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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control number.
Tel-Instrument Electronics Corp
728 Garden St.
Carlstadt, NJ 07072
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NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
December 7, 2005
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 7, 2005 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, 2006.
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 31, 2005, 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 4, 2005 to Stockholders entitled to vote.
The Company's annual report for fiscal 2005 and quarterly report for the June
30, 2005 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 4, 2005
2
TABLE OF CONTENTS
INFORMATION CONCERNING SOLICITATION AND VOTING.............................. 4
Proxies.................................................................. 4
Record Date and Outstanding Common Stock................................. 4
Voting and Solicitation.................................................. 5
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..................................................... 10
Compensation of 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
Policy on Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services........................................... 12
Audit Committee Report................................................... 12
SECURITY OWNERSHIP.......................................................... 13
COMPENSATION COMMITTEE INTERLOCKS & INSIDER PARTICIPATATION................. 15
COMPENSATION COMMITTEE REPORT............................................... 15
EXECUTIVE COMPENSATION...................................................... 18
PERFORMANCE GRAPH........................................................... 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 21
SHAREHOLDER PROPOSALS....................................................... 22
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 7, 2005
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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 7,
2005 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, 2005, and our
Quarterly Report for the quarter ended June 30, 2005, 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, 2006. 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 4, 2005.
Record Date and Outstanding Common Stock
The Board of Directors has fixed the close of business on October 31,
2005, 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 2,187,831 shares of common stock issued, outstanding, and entitled to vote.
4
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 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, 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.
5
PROPOSAL NO. 1: ELECTION OF DIRECTORS
General
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, Robert
J. Melnick and Jeffrey O'Hara, Vice Presidents, 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.
6
Information Regarding the Nominees
Director
Name (age) Position Since
---------- -------- -----
Harold K. Fletcher (1) Chairman of the Board, 1982
(80) President and Chief
Executive Officer of the
Company since 1982;
George J. Leon Director; Investment 1986
(61) Manager and beneficiary of
the George Leon Family Trust
(investments) since 1993;
Robert J. Melnick Director; Vice President of 1998
(71) the Company since 1999; Marketing
and Management Consultant for
the Company since 1991;
Jeffrey C. O'Hara, CPA (1) Director; Director of Operations
(47) and Vice President of the 1998
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
(50) Owner of Spurwink Cordage, Inc since
1998 (textile manufacturing).
Robert H. Walker Director; Currently and since 1990 1984
(69) member of Board of Directors of
Robotic Vision Systems, Inc. (RVSI),
Executive Vice President of RVSI,
1983-1998.
(1) Mr. O'Hara is the son-in-law of Mr. Harold K. 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 9 meetings during the fiscal year 2005
and each of the incumbent directors attended at least 75 percent of the Board
meetings. 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 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 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 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 2005, 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 six 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, 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 2005 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 Tel's management and employees.
The Compensation Committee's Report is set forth below. The Compensation
Committee met three times during the 2005 fiscal year, and all members attended
all meetings. 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 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 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 2006 annual meeting, he may send his
recommendation to the Company, Attention: Joseph P. Macaluso, not later than
July 7, 2006. 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
9
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 2005,
non-employee directors received the following compensation pursuant to this
plan.
Cash Compensation Stock Options
----------------- -------------
George J. Leon $11,875 9,500
Jeffrey C. O'Hara (1) $11,875 9,500
Robert A. Rice $ 7,500 6,000
Robert H. Walker $11,875 9,500
(1) As of August 2005, payments to Mr. O'Hara as a director were
terminated, and Mr. O'Hara became a vice president of the corporation and
compensated pursuant to a consulting contract with the corporation. See
"Executive Compensation" below.
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, 2005, 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 year ended March 31, 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, 2006 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, 2005 and 2004, professional services were
performed by BDO Seidman, LLP, and fees were paid to it by the Company, as
follows:
2005 2004
---- ----
Audit Fees $77,250 $65,750
Audit-Related Fees 2,800 --
------- -------
Total Audit and Audit-Related Fees 80,050 65,750
Tax Fees -- --
All Other Fees -- --
------- -------
Total $80,050 $65,750
======= =======
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. This category includes fees for consultation regarding new
requirements imposed by Sarbanes-Oxley for internal control in 2005, and were
approved by the audit committee pursuant to policy described on following page.
No fees were paid in this category in 2004.
Tax Fees. The Company paid no fees in this category to BDO Seidman in 2005 and
2004.
All Other Fees. The Company paid no fees, in this category, in 2005 and 2004.
11
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
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 2006. 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
The Audit Committee:
|X| reviewed and discussed the audited financial statements with respect
to the year ended March 31, 2005 with management and with BDO
Seidman, LLP, the Company's independent auditors;
|X| 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
|X| 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 the Company's Annual Report on Form 10K for the year ended March 31,
2005, 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
12
SECURITY OWNERSHIP
The following table sets forth information known to the Company with respect to
the beneficial ownership as of October 5, 2005, 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.
Name and Address Number of Shares Percentage
---------------- Beneficially Owned of Class (1)
---------------- ------------------ ------------
Named Directors and Officers
----------------------------
Harold K. Fletcher, Director 524,602 (2)(3) 23.7%
and Chief Executive Officer
728 Garden Street
Carlstadt, NJ 07072
George J. Leon, Director 323,847 (4) 14.7%
116 Glenview
Toronto, Ontario, Canada M4R1P8
Robert J. Melnick, Director 36,960 (5) 1.7%
and Vice-President
57 Huntington Road
Basking Ridge, NJ 07920
Jeffrey C. O'Hara, Director 124,180 (6) 5.6%
and Vice President
853 Turnbridge Circle
Naperville, IL 60540
Robert A. Rice, Director 76,400 (7) 3.5%
5 Roundabout Lane
Cape Elizabeth, ME 04107
Robert H. Walker, Director 41,463 (8) 1.9%
27 Vantage Court
Port Jefferson, NY 11777
Donald S. Bab, Secretary 77,034 (9) 3.5%
770 Lexington Ave.
New York, New York 10021
All Officers and Directors 1,223,499 (10) 53.9%
as a Group (8 persons)
(1) The class includes 2,188,231 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.
13
(3) Includes 24,000 shares subject to currently exercisable stock options
owned by Mr. Fletcher. Mr. Fletcher also has convertible, subordinated
Promissory Notes totaling $200,000. The Notes can be converted into newly
issued common shares sat 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 13,180 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 5,360 shares subject to currently exercisable stock options owned
by Mr. Melnick.
(6) Includes 12,080 shares subject to currently exercisable stock options
owned by Mr. O'Hara.
(7) Includes 400 shares subject to currently exercisable stock options owned
by Mr. Rice.
(8) Includes 12,680 shares subject to currently exercisable stock options
owned by Mr. Walker.
(9) 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.
(10) Includes 80,720 shares subject to currently exercisable options held by
all executive officers and directors of the Company (including those
individually named above).
14
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2005, the Compensation Committee was composed of Messrs.
Leon 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.
Both members were independent as defined under the Securities Exchange Act
of 1934, and under the rules of the Amex. 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, and which are
approved by the Committee and the Board of Directors.
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.
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
15
"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.
16
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
Robert H. Walker
17
EXECUTIVE COMPENSATION
The following table and accompanying notes set forth information concerning
compensation for the fiscal years ended March 31, 2005, 2004, and 2003.
Name and # of Stock (2) (3)Other
Principal position (1) Year Salary Options Compensation
------------------------------------------------------------------------------
Harold K. Fletcher 2005 $154,400 15,000 (4) $ 1,500
Chairman of the Board 2004 $154,400 $14,500
President and Chief 2003 $147,000 35,000 (4)
$27,500
Executive Officer
Charles R. Palanzo (8) 2005 $134,300 -- --
Chief Operating Officer 2004 $134,300 15,000 options (6) $11,300
2003 $130,000 35,000 options (6) $87,100 (7)
(1) Robert J. Melnick, Vice President and director, serves pursuant to a
consulting contract that provided $97,400, $98,700, and $95,600 in
compensation for each of the fiscal years 2005, 2004, and 2003,
respectively, and has received, in fiscal 2005 and 2004, options to
purchase 10,000 and 4,000 shares of common stock, respectively,
exercisable at the market price on the date of grant.
(2) Represents bonus based on the Company's profitability, except no bonus was
paid in 2005 (see note 3 below). See Note 12 to Notes to Consolidated
Financial Statements in Form 10-K for related party transaction. The
Company also pays medical and life insurance premiums for all its
employees, which are not included above.
(3) 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) In August 2005, the Company entered into a consulting arrangement with Mr.
Jeffrey O'Hara, the son-in-law of Mr. Harold K. Fletcher, CEO and
President, pursuant to which Mr. O'Hara was retained as a Vice President -
Director of Operations, at a base compensation of $10,000 per month. Mr.
O'Hara has committed to a minimum 40 hour per week work schedule at the
Company's facilities in New Jersey. Mr. O'Hara will participate in the
Company's key man incentive plan, and will receive options to purchase
15,000 shares of common stock, pursuant to the Company's Employee Stock
Option Plan, exercisable at the market price at the date of grant.
(6) Employee stock options, see Note 15 to Notes to Consolidated Financial
Statements.
(7) Relocation expenses.
(8) Mr. Palanzo left by mutual agreement in April 2005.
18
Stock Option Grants
The following table sets forth information regarding grants of stock options to
executive officers during 2005.
Individual Grants Grant Date Value
----------------------------------------------------------------------------- ------------------
Number of % of Total Options
Securities Granted to Employees
Underlying Options in Exercise Price Expiration Grant Date
Name Granted Fiscal Year Per Share Date Present Value ($)
------------------ ------------------ -------------------- -------------- ---------- -----------------
Harold K. Fletcher 15,000 (1) 15 $3.74 12/8/09 22,796 (2)
(1) The stock options granted to Mr. Fletcher on December 8, 2004 were
Incentive Stock Options granted pursuant to the Company's 2003
Employees Stock Option Plan. Such options become exercisable
cumulatively at a rate of 20%, 20%, 20%, and 40% on December 8,
2005, December 8, 2006, December 8, 2007, and December 8, 2008,
respectively.
(2) The fair value of these options on the date of grant was estimated
using the Black-Scholes option-pricing model with the following
assumptions: volatility of 50%; risk-free interest rate of 3.5%,
expected life of 5 years; and no future dividends. The dollar amount
in this column is not intended to forecast potential future
appreciation, if any, of the Company's Common Shares.
Aggregate Options Held and Year-End Option Table
The following table provides information on options held (no options were
exercised) during fiscal 2005, by the named executive officers, and the value of
each of their respective unexercised options at March 31, 2005.
Aggregated Options Held in Last Fiscal Year and FY-end Option Values
--------------------------------------------------------------------
(A) (B) (C) (D) (E)
Number of Value of Unexercised
Unexercised Options In-the-Money Options
FY-End (#) FY-End ($) (1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
Harold K. Fletcher -- -- 14,000/36,000 $34,680/$68,190
Charles R. Palanzo -- -- 20,000/30,000 $55,680/$83,520
(1) Calculated on the basis of fair market value of the underlying securities
at March 31, 2005 less the exercise price.
19
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, 2000, 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.
[The following information was depicted as a line chart in the printed material]
Comparison of Cumulative
Total Return To Shareholders
(Includes reinvestment of dividends)
--------------------------------------------------------------------------------------------------------------------------------
Base INDEXED RETURNS
Period Years Ending
--------------------------------------------------------------------------------------------------------------------------------
Company / Index Mar00 Mar01 Mar02 Mar03 Mar04 Mar05
--------------------------------------------------------------------------------------------------------------------------------
TEL-INSTRUMENT ELECTRONICS CORP 100 66.19 97.28 73.50 140.51 207.52
--------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX 100 78.32 78.51 59.07 79.82 85.16
--------------------------------------------------------------------------------------------------------------------------------
S&P 500 ELECTRONIC EQUIPMENT MANUFACTURERS 100 42.06 31.61 16.13 32.03 25.72
--------------------------------------------------------------------------------------------------------------------------------
20
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, 2005 and 2004, the total principal amount of the remaining
unpaid Notes amounted to $200,000 and $250,000, respectively. 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 then remaining unpaid Notes became payable seriatim in
consecutive years beginning March 31, 2005. $50,000 was paid on 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 2005, the Company paid Mr. Melnick's corporation a
fee of $97,400, pursuant to this arrangement.
In August 2005, the Company entered into a consulting arrangement with Mr.
Jeffrey O'Hara, the son-law of Mr. Harold K. Fletcher, President and CEO,
pursuant to which Mr. O'Hara was retained as a Vice President - Director of
Operations, at a base compensation of $10,000 per month. Mr. O'Hara has
committed to a minimum 40 hour per week work schedule at the Company's
facilities in New Jersey. Mr. O'Hara will participate in the Company's key man
incentive plan, and receive options to purchase 15,000 shares of common stock,
pursuant to the Company's Employee Stock Option Plan, exercisable at the market
price at the date of grant
21
SHAREHOLDER PROPOSALS
Proxy Materials
If a shareholder wishes to present a proposal for inclusion in the proxy
materials for the 2006 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 6, 2006. 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
2005 meeting.
To be timely for the 2006 Annual Meeting, written notice must be received
by the Company at the above address, prior to September 20, 2006.
22
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, 2005, and a copy of our quarterly report on Form 10-Q for the period ended
June 30, 2005, 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 4, 2005
23
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 7, 2005
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 7, 2005 or any adjournment thereof, upon such business as may properly
come before the meeting, including the necesary 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 2006 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: ____________________________, 2005
_________________________________________
Signature
_________________________________________
Signature if held jointly
(PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE)
November 4, 2005
To Our Shareholders:
It has been said that the only constant in life is change. This has certainly
been true for Tel Instrument Electronics Corp. (Tel, or the Company) over the
last year. The competitive marketplace has also become more challenging over the
last two years due to a number of factors. These include severe financial
problems with many of our key commercial customers (airlines) and funding delays
or cancellations on several large military procurements due to Federal budget
pressures arising from both natural disasters and from Middle-East hostilities.
In addition, the delivery rate under the U.S. Navy AN/APM-480 contract was
reduced; as of June 30, 2005, the Company has shipped 1,260 of the 1,300 units
ordered. As the cumulative result of these factors, Tel's sales and earnings
fell in the 2005 fiscal year.
The good news is that, in March 2005, the Company won a competitive contract to
provide the U.S. Navy's next generation navigation/communications flight line
tester (CRAFT). This contract currently has production options totaling 750
units, which if exercised, would result in deliveries beginning in early fiscal
year 2008. Also very encouraging, in August 2005, this contract was modified to
include testing of the next generation of IFF, which should broaden the interest
of the other armed forces in this state-of-the-art multi-function test set. The
Company believes the CRAFT technology is a significant advance on current
products in the marketplace and will form the basis for a new family of test
instruments which will materially diversify and modernize our product line and
could lead to significant additional sales. Tel is actively pursuing other major
government contracts and is continuing its efforts to broaden its markets and
products. Sales and operating results for the first six months of the 2006
fiscal year have improved, although near-to-mid-term commercial and military
orders have continued to be below expectations.
Fiscal Year 2005
Enclosed is the Company's Annual Report to the SEC on Form 10-K for the fiscal
year ending March 31, 2005 (FY05). When compared with FY04, in FY05 sales
decreased from $10,704,024 to $10,511,284 (1.8%) and profit before tax decreased
from $593,743 to $13,717. A major component of this drop in net income was due
to losses from Tel's new marine systems division, Innerspace Technologies, Inc.
First Quarter of Fiscal Year 2006
Also enclosed is the Company's Quarterly Report to the SEC on Form 10-Q for the
three months ending June 30, 2005. Compared to last year's first quarter, sales
increased from $2,812,800 to $3,150,978 (12%) and income before taxes decreased
from $87,517 to $57,991 for the first three months of FY06. Income as a
percentage of sales was adversely impacted by additional costs associated with
increases in sales, marketing, and product development activities, and by the
continuing but reduced loss from the ITI marine systems division.
Backlog and Personnel
Backlog, as of June 30, 2005, was approximately $6,300,000, as compared to about
$2,600,000 one year earlier. Our current work force is 61, including engineering
contract staff, compared to 57 one year earlier. The new Craft product will
continue to entail a substantial engineering commitment and we have added
several senior engineers to assist on this project. We have also upgraded our
management team over the last year. This included the addition of Jeff O'Hara (a
long-time Board member) to the position of V.P. of Operations. In addition to
his other duties, Jeff will be responsible for the ITI unit which has begun to
make significant progress from both organizational integration and sales
perspectives. Our current middle management team continues to grow in experience
and responsibility, and we believe that our commitment to expand middle
management, made several years ago, is now being rewarded.
To Our Shareholders -2- November 4, 2005
November 4, 2005
Research and Development
During the last few years, much of our product design effort has been focused on
the T-47 family of multi-function military test sets, the TR-220 family of
multi-function commercial test sets, the TB-2100 family of multi-function bench
test sets, and the continued development of the next generation of IFF test
sets. These new designs incorporate advanced hardware and software modules which
the Company will use on CRAFT and on other products planned for development over
the next several years. The Company has made great progress in increasing its
engineering talent and we believe that the core technology which has been
developed will have a number of possible applications. While no assurances can
be given for any new products, management believes that they represent leading
edge products that should do well in the competitive marketplace.
Marketing
Avionics commercial sales declined 17% for the first quarter of FY06 to
$562,072, as compared with $681,213 a year earlier, largely as the result of the
continuing commercial airline financial difficulties. Avionics government sales
increased 25% for the first quarter of FY06 to $2,373,035, as compared with
$1,901,858 in the previous year. Export orders continue to be generated by our
distributors in England, Italy, Spain, and Australia, and the Company continues
to pursue opportunities in overseas markets. As discussed above, the Company
continues to explore new markets, both externally, through acquisition, and
internally, through foreign sales and new products. Marine systems division
sales were $215,871 for the three months ending June 30, 2005, as compared to
$229,729 for the same period last year.
Financial
At June 30, 2005, the Company had positive working capital of $4,168,806, as
compared to $4,047,116 at March 31, 2005. The Company's credit agreement with
Bank of America remains at $1,750,000, against which there has been no takedown.
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, and, since then, the stock price has improved. However,
management continues to feel it still does not reflect our true value. In
response to this, the Board has, with our investment bankers, pursued several
previously reported initiatives to increase shareholder value. Closing prices in
the AMEX market (symbol: TIK) during the second quarter of calendar year 2005
ranged between $3.22 and $4.48 per share.
Other Initiatives
Other initiatives of the last year include: (1) complying with new
Sarbanes-Oxley legislation and adopting audit and compensation committee
charters disclosure procedures, strengthened internal controls, and a formal
code of ethics, (2) continuing our search for cost reduction and efficiency
increase initiatives, (3) continuing our investment in state-of-the-art test
equipment and computer-based design tools to support our new product
development, and (4) investigating possible new products and markets to broaden
our capabilities. Although these initiatives are ongoing, all have yielded
positive results.
The Board of Directors and I wish to thank you for your continued support and we
hope to see you at the annual shareholders' meeting on December 7, 2005. 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,
Harold K. Fletcher
President and Chairman