Compliance Program of Frequency Electronics, Inc.

I. Introduction

Frequency Electronics Inc. (FEI) conducts its business in accordance with the highest ethical standards. We enjoy and want to sustain our reputation as a company that operates ethically and in strict compliance with government procurement law and regulations. To this end, this publication describes FEI's ongoing Compliance Program. There are two key objectives of this program. The first is to ensure that employees and consultants understand and comply with those laws and regulations governing business. The second is to provide effective resources for employees at FEI to communicate with management, seek clarification on any issue or dilemma confronting them, or to report any irregularities.

FEI has adopted a Code of Business Conduct and Ethics and a system of internal controls to assess compliance with procurement laws and regulations and company policy. FEI also has established and will maintain a comprehensive compliance information and training program to inform personnel about their job-related compliance responsibilities.


II. The Program

A. FEI has adopted a written Code of Conduct ( attached ) to express the fundamental principles which guide the company in doing business. Employees and consultants are expected to be familiar with and to comply with the Code.

B. Compliance Officer

Duty is to provide FEI and its employees with appropriate compliance information, and to be a resource for clarification and inquiry regarding issues pertaining to the company's Code of Business Conduct and Ethics.

FEI has designated the Director of Human Resources as the "Government Contracts Compliance Officer." The Compliance Officer is available to employees and consultants to provide information and to answer questions regarding proper conduct under the Code of Business Conduct and Ethics. The Compliance Officer shall establish, monitor, and publicize a "HELPLINE" telephone to facilitate employee reports of suspected wrongdoing. This telephone line shall be available 24 hours a day, 365 days a year ( 227-2521) e-mail is available at In addition, there is a Department of Defense Hotline number that any employee may call (800-424-9098). The Compliance Officer shall also serve as a confidential point of contact for employees to communicate with management, seek clarification on any issues or dilemmas confronting them, or to report irregularities.

Compliance Training

The Compliance Officer is responsible for developing and disseminating appropriate information and training relating to compliance policies and activities and shall render summary reports of this training to the Government Contracts Compliance Committee (see IIc) at least twice per year. Additionally, information about the Government Contracts Compliance Program shall be made a part of each new employee's and consultant's initial orientation. Each employee and consultant shall be furnished with a copy of the Code and instructed as to its significance.

The Compliance Officer is responsible for an annual ethics and compliance training program, which shall be mandatory for all managers and supervisors, as well as for those other employees and consultants whose duties expose them to matters of compliance nature (eg., for persons responsible for price or cost proposals, and for buyers who have contact with vendors and suppliers.) Training shall be conducted for all employees and consultants whose duties require interaction with customers and suppliers, whose duties involve providing information or data under government contracts and subcontracts, and whose duties involve other compliance risks as determined by the Company.

The mandatory compliance training subjects are listed below. Where appropriate, the planning effort and presentation of the training program may be delegated to the appropriate operating organization, to make better use of existing training and communications resources. The Compliance Officer shall, however, retain overall responsibility for the content and scheduling of new employee orientation and for periodic compliance training and communications.

The annual training subject areas to be covered are:

a. Standards of conduct, concentrating on marketing activities, access to government classified and procurement-sensitive information, relationships with competitors, customers, subcontractors and vendors, and gratuities, kickbacks, and entertainment;

b. Labor charging, focusing primarily on practices for timely and accurate time entries, cost collection and controls against mischarges;

c. Pricing, consisting principally of compliance with the requirements of the Truth in Negotiations Act;

d. Accounting for unallowable costs, focusing on controls and practices for identifying and certifying of allowable costs, and for screening out unallowable costs;

e. Quality and product substitution, emphasizing the importance of assuring the integrity of services and materials provided to the government, the integrity of testing and inspection requirements, and the integrity of the related paperwork.

3. Other Compliance Duties

The Compliance Officer also shall participate with the Compliance Committee and other appropriate company meetings relating to compliance issues. In general, the Compliance Officer exits to help employees and agents of the company better understand what the company -- and the law-- expects in our day-to-day business dealings. Matters such as sensitive employee inquiries or questions that cannot be answered by the Compliance Officer shall promptly be referred to legal counsel. In addition, all employee reports of possible infractions of law, government regulations, or corporate policy shall be brought to the attention of the legal counsel.

The Compliance Officer is also responsible for making recommendations with respect to changes in FEI's compliance program.

C. Compliance Committee

The FEI Compliance Committee is hereby established and shall consist of a member of the Board of Directors, the Executive Vice President, the Chief Financial Officer, and the Director of Human Resources. The Member of the Board shall serve as Chair of the committee. The committee is responsible for ensuring that an effective compliance program is sustained, that the annual training program is implemented, and that the compliance program is subject to periodic internal review. The committee shall meet periodically at the call of the Chair and shall address such issues as are deemed appropriate by the Chair. The Committee shall prepare an annual report of its activities for review by the Chairman of the Board of Directors.

D. Reports and Investigation System

1. Reports to the Compliance Officer or to supervisory channels

The world we live in is often complex. Laws, regulations and policies governing our day-to-day dealings are extensive and sometimes confusing. In order to prevent violations, FEI has established HELPLINE as a vehicle for you to seek clarification and express your concerns and to provide employees with help in making decisions before there are problems. Employees should refer to the "Code of Business Conduct and Ethics" and other corporate policies for guidance in deciding whether to report on activities of concern to them. The Compliance Officer is available to discuss the propriety of employee conduct and the requirements of the company's policies and procedures.

All employees can report questionable, unethical, or illegal activities to their supervisors, to the Compliance Officer, to the manager of their department. The compliance officer shall assure that these reporting opportunities are widely publicized and encouraged.

2. Responding to employee concerns

Every supervisor and manager who receives a report of possible unethical or illegal activity shall prepare a written account of that event and immediately forward it to the Compliance Officer. Upon receipt of such report, the Compliance Officer shall: 1) evaluate the report's veracity and seriousness, and conduct such preliminary inquiry or investigation as is necessary to assess the need for further action; 2) confer with appropriate Frequency management and employees; 3) confer, when appropriate, with FEI's auditors; and 4) make a determination as to the need for and appropriateness of further action, or, prepare a written report explaining the conclusion that no additional action is necessary.

The Compliance Officer shall prepare a report about all matters investigated. The report shall be furnished to the Compliance Committee, and, in the discretion of the committee, to the Board of Directors. The Compliance Officer's report shall include the original report filed by the employee or consultant, a description of the evaluation and investigation, the corrective or remedial action taken, and the legal counsel's recommendations for additional action. Promptly upon completion of any action, the employee who raised the matter will be informed of the resolution.

3. Anonymity

In all cases, if an employee or consultant making a report requests anonymity, that request shall be honored by the company, to the greatest extent possible.

III. Conclusion

FEI requires that its employees and consultants comply with all government laws and regulations related to their work, and that they communicate openly with each other to ensure that the ethical aspects of each business decision are understood and addressed. The Compliance Officer is responsible for assuring the sustainment of a vibrant government contracts compliance program. It is the responsibility of all FEI employees and consultants to know and follow the government procurement laws, regulations, and policies that apply to their assigned duties.

A copy of this Program will be distributed to all employees and consultants. In addition, a copy of the Code of Business Conduct and Ethics will be furnished to every employee for their personal retention.

Attachment: Code of Business Conduct and Ethics

©2004 Frequency Electronics Inc. All rights reserved.

Corporate Governance

Code of Ethics
Compliance Program
Audit Committee Charter
Compensation Committee Charter

Investor Relations