Audit Committee Charter of Frequency Electronics, Inc. as Revised 8/17/04 & 4/21/08

The Audit Committee is a committee of the Board of Directors (the “Board”) of Frequency Electronics, Inc. (the “Company”).

I. PURPOSE

The primary purpose of the Audit Committee is to oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company. In this regard, the Audit Committee assists the Board in fulfilling its oversight responsibilities by reviewing: the financial reports and other financial information provided by the Company to any governmental body or the public; the Company's systems of internal controls regarding finance and accounting; and the Company's auditing, accounting and financial reporting processes generally. Consistent with this function, the Audit Committee should encourage continuous improvement of, and should foster adherence to, the Company's policies, procedures and practices, relating to auditing, accounting and financial reporting. The Audit Committee's primary duties and responsibilities are to:

• Serve as an independent and objective party to monitor the Company’s financial reporting process and internal control system;
• Review and appraise the audit efforts of, and monitor the independence of, the Company's independent accountants; and
• Provide an open avenue of communication among the independent accountants, financial and senior management and the Board.

The Audit Committee will primarily fulfill its responsibilities by carrying out the duties and activities enumerated in Section IV of this Charter.

II. COMPOSITION

The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom, in the judgment of the Board, shall be independent, in accordance with the requirements of the NASDAQ Global Market (“NASDAQ”), Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission (the “SEC”), and free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee. In addition to and in furtherance of the foregoing, no individual may serve as a member of the Audit Committee if:

  1. Such director is currently an employee or was employed by the Company or any of its affiliates at any time during the past three years; or
  2. Such director or an immediate family member of such director, received compensation from the Company or any of its affiliates in excess of sixty thousand dollars ($60,000) during the current or any of the past three fiscal years other than compensation for board service, payments arising solely from investments in the Company’s securities, compensation paid to an immediate family member who is a non-executive employee of the Company or any of its affiliates, benefits under a tax-qualified retirement plan or non-discretionary compensation. An immediate family member shall include a person's spouse, parents, children, siblings, in-laws and any person who resides in such director's home; or
  3. Such director's immediate family member is, or has been in any of the past three years, employed by the Company or any of its affiliates as an executive officer; or
  4. Such director is, or has an immediate family member who is, a partner, controlling shareholder, or executive officer in any organization to which the Company made, or from which the Company received, payments from the Company (other than those arising solely from investments in the Company's securities or payments under non-discretionary charitable contribution matching programs) that were in excess of five percent (5%) of the organization’s consolidated gross revenues for that year, or two hundred thousand dollars ($200,000) in any of the past three fiscal years; or
  5. Such director is, or has an immediate family member who is, employed as an executive of another entity where at any time during the three most recent fiscal years, any of the Company's executives serve on that entity's compensation committee; or
  6. Such director is, or has an immediate family member who is, a current partner of the Company’s current independent accountants, or was a partner or employee of the Company’s independent public accountants who worked on the Company’s audit at any time during any of the past three fiscal years.

All members of the Audit Committee shall have a working familiarity with fundamental financial and accounting practices and at least one member of the Audit Committee shall have significant accounting or related financial management expertise. In addition, at least one member of the Audit Committee shall have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including serving or having served as a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Also, at least one member of the Audit Committee shall, in the judgment of the Board, qualify as an “audit committee financial expert” in accordance with the rules and regulations of the SEC.

The members of the Audit Committee shall be elected by the Board annually or until their successors shall be duly elected and qualified. Unless a Chairperson is elected by the full Board, the members of the Audit Committee may designate a Chairperson by majority vote of the full Audit Committee membership.

III. MEETINGS

The Audit Committee shall meet at least four times during each fiscal year, or more frequently as circumstances require. The dates for the Audit Committee meetings generally are to be set at the time of the annual meeting of the Board. Further, the members of the Audit Committee may agree, at any time, to hold a telephone meeting of the Audit Committee, in lieu of a formal, in-person meeting. As part of its job to foster open communication, the Audit Committee should meet at least annually with management and the independent accountants in separate executive sessions to discuss any matters that the Audit Committee or each of these groups believe should be discussed privately. In addition, the Audit Committee, or at least its Chairperson, should meet with the independent accountants and management quarterly to review the Company's financials consistent with the duties enumerated in Section IV below. The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee. The Audit Committee shall report regularly to the full Board with respect to its activities and make recommendations to the Board as appropriate.

A majority of the Audit Committee shall constitute a quorum for the transaction of business. The Audit Committee may act by a majority vote of the members present at a duly constituted meeting of the Audit Committee. In the absence or disqualification of a member of the Audit Committee, the members present, whether or not they constitute a quorum, may unanimously appoint another independent member of the Board to act at the meeting in the place of an absent or disqualified member. In the event of a “tie” vote on any issue voted upon by the Audit Committee, the vote of the Chairperson of the Audit Committee shall decide the issue.

IV. AUTHORITY, RESPONSIBILITIES AND DUTIES

To fulfill its purpose, the Audit Committee shall have the following authority and responsibilities:

Documents/Reports Review

  1. Review and update this Charter periodically, but at least annually, as conditions necessitate.
  2. Review with management and the independent accountants the Company's annual financial statements and any reports or other financial information submitted to any governmental body, or the public, including any certification, report, opinion or review rendered by the independent accountants.
  3. Review with financial management and the independent accountants the Company's Quarterly Report on Form 10-Q prior to its filing.
  4. Review earnings releases issued by the Company.
  5. Prepare, with the assistance of management, the independent accountants and, where appropriate, legal counsel, the Audit Committee Report for inclusion in the Company’s annual proxy statement in accordance with applicable SEC regulations.
  6. Independent Accountants

  7. Be directly responsible for the appointment, compensation, retention and oversight of the work of any independent public accounting firm engaged (including resolution of disagreements between management and the independent accountants regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. The independent accountants shall report directly to the Audit Committee.
  8. Ensure the receipt from the independent accountants of a formal written statement delineating all relationships between the independent accountants and the Company, consistent with Independence Standards Board Standard No. 1, and actively engage in a dialogue with the independent accountants with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent accountants.
  9. Take, or recommend that the Board take, appropriate action to oversee the independence of the independent accountants.
  10. Review and evaluate the performance of the independent accountants and replace any of the independent accountants when circumstances warrant.
  11. Periodically consult with the independent accountants out of the presence of management about internal controls and the fullness and accuracy of the Company’s financial statements.
  12. Meet with the independent accountants prior to the audit to review the planning and staffing of the audit.
  13. Review and preapprove all audit and non-audit services provided to the Company by the independent accountants, other than as may be permitted by applicable law. The Audit Committee may delegate to a subcommittee consisting of one or more designated Audit Committee members the authority to grant any preapproval of audit and permitted non-audit services, provided that decisions of any such subcommittee to grant preapprovals hereunder shall be presented to the full Audit Committee at its next scheduled meeting.
  14. Financial Reporting Processes

  15. In consultation with the independent accountants, review the integrity of the Company’s financial reporting processes, both internal and external.
  16. Consider the independent accountants' judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting.
  17. Consider and approve, if appropriate, major changes to the Company’s auditing and accounting principles and practices as proposed by management or the independent accountants.
  18. Discuss with the independent accountants any significant changes in auditing standards or their audit scope.
  19. Process Improvement

  20. Establish regular and separate systems of reporting to the Audit Committee by management and the independent accountants regarding any significant judgments made in management's preparation of the financial statements and the view of each as to the appropriateness of such judgment.
  21. Following completion of the annual audit, review separately with each of management and the independent accountants any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information.
  22. Review any significant disagreement among management and the independent accountants in connection with the preparation of the financial statements.
  23. Review with the independent accountants and management, the extent to which changes or improvements in financial or accounting practices, as approved by the Audit Committee, have been implemented. (This review should be conducted at an appropriate time subsequent to implementation of changes or improvements, as decided by the Audit Committee.)
  24. Other Authority and Responsibilities

  25. Have the authority, to the extent it deems necessary or appropriate, to retain outside legal, accounting or other advisors. The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent accountants for the purpose of rendering or issuing an audit report or performing other audit, review or attest services and to any advisors employed by the Audit Committee and for ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.
  26. Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
  27. Serve as the Company’s Qualified Legal Compliance Committee (“QLCC”), as such term is defined by the SEC in 17 C.F.R. 205, and, in this capacity, shall perform the duties set forth on Appendix I to this Charter

APPENDIX I

Qualified Legal Compliance Committee

DUTIES AND RESPONSIBILITIES

The Qualified Legal Compliance Committee (“QLCC”) of the Company has the authority and responsibility to:

  1. Adopt written procedures for the confidential receipt, retention and treatment of any report of evidence of a material violation of any applicable United States federal or state securities law, a material breach of fiduciary duty arising under United States federal or state law, or a similar material violation of any United States federal or state law (a “Material Violation”);
  2. Inform the Company’s chief legal officer and chief executive officer, or the equivalents thereof, of any report of evidence of a Material Violation, except if the QLCC believes that to do so would be futile;
  3. Determine whether an investigation is necessary regarding any report of evidence of a Material Violation by the Company, its officers, directors, employees, or agents and, if the QLCC determines an investigation is necessary or appropriate, to:
  4. a. notify the full Board of Directors;
    b. initiate an investigation, which may be conducted either by the chief legal officer (or equivalent) or by outside attorneys; and
    c. retain such additional expert personnel as the QLCC deems necessary;
  5. At the conclusion of any such investigation, to:
    a. recommend, by a majority vote, that the Company implement an appropriate response to evidence of a Material Violation; and
    b. inform the Company’s chief legal officer and chief executive officer, or the equivalents thereof, and the Board of Directors of the results of any such investigation and the appropriate remedial measures to be adopted; and
  1. By majority vote, to take all other appropriate action, including the authority to notify the Securities and Exchange Commission in the event that the Company fails in any material respect to implement an appropriate response that the QLCC has recommended the Company to take.

 

 
 
 
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