,000/28,000 $6,580/$26,320
Charles R. Palanzo --- --- 10,000/40,000 $12,240/$49,360
(1) Calculated on the basis of fair market value of the underlying securities
at March 31, 2004 less the exercise price.
20
PERFORMANCE GRAPH
The following performance graph compares the five-year cumulative total return
on the Company's Common Stock, to the S&P 500 Index, to the S&P Electronics
Equipment Manufacturers, and, to the Supplies Index, assuming $100 was invested
on March 31, 1999, and that all dividends were reinvested. The Company did not
pay dividends on the Common Stock. These graphs are based on historical data and
should not be considered indicative of future returns.
Comparison of Cumulative
Total Return To Shareholders
(Includes reinvestment of dividends)
INDEXED RETURNS
Base Years Ending
Period
Company / Index Mar99 Mar00 Mar01 Mar02 Mar03 Mar04
TEL-INSTRUMENT ELECTRONICS CORP 100 176.16 116.60 171.36 129.47 247.52
S&P 500 INDEX 100 117.94 92.38 92.60 69.67 94.14
S&P 500 ELECTRONIC EQUIPMENT MANUFACTURERS 100 232.75 97.89 73.56 37.55 74.56
[GRAPH APPEARS HERE IN PRINTED MATERIAL]
21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1997, the Company issued convertible, subordinated Promissory
Notes to its Chairman/CEO in payment of accrued compensation and accrued
expenses due him. Seven Notes were originally issued, each in the face amount of
$50,000, and payable seriatim in consecutive years between 1999 and 2005. The
maturity dates on several notes were extended by agreement.
As of March 31, 2004 and 2003, the total principal amount of the remaining
unpaid Notes amounted to $250,000. Effective October 1, 2003, the interest rate
was reduced to 4.5% on all matured but unpaid Notes. The Company is required to
prepay the outstanding balance of the Notes, and any accrued interest thereon,
if the Company sells all or substantially all of its assets. The Notes can be
converted into newly issued common shares of the Company at the conversion price
of $2.50 per share. The conversion prices shall be adjusted for any stock
dividends, stock issuances or capital reorganizations. The Notes may be redeemed
by the Company, prior to maturity, upon giving written notice of not less than
30 days or more than 60 days, at a redemption price equal to 120% of the
principal, if redeemed two years or more prior to the maturity date, or to 110%
of the principal, if redeemed more than one year, but less than two years, prior
to the maturity date.
In May 2004, the Company and its Chairman/CEO renegotiated the terms of
the Notes. The five remaining unpaid Notes have now become payable seriatim in
consecutive years beginning March 31, 2005. Any matured, but unpaid Notes,
accrue interest at the rate of 4.5% per year.
The Company has a consulting arrangement with a corporation owned by Mr.
Melnick, pursuant to which Mr. Melnick is employed by the Company for a fee paid
to his corporation. In fiscal 2004, the Company paid Mr. Melnick's corporation a
fee of $98,700, pursuant to this arrangement.
22
SHAREHOLDER PROPOSALS
Proxy Materials
If a shareholder wishes to present a proposal for inclusion in the proxy
materials for the 2005 annual meeting of shareholders, the proposal must be sent
by certified mail, return receipt requested, and must be received at the
executive officers of Tel-Instrument Electronics Corp, 728 Garden St.,
Carlstadt, NJ 07072, Attn: Joseph P. Macaluso, no later than July 8, 2005. All
proposals must conform to the rules and regulations of the Securities and
Exchange Commission.
Annual Meeting
A shareholder must give written notice to the Company of a proposal, not
subject to SEC Rule 14a-8, or a nomination, which the shareholder intends to
submit at the annual meeting, 45 days before the anniversary of the date on the
prior year's Proxy Statement. If the Company does not receive such written
notice, prior to such 45 day period, all Proxy cards will be voted at the
meeting, as directed by the Board of Directors, in respect of such proposal or
nomination.
To be timely for the 2005 Annual Meeting, written notice must be received
by the Company at the above address, prior to September 21, 2005.
23
ANNUAL REPORT ON FORM 10-K AND QUARTERLY REPORT ON FORM 10-Q
A copy of our annual report on Form 10-K for the fiscal year ended March
31, 2004, and a copy of our quarterly report on Form 10-Q for the period ended
June 30, 2004, as filed with the Securities and Exchange Commission, including
the financial statements and financial statement schedules thereto, accompany
the notice of this annual meeting, proxy statement and the related proxy card.
We will furnish to any person whose proxy is being solicited, any exhibit
described in the exhibit index accompanying the Form 10-K, upon the payment, in
advance, of fees based on our reasonable expenses in furnishing such exhibit.
Requests for copies of exhibits should be directed to Joseph P. Macaluso.
Sincerely,
TEL-INSTRUMENT ELECTRONICS CORP
/s/ Harold K. Fletcher
---------------------------------
Harold K. Fletcher
Chairman of the Board
Carlstadt, New Jersey
November 5, 2004
24
EXHIBIT A
October 23, 2002
TEL-INSTRUMENT ELECTRONICS CORP.
AUDIT COMMITTEE CHARTER
This Charter shall be reviewed, updated and approved by the Board of
Directors of Tel-Instrument Electronics Corporation (the "Company") on an annual
basis or as the Board otherwise deems appropriate.
Mandate
The Audit Committee of the Board of Directors shall be responsible for
assisting the Board in overseeing the Company's accounting and
financial-reporting process, and the audits of its financial, statements. The
Committee shall be directly responsible for the appointment, compensation and
oversight of the independent public accountant employed by the Company
(including resolution of disagreements between Management and the accountant
regarding financial reporting) for the purpose of preparing and issuing an audit
report and each such independent accountant shall report directly to the Audit
Committee.
The Audit Committee shall establish procedures for the receipt, retention
and treatment of complaints received by the Company regarding accounting or
auditing matters, including complaints, anonymous or otherwise, from employees.
The Committee shall maintain free and open communication (including
executive sessions at least annually) with the Company's independent accountants
and Chief Executive Officer and Chief Financial Officer.
In. the exercise of its oversight, the Committee is not responsible for
preparing the Company's financial statements, planning or conducting audits or
determining that the Company's financial statements fairly present the Company's
financial position and results of operation and are in accordance with generally
accepted accounting principles. Such duties remain the responsibility of
Management and the Company's independent accountant. In discharging its
oversight role, the Committee is empowered to investigate any matter within its
mandate, brought to its attention, with full power to retain outside counsel or
other experts for this purpose.
Membership
The Audit Committee is a standing committee of the Board of Directors and
shall consist of at least three directors, appointed annually by the Board, all
of whom are
-2-
"independent" as defined in the Sarbanes-Oxley Act of 2002 (the "Act") and are
generally knowledgeable in financial, and accounting matters, including at least
one member who shall be a "financial expert" as defined in Rules of the S.E.C.
to be promulgated. A member shall be deemed a "financial expert" if, through
education and experience as a public accountant or accountant or a principal
financial officer, controller, or principal accounting officer of an issuer, or
from a position involving the performance of similar functions, he or she has:
(1) an understanding of generally accepted accounting principles and
financial statements;
(2) experience in --
(A) the preparation or auditing of financial statements of
generally comparable issuers; and
(B) the application of such principles in, connection with the
accounting for estimates, accruals, and reserves;
(3) experience with internal accounting controls; and
(4) an understanding of audit committee functions.
The Board shall appoint one member as Chair, who shall be responsible for
leadership of the Committee, including preparing the agenda, presiding over the
meetings, making assignments, and reporting to the full Board.
-3-
Meetings
Meetings shall be held at least once a year. Special meetings may be
convened as required. Meetings shall be held at such time and place, and upon
such notice, as the Chair may from time to time determine. Meetings of the Audit
Committee may be in person or by conference call in accordance with the By-Laws
of the Company. A quorum for any meeting will be a majority of its members, and
action may be taken by approval if a majority of a quorum. The secretary of the
Audit Committee will be the Company secretary, or such other person as is
appointed by the Audit Committee. Except as specifically provided in the
Charter, the provisions of the By-Laws with respect to Committees of the Board
of Directors shall apply to the Audit Committee,
Responsibilities
To best carry out its responsibilities, the Committee's policies and
procedures should remain flexible in order to address changing conditions and
should take into account the size of the Company and the degree of complexity in
its accounting policies and procedures. Specific responsibilities of the
Committee include:
1. Appointment of the independent accountant.
a. Select, evaluate and recommend the appointment of the independent
accountant to be ratified by the shareholders to audit the Company's
financial
-4-
statements, or where appropriate, the replacement of the independent
accountant, and approve the compensation of, and retention agreement
with the independent accountant for audit services.
b. Evaluate the independence of the independent accountant, including a
review of non audit-related services provided by and related fees
charged by the independent accountant.
c. Obtain a formal written statement, as required by the Independence
Standards Board, from the independent accountant delineating
relationships between the accountant and the Company and actively
engage in dialogue with the independent accountant regarding matters
that might reasonably be expected to affect its independence.
d. Pre-approve all audit and non-audit services to be provided by the
independent accountant. The Audit Committee may delegate the
authority to grant such pre-approvals to one or more members of the
Committee, provided that the pre-approval decision and related
services are presented to the Audit Committee at its next regularly
scheduled meeting.
2. Review and approve the audit activities at the Company.
Meet with the independent accountant and financial management of the
Company to review the scope of the proposed audit for the current
year and the audit procedures to be utilized, and upon the
completion thereof review
-5-
such audit, including any comments or recommendations of the
independent accountant.
3. Review financial results.
a. Prior to the release of the Company's unaudited quarterly financial
results, review the results with Management and the independent
accountant.
b. Ensure that the independent accountant conducts a SAS 71 ("Interrim
Financial Information") review prior to the filing of the Company's
Form 10-Q.
c. Prior to the release of the Company's fiscal year end operating
results, review and discuss with Company Management and the
independent accountant the audited financial results for the fiscal
year, including their judgment about the quality, not just the
acceptability, of accounting principles, the reasonableness of
significant judgments and estimates, and the clarity of the
disclosures in the financial statements.
d. At least annually discuss with the independent accountant the
matters described in SAS 61 ("Communications with Audit
Committees").
e. Review with Management and the independent accountant the Company's
critical accounting policies and the disclosure regarding those
policies in the Company's periodic filings with the S.E.C.
-6-
4. Review systems and reports.
a. Review with senior Management and the independent accountant the
Company's accounting and financial system internal controls, and
their adequacy and effectiveness.
b. Review and discuss The audited financial statements with Management
and, if appropriate, the independent accountant, prior to
recommending the inclusion of the audited financial statements in
the Company's Annual Report on Form 10-K
c. Provide sufficient opportunity for the independent accountant to
meet with the Audit Committee without members of Management present.
Among the items to be discussed in these meetings are the
independent accountant's evaluation of the Company's financial,
accounting and auditing personnel and the cooperation that the
independent accountant received during the course of the audit and
quarterly reviews.
5. Review corporate financial policies relating to compliance with laws and
regulations, ethics, conflicts of interest and the investigation of
misconduct and fraud.
6. Regularly prepare minutes of all meetings and report its activities to the
Board of Directors.
7. Establish procedures to receive and process complaints regarding
accounting, internal auditing controls or auditing matters and for
employees to make confidential, anonymous complaints regarding
questionable accounting or auditing matters.
-7-
8. Perform such other specific functions within its mandate as the Board of
Directors may from time to time direct, including reviewing and approving
all transactions between the Company and any related party, and making
such investigations and reviews of the Company and its operations as the
Board of Directors may from time to time request.
Resources
The Company's Chief Financial Officer will be Management's primary liaison
to the Committee. The Committee will have access to financial information and
resources it deems necessary for it to properly carry out is duties.
-8-
Exhibit B
TEL-INSTRUMENT ELECTRONICS CORP
Nominating Procedures
I. Purpose
The Company Directors who are independent under American Stock Exchange
Rule 40l ("Committee") shall meet separately and (i) identify individuals
qualified to become directors and recommend them to the Board as nominees for
submission to shareholders, (ii) advise the Board with respect to Board
composition, compensation, procedures and committees; and (iii) oversee the
evaluation of the Board.
II. Organization
The Committee is expected to have an independent view regarding the
affairs of the Company and its management.
The Committee's chairman shall be designated by the full Board or, if it
does not do so, the Committee members shall elect a chairman by vote of the
majority of the full Committee. The Company's Secretary shall act as secretary
of the Committee, and will take and distribute minutes of the Committee's
proceedings.
III. Structure and Meetings
The Committee will generally meet at least once a year and may hold as
many additional meetings as it deems necessary to discharge its functions. The
chairman of the Committee will preside at each meeting of the Committee and, in
consultation with the other members of the Committee, shall set the frequency
and length of meetings and the agenda of items to be addressed at each meeting.
The chairman will ensure that the agenda for each meeting is circulated in
advance of the meeting. The Committee shall make regular reports to the Board.
IV. Responsibilities
The Committee shall have the power and authority of the Board to perform
the following duties and to fulfill the following responsibilities:
1. Recommend to the Board qualified candidates for election and
re-election to the Board, including the slate of directors proposed by the Board
for election by stockholders at the annual meeting. Candidates shall be chosen
with a view to bringing to the Board the best qualified individuals having (a)
the desired experience and background, including experience in business,
finance, technology, or administration, (b) familiarity with the Company, its
technology, business and industry, (c) any qualifications which the Board shall
specify and (d) appreciation of the relationship of the
Company's business to changing needs in our society. Director candidates must
further be willing to devote the time required to serve. Any new candidate
proposed by the Committee shall be discussed with and receive concurrence from
the Board prior to the Chairman of the Board extending a formal invitation to
the candidate to join the Board;
2. Evaluate the suitability of candidates;
3. Recommend to the Board a policy with respect to shareholder
nominations, and to implement any such policy adopted by the Board;
4. Review and make recommendations to the Board on all matters concerning
directors, including retirement policies and compensation for non-employee
directors;
5. Annually review and evaluate the Committee's own performance;
6. Annually review the Board's performance and provide such assessments to
the Board;
7. Perform any other activities consistent with this Charter, the
Company's By-Laws and governing law as the Committee or the Board deems
appropriate.
V. Committee Resources
The Committee shall have the authority (a) to obtain advice and seek
assistance from internal and external legal, accounting and other advisors; (b)
to retain and terminate any third party or consultant, including search firms
used to identify director candidates, used to assist in the performance of its
duties, and (c) to determine the extent of reasonable and necessary compensation
to any consultant retained to advise the Committee, and (d) set other consultant
retention terms. The Company shall provide all funding deemed reasonable and
necessary for such consultants and resources.
TEL-INSTRUMENT ELECTRONICS CORP.
PROXY
ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 8, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Harold K. Fletcher and Robert J. Melnick
each with full power to act without the other, and with full power of
substitution as the attorneys and proxies of the undersigned and hereby
authorizes them to represent and to vote, all the shares of Common Stock of
Tel-Instrument Electronics Corp., that the undersigned would be entitled to
vote, if personally present at the Annual Meeting for Stockholders to be held on
December 8, 2004 or any adjournment thereof, upon such business as may properly
come before the meeting, including the items set forth below:
1. ELECTION OF DIRECTORS:
NOMINEES: Harold K. FIetcher; George J. Leon; Jeffrey C. O'Hara;
Robert J. Melnick; Robert A. Rice; Robert H. Walker
Mark One Box Only:
|_| FOR ALL NOMINEES (except as marked to the contrary below); or
|_| WITHHOLD AUTHORITY to vote for all Nominees.
To withhold authority to vote for an individual Nominee, write that
Nominee's name in the space below:
2. Ratify selection of BDO Seidman, LLP as the registered public
accounting firm for the 2005 fiscal year.
|_| For |_| Against |_| Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2 AS RECOMMENDED BY THE BOARD OF DIRECTORS.
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated: ____________________________, 2004
_________________________________________
Signature
_________________________________________
Signature if held jointly
(PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE)
[LOGO]
TIC
Tel Instrument
Electronics corp.
November 5, 2004
To Our Shareholders:
Fiscal year 2004 was a year of transition for Tel-Instrument Electronics Corp
("Tel" or the "Company"). Overall, our team made considerable progress,
establishing Tel as a stronger company. Of particular note, we:
o acquired Innerspace Technology, Inc. ("ITI"), the Company's first
step in its diversification program.
o continued our investment in engineering, research, and development
(20% of sales in 2004), utilizing leading edge technology to provide
new and innovative product solutions to our customers.
o listed the Company on the American Stock Exchange, thereby providing
better liquidity for our investors.
o continued compliance with Sarbanes-Oxley legislation.
o continued to improve our organization, with several key management
additions to provide the leadership and vision necessary for future
growth.
o shortly after year end, we added a new, independent director to the
Board
Sales and earnings declined for a number of reasons, but management believes
these issues are largely behind us. Deliveries of the U. S. Navy AN/APM 480,
which totaled approximately 1,200 units through June 30, 2004, have been delayed
in recent months while we obtained approval for several product enhancements and
customer-requested software changes, which management agrees will further
improve product performance. Although continuing military and nation-building
outlays in the Middle East have delayed several anticipated requirements,
management continues to believe that our military markets will generate
additional opportunities over the next several years, both domestically and
internationally. However, because of continuing airline financial difficulties,
we remain concerned about the near-to-mid-term outlook for our commercial
markets.
The Company has continued its active program to discover appropriate
diversification opportunities. As previously reported, Tel acquired ITI, a
manufacturer of marine instrumentation for government and commercial users.
Working with our investment bankers to identify and evaluate additional
acquisition and product licensing candidates, we have visited and analyzed a
number of companies in the last twelve months, and management remains optimistic
that we will be successful and will be able to broaden our markets.
Fiscal Year 2004 Results
Enclosed is the Company's Annual Report to the SEC on Form 10-K for the fiscal
year ending March 31, 2004 (Fiscal Year 2004). When compared with fiscal year
2003, fiscal year 2004 sales decreased from $11,861,387 to $10,704,024 (9.7%)
and profit before taxes decreased from $1,706,786 to $593,793.
First Quarter of Fiscal Year 2005
Also enclosed is the Company's Quarterly Report to the SEC on Form 10-Q for the
three months ending June 30, 2004. Sales decreased from $3,057,906 to $2,812,800
(8%) and income before taxes decreased from $470,212 to $87,517 for the first
three months of fiscal year 2005. Income, as a percentage of sales, was impacted
by additional costs associated with increases in sales, marketing, and product
development activities, investment banking services, and with the hiring of new
management, including new Directors of Manufacturing and Engineering, who
replaced retired staff. In addition, Tel continued to invest substantially in
ITI marketing and new product development, and management remains optimistic
about the future for our new subsidiary.
728 Garden St o Carlstadt, NJ. 07072 o Phone 201-933-1600 o Fax 201-933-7340
E-Mail sales@telinst.com o www.telinstrument.com
Backlog and Personnel
Backlog, as of September 30, 2004, was approximately $4,200,000, as compared to
$3,400,000 at March 31, 2004. Our current work force is 57, including contract
staff and ITI employees, as compared with 54 one year earlier.
Research and Development
During the last few years, much of Tel's product design effort has been focused
on the T-47G multi-function military test set, the TR-220 multi-function
commercial test set, the T-36C navigation-communication test set meeting
European commercial standards, the TB-2100 multi-function bench test set for
both military and commercial applications, and the continued development of the
next generation of IFF test sets. These new designs incorporate advanced
hardware and software modules which will be incorporated in other products now
planned for development over the next several years. While no assurances can be
given for any new products, management believes they will generate additional
sales in the future.
Marketing
Export orders continue to be generated by our distributors in England, Italy,
Spain, and Australia, and the Company continues to expand into other overseas
markets. Management remains encouraged by the levels of interest for our
military flight line test sets being developed by our distribution partners. The
Company continues to bid on large military contracts, and one contract, as
previously reported, was awarded in September. Management continues to be
concerned about the near-to-mid-term outlook for our commercial markets, because
of continuing airline financial difficulties. As discussed above, Tel is also
exploring new markets, both externally, through acquisition, and internally,
through developing new products and expanding foreign sales.
Financial
At June 30, 2004, the Company had positive working capital of $3,988,445, as
compared to $3,767,150 at March 31, 2004. At June 30, 2004, cash has remained
strong, and our book value increased to $2.49 per share. Tel's available credit
under its credit agreement with Fleet Bank remains at $1,750,000. The Company
has no outstanding borrowings against this line
Shareholder Relations
The Company has continued to issue press releases covering quarterly earnings
and other significant events. Key among these, and as previously reported, Tel
began trading on the AMEX in February, 2004. Since then, the stock price, like
many other stock prices during this period, has fluctuated, but management feels
it still does not reflect our true value. In response to this, the Board
continues to pursue, with our investment bankers, several initiatives, including
finding compatible diversification opportunities and other means to increase
shareholder value. Closing prices in the AMEX market (symbol: TIK) during the
second quarter of fiscal year 2005 ranged between $3.60 and $2.97 per share
(source: Commodity Systems, Inc.).
Building for Tomorrow
During fiscal year 2004, we laid a foundation for our future. We began our
diversification program, continued to invest in new product development,
strengthened our team and our Board, and refined our plans for future growth.
The Board of Directors and I wish to thank our team for their continued
commitment and hard work, and our shareholders for your continued support, and
we hope to see you at the shareholders' meeting on December 8, 2004.
Sincerely,
/s/Harold K. Fletcher
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Harold K. Fletcher
President and Chairman
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