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 to ss.240.14a-12
Commission File No. 33-18978
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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)
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1
Tel-Instrument Electronics Corp
728 Garden St.
Carlstadt, NJ 07072
- --------------------------------------------------------------------------------
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
December 5, 2007
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
Wednesday, December 5, 2007 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 the fiscal year
ended March 31, 2008.
3. 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 October 29, 2007, 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 in the Proxy
Statement, 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 2, 2007 to Stockholders entitled to vote.
The Company's 2007 Annual Report on Form 10-K and quarterly report on Form 10-Q
for the June 30, 2007 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 2, 2007
2
TABLE OF CONTENTS
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INFORMATION CONCERNING SOLICITATION AND VOTING.................................4
Proxies.....................................................................4
Record Date and Outstanding Common Stock....................................4
Voting and Solicitation.....................................................4
Revocability of Proxies.....................................................5
Householding of Proxy Materials.............................................5
PROPOSAL NO. 1 - ELECTION OF DIRECTORS.........................................6
General.....................................................................6
Vote Required...............................................................6
Information Regarding the Nominees..........................................7
CORPORATE GOVERNANCE, BOARD MEETINGS AND COMMITTEES............................8
Code of Conduct.............................................................8
Audit Committee.............................................................8
Compensation Committee......................................................9
Nominating Committee........................................................9
Compensation of Independent Directors......................................10
Compliance with Section 16(a) of the Exchange Act..........................10
PROPOSAL NO. 2 -RATIFICATION OF BDO SEIDMAN, LLP AS INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM.............................................11
Fees Paid to BDO Seidman, LLP..............................................11
Audit Committee Pre-Approval Policy of Audit and Permissible
Non-Audit Services.........................................................12
Audit Committee Report.....................................................12
SECURITY OWNERSHIP............................................................14
EXECUTIVE COMPENSATION........................................................16
COMPENSATION COMMITTEE INTERLOCKS & INSIDER PARTICIPATATION...................20
COMPENSATION COMMITTEE REPORT.................................................21
PERFORMANCE GRAPH.............................................................22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................23
SHAREHOLDER PROPOSALS.........................................................24
3
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 5, 2007
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INFORMATION CONCERNING SOLICITATION AND VOTING
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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 5,
2007 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, 2007, and our
Quarterly Report for the quarter ended June 30, 2007, 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, 2008. 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 2, 2007.
Record Date and Outstanding Common Stock
- ----------------------------------------
The Board of Directors has fixed the close of business on October 29, 2007,
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 2,379,831 shares of common stock issued, outstanding, and entitled to vote.
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, and cumulative
voting is not permitted. Shareholders may vote separately for each nominee.
4
If your shares are held by a bank, brokerage firm or other nominee, you are
considered the "beneficial owner" of those shares held in "street name". If your
shares are held in street name, these proxy materials are being forwarded to you
by your bank, brokerage firm or nominee (the "Record Holder"), along with a
voting instruction card. As the beneficial owner, you have the right to direct
the Record Holder how to vote your shares, and the Record Holder is required to
follow your instructions. If you do not give instructions to your bank, broker
or nominee, it will nevertheless be entitled to vote your shares in its
discretion on the election of directors and ratification of the independent
auditors, but will not be permitted to vote on any other matters which may be
submitted at the meeting, and your shares will be considered broker non-votes on
these matters, if any.
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, and the ratification of the appointment of BDO Seidman,
LLP as the Company's 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, Attn: 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 07072,
Attn: Joseph P. Macaluso.
5
PROPOSAL NO. 1: ELECTION OF DIRECTORS
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General
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The Board consists of six directors elected annually. 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, Jeffrey
O'Hara, President and COO 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.
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 each proxy will be voted
for each of the six nominees (unless authority is withheld). 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 (1) Chairman of the Board, 1982
(82) President and Chief
Executive Officer of the
Company since 1982;
George J. Leon Director; Investment 1986
(63) Manager and beneficiary of
the George Leon Family Trust
(investments) since 1993;
Robert J. Melnick Director; Vice President of 1998
(73) the Company since 1999; Marketing
and Management Consultant for
the Company since 1991;
Jeffrey C. O'Hara, CPA (1) Director; President since August 2007 1998
(49) Chief Operating Officer since
since April 2006; and Vice President
of the Company since August, 2005.
Independent Financial Consultant
from 2001; Chief Financial
Officer from 1999-2000
of Alarm Security Group;
Robert A. Rice Director; President and 2004
(52) Owner of Spurwink Cordage, Inc since
1998 (textile manufacturing).
Robert H. Walker Director; Member of Board of 1984
(71) Directors of Robotic Vision
Systems, Inc. (RVSI), 1990-2005
Executive Vice President of RVSI,
1983-1998.
(1) Mr. O'Hara is the son-in-law of Mr. Harold K. Fletcher.
- ------------------------------------
Mr. O'Hara is the son-in-law of Mr. Fletcher.
7
CORPORATE GOVERNANCE, BOARD MEETINGS AND COMMITTEES
---------------------------------------------------
The Board of Directors is responsible for supervision of the overall
affairs of the Company. The Board held 2 meetings during the fiscal year 2007
and each of the incumbent directors attended both meetings. The Company expects
directors to attend all Board and Shareholder meetings. Three of the six
Directors, Messrs Leon, Rice and Walker, 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 ("Amex Rules"). Our Audit and Compensation Committees consist of only
independent, non-employee directors.
Code of Conduct
- ---------------
The Company 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, President 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 Board of Directors established a separately designated standing Audit
Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act
of 1934. The Audit Committee is comprised of Messrs. Walker (chairman), Leon,
and Rice. Messrs. Walker, Leon, and Rice are independent, as that term is
defined under the Securities Exchange Act of 1934, and Mr. Walker is a financial
expert as defined in that act. Mr. Walker served as director and Executive Vice
President of Robotic Vision Systems, Inc., a reporting company, and as its
principal financial officer for over 15 years
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 appoints and
recommends to the Board of Directors the selection of the Company's independent
registered public accounting firm and reviews and evaluates the independent
registered public accountants' 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 2007, the Audit Committee was composed of Messrs. Robert H.
Walker, George J. Leon, and Robert A. Rice, who are not officers or employees of
the Company, and all members of the Committee attended all 5 of the Audit
Committee meetings. In the opinion of the Board, and as "independent" is defined
under Amex Rules, Messrs. Walker, Leon and Rice are independent of management
and free of any relationship which might interfere with their exercise of
independent judgment as members of this committee.
8
Compensation Committee
- ----------------------
The Compensation Committee, which consisted during fiscal 2007 of George J.
Leon and Robert H. Walker, 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 management and employees. The Board created the Compensation Committee by
resolution giving it the foregoing authority, but the committee does not have a
written charter.
The Compensation Committee's Report is set forth below. The Compensation
Committee met once during the 2007 fiscal year, and both members attended the
meeting. Messrs. Leon and Walker are independent, as defined in the Amex Rules.
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 Amex Rules, 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 shareholder communications to the Board or
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 or comments in the past. The Nominating Committee will consider
any Shareholder communication and any 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 has 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 2008 annual meeting, they may send their
recommendation to the Company, Attention: Joseph P. Macaluso, not later than
July 3, 2008. The written recommendation must (a) identify the nominee, (b)
identify the shareholder or shareholders making the recommendation, (c) provide
9
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 Independent 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 of
common stock for attendance at each in-person meeting and $625 in cash and
options to purchase 500 shares for attendance at each formal telephonic meeting
of the Board or of a standing committee. During fiscal year 2007 non-employee
directors received the following compensation pursuant to this plan.
- ------------------ -------------------- ---------------------- ---------
Name Cash Compensation Option Awards ($)(1) Total $
==== ================= ==================== =======
- ------------------ -------------------- ---------------------- ---------
George J. Leon $5,000 $4,984 $9,984
- ------------------ -------------------- ---------------------- ---------
Robert A. Rice $4,375 $4,155 $8,530
- ------------------ -------------------- ---------------------- ---------
Robert H. Walker $5,000 $4,984 $9,984
- ------------------ -------------------- ---------------------- ---------
(1) Amounts in this column represent the fair value required by FASB 123R to be
included in our financial statements for all options granted during fiscal year
2007.
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, 2007, the Company
believes, based on reports filed with it, that all required reports under
Section 16(a) have been filed.
10
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 years ended March 31, 2007,
2006 and 2005. The Audit Committee has appointed BDO Seidman, LLP to serve as
its independent registered public accounting firm to audit the Company's
consolidated financial statements for the fiscal year ending March 31, 2008 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, and will 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, 2007 and 2006, professional services
were performed by BDO Seidman, LLP, and fees were paid to it by the Company, as
follows:
2007 2006
---- ----
Audit Fees and Expenses $100,465 $ 89,170
Audit-Related Fees -- --
-------- --------
Audit and Audit-Related Fees 100,465 89,170
Tax Fees -- --
All Other Fees -- --
-------- --------
Total $100,465 $ 89,170
======== ========
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 2007 and 2006.
Tax Fees. The Company paid no fees in this category to BDO Seidman in 2007 and
2006.
All Other Fees. The Company paid no fees in this category in 2007 and 2006.
11
Audit Committee Pre-Approval Policy 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
registered public accountant. Preapproval is generally provided for up to one
year and is 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 2008. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES
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
- ----------------------
Management has the primary responsibility for the financial reporting process
including the Company's system of internal controls, and the preparation of the
Company's consolidated financial statements in accordance with generally
accepted principles. The Company's independent registered public accounting firm
is responsible for auditing those financial statements. The Audit Committee's
responsibility is to monitor and review these processes.
It is not the Audit Committee's duty or responsibility to conduct auditing or
accounting reviews or procedures. The Audit Committee has relied, without
independent verification, on management's representation that the financial
statements have been prepared with integrity and objectivity and in conformity
with generally accepted accounting principles in the United States of America
and on the representations of the independent auditors included on their report
on the Company's financial statements, together with the procedures discussed
below.
In fulfilling its oversight responsibilities, the Audit Committee, among other
things, reviewed with management the audited financial statements in the
Company's Annual Report on Form 10-K, and reviewed with the independent
registered public accounting firm, those audited financial statements as well as
its judgments as to the quality, and acceptability, of the Company's accounting
principles and such other matters as are required to be discussed with the Audit
Committee under generally accepted auditing standards. The Audit Committee has
discussed with the independent registered accounting firm the matters required
to be discussed by the statement on Auditing Standards No. 61, as amended. The
Audit Committee has also discussed with the independent registered public
accounting firm, the auditors' independence from management and the Company,
including the matters in the written disclosures and letter received from the
independent registered public accounting firm as required by the Independence
Standards Board No. 1, and has discussed the independent accountant's
independence.
The Audit Committee's oversight does not provide it with an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or policies, or appropriate internal controls and
procedures designed to assure compliance with auditing standards and applicable
12
laws and regulations. Furthermore, the considerations and discussions with
management and the independent registered public accounting firm do not assure
that the Company's financial statements are in accordance with generally
accepted auditing standards or that the Company's independent registered public
accounting firm is in fact "independent".
The Audit Committee has met with the independent registered public accounting
firm, with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls and the
overall quality of the Company's financial reporting. The Audit Committee held
five meetings during fiscal year 2007, at which all members attended.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements for the fiscal year ended March 31, 2007 be included in the Annual
Report on Form 10-K for that year, for filing with the Securities and Exchange
Commission.
Submitted by the Audit Committee
/s/ Robert H. Walker /s/ George J. Leon /s/ Robert A. Rice
--------------------- ------------------- -------------------
Chairman
13
SECURITY OWNERSHIP
The following table sets forth information known to the Company with respect to
the beneficial ownership as of October 5, 2007, 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 580,102 (2)(3) 25.1%
and Chief Executive Officer
728 Garden Street
Carlstadt, NJ 07072
George J. Leon, Director 333,267 (4) 14.3%
116 Glenview
Toronto, Ontario, Canada M4R1P8
Robert J. Melnick, Director 37,600 (5) 1.8%
and Vice-President
57 Huntington Road
Basking Ridge, NJ 07920
Jeffrey C. O'Hara, Director 143,200 (6) 6.2%
and President
853 Turnbridge Circle
Naperville, IL 60540
Robert A. Rice, Director 88,600 (7) 3.8%
5 Roundabout Lane
Cape Elizabeth, ME 04107
Robert H. Walker, Director 57,783 (8) 2.5%
27 Vantage Court
Port Jefferson, NY 11777
Donald S. Bab, Secretary 82,034 3.6%
770 Lexington Ave.
New York, New York 10021
All Officers and Directors 1,369,699 (9) 56.8%
as a Group (9 persons)
(1) The class includes 2,379,831 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 9,000 shares subject to currently exercisable stock
options owned by Mr. Fletcher. Mr. Fletcher also has convertible,
subordinated Promissory Notes totaling $100,000. The Notes can be
converted into common shares at the conversion price of $2.50 per
share (see Certain Relationships and Related Transactions).
(4) Includes 299,517 shares owned by the George Leon Family Trust, of
which Mr. Leon is a beneficiary and 23,000 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.
(5) Includes 4,000 shares subject to currently exercisable stock
options owned by Mr. Melnick.
(6) Includes 27,500 shares subject to currently exercisable stock
options owned by Mr. O'Hara.
(7) Includes 5,600 shares subject to currently exercisable stock
options owned by Mr. Rice.
(8) Includes 23,000 shares subject to currently exercisable stock
options owned by Mr. Walker.
(9) Includes 111,700 shares subject to currently exercisable options
held by all executive officers and directors of the Company
(including those individually named above).
15
EXECUTIVE COMPENSATION
- ----------------------
Compensation Discussion and Analysis
The following contains a description and analysis of compensation arrangements
and policies for fiscal year 2007 for the executive officers named in the
Summary Compensation table below. Such named executive officers are referred to
as "NEO's".
The main elements of our compensation program are designed to support individual
motivation and excellence, align executive interest with the interest of
shareholders and recognize business and leadership results.
Tel is a small company and the three NEO's are critical to its business success.
As a consequence, compensation of NEO's is also based on the overall business
success of the Company as well as compensation paid by comparable companies, as
reported in industry surveys, and available resources.
Compensation Committee
The Board of Directors established a Compensation Committee comprised of two
independent directors, Messrs. George J. Leon and Robert H. Walker, to review
compensation arrangements for NEO's and make recommendations to the full Board.
The Committee considers recommendations from Management, except with respect to
compensation of the CEO, as well as published information on compensation for
similar positions in competitive businesses, the Company's results of operations
for the fiscal year, and makes recommendations to the Board based on the
foregoing information, and the compensation criteria set forth above.
Salary
Salaries set a baseline level of compensation to NEO's, and are intended to
compensate them for carrying out duties and responsibilities of their position
and for the business success of the Company. The Compensation Committee
periodically reviews salary levels and adjusts them, as deemed necessary, but
not necessarily annually. During the review and adjustment process, the
Compensation Committee considers the matters discussed above.
The Compensation Committee reviews compensation for NEO's each year prior to the
stockholders' annual meeting.
The Compensation Committee's review of the foregoing factors is subjective and
the Committee assigns no fixed value or weight to any specific factors when
making its decisions.
Stock Options
The Board of Directors believes that stock option participation aligns NEO's
long-term interests with those of stockholders and allows them to share
appreciation in the Company's common stock. When establishing stock option
grants for NEO's, the Compensation Committee considers the individual's
motivation and performance, the Company's business results, the level of other
compensation paid, the stock and options owned, the stock grants made to other
employees pursuant to the Company's Stock Option Plans (see Note 14 to Notes to
Financial Statements), and the impact on stockholder profits and stock values.
Options granted to NEO's are consistent with the terms of options granted to
other employees pursuant to the Employee Stock Option Plans. Mr. O'Hara's
employment contract provides for the grant of 15,000 options.
16
EXECUTIVE COMPENSATION (Continued)
- ----------------------------------
NEO's were not awarded any stock options in fiscal year 2007. Options granted to
NEO's may be tax sheltered to the grantee, and their cost constitutes a current
charge to the Company (see Notes 2 and 14 to the Financial Statements).
Incentive Plan
The Company has a key man incentive compensation program. Each year the
Committee determines a percentage of operating profits to be distributed among
senior employees, including NEO's. 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. This element of
compensation provides an incentive for short-term performance. The percentage of
operating profits so determined is then distributed to senior employees,
including NEO's, 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 his "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. No incentive awards have been made to the NEO's
the last three fiscal years.
Other Benefits
The Company sponsors the Tel-Instrument Electronics Corp 401(k) Plan (the
"Plan"), a tax qualified Code Section 401(k) retirement savings plan, for the
benefit of its employees, including its NEO's. The Plan encourages savings for
retirement by enabling participants to make contributions on a pre-tax basis and
to defer taxation on earnings on funds contributed to the Plan. The Company
makes matching contributions to the Plan. All NEO's can make contributions to
the Plan. The NEO's also participate in group health and life insurance benefits
generally on the same terms and conditions that apply to other employees.
CEO Performance and Compensation
Within the framework described above, the Compensation Committee evaluates
performance of the CEO and determines the CEO's salary, bonus, and stock option
grant. The Compensation Committee sets qualitative objectives and
responsibilities for the CEO consistent with the Corporation's business model.
These include creating shareholder value through a balanced focus on long-term
returns on capital employed, earnings per share, and total shareholder return;
developing the long-term business strategy and assessing the effectiveness and
execution of that strategy against the Corporation's financial performance;
assuring the effectiveness of the Corporation's management development and
succession planning process across the organization; ensuring that every
business line develops and meets high standards of safety, health, and
environmental performance as well as high ethical standards and compliance with
applicable legal requirements; stewardship and enforcement on internal business
controls; communicating effectively with all the Corporation's stockholders; and
working effectively with the Board in the pursuit of all these objectives.
The Compensation Committee, in consultation with the other non-employee
director, evaluates the performance of the CEO on an ongoing basis throughout
the year in the course of regular meetings and interactions with the CEO, and
during reviews of the Company's financial and operating results. The
Compensation Committee also holds a formal meeting once a year to which all
non-employee directors are invited to review the performance of senior
executives, and to review progress on the executive's development and succession
planning program.
17
EXECUTIVE COMPENSATION (Continued)
- ----------------------------------
The following table presents information regarding compensation of our principal
executive officer, our chief operating officer, and our principal accounting
officer for services rendered during fiscal years 2007, 2006 and 2005.
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
Name and Principal Year Salary ($) Incentive Option All Other Total
Position (1) ($) (2) Awards ($) Compensation $(3) ($)
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
Harold K. Fletcher, CEO (4) 2007 159,000 -0- -0- 7,337 166,337
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
2006 159,000 -0- -0- 7,337 166,337
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
2005 154,400 -0- 22,796 7,337 184,533
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
Jeffrey C. O'Hara, COO (5) 2007 108,000 -0- -0- 13,345 121,345
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
2006 75,600 -0- 28,157 4,996 108,753
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
Joseph P. Macaluso, 2007 93,000 -0- -0- 7,825 100,825
Principal Accounting
Officer
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
2006 93,000 -0- -0- 8,070 101,070
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
2005 90,300 -0- 16,137 7,807 114,244
--------------------------- ------------ ------------- --------------- -------------- ------------------- --------
(1) The amounts shown in this column represent the dollar value of base
cash salary earned by each executive officer.
(2) No incentives were made to NEO's in 2007, 2006, and 2005, and
therefore no amounts. Amounts in this column represent the fair value
required by FASB 123R to be included in our financial statements for
all options granted during that year.
(3) The amounts shown in this column represent amounts for medical and
life insurance as well as the Company's match in the 401(k) Plan.
(4) The Company previously issued several $50,000 principal amount notes
to Mr. Fletcher, with due dates in consecutive fiscal years. At March
31, 2007, two of these $50,000 face amount notes remained outstanding,
due respectively on March 31, 2008 and March 31, 2009. The Notes bear
interest at a rate of 4.5% per annum, payable semi-annually on the
last day of September and March of each year. 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
110% of the principal if redeemed more than one year, but less than
two years prior to the maturity date. On March 31, 2007 and 2006,
respectively, similar $50,000 notes due were converted into common
stock. Each $50,000 note due was converted into 20,000 shares of the
Company's common stock at $2.50 per share. The total principal amount
of notes outstanding was $100,000 and $150,000 at March 31, 2007 and
2006, respectively. For the fiscal year ended March 31, 2007, Mr.
Fletcher received $7,750 in interest related to the notes.
(5) Mr. O'Hara serves pursuant to an employment contract which calls for
an annual salary of $108,000, and for Mr. O'Hara to receive 15,000
stock options.
(6) Robert J. Melnick, Vice President and director, serves pursuant to a
consulting contract that provided $68,973, $81,720, and $97,432 in
compensation for the fiscal years ended March 31, 2007, 2006 and 2005,
respectively.
18
EXECUTIVE COMPENSATION (Continued)
- ----------------------------------
Grants of Plan-Based Awards Table for Fiscal Year 2007
No options were granted in fiscal year 2007 to NEO's.
Outstanding Equity Awards at Fiscal Year End Table
The following table sets forth the outstanding stock option grants held by NEO's
at the end of the 2007 fiscal year. The option exercise price set forth in the
table is based on the closing price on the date of grant.
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
Number of Securities Number of Securities
Name Underlying Unexercised Underlying Unexercised
Options (#) Options (#) Option Exercise Option Expiration
Exercisable Unexercisable Price ($) Date
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
Harold K. Fletcher 35,000 (1) -- $2.31 08/19/07
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
6,000 9,000 $3.74 12/08/09
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
Jeffrey C. O'Hara 6,400 -- $2.00 12/11/07
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
5,800 2,600 $1.50 - $2.90 1/21/08 - 12/17/08
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
4,500 5,000 $2.75 - $3.70 1/15/09 - 12/8/09
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
4,200 14,300 $3.55 - $4.25 1/28/10 - 8/15/10
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
Robert J. Melnick 4,000 6,000 $3.40 12/08/09
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
Joseph P. Macaluso 4,000 6,000 $3.40 12/08/09
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
- ------------------------- ------------------------- ------------------------- --------------------- ---------------------
(1) Exercised in August 2007.
Options Exercised and Stock Vested During Fiscal Year 2007
- ----------------------------------------------------------
The following table sets forth the number of shares acquired upon exercising
options awards by our NEO's during fiscal year 2007.
---------------------------- ----------------------- -------------------------------------
Number of shares
acquired on
Name excercise Value realized on exercise (1)
---------------------------- ----------------------- -------------------------------------
Joseph P. Macaluso 12,500 $3,125
---------------------------- ----------------------- -------------------------------------
Jeffrey C. O'Hara 3,200 $2,240
---------------------------- ----------------------- -------------------------------------
(1) Value stated calculated by subtracting the exercise price from the
market value at time of exercise.
Equity Compensation Plan Information
- ------------------------------------
In June 1998, the Board of Directors adopted the 1998 Stock Option Plan ("the
Plan") which reserved for issuance options to purchase up to 250,000 shares of
its Common Stock. The shareholders approved the Plan at the December 1998 annual
meeting. The Plan, which has a term of ten years from the date of adoption, is
administered by the Board of Directors or by a committee appointed by the Board
of Directors. The selection of participants, allotment of shares, and other
19
conditions related to the grant of options, to the extent not set forth in the
Plan, are determined by the Board of Directors. Options granted under the Plan
are exercisable up to a period of 5 years from the date of grant at an exercise
price which is not less than the fair market value of the common stock at the
date of grant, except to a shareholder owning 10% or more of the outstanding
common stock of the Company, as to which the exercise price must be not less
than 110% of the fair market value of the common stock at the date of grant.
Options are exercisable, on a cumulative basis, 20% at or after each of the
first, second, and third anniversary of the grant and 40% after the fourth year
anniversary. All options have been granted.
In May 2003, the Board of Directors of the Company adopted the 2003 Stock Option
Plan which reserved for issuance options to purchase up to 250,000 shares of its
common stock and is similar to the 1998 Plan. The shareholders approved this
plan at the November 2003 annual meeting. All options have been granted.
In March 2006, the Board of Directors of the Company adopted the 2006 Stock
Option Plan which reserves for issuance options to purchase up to 250,000 shares
of its common stock and is similar to the 1998 and 2003 Plans. The shareholders
approved this plan at the December 2006 annual meeting.
Additionally, at March 31, 2007 the Company has individual employment agreements
with eight individuals which included the grant of 71,000 stock options with a
weighted average exercise of $3.07 per hare. These employee contracts have been
approved by the directors, but not by the shareholders, and were included as
consideration for their employment. Since these options were granted under the
Stock Option Plans, which were approved by the shareholders, they are included
in the 381,650 shares in the second column of the following schedule.
The following table provides information as of March 31, 2007 regarding
compensation plans under which equity securities of the Company are authorized
for issuance.
----------------------------- ----------------------- ----------------------- -----------------------
Number of options
remaining available
Number of securities Weighted average for future issuance
to be issued upon exercise price of under Equity
Plan category exercise of options options Compensation Plans
----------------------------- ----------------------- ----------------------- -----------------------
----------------------------- ----------------------- ----------------------- -----------------------
Equity Compensation
Plans approved by
shareholders 381,650 $3.08 203,420
----------------------------- ----------------------- ----------------------- -----------------------
Equity Compensation
Plans not approved by
shareholders - - -
----------------------------- ----------------------- ----------------------- -----------------------
Total 381,650 $3.08 203,420
----------------------------- ----------------------- ----------------------- -----------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- -----------------------------------------------------------
During fiscal 2007, the Compensation Committee was composed of Messrs. Leon
and Walker, neither of whom was or is an officer or employee of the Company, and
neither of whom had a material business relationship with, or a loan from, the
Company.
Both members were independent as defined under the Securities Exchange Act
of 1934, and under Amex Rules. The Company has no compensation committee
interlocks or insider participation to report.
20
COMPENSATION COMMITTEE REPORT
- -----------------------------
The Compensation Committee of Tel-Instrument Electronics Corp has reviewed and
discussed with management the Compensation Discussion and Analysis immediately
preceding this report. Based on this review and discussion, the Compensation
Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in the Company's Proxy Statement dated November 2,
2007.
November 2, 2007
Compensation Committee
George J. Leon, Chair
Robert H. Walker
21
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, and to the S&P Electronics
Equipment Manufacturers, assuming $100 was invested on March 31, 2002, 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)
Base INDEXED RETURNS
Period Years Ending
Company / Index Mar02 Mar03 Mar04 Mar05 Mar06 Mar07
------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
TEL-INSTRUMENT ELECTRONICS CORP 100 75.56 144.44 213.33 151.11 159.56
S&P 500 INDEX 100 75.24 101.66 108.47 121.19 135.52
S&P 500 ELECTRONIC EQUIPMENT MANUFACTURERS 100 51.05 101.35 81.39 116.66 114.85
------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- --------
[GRAPHIC OMITTED][GRAPHIC OMITTED]
22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The disclosures required by this item are contained in Note 11 to Notes to
Consolidated Financial Statements included on pages 37 and 38 of the Annual
Report on Form 10-K accompanying this document. Any corporate transaction which
involves a related person must be approved by the independent directors as being
fair and reasonable to the Corporation and its shareholders. Any such approval
would be included in the minutes of the Board of Directors. There were no such
transactions during the last fiscal year that would be required to be reported
under Item 404 (b) of Regulation S-K promulgated by the Securities and Exchange
Commission.
23
SHAREHOLDER PROPOSALS
---------------------
Proxy Materials
- ---------------
If a shareholder wishes to present a proposal for inclusion in the proxy
materials for the 2008 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 3, 2008. 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.
No shareholder proposals or notices were received in connection with the
2007 meeting.
To be timely for the 2008 Annual Meeting, written notice must be received
by the Company at the above address, prior to September 17, 2008.
24
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,
2007, and a copy of our quarterly report on Form 10-Q for the period ended June
30, 2007, 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 at the Company
address at 728 Garden Street, Carlstadt, NJ 07072.
Sincerely,
TEL-INSTRUMENT ELECTRONICS CORP
/s/ Harold K. Fletcher
-----------------------------------
Harold K. Fletcher
Chairman of the Board
Carlstadt, New Jersey
November 2, 2007
25
TIC
Tel-Instrument
Electronics Corp.
November 2, 2007
To Our Shareholders:
The past year has been both exciting and challenging as Tel works to: (1)
finalize the design and testing of two new cutting edge test sets for the US
Navy; (2) transition to a new senior management team in order to take the
Company to the next level of revenues and profitability; and (3) maximize
profitability during this product and management transition period. Despite many
challenges, the Company has been making solid progress and the outlook for the
Company remains very positive.
Navy Contracts
- --------------
In March 2005, Tel was awarded the US Navy AN/USM-708 (CRAFT) contract for a
multi-functional flight-line test set. This unit combines the function of five
different test sets into one and is the only Mode 5 IFF ("Identification,
Friend, or Foe") flight-line test unit now under government contract. Despite
ongoing changes in the Mode 5 technology and limited hardware availability for
design validation, Tel has successfully demonstrated Mode 5 testing capability
to the Navy and is preparing to ship several IFF/Mode 5 prototype variants of
the AN/USM-708 to other military services later this calendar year. The
AN/USM-708 engineering hardware design has been largely completed and the
fabrication of 15 pilot production units is now in process. The Company still
has to finalize some non-IFF software and conduct systems integration testing.
These units are currently scheduled to undergo design validation testing and
Navy TECHEVAL next summer with production currently scheduled to begin late in
the 2008 calendar year or early 2009. The Navy has options for up to 750
AN/USM-708 units which, if exercised, would add about $14 million to Tel's
backlog and to projected revenues over a several year period. The Navy has also
announced plans to potentially purchase up to 450 additional units on a sole
source basis. Given the unique nature of the design, this unit could also
generate significant sales to other military customers, both domestically and
overseas.
In July 2006 Tel was awarded a second major U.S. Navy contract for an
Intermediate Level TACAN Test Set AN/APM-206 (ITATS). This contract has options
for approximately 150 units with a total value of over $12 million; the initial
work authorization was $4.4 million. Tel will be working with an engineering
sub-contractor on this project and this program will entail substantially less
Tel engineering effort than the AN/USM-708. The development work remains on
schedule with pilot production expected to take place next summer and production
expected to commence following Navy TECHEVAL. Given the unique nature of the
design, this unit could also generate significant sales to other military
customers, both domestically and overseas.
Management Team
- ---------------
A primary focus area for the Company over the last several years has been to
upgrade Tel's senior management team and allow for the orderly transitioning of
responsibilities to this new team. The objective has been to assemble a talented
team that can drive significant revenue growth, and position the Company for
sustained and increasing profitability and shareholder value. This effort has
been spearheaded by Jeff O'Hara who was appointed President and Chief Operating
Officer earlier this year. Jeff has assembled a solid team that is led by Marc
Mastrangelo who was recently promoted to the position of Vice President of
Manufacturing. It also includes significant new hires in Marketing, Engineering,
Quality and Program Management. The hiring of Chris Allen as Director of
Business Development from Aeroflex was a significant coup for the Company. Chris
has a long history of selling avionic products to the U.S. military and his
marketing skills and customer contacts are already bearing fruit. Tel also hired
Dr. Ken Filardo as Director of Engineering earlier this year. Ken has a 25 year
history in avionics at Aeroflex and JcAir and has a broad knowledge base in
avionics. Finally, Tel hired Bob Herbaugh as the AN/USM-708 Program Manager. Bob
has 30 years of program management experience and his expertise has
significantly augmented Tel's capabilities in this area.
Financial Results
- -----------------
Enclosed is the Company's Annual Report to the SEC on Form 10-K for the fiscal
year ending March 31, 2007 (FY07). FY07 sales declined substantially to $7.7
million from $11.2 million in the prior fiscal year. The net loss before taxes
increased to $1.26 million versus a pre-tax loss of $583,000 in the prior year.
Profitability was negatively impacted by the sharp decline in revenues, which
was largely attributable to a downturn in large military orders and shipments,
and by record R&D charges related primarily to the AN/USM-708 engineering
program.
With the new marketing talent on board and continued improvements in the
Company's legacy products, Tel's financial situation should be much improved
during fiscal year 2008. As detailed in the Company's enclosed Quarterly Report
on Form 10-Q for the three months ending June 30, 2007, first quarter sales
increased to $2.9 million versus $1.76 million in the prior year. This increase
was attributable to higher military and commercial revenues as well as the
commencement of the AN/APM-206 program. The pre-tax loss narrowed to
approximately $139,000 versus a pre-tax loss of $452,000 in the year ago period.
Backlog, as of June 30, 2007, was approximately $8.7 million as compared to $4.3
million in the year earlier period. This improvement in revenues and
profitability versus last year is expected to continue for the balance of the
current fiscal year.
At June 30, 2007, the Company had positive working capital of $4,080,177, as
compared to $4,302,369 at March 31, 2006. The Company's credit agreement with
Bank of America remains at $1,750,000, against which $350,000 has been drawn
down. The bank has agreed to extend the credit agreement until September 30,
2008 but does include a new borrowing base calculation tied to working capital.
As of September 30, 2007, remaining availability under this modified line is
approximately $700,000. Based upon its working capital, backlog, and credit
agreement, management believes the Company has adequate funding for its
operations for at least the next 18 months.
Research and Development
- ------------------------
In recent years, Tel's product design effort has been focused increasingly on
the AN/USM-708, the AN/APM-206, evolving the T-47 family, and on refining our
other "legacy" products. While Tel's R&D funding has been well above historical
levels in terms of both dollars and percentage of revenue, Tel's decision to
self fund the Mode 5 development has returned the Company to the forefront of
the IFF testing industry. The outlay required to complete the AN/USM-708 has
been significant and will continue at historically high levels through the
balance of this fiscal year. Tel is planning to develop product variants of the
AN/USM-708 such as the TR-420 IFF/Mode 5 Test Set which will be shipped to
military customers later this year. Tel believes that the AN/USM-708 technology
will have a number of other applications that will serve to broaden our core
avionics market. While no assurances can be given for any new products,
management believes they will be leading edge products which should do well in
the competitive marketplace.
Shareholder Relations
- ---------------------
The Company has continued to issue press releases covering quarterly earnings
and other significant events. As previously reported, TIC began trading on the
AMEX in February, 2004. Closing prices in the AMEX market (symbol: TIK) during
the second quarter of calendar year 2007 ranged between $3.50 and $3.85 per
share. Management continues to believe the stock price does not reflect Tel's
true value and the decision was made last year to suspend all investment banking
activities until the successful roll-out of the AN/USM-708 product.
The Board of Directors and Company management wish to thank you for your
continued support and we hope to see you at the Annual Shareholder meeting at
Tel on December 5, 2007. Whether or not you are able to attend in person, we
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 /s/ Jeffrey C. 'Hara
- ----------------------------- -----------------------------
Harold K. Fletcher, Jeffrey C. O'Hara,
Chairman, and CEO President and COO
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 "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.
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:
-2-
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 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 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 ("Interim
Financial Information") review prior to the filing of the Company's
Form 10-Q.
-3-
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.
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.
-4-
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.
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.
-5-
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 5, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Harold K. Fletcher and Jeffrey C. O'Hara
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 5, 2007 or any adjournment thereof, upon such business as may properly
come before the meeting, including the necessary items set forth below:
1. ELECTION OF DIRECTORS:
NOMINEES RECOMMENDED BY THE DIRECTORS: 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 APPOINTMENT BY THE COMPANY OF BDO SEIDMAN, LLP AS THE
REGISTERED INDEPENDENT PUBLICE ACCOUNTING FIRM FOR THE 2008 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: ____________________________, 2007
__________________________________________
Signature
__________________________________________
Signature if held jointly
(PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE)