UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss.240.14a-12
FIRST AVIATION SERVICES INC.
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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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[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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FIRST AVIATION SERVICES INC.
15 RIVERSIDE AVENUE
WESTPORT, CONNECTICUT 06880
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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The 2004 Annual Meeting of Stockholders of First Aviation Services Inc. (the
"Annual Meeting") will be held at the offices of Aerospace Products
International, Inc., 3778 Distriplex Drive North, Memphis, TN 38118 on Tuesday,
June 15, 2004 at 9:30 a.m. local time for the following purposes:
1. To elect two directors for a term to expire at the Annual
Meeting of Stockholders in the year 2007 (Class II).
2. To consider and vote upon a proposal to ratify the
appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending January 31, 2005.
3. To consider and vote upon a stockholder proposal regarding
cumulative voting for director elections, if properly
presented at the Annual Meeting.
4. To transact such other business as may properly come
before the Annual Meeting and any and all adjournments or
postponements thereof.
The Board of Directors, by resolution, has fixed the close of business on May
11, 2004, as the record date for the determination of the stockholders entitled
to notice of and to vote at the Annual Meeting and at any adjournment or
postponement thereof.
Stockholders are invited to attend the Annual Meeting. Whether or not you expect
to attend, WE URGE YOU TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED WHITE
PROXY CARD IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. If you attend the Annual
Meeting, you may vote your shares in person, which will revoke any previously
executed proxy.
If your shares are held of record by a broker, bank or other nominee and you
wish to attend the Annual Meeting, you must obtain a letter from the broker,
bank or other nominee confirming your beneficial ownership of the shares and
bring it to the Annual Meeting. In order to vote your shares at the Annual
Meeting, you must obtain a proxy issued in your name from the record holder.
Regardless of how many shares you own, your vote is very important, and we
encourage you to exercise your right to vote. Please COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED WHITE PROXY CARD TODAY.
By order of the Board of Directors,
Robert G. Costantini
Secretary
Westport, Connecticut
May __, 2004
FIRST AVIATION SERVICES INC.
15 RIVERSIDE AVENUE
WESTPORT, CONNECTICUT 06880
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PROXY STATEMENT
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INTRODUCTION
This proxy statement is furnished to the holders of common stock, par value $.01
per share (the "Common Stock"), of First Aviation Services Inc., a Delaware
corporation ("First Aviation" or the "Company"), in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company (the
"Board") for use at the Company's 2004 Annual Meeting of Stockholders, which is
scheduled to be held on Tuesday, June 15, 2004, at 9:30 a.m. local time at the
offices of Aerospace Products International, Inc., 3778 Distriplex Drive North,
Memphis, TN 38118, and at any adjournment or postponement thereof (the "Annual
Meeting"). The Notice of Annual Meeting, this proxy statement, the accompanying
proxy, the Company's Annual Report on Form 10-K for the year ended January 31,
2004, and the Company's Annual Report are first being furnished to stockholders
on or about May ___, 2004.
The Company's principal executive offices are located at 15 Riverside Avenue,
Westport, Connecticut 06880. Additional information about the Company can be
found on the Company's worldwide web site at www.favs.com, or www.apiparts.com.
RECORD DATE
The Board of Directors has fixed the close of business on May 11, 2004 as the
record date (the "Record Date") for the determination of stockholders entitled
to notice of, and to vote at, the Annual Meeting. Each such stockholder will be
entitled to one vote on all matters to come before the Annual Meeting for each
share of Common Stock held on the Record Date, and may vote in person or by
proxy authorized in writing. On the Record Date, there were 7,296,960 shares of
Common Stock issued and outstanding.
MATTERS TO BE CONSIDERED
At the Annual Meeting, stockholders will be asked to consider and vote upon: (1)
the election of two directors for a term to expire at the Annual Meeting of
Stockholders in the year 2007 (Class II), and until their successors are duly
elected and qualified; (2) the ratification of the appointment of Ernst & Young
LLP as the Company's independent auditors for the year ending January 31, 2005;
and (3) a stockholder proposal regarding cumulative voting for director
elections, if properly presented at the Annual Meeting. The Board of Directors
does not know of any other matter to be brought before the Annual Meeting. If
any other matter properly comes before the Annual Meeting, the persons named in
the enclosed form of proxy or their substitutes will vote in accordance with
their best judgment on such matters.
QUORUM; REQUIRED VOTES
In order to transact business at the Annual Meeting, a majority of the shares of
Common Stock issued and outstanding on the Record Date must be present in person
or represented by proxy at the Annual Meeting. Shares that are voted "FOR",
"AGAINST", or "WITHHOLD" on a matter are treated as being present at the Annual
Meeting for purposes of establishing a quorum and will be included in
determining the number of shares that are represented and voted at the Annual
Meeting with respect to such matter.
The affirmative vote of a plurality of the votes cast at the Annual Meeting is
required for the election of directors. Only shares of Common Stock that are
1
voted in favor of a nominee will be counted toward that nominee's achievement of
a plurality. Shares of Common Stock held by stockholders present in person at
the Annual Meeting that are not voted for the nominee or shares held by
stockholders represented at the Annual Meeting by proxy from which authority to
vote for a nominee has been properly withheld (including broker non-votes) will
not be counted towards a nominee's achievement of a plurality.
The affirmative vote of the holders of a majority of the voting power of the
issued and outstanding shares of Common Stock present in person or represented
by proxy at the Annual Meeting and entitled to vote on such matters is required
for the ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending January 31, 2005, and for the adoption
of the stockholder proposal regarding cumulative voting for director elections.
With respect to broker non-votes, the shares will be counted for purposes of
determining the presence or absence of a quorum, but will not be considered
entitled to vote at the Annual Meeting for such matter and thus broker
non-voters will have the practical effect of reducing the number of affirmative
votes required to achieve a majority vote for such matters by reducing the total
number of shares from which the majority is calculated.
Abstentions will count towards the determination of a quorum at the Annual
Meeting but will have the effect of votes "Against" a proposal, and will have no
effect on votes counted in connection with director elections.
VOTING AND REVOCATION OF PROXIES
Stockholders are requested to complete, date, sign and promptly return the
accompanying form of proxy in the enclosed envelope. Common Stock represented by
properly executed proxies received by the Company's Transfer Agent and not
revoked will be voted at the Annual Meeting in accordance with the instructions
contained therein. If instructions are not given, shares represented by properly
executed proxies will be voted "FOR" the election of the nominees for director
named herein, "FOR" the ratification of the appointment of Ernst & Young LLP as
the Company's independent auditors for the year ending January 31, 2005, and
"AGAINST" the stockholder proposal regarding cumulative voting for director
elections. If other matters are properly presented at the Annual Meeting, the
proxy holders named in the accompanying form of proxy will vote your shares at
their discretion.
If your shares of Common Stock are held in the name of your broker, a bank, or
other nominee (sometimes referred to as being held in "street name"), only your
broker, bank or other nominee may execute a proxy and vote your shares. Because
of the proxy contest (described below) your broker, bank or other nominee will
be unable to vote your shares at the Annual Meeting regarding either the
election of directors or the stockholder proposal unless they receive your
specific voting instructions. Please sign, date and promptly return the voting
instruction form you receive from your broker, bank or other nominee, in
accordance with the instructions on the form. If you wish to vote your "street
name" shares directly, you will need to obtain a document known as a "legal
proxy" from your broker, bank or other nominee. Please contact your bank, broker
or other nominee if you wish to do so.
Any proxy signed and returned by a stockholder may be revoked at any time before
it is voted by filing with the Company's Transfer Agent, American Stock Transfer
& Trust Company, 59 Maiden Lane, New York, New York 10038, written notice of
such revocation or a duly executed proxy bearing a later date, or by attending
the Annual Meeting and voting in person. Attendance at the Annual Meeting will
not in and of itself constitute a revocation of a proxy.
PARTICIPANTS IN THE SOLICITATION
Under applicable regulations of the U.S. Securities and Exchange Commission
("SEC"), members of the Board and certain officers and employees of the Company
may be deemed to be "participants" with respect to the Board's solicitation of
proxies in connection with the Annual Meeting. Certain information concerning
participants is set forth in Annex A to this Proxy Statement.
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PROXY CONTEST FROM THE WYNNEFIELD GROUP
The Company has received notice from Wynnefield Partners Small Cap Value, LP, a
stockholder controlled by Nelson Obus, that it intends to nominate its own
nominee, Nelson Obus (the "Wynnefield Nominee"), for election to the Company's
Board of Directors at the Annual Meeting, and that it and its affiliates ("The
Wynnefield Group") will solicit proxies from stockholders in an effort to elect
the Wynnefield Nominee and in favor of The Wynnefield Group's separate
stockholder proposal regarding cumulative voting for director elections (see
Proposal No. 3 below).
THE BOARD RECOMMENDS THAT STOCKHOLDERS REJECT THE WYNNEFIELD GROUP'S PROXY
SOLICITATION AND THE WYNNEFIELD NOMINEE.
THE BOARD URGES STOCKHOLDERS TO VOTE FOR THE ELECTION OF THE BOARD'S NOMINEES
NAMED IN THIS PROXY STATEMENT AND AGAINST THE STOCKHOLDER PROPOSAL. YOU CAN VOTE
YOUR SHARES IN FAVOR OF THE BOARD'S NOMINEES AND AGAINST THE STOCKHOLDER
PROPOSAL BY SIGNING AND DATING THE ENCLOSED WHITE PROXY CARD OR VOTING
INSTRUCTION FORM AND RETURNING IT IN THE POSTAGE-PAID RETURN ENVELOPE. If you
receive this proxy statement with a voting instruction form from your broker,
bank or other nominee, please vote in accordance with the Board's
recommendations, and sign, date and mail the enclosed voting instruction form in
the postage-paid envelope provided. Because of the proxy contest mounted by The
Wynnefield Group, your broker will not be able to vote your shares at the Annual
Meeting regarding either the election of directors or the stockholder proposal
unless it receives your specific voting instructions - so please have your vote
counted.
IF YOU RECEIVE A PROXY CARD OR VOTING INSTRUCTIONS FROM THE WYNNEFIELD GROUP,
THE COMPANY'S BOARD OF DIRECTORS ASKS THAT YOU DISCARD IT. BUT JUST IN CASE YOU
RETURN THE WYNNEFIELD GROUP'S PROXY CARD OR VOTING INSTRUCTIONS AND THEN DECIDE
TO SUPPORT YOUR BOARD'S NOMINEES, WE URGE YOU TO CHANGE YOUR VOTE BY SIGNING AND
RETURNING THE WHITE PROXY CARD OR VOTING INSTRUCTIONS PROMPTLY. YOUR LATER DATED
WHITE PROXY CARD OR VOTING INSTRUCTIONS WILL REVOKE ANY PRIOR PROXY. IT IS ONLY
YOUR LATEST DATED PROXY WHICH COUNTS.
If you have any questions or require voting assistance, please call D. F. King &
Co., Inc., which is assisting the Board, toll free at 1-800-628-8536.
You should know that the Wynnefield Nominee was already carefully considered for
a spot on the Board of Directors and was rejected. The Board's Nominating and
Corporate Governance Committee, comprised of three independent directors,
interviewed Mr. Obus in response to the recommendation by The Wynnefield Group
that Mr. Obus be nominated as a candidate for election as director at the Annual
Meeting. (The independent directors have met with Mr. Obus on a number of
occasions in the past as well and have given him considerable access to the
Board to provide a forum for Mr. Obus to share his suggestions for the strategic
direction of the Company).
Following the interview, the Committee decided not to recommend that the Board
nominate Mr. Obus as a candidate for election as director at the Annual Meeting
because, among other things, the Committee believed that Mr. Obus would not
bring skills or experience to the Board that would be helpful in determining or
executing the Company's strategies, and further believed that Mr. Obus likely
would revert to pushing his previously articulated exit agenda (i.e. having his
shares bought back at a premium (as the Committee understood was articulated to
the Chairman of the Board), having the Company taken private or having the
Company sold). The independent Nominating Committee was also of the view that
Mr. Obus' adversarial approach with management and other Board members would be
disruptive in Board meetings which, the Committee concluded, is the type of
behavior that would be counterproductive to maximizing stockholder value.
THE BOARD OF DIRECTORS STRONGLY ADVISES YOU NOT TO SUPPORT THE ELECTION OF THE
WYNNEFIELD NOMINEE. The Board believes that the Wynnefield Nominee would not
bring any special skills or perspective that would improve the functioning of
the Board and suspects that he will have a short-term focus for the Company and
would not be a good representative for the long-term interests of the Company.
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The current directors of the Company, including the Board's nominees for
re-election, are a group of individuals dedicated to creating long-term value
for all stockholders. This is demonstrated by the fact that all of the current
directors have chosen to receive their compensation for service to the Company
as directors in shares of the Company's Common Stock instead of in cash. None of
the current directors has ever sold any of their shares of the Company's Common
Stock. Further, a majority of the Board is independent, and each of the Board
members has extensive operating and financial expertise, as described in this
Proxy Statement.
It should also be noted that First Equity, the Company's majority stockholder,
has informed The Wynnefield Group that First Equity will be voting for the
Board's two nominees for election as director. Consequently, under no
circumstances will the Wynnefield Nominee be elected to the Board.
The Wynnefield Group's amendment no. 1 to its preliminary proxy statement filed
with the SEC on May 10, 2004, makes numerous allegations which your Board
disputes. For example, it criticizes the Company's performance and its progress
towards "executing a profitable business plan." On the contrary, the Company has
performed well considering the unprecedented downturn in the aerospace industry
that followed the terrorist attacks that took place on September 11, 2001.
The Board believes that in large part as a result of the steps the Company has
taken under the direction of the incumbent management and the Board, as well as
the reviving economy and stock market, THE PRICE OF THE COMPANY'S STOCK HAS
INCREASED OVER 36% FOR THE 12 MONTH PERIOD ENDING APRIL 29, 2004. The Board
believes that First Aviation is well-positioned to take advantage of a recovery
in the aerospace industry.
As to The Wynnefield Group's hindsight criticism of the declaration of the
special $1 per share cash dividend paid in January 2003 to all common
stockholders, the Board determined that this dividend was in the best interests
of the Company and its stockholders and that returning cash to stockholders was
the best use of such cash. The Board frankly finds it surprising that The
Wynnefield Group implicitly questions the ability of other stockholders to
invest such dividends wisely. Indeed, The Wynnefield Group had suggested to an
independent member of the Board in June 2002 that the Company pay a cash
dividend.
The Board also views The Wynnefield Group's criticism of the compensation of
management as nothing more than negative campaigning. Indeed, as described in
this Proxy Statement, the Compensation Committee of the Board and the
independent members of the Board review the total compensation paid to each of
the Company's senior executives carefully, and compare them with others in our
industry, as well as other companies similar in size to First Aviation.
Accordingly, the Board believes that management's total compensation is both
competitive and appropriate.
As far as The Wynnefield Group's attacks on fees paid by the Company to First
Equity, it should be noted, as described later in this Proxy Statement, that
First Equity has provided to First Aviation a number of valuable services over
the past year, including: (i) detailed financial modeling for new business
proposals, (ii) Board of Directors presentation analyses, (iii) investor
relations marketing and presentations, (iv) various analyses for the Company's
subsidiary, Aerospace Products International, Inc. ("API"), including
benchmarking, financial analysis, and competitive market analysis, and (v) other
financial analysis for the Company, including stock buy-back, valuations, and
capital structure analysis. These services derive from the work First Equity
performs for First Aviation under its agreement for investment and financial
advisory services, and therefore First Equity does not charge First Aviation any
additional fees for these services. Moreover, the independent members of the
Company's Board carefully review the costs and benefits of the Company's
contractual relations with First Equity, including the subletting of space for
the Company's corporate headquarters, on at least an annual basis to make sure
they are in the best interests of the Company and its stockholders.
Finally, the Board believes that the addition of a potentially disruptive member
to the Board will be counterproductive to implementing the Company's current
business strategy and maximizing stockholder value.
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THE BOARD THUS URGES THAT STOCKHOLDERS REJECT THE WYNNEFIELD GROUP'S PROXY
SOLICITATION AND THE WYNNEFIELD NOMINEE AND RETURN THE BOARD'S WHITE PROXY CARD
TO RE-ELECT THE BOARD'S NOMINEES. THE BOARD FURTHER URGES THAT STOCKHOLDERS VOTE
AGAINST THE STOCKHOLDER PROPOSAL.
1. ELECTION OF DIRECTORS (PROPOSAL NO. 1)
BOARD'S NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS FOR A TERM EXPIRING AT
THE ANNUAL MEETING OF STOCKHOLDERS IN THE YEAR 2007 - CLASS II DIRECTORS.
Michael C. Culver
Robert L. Kirk
The nominees for director are Michael C. Culver and Robert L. Kirk. The
Company's Restated Certificate of Incorporation provides for a Board of
Directors composed of three classes, each with a term of office of three years,
expiring sequentially at successive Annual Meetings of Stockholders. The Board
of Directors currently is comprised of five directors, two directors each in
Class I and Class II, and one in Class III, and there are no vacancies. The
classes distinguish term of office only. If elected, each nominee for Class II
will serve for a term to expire at the Annual Meeting of Stockholders in the
year 2007, and until his successor is duly elected and qualified.
The accompanying proxy will be voted for the election of the Board's nominees
unless contrary instructions are given. Each nominee at present is available for
election as a member of the Board of Directors. If a nominee is unable to serve,
the persons named as proxies intend to vote for such other person or persons as
the Board of Directors may designate.
Background information for the nominees as well as the three directors
continuing in office can be found under the caption "Directors" below.
Directors will be elected by a plurality of the votes cast. If you do not wish
your shares to be voted for any particular nominee, please identify those
nominees for whom you "withhold authority" to vote in the appropriate space
provided on the enclosed proxy card.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MICHAEL C. CULVER
AND ROBERT L. KIRK.
Members of the Board of Directors Continuing in Office:
TERM EXPIRES AT THE 2005 ANNUAL MEETING OF STOCKHOLDERS - CLASS III DIRECTORS
Joseph J. Lhota
TERMS EXPIRE AT THE 2006 ANNUAL MEETING OF STOCKHOLDERS - CLASS I DIRECTORS
Stanley J. Hill
Aaron P. Hollander
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DIRECTORS
The directors of the Company are as follows:
NAME AGE POSITIONS
- ---- --- ---------
Aaron P. Hollander 47 Chairman of the Board
Michael C. Culver 53 President, Chief Executive
Officer and Director
Stanley J. Hill 62 Director
Robert L. Kirk 75 Director
Joseph J. Lhota 49 Director
Aaron P. Hollander co-founded and has served as Chairman of the Board
of Directors of the Company since March 1995. In 1985, Mr. Hollander, along with
Mr. Culver, co-founded First Equity Group Inc. ("First Equity Group"), and has
served as its President and Co-Chief Executive Officer since that time. First
Equity Group's ownership interests, in addition to the Company, include First
Equity Development Inc., an aerospace investment and advisory firm, ("First
Equity"), Skip Barber Racing School, LLC ("Skip Barber") and Imtek, Inc.
("Imtek"), a specialty marketing and fulfillment company. Mr. Hollander is a
director and serves as the President and Chief Executive Officer of Skip Barber,
and is the Chairman of the Board of Directors of Imtek.
Michael C. Culver co-founded and has served as President, Chief
Executive Officer and Director of the Company since March 1995. Mr. Culver also
serves as Chairman of the Board of the Company's majority owned subsidiary,
Aerospace Products International, Inc. ("API"). Mr. Culver co-founded First
Equity Group, along with Mr. Hollander, and has served as Co-Chief Executive
Officer of First Equity Group since that time. Mr. Culver also serves as
Chairman of the Board of Directors of Skip Barber and is a director and Vice
President of Imtek.
Stanley J. Hill has served as a Director since December 2000. In
2000, Mr. Hill retired as the President, Chief Executive Officer and Chairman of
Kaiser Aerospace and Electronics Corporation and its parent, K Systems, Inc.
(collectively, "Kaiser Aerospace"). Mr. Hill had been associated with Kaiser
Aerospace for nearly 30 years. Mr. Hill is a director of Intevac Inc., which is
based in Santa Clara, CA, and has its stock traded on the NASDAQ national
market.
Robert L. Kirk has served as a Director since March 1997. In 1998,
Mr. Kirk retired as the Chairman of British Aerospace Holdings, Inc., an
international aerospace corporation. Mr. Kirk had been Chairman since 1992. Mr.
Kirk served as Chairman and Chief Executive Officer of CSX Transportation, Inc.,
the railroad subsidiary of CSX Corporation, from 1990 to 1992, and was Chairman
and Chief Executive Officer of Allied-Signal Aerospace Co. from 1986 to 1989.
Joseph J. Lhota became a Director in April 2002. Mr. Lhota currently
serves as Executive Vice President of Cablevision Systems Corporation and as
President of Cablevision Lightpath Inc. Prior to joining Cablevision, Mr. Lhota
served various positions on former New York City Mayor Rudolph W. Giuliani's
senior management team. From 1998 to 2001, he was New York's Deputy Mayor for
Operations, overseeing the day-to-day operations of city government. Prior to
his government service, Mr. Lhota spent 15 years in investment banking
specializing in public finance. He served as director of public finance at CS
First Boston Corporation and as a member of its Public Finance Management
Committee. He also has been a managing director at Paine Webber Incorporated.
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INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
Director Independence
The Board of Directors has determined that each of Messrs. Hill, Kirk and Lhota,
constituting a majority of the Board, is an "independent director" in accordance
with the rules and regulations of The Nasdaq Stock Market, Inc. ("Nasdaq").
Committees of the Board
The Board currently has, and appoints the members of, standing Executive, Audit,
Nominating and Corporate Governance, and Compensation Committees. Each member of
the Audit, Nominating and Corporate Governance, and Compensation Committees is
an "independent director" in accordance with the rules and regulations of
Nasdaq. The members of each of the committees of the Board are as follows:
NOMINATING AND CORPORATE
EXECUTIVE COMMITTEE AUDIT COMMITTEE GOVERNANCE COMMITTEE COMPENSATION COMMITTEE
- ------------------- --------------- -------------------- ----------------------
Michael C. Culver Stanley J. Hill Stanley J. Hill Stanley J. Hill
Aaron P. Hollander Robert L. Kirk Robert L. Kirk Robert L. Kirk
Joseph J. Lhota Joseph J. Lhota Joseph J. Lhota
Executive Committee
The Executive Committee consists of two directors of the Company, Messrs. Culver
and Hollander. The Executive Committee has the power and authority to exercise
all of the powers and authority of the Board of Directors in managing the
business affairs of the Company, except that it does not have the power and
authority to: (i) amend the Certificate of Incorporation or Bylaws of the
Company; (ii) adopt an agreement of merger or consolidation, or to recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
Company's property and assets; (iii) recommend to stockholders a dissolution of
the Company or a revocation of the dissolution; or (iv) declare a dividend or
authorize the issuance of stock of the Company unless expressly authorized by a
resolution of the Board of Directors.
Audit Committee
The Audit Committee assists the Board of Directors in fulfilling its
responsibility to oversee management regarding: (i) the conduct and integrity of
the Company's financial reporting; (ii) the Company's systems of internal
accounting and financial and disclosure controls; (iii) the qualifications,
engagement, compensation, independence and performance of the Company's
independent auditors, their conduct of the annual audit, and their engagement
for any other services; (iv) the Company's legal and regulatory compliance; (v)
the Company's codes of ethics as established by management and the Board; and
(vi) the preparation of the audit committee report for inclusion in the
Company's annual proxy statement. The Audit Committee also reviews and approves
transactions or courses of dealing with related parties.
The Audit Committee may also perform such other tasks as are assigned to it from
time to time by the Board of Directors. The Audit Committee has the power to
retain outside counsel, independent auditors or other advisors to assist it in
carrying out its activities.
The Audit Committee met eleven times during the fiscal year ended January 31,
2004.
The Audit Committee has been governed by a written charter approved by the Board
of Directors. The Board recently adopted a revised charter to comply with
recently-enacted rules and regulations of the SEC and Nasdaq. The charter is
available on the Company's website at www.favs.com and is attached as Annex B to
this Proxy Statement.
7
The Board of Directors has determined that each of the members of the Audit
Committee is "independent" under the listing standards of Nasdaq and under the
independence criteria established by the SEC for audit committee members.
The Board of Directors has also determined that Mr. Lhota is an "audit committee
financial expert" as defined in Item 401(h)(2) of Regulation S-K of the Exchange
Act and is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A
of the Exchange Act.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee assists the Board of Directors
in: (i) identifying, screening and reviewing individuals qualified to serve as
directors and recommending to the Board candidates for nomination for election
at the annual meeting of stockholders or to fill Board vacancies; (ii)
overseeing the Company's policies and procedures for the receipt of stockholder
suggestions regarding Board composition and recommendations of candidates for
nomination by the Board; (iii) overseeing implementation of the Company's
Corporate Governance Guidelines and Principles; and (iv) reviewing the overall
corporate governance of the Company and recommending changes when necessary or
desirable.
The Committee may also perform such other tasks as are assigned to it from time
to time by the Board of Directors. The Committee has the power to retain outside
counsel or other advisors to assist it in carrying out its activities.
The Committee is governed by a written charter approved by the Board of
Directors. The charter is available on the Company's website at www.favs.com.
The Committee was constituted in March 2004 and therefore did not meet during
the fiscal year ended January 31, 2004. During such fiscal year, the nomination
of directors was performed by the Board, a majority of which consists of
independent directors.
The Nominating and Corporate Governance Committee is responsible for reviewing
with the Board, on an annual basis, the appropriate skills and characteristics
required of directors in the context of the current make-up of the Board. This
assessment by which the Committee considers candidates for director is based
upon various criteria, including their integrity, independence, ability to
exercise sound business judgment, demonstrated leadership ability, breadth of
knowledge about issues affecting the Company and business experience and
technical skills, in particular the extent to which they possess experience and
skills relevant to the Company's business which would be helpful to the Board in
determining and executing the Company's strategies.
In the case of incumbent directors whose terms of office are set to expire, the
Committee reviews such directors' overall service to the Company during their
terms, including the number of meetings attended, level of participation and
quality of performance.
Consideration of new director nominee candidates typically involves a series of
internal discussions, review of information concerning candidates and interviews
with selected candidates. The Committee identifies potential new director
candidates by recommendations from its members, other Board members, Company
management and stockholders, and may, if necessary or appropriate, utilize the
services of a professional search firm.
The Committee considers recommendations for Board candidates submitted by
stockholders using the same criteria (described above) that it applies to
recommendations from the Committee, directors and members of management. In
order to be considered, a recommendation from a stockholder must be received by
the Committee no later than the 120th calendar day before the date of the
Company's proxy statement released to stockholders in connection with the
previous year's annual meeting, and must include the stockholder's name and
contact information, the candidate's name and contact information, a description
of any relationship between the stockholder and the candidate, a description of
the candidate's qualifications, and a signed statement from the candidate that
he or she is willing and able to serve on the Board. Stockholders must submit
recommendations in writing to the Nominating and Corporate Governance Committee
at c/o Corporate Secretary, First Aviation Services Inc., 15 Riverside Avenue,
Westport, Connecticut 06880.
8
The Committee received a recommendation from The Wynnefield Group to nominate
Nelson Obus as a candidate for election as director at the Annual Meeting. After
consideration, the Committee decided not to recommend Mr. Obus to the Board as a
nominee for election as a director at the Annual Meeting.
Compensation Committee
The Compensation Committee assists the Board in overseeing the Company's
management compensation policies and practices, including: (i) determining and
approving the compensation of the CEO; (ii) reviewing and approving compensation
levels for the Company's other executive officers; (iii) reviewing and approving
management incentive compensation policies and programs; (iv) reviewing and
approving equity compensation programs for employees, and exercising discretion
in the administration of such programs; and (v) producing an annual report on
executive compensation for inclusion in the proxy statement.
The Committee may also perform such other tasks as are assigned to it from time
to time by the Board of Directors. The Committee has the power to retain outside
counsel or other advisors to assist it in carrying out its activities.
The Compensation Committee met five times during the year ended January 31,
2004.
Directors' Attendance at Meetings of the Board of Directors
The Board of Directors held a total of six meetings during the fiscal year ended
January 31, 2004, which does not include actions by written consent or committee
meetings. Each director attended at least 75% of the aggregate of the total
number of meetings of the Board and the total number of meetings held by all
committees of the Board on which he served.
Directors' Attendance at Annual Meetings of Stockholders
The Board of Directors encourages all of its members to attend the Company's
annual meeting of stockholders. All members of the Board serving as directors
during the fiscal year ended January 31, 2004 attended the 2003 Annual Meeting
of Stockholders.
Stockholder Communications with the Board
A stockholder who wishes to communicate with the Board or with specific
individual directors may send written communications by mail addressed to the
Board of Directors generally, or to such specific director or directors
individually, at c/o Corporate Secretary, First Aviation Services Inc., 15
Riverside Avenue, Westport, Connecticut 06880. All communications so addressed
will be forwarded to the Board of Directors or the individual director or
directors, as applicable.
CODES OF BUSINESS CONDUCT AND ETHICS
The Board of Directors has adopted a Code of Business Conduct and Ethics
applicable to all directors, officers and employees of the Company and a
Supplemental Code of Ethics for the CEO, CFO and other senior financial
officers. These Codes of Business Conduct and Ethics are available on the
Company's website at www.favs.com. The Company may disclose certain amendments
to, or waivers from, these Codes of Business Conduct and Ethics by posting such
information on its website.
REPORT OF THE AUDIT COMMITTEE
The following is a report of the Audit Committee with respect to the Company's
audited consolidated financial statements for the fiscal year ended January 31,
2004:
o The Audit Committee has reviewed and discussed the audited
consolidated financial statements with management;
9
o The Audit Committee has discussed with the Company's
independent auditors the matters required to be discussed
by Statement of Auditing Standards No. 61, "Communications
with Audit Committees", as amended; and
o The Audit Committee has received the written disclosures
and the letter from the Company's independent auditors as
required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees", as may
be modified or supplemented, and has discussed with the
independent auditors their independence.
Based on the review and discussions with the Company's management and
independent auditors, as set forth above, the Audit Committee recommended to the
Board of Directors that the audited consolidated financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 2004, for filing with the SEC.
Respectfully submitted by the members of the Audit Committee of the Board of
Directors,
Stanley J. Hill
Robert L. Kirk
Joseph J. Lhota
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of May 11, 2004 (unless otherwise
indicated) by (i) each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each of the
Company's directors and nominees, (iii) each of the executive officers named in
the Summary Compensation Table (included in this Proxy Statement below), and
(iv) all directors and current executive officers as a group. Except as
indicated in the footnotes to the table, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws where
applicable. Each of the persons listed in the table who beneficially own more
than 5% of the outstanding shares of Common Stock maintains an address at 15
Riverside Avenue, Westport, Connecticut 06880, unless otherwise indicated.
AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------- -------------------- ----------------
First Equity Group Inc. (1) 3,778,093 51.8%
Aaron P. Hollander (1)(2) 3,778,393 51.8%
Michael C. Culver (1)(3) 3,778,293 51.8%
The Wynnefield Group (4) 2,168,444 29.7%
450 Seventh Avenue, Suite 509
New York, NY 10123
Gerald E. Schlesinger (5) 10,683 *
Michael D. Davidson 0 -
Stanley J. Hill 25,743 *
Robert L. Kirk 42,294 *
Joseph J. Lhota 16,736 *
All directors and current executive officers
as a group (7 persons) 3,863,366 52.9%
- ----------------------------------
* less than 1%
(1) Aaron P. Hollander and Michael C. Culver own, in the aggregate, all of
the outstanding shares of First Equity Group Inc. First Equity Group Inc.
has pledged 500,000 shares of the Company's Common Stock to Hudson United
Bank as collateral for a loan.
(2) Includes 300 shares held as custodian for his minor children.
(3) Includes 200 shares held as custodian for his minor children.
10
(4) Based upon a Schedule 13D, amendment No. 11, filed with the SEC dated May
4, 2004, the members of the "group" (as the term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) consists of Wynnefield
Partners Small Cap Value, L.P. ("Partners"), Wynnefield Partners Small
Cap Value, L.P. I ("Partners I"), Wynnefield Partners Small Cap Value
Offshore Fund, Ltd. ("Offshore"), Nelson Obus ("Obus"), Joshua H. Landes
("Landes"), Wynnefield Capital Management, LLC ("Capital Management"),
Wynnefield Capital Inc. ("Capital"), and Wynnefield Capital, Inc. Profit
Sharing & Money Purchase Plan ("Capital Plan"). Each member of the group
may be deemed to each share voting and dispositive power with respect to
the Common Stock directly owned by any member. Partners owns 744,258
shares directly, and Partners I owns 910,834 shares directly. Capital
Management has an indirect beneficial ownership interest in shares of
Common Stock owned by Partners and Partners I. Landes and Obus are
co-managing members of Capital Management. Offshore owns 405,852 shares
directly. Capital has an indirect beneficial ownership interest in the
shares of Common Stock owned by Offshore through its status as investment
manager of Offshore. Obus and Landes are the principal executive officers
of Capital. Capital Plan owns 7,500 shares directly. Obus and Landes
share the power to vote and dispose of those shares. Obus owns 100,000
shares directly.
(5) Includes 2,500 shares owned Mr. Schlesinger's spouse.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS COMPENSATION
Each of the Company's non-employee directors receives an annual director's fee
of $20,000, payable quarterly in cash or stock. In addition, each director
receives $1,000 for attendance at meetings of the Board of Directors or
committees thereof. Members of the Board of Directors receive reimbursement for
actual expenses of attendance at meetings. All of the non-employee directors
have elected to have their compensation paid in the form of Company stock.
COMPENSATION COMMITTEE AND BOARD INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 31, 2004, the Compensation Committee
consisted of Messrs. Hollander and Kirk until June 9, 2003, at which time Mr.
Hollander ceased to be a member of the Compensation Committee and Messrs. Hill
and Lhota became members of the Compensation Committee. Mr. Hollander served as
Chairman of the Board during the fiscal year ended January 31, 2004. Mr.
Hollander, along with Mr. Culver owns, in the aggregate, all of the outstanding
shares of First Equity Group Inc., which beneficially owns 51.8% of the Common
Stock. See "Certain Relationships and Related Transactions".
REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
developing the executive compensation philosophy of First Aviation and
administering this philosophy and its relationship with the compensation paid to
the Chief Executive Officer and each of the other executive officers.
The basic philosophy behind executive compensation at First Aviation is to
reward the executive's performance so as to create long-term shareholder value.
This pay-for-performance tenet is embedded in most aspects of an executive's
total compensation package. Salary increases, bonuses and long-term incentive
grants are reviewed annually to ensure consistency with the Company's overall
compensation philosophy.
The Compensation Committee has access to national compensation surveys and the
financial records of the Company. The Compensation Committee reviews each
element of compensation to ensure that the total compensation delivered is
reflective of the Company's performance, with input on market competitiveness.
Base Salary
All decisions regarding base salary are made based upon individual performance
as measured against pre-established individual objectives and competitive
practice as measured by periodic compensation surveys. Base salaries are
generally targeted at the median of a comparative group that includes peer group
11
companies, similar to those reflected in the proxy performance graph, and
general industry companies similar in size to First Aviation.
Bonus
Decisions regarding bonuses are made based upon reviews of analyses of
historical compensation paid to the officers of the Company, including the
performance and achievement of the Company's objectives, compensation paid to
officers of other companies in the same sector as First Aviation, including the
performance of those companies compared to First Aviation, and a performance
review of the individual officer.
Long-Term Incentive Grants
Long-term incentive grants are considered for each executive. The grants are
usually made in the form of incentive stock options. Aggregate stock holdings of
the executives have no bearing on the size of long-term incentive grants.
Restricted stock may be granted for specific reasons, such as (i) rewarding
individual performance, (ii) recognizing Company performance, (iii)
accommodating special situations, such as promotions, (iv) in lieu of other
benefits, or (v) in an effort to remain market competitive.
CEO Compensation
Mr. Culver's base salary during the year ended January 31, 2004 was determined
as described above. Mr. Culver also received a discretionary cash bonus of
$200,000. In determining this "at risk" amount, which represented approximately
42% of his total cash compensation from the Company, the Committee considered,
among other things, the increase in the Company's stock price and revenue, the
reduction in operating loss, and information concerning pay levels at other
companies in the industry. Mr. Culver was not granted any stock option or award.
In determining the compensation of Mr. Culver, the Committee did not take into
account the fees that the Company pays to First Equity.
Summary
Executive compensation at First Aviation is reviewed in depth by the
Compensation Committee, the Board of Directors and senior management. The
Compensation Committee believes there should be a strong link between the
financial rewards of the executives and the success of the shareholder. The
success of the shareholder is measured by the increase in shareholder value. The
Compensation Committee believes that with the present plans in place management
will continue to strive to increase shareholder value.
Respectfully submitted by the members of the Compensation Committee of the Board
of Directors,
Robert L. Kirk
Stanley J. Hill
Joseph J. Lhota
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation information regarding
compensation awarded to, earned by, or paid to the Company's Chief Executive
Officer, and each of the other executive officers of the Company whose
compensation exceeded $100,000 (collectively, the "Named Executive Officers"),
for the fiscal years ended January 31, 2004, 2003, and 2002, respectively.
12
Long -Term All Other
Annual Compensation Compensation Compensation
---------------------------- ------------ ------------
Awards
------------
Securities
Underlying
Name and Principal Position Year ended January 31, Salary Bonus Options (#)
- --------------------------- ---------------------- ------ ----- ----------- ------------
Michael C. Culver 2004 $275,000 $200,000 - -
President and Chief Executive 2003 $250,000 $175,000 - -
Officer 2002 $241,667 $200,000 - -
Gerald E. Schlesinger (1) 2004 $275,000 $175,000 50,000 -
Senior Vice President 2003 $250,000 $175,000 100,000 -
2002 $250,000 $200,000 50,000 -
Michael D. Davidson (2) 2004 $119,539 - 15,000 $37,442
Former Chief Financial Officer 2003 $140,000 $35,000 20,000
and Secretary
(1) Effective April 16, 2004, Mr. Schlesinger ceased to be employed by
the Company.
(2) Effective October 13, 2003, Mr. Davidson ceased to be employed by the
Company. Following the end of his employment, Mr. Davidson served as
a consultant to the Company and was paid $37,442 in the year ended
January 31, 2004.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth information regarding stock options that were
granted during the fiscal year ended January 31, 2004, to each of the Named
Executive Officers. No SARs were granted.
Individual Grants (1)
--------------------------------------------------------------------------
Number of
Securities Percent of Total
Underlying Options Granted to
Options Employees in Exercise or Grant Date
Name Granted (#) Fiscal Year Base Price Expiration Date Value (2)
- ---- ----------- ----------- ---------- --------------- ---------
Michael C. Culver - - - - -
Gerald E. Schlesinger 50,000 43.5% $2.74 3/25/2013 $49,500
Michael D. Davidson 15,000 13.0% $2.74 3/25/2013 $14,850
(1) Each option was granted under First Aviation's Stock Incentive Plan
at the closing price on the date of grant and, in general, would
vest in three equal annual installments, subject to acceleration in
the event of a change in control.
(2) The grant date value was determined by using the Black-Scholes
option-pricing model. The model as applied used the applicable
grant date, the exercise price as shown in the table and the fair
market value of the Company's Common Stock on the grant date. The
model assumed (i) a risk-free return of 2.0%, (ii) a dividend yield
of 0%, (iii) an average volatility factor of 0.378 and (iv) an
expected life of five years. No discount from the theoretical value
was taken to reflect the waiting period prior to vesting, the
limited transferability of the options, and the likelihood of the
options being exercised in advance of the final day of their terms.
There is no assurance that the values actually realized upon the
exercise of these options will be at or near the present values
shown in the tables as of the date of grant. The Black-Scholes
option pricing model is a widely used mathematical formula for
estimating option values that incorporates various assumptions that
may not hold true over the 10-year life of these options. For
example, assumptions are required about the risk-free rate of
return as well as the dividend yield and the volatility of the
Common Stock over the 10-year period. Also, the Black-Scholes model
assumes that an option holder can sell the option at any time at a
fair price that includes a premium for the remaining time value of
the option. However, an optionee can realize an option's value
before maturity only by exercising and thereby sacrificing the
option's remaining time value. Although the negative impact of this
13
and other restrictions on the value of this type of option is well
recognized, there is no accepted method for adjusting the
theoretical option value for them. The values set forth in the
table should not be viewed in any way as a forecast of performance
of the Company's Common Stock, which will be influenced by future
events and unknown factors.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to aggregate
positions in stock options at January 31, 2004, held by each of the Named
Executive Officers. No stock options were exercised during the fiscal year.
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at Fiscal Year End Fiscal Year-End ($)
(#) Exercisable/ Exercisable/
Name Unexercisable Unexercisable (1)
- --------------------------- -------------------------- ------------------------
Michael C. Culver - -
Gerald E. Schlesinger 114,168/138,332 $10,526/$101,249
Michael D. Davidson 6,666/13,334 $0/$0
(1) Based on the positive difference between the $4.70 closing price of the
Company's Common Stock on January 30, 2004, and the applicable exercise price of
the options.
EMPLOYMENT AND OTHER AGREEMENTS
Agreements with Robert Costantini
Employment Agreement
On October 7, 2003, the Company entered into an employment agreement with Robert
G. Costantini, who replaced Michael D. Davidson as Chief Financial Officer and
Secretary, effective as of October 27, 2003, for a term of three years (unless
terminated earlier pursuant to the agreement) at an annual base salary of
$200,000.
Under the agreement, Mr. Costantini received a signing bonus of $20,000 and is
permitted to participate in the Company's performance bonus, profit sharing and
other compensation plans available to all executives of the Company, subject to
meeting applicable eligibility requirements. In addition, in fiscal 2005, the
Compensation Committee awarded Mr. Costantini a cash bonus of $20,000 for his
performance during the 2004 fiscal year.
If Mr. Costantini is terminated for cause, he is entitled to receive his base
salary through the end of the month in which his employment was terminated. If
he is terminated without cause or as a result of a disability, he is entitled to
receive an amount equal to six months of base salary. If Mr. Costantini is
terminated due to death, his primary beneficiary is entitled to receive
bi-weekly payments of Mr. Costantini's base salary until the earlier of the
beneficiary's receipt of life insurance benefits provided pursuant to a Company
benefit plan or 180 days after the date of death.
Stock Option Award Agreement
In connection with joining the Company, on October 27, 2003, Mr. Costantini was
granted options to purchase 50,000 shares of Common Stock under the Company's
Stock Incentive Plan, at an exercise price of $3.83 per share. One-third of the
options vest on each of the first, second, and third anniversaries of the grant
14
date, respectively, and all of the options are immediately exercisable in full
upon a Change of Control Event (as defined in the Stock Incentive Plan). In
addition, Mr. Costantini was granted options to purchase 8,000 shares at an
exercise price of $4.55 per share for his performance during the 2004 fiscal
year, under similar terms. If Mr. Costantini's employment is terminated
otherwise than by retirement, death, disability or a Change of Control Event (as
described above), Mr. Costantini will have forfeited his options and they will
not be exercisable after the date of such termination. Otherwise, the options
will remain exercisable after vesting until the tenth anniversary of the date of
grant.
Agreements with Paul Fanelli
Employment Agreement
On February 2, 2004, the Company's subsidiary, API, entered into an employment
agreement with Paul J. Fanelli, effective as of February 16, 2004, to serve as
Senior Vice President and Chief Operating Officer of API for a term of three
years (unless terminated earlier pursuant to the agreement). Effective April 5,
2004, the agreement was amended to reflect Mr. Fanelli's position as President
of API.
Under the agreement, as amended, Mr. Fanelli receives an annual base salary of
$225,000. Additionally, Mr. Fanelli received a signing bonus of $15,000 (which
must be returned to the Company if he terminates his employment for any reason
before February 16, 2005), and is eligible to receive an interim bonus of up to
$10,000 based on meeting the Company's normal performance-based criteria
pursuant to a review of Mr. Fanelli's performance during his first year of
employment.
Mr. Fanelli is permitted to participate in the Company's performance bonus,
profit sharing and other compensation plans available to all executives of the
Company, subject to meeting applicable eligibility requirements. Specifically,
Mr. Fanelli is eligible to participate in the Company's annual incentive
compensation bonus plan, pursuant to which he is eligible to receive a maximum
bonus of 75% of his annual base salary (as opposed to any maximum bonus
otherwise provided in such plan). Mr. Fanelli is also reimbursed for expenses
related to his relocation in connection with his employment (pursuant to a
separate relocation expenses agreement).
If Mr. Fanelli is terminated for cause, he is entitled to receive his base
salary through the end of the month in which his employment was terminated. If
he is terminated without cause or as a result of a disability, he is entitled to
receive an amount equal to six months of base salary. If Mr. Fanelli is
terminated due to death, his primary beneficiary is entitled to receive
bi-weekly payments of Mr. Fanelli's base salary until the earlier of the
beneficiary's receipt of life insurance benefits provided pursuant to a Company
benefit plan or 180 days after the date of death.
Stock Option Award Agreement
On February 16, 2004, Mr. Fanelli was granted options to purchase 25,000 shares
of Common Stock under the Company's Stock Incentive Plan, at an exercise price
of $4.55 per share. One-third of the options vest on each of the first, second,
and third anniversaries of the grant date, respectively, and all of the options
are immediately exercisable upon a Change of Control Event (as defined in the
Stock Incentive Plan). If Mr. Fanelli's employment is terminated otherwise than
by retirement, death, disability or a Change of Control Event (as described
above), Mr. Fanelli will have forfeited his options and they will not be
exercisable after the date of such termination. Otherwise, the options will
remain exercisable after vesting until the tenth anniversary of the date of
grant.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative stockholder return on First Aviation
Common Stock with The Russell 2000 Stock Index and a peer group index selected
by the Company, as well as the peer group used by the Company in the proxy
statement for the Company's 2003 Annual Meeting. The new peer group is composed
of the following companies: Aviall, Inc., Satair A/S and AAR Corp. The new peer
group adds AAR Corp. and excludes Timco Aviation Services Inc., which was
included in last year's proxy statement. The comparison assumes $100 was
invested as of January 31, 1999, and the reinvestment of all dividends. Timco
15
Aviation Services Inc. was previously known as Aviation Sales Corporation before
it underwent a restructuring of its debt and equity during the year ended
January 31, 2002.
In reviewing the Company's competitors, the Company decided to replace Timco
Aviation Services Inc. with AAR Corp., as at least part of AAR Corp.'s business
consists of operations similar to those of the Company.
January 31, January 31, January 31, January 31, January 31, January 31,
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Peer Group $100.00 $ 85.21 $ 79.20 $ 53.82 $ 40.85 $ 92.94
First Aviation $100.00 $111.26 $102.75 $108.79 $101.92 $129.12
Russell 2000 $100.00 $116.15 $118.99 $113.08 $ 87.11 $135.94
Old Peer Group $100.00 $ 34.09 $ 29.09 $ 21.71 $ 22.27 $ 40.94
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective February 1, 2002, the Company and First Equity Development Inc.
("First Equity"), the wholly-owned subsidiary of First Equity Group, Inc., the
majority stockholder of the Company (which is itself wholly-owned by Messrs.
Culver and Hollander), entered into a two-year agreement relating to the
allocation of potential investment and acquisition opportunities in the
aerospace parts distribution and logistics businesses. The agreement was
approved by the independent members of the Board of Directors and was renewed on
a month-to-month basis effective February 1, 2004. Pursuant to the agreement,
First Equity agreed that neither First Equity nor any of its majority-owned
subsidiaries would consummate any acquisition of a majority interest in any
business anywhere in the world (a "Covered Acquisition"), without first
notifying the Company and providing the Company with the opportunity to choose
to effect the Covered Acquisition for its own account. The Company's decision as
to whether to effect the Covered Acquisition will be made by the independent
members of the Board of Directors of the Company. The agreement is subject to
early termination in the event First Equity reduces its ownership interest in
16
the Company to less than 10% of the Company's outstanding voting securities. The
agreement does not apply to any proposed acquisition by First Equity of any
business that generates less than 15% of its aggregate net sales from aerospace
parts distribution or logistics, nor to any advisory services performed by First
Equity on behalf of third parties.
Effective February 1, 2002, the Company entered into a two-year advisory
agreement with First Equity. The advisory agreement was approved by the
independent members of the Board of Directors and was renewed on a
month-to-month basis effective February 1, 2004. Pursuant to the terms of this
agreement, First Equity provides the Company with investment and financial
advisory services relating to potential acquisitions and other financial
transactions. The Company pays First Equity a $30,000 monthly retainer, and
reimburses First Equity for its out-of-pocket expenses. In addition, upon the
successful completion of certain transactions, the Company will pay a fee to
First Equity (the "Success Fee"). The amount of any Success Fee will be
established by the independent members of the Board of Directors and will be
dependent upon a variety of factors, including, but not limited to, the services
provided and the size and the type of transaction. Up to one year's worth of
retainer fees paid can be applied as a credit against any Success Fee, subject
to certain limitations. During each of the years ended January 31, 2004 and
2003, respectively, the Company paid First Equity retainer fees of $360,000, and
no Success Fee. During the year ended January 31, 2002, the Company paid First
Equity retainer fees of $340,000, as First Equity voluntarily reduced the amount
of its retainer fees for the four months ended January 31, 2002, and no Success
Fee. The agreement can be terminated by either party upon 30-days' written
notice to the other party.
The Company and First Equity have entered into an arrangement whereby First
Equity provides the Company with various additional services to assist the
Company. These services are not part of the advisory agreement, described above,
but derive from the work First Equity performs under the agreement. Therefore,
First Equity does not charge the Company additional fees in connection with the
provision of such services. These services include: (i) detailed financial
modeling for new business proposals, (ii) Board of Directors presentation
analyses, (iii) investor relations marketing and presentations, (iv) various
analyses for API, including benchmarking, financial analysis, and competitive
market analysis, and (v) other financial analyses for the Company, including
stock buy-back, valuations, and capital structure analysis. The Company's CEO
and CFO have unlimited access to these resources when requested.
The Company subleases from First Equity approximately 3,000 square feet of
office space in Westport, Connecticut. The leased space is utilized by the
Company as its corporate headquarters. First Equity also utilizes space in the
same premises. The sublease, which became effective April 21, 1997, is for a
period of ten years, and is cancelable by either party with six months' notice.
The Company has the option to renew the sublease for two additional five-year
periods. Lease payments under this sublease totaled approximately $80,000,
$83,000, and $91,500, for the years ended January 31, 2004, 2003, and 2002,
respectively.
The Company and First Equity share certain common expenses that arise from
sharing office space in Westport, CT. The Company reimburses First Equity and
vice versa, for expenses each entity incurs related to the common usage of the
office space. The allocation of such expenses is based on a methodology approved
by the Audit Committee of the Board of Directors on a pre-determined basis. The
amounts are included in the Company's corporate expenses, and include expenses
such as telephone, computer consulting, office cleaning, office supplies and
utilities. Common expenses are approved by the Company and First Equity, prior
to expenditure, when not of a recurring nature. The allocations are reviewed by
the Company's CFO and the Controller of First Equity each month. In addition, a
member of the Company's Audit Committee reviews the allocation of expenses
quarterly. Some business development expenses, such as joint marketing expenses
and business organizational dues, are shared on an equal basis. In addition, the
amounts of expenses are reimbursed by the Company to First Equity in the amount
of the actual costs incurred for Company expenses, without a markup of any kind.
These expenses average approximately $5,000 per month.
In order to simplify the administration of payroll, certain employees of the
Company who are authorized to perform services for both the Company and First
Equity are paid through the payroll of First Equity. Employees of the Company
who work exclusively for the Company by agreement are paid through the payroll
of API, the Company's principal subsidiary.
17
The Company paid Imtek, an affiliate of First Equity, approximately $29,000 for
printing, insertion, and mailing services, for the year ended January 31, 2004
and approximately $37,000 per year in each of the years ended January 31, 2003
and 2002, respectively, for printing, insertion and mailing services, and
reimbursed Imtek for actual expenses incurred. These services were cancelled
during the year ended January 31, 2004.
The Company paid an employee of Skip Barber Racing Inc., an affiliate of First
Equity, during the year ended January 31, 2004, $22,000 to reimburse such
affiliate for the use of the affiliates' in-house counsel, for services
performed exclusively for the Company.
During the fiscal year ended January 31, 2004, the spouse of Mr. Schlesinger, a
former executive of the Company, was paid salary and bonus of approximately
$110,000 as an employee of a subsidiary of the Company.
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (PROPOSAL NO. 2)
The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as
independent auditors for the year ended January 31, 2005, subject to
ratification by our stockholders. Ernst & Young LLP has audited the Company's
consolidated financial statements since 1995.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, where they will have the opportunity to make a statement if they desire
to do so, and will be available to answer appropriate questions from
stockholders.
If the foregoing proposal is not approved at the Annual Meeting, or if prior to
the 2004 Annual Meeting of Stockholders, Ernst & Young LLP shall decline to act
or otherwise become incapable of acting, or if its engagement shall otherwise be
discontinued by the Audit Committee, then in any such case, the Audit Committee
will appoint other independent auditors whose engagement for any period
subsequent to the 2004 Annual Meeting will be subject to ratification by the
Stockholders at the 2005 Annual Meeting of Stockholders.
The affirmative vote of a majority of the voting power of the issued and
outstanding shares of Common Stock present in person or represented by proxy at
the Annual Meeting and entitled to vote is required to ratify the appointment of
Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF ERNST & YOUNG
LLP AS INDEPENDENT AUDITORS FOR THE YEAR ENDED JANUARY 31, 2005.
FEES BILLED BY INDEPENDENT AUDITOR
The following table sets forth the aggregate fees billed by Ernst & Young LLP
for professional services in each of the fiscal years ended January 31, 2004 and
2003:
Fiscal Year Ending Fiscal Year Ending
January 31, 2004 January 31, 2003
------------------------------ ------------------------------
Audit Fees $324,005 $326,400
Audit Related Fees (1) $ 16,000 $ 16,000
Tax Fees - -
All Other Fees (2) $ 1,500 -
(1) Audit related fees consisted of work performed in connection with auditing
the API employee benefit plans.
(2) All other fees consisted of access to online reference materials.
18
The Audit Committee has a policy requiring pre-approval of audit and non-audit
services. The Audit Committee approved all audit and non-audit services provided
by Ernst & Young LLP during the fiscal year ended January 31, 2004.
3. STOCKHOLDER PROPOSAL (PROPOSAL NO. 3)
A group of stockholders, consisting of Wynnefield Partners Small Cap Value, LP,
Wynnefield Partners Small Cap Value, LP I, Wynnefield Small Cap Value Offshore
Fund, Ltd. and Nelson Obus in his individual capacity, owning 744,258 shares,
910,834 shares, 405,852 shares and 100,000 shares of Common Stock, respectively,
and having an address at 450 7th Avenue, Suite 509, New York, NY 10123, has
notified the Company of its intention to propose a resolution at the Annual
Meeting (the "Stockholder Proposal"). In accordance with SEC regulations, the
Company has included the Stockholder Proposal and the stockholders' supporting
statement as set forth below. HOWEVER, THE COMPANY IS NOT RESPONSIBLE FOR THE
CONTENTS OF THE PROPOSAL OR THE SUPPORTING STATEMENT AND, AFTER REVIEWING THE
PROPOSAL, MANAGEMENT OF THE COMPANY AND THE BOARD OF DIRECTORS HAVE CONCLUDED
THAT THEY CANNOT SUPPORT THE PROPOSAL FOR THE REASONS STATED HEREINAFTER.
PROPOSAL:
- ---------
The Company's stockholders recommend that the board of directors take
steps to provide for cumulative voting for directors.
SUPPORTING STATEMENT:
- ---------------------
WHO'S PROPOSING THIS? WYNNEFIELD CAPITAL, INC., AND AFFILIATES, BENEFICIAL
OWNERS OF 2,160,944 SHARES (29.7 PERCENT) OF COMPANY COMMON STOCK.
WHY? The Company's CEO and Chairman, who beneficially own 51 percent of Company
stock, currently elect the ENTIRE board of directors. WYNNEFIELD AND OTHER
MINORITY SHAREHOLDERS HAVE NO PRACTICAL OPPORTUNITY TO ELECT A DIRECTOR OF THEIR
CHOOSING.
UNDER THE CURRENT BOARD, WE BELIEVE THE COMPANY FAILED TO REALIZE ITS
POTENTIAL AND PROVIDE A POSITIVE RETURN FOR LONG-TERM OUTSIDE SHAREHOLDERS.
Wynnefield initially invested in the Company in 1997 at prices up to $10.25 per
share. Currently, the stock hovers near $4.50 per share. THE COMPANY'S AVERAGE
ANNUAL LOSS FROM CONTINUING OPERATIONS WAS $0.16 PER SHARE OVER FISCAL YEARS
`01, `02, AND `03.
IGNORING THE VOICE OF OUTSIDE SHAREHOLDERS
We think the Company's disappointing performance results from
insularity of management and the board, which we believe IGNORES THE BEST
INTERESTS OF OUTSIDE SHAREHOLDERS:
o By letter dated October 3, 2003, the outside directors
declined our request to commit to either achieve an
adequate rate-of-return on assets within a mutually agreed
period or undertake sale or privatization of the Company.
o Despite Wynnefield's requests during earnings calls, the
Company won't break out supply-chain/logistics operations
in its financials, which we believe makes meaningful
evaluation impractical. Management describes this sector as
its best high-margin growth opportunity. It represents the
Company's only major new business initiative in three
years.
o Management historically has not cooperated in appointment
or nomination of a Wynnefield representative to the board.
They also opposed OUR director candidate in a contested
election at last year's annual meeting, denying board
representation to the Company's largest outside
shareholder. NOTABLY, WYNNEFIELD'S CANDIDATE RECEIVED
TWO-THIRDS OF VOTES CAST BY NON-INSIDER SHAREHOLDERS.
19
o The board endorses a relationship with First Equity Group,
Inc. (owned entirely by the Company's CEO and Chairman),
under which the Company paid over $1 million in fees for
advice on transactions during fiscal `01, `02, and `03
while completing only one small ($4.6 million) acquisition.
WE BELIEVE ALL OUTSIDE SHAREHOLDERS WOULD BE BETTER REPRESENTED BY A
BOARD WITH AT LEAST ONE DIRECTOR ELECTED BY SHAREHOLDERS OTHER THAN THE
COMPANY'S CEO AND CHAIRMAN.
WHAT IS CUMULATIVE VOTING? IT GIVES OUTSIDE SHAREHOLDERS THE POTENTIAL TO ELECT
A DIRECTOR OF THEIR CHOOSING.
Cumulative voting allows each shareholder to cast a number of votes
equal to the number of shares held multiplied by the number of directors being
elected. A shareholder may direct all its votes to one nominee or split its
votes among several nominees. (For example, 1,000 shares times two directors
provides 2,000 votes that can be cast for one nominee.)
WILL CUMULATIVE VOTING HELP? UNDER CUMULATIVE VOTING, 33.4 PERCENT OF THE
COMPANY'S STOCK COULD ELECT A NOMINEE in years when two directors are up for
election.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE STOCKHOLDER
PROPOSAL.
In its "supporting statement," the proponent repeatedly cites
purported problems related to the Company's performance and yet, in the Board of
Directors' judgment, the proponent fails to offer any reasons why cumulative
voting would address these supposed problems.
Nevertheless, in an effort to ensure that the Company employs the
fairest and most efficient method for electing directors, the Board of Directors
has carefully considered the merits of cumulative voting and has concluded that
it is not in the best interest of all of the Company's shareholders.
The Company's present method for electing directors is similar to
that of most publicly-traded corporations. To be elected by shareholders to
serve on the Board of Directors, a nominee must receive a plurality of the votes
cast. The present board consists of three directors, constituting a majority of
the board, who are independent (under NASDAQ's governance rules) and two
directors who are affiliated with the majority shareholder of the Company.
We believe the current method of electing directors is the most
likely to produce a Board of Directors that will diligently and effectively
represent the interests of all of the Company's shareholders. Cumulative voting,
on the other hand, would permit a relatively small group of shareholders devoted
to a special interest or narrow point of view to elect a director in order to
represent their particular interests or point of view. It is possible that such
a director would feel compelled to serve the interests of the group responsible
for his or her election rather than the best interests of the shareholders as a
whole. Each director, of course, no matter how elected, has a fiduciary duty to
represent all of the Company's shareholders and to advance the best interests of
the Company.
We see no advantage to be gained to change from the present method of
electing directors to cumulative voting nor any improvement cumulative voting
would bring to the composition of the Company's board. Indeed, we believe that a
Board of Directors must work together toward the common objective of advancing
the best interests of the Company without being burdened with factionalism and
partisan behavior, which could potentially occur if the Company switches to
cumulative voting.
In summary, your Board of Directors believes that the Company's
current method of electing directors is the fairest and most efficient way to
ensure that each director serves the interests of the Company and all its
shareholders rather than the interests of special interest groups. Accordingly,
the Board of Directors urges you to vote against this proposal.
20
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of January 31, 2004 regarding
shares of the Company's common stock to be issued upon exercise and the
weighted-average exercise price of all outstanding options, warrants and rights
granted under the Company's equity compensation plan as well as the number of
shares available for issuance under such plans.
Number of
securities
remaining
available for
future issuance
under equity
compensation
Number of securities to be Weighted average plans (excluding
issued upon exercise of exercise price of securities
outstanding options, outstanding options, reflected in
Plan Category warrants and rights warrants and rights column (a))
- ------------------------------------ ---------------------------- ---------------------- -------------------
(a) (b) (c)
Equity compensation plans approved
by security holders 592,700 $5.59 329,096
Equity compensation plans not
approved by security holders -- -- --
TOTAL 592,700 $5.59 329,096
======= ===== =======
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and any persons who own more than ten percent of the
Company's Common Stock to file reports of initial ownership of the Company's
Common Stock and subsequent changes in that ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten-percent beneficial
owners are also required to furnish the Company with copies of all Section 16(a)
forms they file. Based solely upon a review of the copies of the forms furnished
to the Company, or written representations from certain reporting persons that
no Forms 5 were required, the Company believes that all Section 16(a) filing
requirements were complied with for the Company's fiscal year ended January 31,
2004 or prior fiscal years, except that: one report on Form 3 was not timely
filed by each of Joshua Landes and the Wynnefield Capital, Inc. Profit Sharing &
Money Purchase Plan; one report on Form 4 (covering one transaction) was not
timely filed by Robert Kirk; and one report on Form 4 (covering one transaction)
was not timely filed by Joseph Lhota.
METHOD AND COST OF PROXY SOLICITATION
The cost of soliciting proxies on behalf of the Board for the Annual Meeting
will be borne by the Company. In addition to solicitation by mail, solicitations
also may be made by personal interview, facsimile, telecopy, telegram, telephone
and electronic mail. You may also be solicited by means of press releases issued
by the Company or postings on our corporate website, www.favs.com. None of the
Company's directors, officers or employees will receive any extra compensation
for soliciting you. The Company will use the services of American Stock Transfer
& Trust Company ("AST&T") to assist in soliciting proxies, and expects to pay a
nominal fee for such services. AST&T expects that approximately two of its
employees will assist in the solicitation. The Company will also use the
services of D.F. King & Co., Inc. to assist in soliciting proxies, and expects
to pay a fee of $10,000 for such services, plus reasonable out-of-pocket
expenses. D.F. King expects that approximately ten of its employees will assist
in the solicitation. Arrangements will be made with brokerage houses and other
21
custodians, nominees and fiduciaries to send proxies and proxy material to their
beneficial owners. The Company's expenses related to the solicitation in excess
of those normally spent for an annual meeting as a result of the proxy contest
and excluding salaries and wages of the Company's regular employees and officers
are expected to be approximately $175,000, of which approximately $60,000 has
been spent to date. Consistent with the Company's confidential voting procedure,
directors, officers and other regular employees of the Company, as yet
undesignated, also may request the return of proxies by telephone, facsimile,
telegram, electronic mail or in person.
STOCKHOLDER PROPOSALS AND NOMINATIONS OF BOARD MEMBERS
If a stockholder intends to present a proposal for action at the 2005 Annual
Meeting of Stockholders and wishes to have such proposal considered for
inclusion in the Company's proxy materials in reliance on Rule 14a-8 under the
Securities Exchange Act of 1934, the proposal must be submitted in writing and
received by the Secretary of the Company on or before January __, 2005. Such
proposal also must meet the other requirements of the rules of the SEC relating
to stockholder proposals.
The Company's By-laws establish an advance notice procedure with regard to
certain matters, including stockholder proposals and nominations for individuals
for election to the Board of Directors. In general, written notice of a
stockholder proposal or a director nomination for the 2005 Annual Meeting must
be received by the Secretary of the Company not later than the close of business
on the 60th day nor earlier than the close of business on the 90th day prior to
the 2005 Annual Meeting (or, if less than 70 days' notice of the date of the
meeting is given by the Company, notice by the stockholder to be timely must be
received by the Secretary of the Company no later than the 10th day following
the day on which public announcement of the date of the meeting is first made by
the Company), and must contain specified information and conform to certain
requirements, as set forth in the By-laws. If the chairman at any meeting of
stockholders determines that a stockholder proposal or director nomination was
not made in accordance with the By-laws, the Company may disregard such proposal
or nomination.
In addition, if a stockholder submits a proposal outside of Rule 14a-8 for the
2005 Annual Meeting, and the proposal fails to comply with the advance notice
procedures described by the By-laws, then the Company's proxy may confer
discretionary authority on the persons being appointed as proxies on behalf of
the Board of Directors to vote on the proposal.
Proposals and nominations should be addressed to the Secretary of the Company,
Robert G. Costantini, First Aviation Services Inc., 15 Riverside Avenue,
Westport, Connecticut 06880-4214.
By order of the Board of Directors,
/s/ Robert G. Costantini
------------------------
Robert G. Costantini
Secretary
Dated: May __, 2004
22
ANNEX A
PARTICIPANT INFORMATION
The following is information relating to the directors, director nominees,
officers and employees of First Aviation who, under applicable regulations of
the SEC, may be deemed to be "participants" in the solicitation of proxies by
the Board of Directors in connection with the Annual Meeting.
DIRECTOR NOMINEES
The following table sets forth the name and the present principal occupation or
employment, and the name and principal business address of any corporation or
other organization in which such employment is carried on, for each of the
Company's nominees for director at the Annual Meeting.
Name Principal Occupation Business Address
- ---- -------------------- ----------------
Michael C. Culver President and Chief Executive First Aviation Services Inc.
Officer, First Aviation; 15 Riverside Ave.
Co-Chief Executive Officer, Westport, CT 06880
First Equity Group Inc.
Robert L. Kirk Retired; former Chairman, c/o First Aviation Services Inc.
British Aerospace Holdings, Inc. 15 Riverside Ave.
Westport, CT 06880
CONTINUING DIRECTORS
The following table sets forth the name and the present principal occupation or
employment, and the name and principal business address of any corporation or
other organization in which such employment is carried on, for each of the
directors whose terms do not expire at the Annual Meeting.
Name Principal Occupation Business Address
- ---- -------------------- ----------------
Aaron P. Hollander President and Co-Chief First Equity Group Inc.
Executive Officer, First 15 Riverside Ave.
Equity Group Inc.; President Westport, CT 06880
and Chief Executive Officer,
Skip Barber Racing School, LLC
Stanley J. Hill Retired; former President, c/o First Aviation Services Inc.
Chief Executive Officer and 15 Riverside Ave.
Chairman, Kaiser Aerospace and Westport, CT 06880
Electronics Corporation
Joseph J. Lhota Executive Vice President, c/o First Aviation Services Inc.
Cablevision Systems 15 Riverside Ave.
Corporation; President, Westport, CT 06880
Cablevision Lightpath Inc.
A-1
EXECUTIVE OFFICERS
The following table sets forth the name and the present principal occupation or
employment, and the name and principal business address of any corporation or
other organization in which such employment is carried on, for each of the
executive officers of the Company who may be deemed to be participants in the
solicitation of proxies by the Board of Directors in connection with the Annual
Meeting. Unless otherwise indicated, the principal occupation refers to such
person's position with First Aviation.
Name Principal Occupation Business Address
- ---- -------------------- ----------------
Michael C. Culver President and Chief Executive First Aviation Services Inc.
Officer; Co-Chief Executive 15 Riverside Ave.
Officer, First Equity Group Inc. Westport, CT 06880
Robert G. Costantini Chief Financial Officer, First Aviation Services Inc.
Senior Vice President-Finance, 15 Riverside Ave.
and Secretary Westport, CT 06880
Paul J. Fanelli President and Chief Executive Aerospace Products International, Inc.
Officer, Aerospace Products 3778 Distriplex Drive North
International, Inc. Memphis, TN 38118
INFORMATION REGARDING TRANSACTIONS IN SECURITIES OF
FIRST AVIATION BY PARTICIPANTS
The following table sets forth information regarding purchases and sales of
Common Stock by each of the participants listed above under "Director Nominees,"
"Continuing Directors" and "Executive Officers" since April 1, 2002. Except as
set forth below, all transactions were effected in the public market, and none
of the purchase price or market value of those shares of Common Stock is
represented by funds borrowed or otherwise obtained for the purpose of acquiring
or holding such securities. To the extent that any part of the purchase price or
market value of any of those shares of Common Stock is represented by funds
borrowed or otherwise obtained for the purpose of acquiring or holding such
securities, the amount of the indebtedness as of the latest practicable date is
set forth below. If those funds were borrowed or obtained otherwise than
pursuant to a margin account or bank loan in the regular course of business of a
bank, broker or dealer, a description of the transaction and the parties is set
forth below. The information for Mr. Culver is listed under "Executive Officers"
below.
Number of Shares
of Common Stock
Name Month/Day/Year Purchased or (Sold) Notes
- ---- -------------- ------------------- -----
DIRECTORS:
Aaron P. Hollander 4/2/2002 1,245 (a)
4/29/2002 217 (a)
7/17/2002 1,359 (a)
9/19/2002 1,489 (a)
12/23/2002 1,489 (a)
1/31/2003 220 (a)
6/2/2003 1,477 (a)
6/2/2003 1,935 (a)
6/12/2003 267 (a)
8/13/2003 270 (a)
8/13/2003 1,413 (a)
9/23/2003 290 (a)
11/4/2003 1,285 (a)
12/11/2003 255 (a)
12/15/2003 257 (a)
A-2
Number of Shares
of Common Stock
Name Month/Day/Year Purchased or (Sold) Notes
- ---- -------------- ------------------- -----
1/31/2004 1,070 (a)
2/12/2004 220 (a)
2/27/2004 233 (a)
3/24/2004 221 (a)
4/14/2004 217 (a)
4/26/2004 218 (a)
4/30/2004 1,096 (a)
Stanley J. Hill 4/2/2002 1,245 (a)
4/29/2002 217 (a)
7/17/2002 1,359 (a)
9/19/2002 1,489 (a)
12/23/2002 1,737 (a)
2/3/2003 220 (a)
6/2/2003 1,477 (a)
6/2/2003 1,935 (a)
6/12/2003 267 (a)
8/13/2003 270 (a)
8/13/2003 1,413 (a)
9/22/2003 289 (a)
9/23/2003 290 (a)
11/4/2003 1,285 (a)
12/11/2003 255 (a)
12/15/2003 257 (a)
1/31/2004 1,070 (a)
2/12/2004 220 (a)
2/27/2004 233 (a)
3/24/2004 221 (a)
4/14/2004 217 (a)
4/26/2004 218 (a)
4/30/2004 1,096 (a)
Robert L. Kirk 4/2/2002 1,245 (a)
4/29/2002 217 (a)
7/17/2002 971 (a)
9/19/2002 1,489 (a)
12/23/2002 1,737 (a)
2/3/2003 220 (a)
6/2/2003 1,477 (a)
6/2/2003 1,935 (a)
6/12/2003 267 (a)
8/13/2003 270 (a)
8/13/2003 1,413 (a)
9/11/2003 283 (a)
9/22/2003 289 (a)
9/23/2003 290 (a)
11/4/2003 1,285 (a)
12/11/2003 255 (a)
12/15/2003 257 (a)
1/31/2004 1,070 (a)
2/12/2004 220 (a)
3/24/2004 221 (a)
4/14/2004 217 (a)
4/26/2004 218 (a)
4/30/2004 1,096 (a)
A-3
Number of Shares
of Common Stock
Name Month/Day/Year Purchased or (Sold) Notes
- ---- -------------- ------------------- -----
Joseph J. Lhota 4/2/2002 207 (a)
4/29/2002 217 (a)
7/17/2002 712 (a)
9/19/2002 1,489 (a)
9/19/2002 647 (a)
12/23/2002 1,737 (a)
2/3/2003 220 (a)
6/2/2003 1,688 (a)
6/2/2003 1,935 (a)
6/12/2003 267 (a)
8/13/2003 270 (a)
8/13/2003 1,413 (a)
9/11/2003 283 (a)
9/22/2003 289 (a)
9/23/2003 290 (a)
11/4/2003 1,285 (a)
12/11/2003 255 (a)
12/15/2003 257 (a)
1/31/2004 1,070 (a)
2/12/2004 220 (a)
2/27/2004 233 (a)
3/24/2004 221 (a)
4/14/2004 217 (a)
4/26/2004 218 (a)
4/30/2004 1,096 (a)
EXECUTIVE OFFICERS:
Michael C. Culver - - -
Robert G. Costantini 10/27/2003 50,000 (b)
4/26/2004 8,000 (b)
Paul J. Fanelli 2/16/2004 25,000 (b)
- ----------------------------------
(a) Fee for serving as a non-employee director of First Aviation paid in
shares of Common Stock in lieu of cash, under First Aviation's Stock
Incentive Plan.
(b) Receipt of stock option grant, under First Aviation's Stock Incentive
Plan.
MISCELLANEOUS INFORMATION CONCERNING PARTICIPANTS
Except as described in this Annex A or elsewhere in the Proxy Statement, neither
any participant nor any of their respective associates or affiliates (together,
the "Participant Affiliates"), is either a party to any transaction or series of
transactions since January 31, 2003, or has knowledge of any currently proposed
transaction or series of proposed transactions, (i) to which First Aviation or
any of its subsidiaries was or is to be a party, (ii) in which the amount
involved exceeds $60,000, and (iii) in which any participant or Participant
Affiliate had, or will have, a direct or indirect material interest.
Furthermore, except as described in this Annex A or elsewhere in the Proxy
Statement, (i) no participant or Participant Affiliate directly or indirectly
beneficially owns any securities of First Aviation or any securities of any
subsidiary of First Aviation and (ii) no participant owns any securities of
First Aviation of record but not beneficially.
Except as described in this Annex A or elsewhere in the Proxy Statement, no
participant or Participant Affiliate has entered into any agreement or
understanding with any person respecting any future employment by First Aviation
or any of its affiliates or any future transactions to which First Aviation or
A-4
any of its affiliates will or may be a party. Except as described in this Annex
A or elsewhere in the Proxy Statement, there are no contracts, arrangements or
understandings by any participant or Participant Affiliate within the past year
with any person with respect to any securities of First Aviation.
A-5
ANNEX B
FIRST AVIATION SERVICES INC.
AUDIT COMMITTEE CHARTER
This Audit Committee Charter, adopted by the Board of Directors (the "Board") of
First Aviation Services Inc. (the "Company"), is intended as a component of the
flexible governance framework within which the Board, assisted by its
committees, directs the affairs of the Company.
I. PURPOSES
The Audit Committee (the "Committee") shall assist the Board of Directors (the
"Board") in fulfilling its responsibility to oversee management regarding: (i)
the conduct and integrity of the Company's financial reporting to any
governmental or regulatory body, the public or other users thereof; (ii) the
Company's systems of internal accounting and financial and disclosure controls;
(iii) the qualifications, engagement, compensation, independence and performance
of the Company's independent auditors, their conduct of the annual audit, and
their engagement for any other services; (iv) the Company's legal and regulatory
compliance; (v) the Company's codes of ethics as established by management and
the Board; and (vi) the preparation of the audit committee report required by
the Securities and Exchange Commission ("SEC") rules to be included in the
Company's annual proxy statement.
In discharging its role, the Committee is empowered to inquire into any matter
it considers appropriate to carry out its responsibilities, with access to all
books, records, facilities and personnel of the Company. The Committee has the
power to retain outside counsel, independent auditors or other advisors to
assist it in carrying out its activities. The Company shall provide adequate
resources to support the Committee's activities, including compensation of the
Committee's counsel, independent auditors and other advisors. The Committee
shall have the sole authority to retain, compensate, direct, oversee and
terminate counsel, independent auditors, and other advisors hired to assist the
Committee, who shall be accountable ultimately to the Committee.
II. COMMITTEE MEMBERSHIP
The Committee shall consist of three or more members of the Board, each of whom
the Board has selected and determined to be "independent" in accordance with
applicable rules of the SEC and The Nasdaq Stock Market. All members of the
Committee shall meet the financial literacy requirements of The Nasdaq Stock
Market. At least one member shall be an "audit committee financial expert" as
such term is defined under applicable SEC rules, as and when required by The
Nasdaq Stock Market.
Committee members shall continue to be members until their successors are
elected and qualified or until their earlier resignation or removal. Any member
may be removed by the Board, with or without cause, at any time. The Chairman of
the Committee shall be appointed from among the Committee members by, and serve
at the pleasure of, the Board to convene and chair meetings of the Committee,
set agendas for meetings, and determine the Committee's information needs. In
the absence of the Chairman at a duly convened meeting, the Committee shall
select from among its members an acting chairman for purposes of the meeting.
III. COMMITTEE MEETINGS
The Committee shall meet at least four times per year. The Committee shall meet
at least annually with the independent auditor in separate executive sessions to
provide the opportunity for full and frank discussion without members of senior
management present.
The Committee shall establish its own schedule and rules of procedure. Meetings
of the Committee may be held telephonically. A majority of the members of the
Committee shall constitute a quorum sufficient for the taking of any action by
the Committee. The Committee may also take action by unanimous written consent.
B-1
IV. KEY RESPONSIBILITIES
The Committee's role is one of oversight. The Company's management is
responsible for preparing the Company's financial statements and the independent
auditors are responsible for auditing those financial statements. The Committee
recognizes that Company management and the independent auditors have more time,
knowledge and detailed information about the Company than do Committee members.
Consequently, in carrying out its oversight responsibilities, the Committee is
not providing any expert or special assurance as to the Company's financial
statements or any professional certification as to the independent auditor's
work.
The following responsibilities are set forth as a guide for fulfilling the
Committee's purposes, with the understanding that the Committee's activities may
diverge as appropriate given the circumstances. The Committee is authorized to
carry out these activities and other actions reasonably related to the
Committee's purposes or assigned by the Board from time to time.
The Committee may form, and delegate any of its responsibilities to, a
subcommittee so long as such subcommittee is solely comprised of one or more
members of the Committee.
To fulfill its purposes, the Committee shall:
A. Supervise the Independent Audit
1. appoint, evaluate, compensate, oversee the work
of, and if appropriate terminate, the
independent auditor, who shall report directly
to the Committee;
2. review and approve the terms of the independent
auditor's retention, engagement and scope of
the annual audit, and pre-approve any
audit-related and permitted non-audit services
(including the fees and terms thereof) to be
provided by the independent auditor (with
pre-approvals disclosed as appropriate in the
Company's periodic public filings);
3. on an annual basis, review a formal written
statement from the independent auditor
delineating all relationships between the
independent auditor and the Company, consistent
with Independence Standards Board Standard No.
1 (as modified or supplemented), actively
engage in a dialogue with the independent
auditor with respect to any disclosed
relationships or services that may impact the
objectivity and independence of the independent
auditor and take appropriate action in response
to the independent auditor's report to satisfy
itself of the auditor's independence;
4. review and resolve any disagreements between
management and the independent auditor
concerning financial reporting, or relating to
any audit report or other audit, review or
attest services provided by the independent
auditor.
B. Oversee Internal Controls and Risk Management
5. review and discuss with management and the
independent auditor: (i) the adequacy of the
Company's internal and disclosure controls and
procedures, (including computerized information
system disclosure controls and security),
including whether such controls and procedures
are designed to provide reasonable assurance
that transactions entered into by the Company
are properly authorized, assets are safeguarded
from unauthorized or improper use, and
transactions by the Company are properly
recorded and reported; (ii) any significant
deficiencies in the design or operation of the
Company's internal controls which could
adversely affect the Company's ability to
record, process, summarize and report financial
data; (iii) any fraud, whether or not material,
that involves management or other employees who
have a significant role in the Company's
internal controls; and (iv) related findings
and recommendations of management together with
the independent auditor's attestation report;
6. review and discuss with management and the
independent auditor any significant risks or
exposures and assess the steps management has
taken to minimize such risks; and discuss with
management and the independent auditor, and
B-2
oversee the Company's underlying policies with
respect to, risk assessment and risk
management;
7. establish and oversee procedures for the
receipt, retention and treatment of complaints
regarding accounting, internal accounting
controls or auditing matters, and the
confidential, anonymous submission by employees
of concerns regarding questionable accounting
or auditing matters;
C. Oversee Financial Reporting
8. review and discuss with management and the
independent auditor: (i) all critical
accounting policies and practices used by the
Company; (ii) any significant changes in
Company accounting policies; (iii) any material
alternative accounting treatments within GAAP
that have been discussed with management,
including the ramifications of the use of the
alternative treatments and the treatment
preferred by the accounting firm; and (iv) any
accounting and financial reporting proposals
that may have a significant impact on the
Company's financial reports;
9. inquire as to the independent auditor's view of
the accounting treatment related to significant
new transactions or other significant matters
or events not in the ordinary course of
business;
10. review and discuss with the independent auditor
the matters required to be discussed with the
independent auditor by: (i) Statement of
Auditing Standards No. 61, including the
auditor's responsibility under generally
accepted auditing standards, the significant
accounting policies used by the Company,
accounting estimates used by the Company and
the process used by management in formulating
them, any consultation with other accountants
and any major issues discussed with management
prior to its retention; (ii) Statement of
Auditing Standards No. 90, including whether
Company accounting principles as applied are
conservative, moderate, or aggressive from the
perspective of income, asset, and liability
recognition, and whether or not those
principles reflect common or minority
practices; and (iii) Statement of Auditing
Standards No. 100, including the review of the
interim financial information of the Company
and any material modifications that need to be
made to the interim financial information for
it to conform with GAAP;
11. review and discuss with management and the
independent auditor any material financial or
non-financial arrangements that do not appear
on the financial statements of the Company;
12. review and discuss with the independent
auditor: (i) any significant accounting
adjustments that were noted or proposed by the
auditors but were "passed"; (ii) any
communications between the audit team and the
audit firm's national office respecting
auditing or accounting issues presented by the
engagement; and (iii) any "management" or
"internal control" letter issued, or proposed
to be issued, by the independent auditors to
the Company or any other material written
communications between the accounting firm and
management, such as any management letter or
schedule of "unadjusted differences;"
13. review the Company's financial statements,
including: (i) prior to public release, review
and discuss with management and the independent
auditor the Company's annual and quarterly
financial statements to be filed with the SEC
(including the Company's disclosures under
"Management's Discussion and Analysis of
Financial Condition and Results of Operations"
and any certifications regarding the financial
statements or the Company's internal accounting
and financial controls and procedures and
disclosure controls or procedures filed with
the SEC by the Company's senior executive and
financial officers); and (ii) with respect to
the independent auditor's annual audit report
and certification, before release of the annual
audited financial statements, meet with the
independent auditor without any management
member present to discuss the adequacy of the
Company's system of internal accounting and
financial controls, the appropriateness of the
accounting principles used and judgments made
in the preparation of the Company's audited
financial statements, and the quality of the
B-3
Company's financial reports; (iii) meeting
separately and periodically, with management
and the independent auditor; and (iv) recommend
to the Board whether to include the audited
annual financial statements in the Company's
Annual Report on Form 10-K to be filed with the
SEC;
14. at least annually, review a report by the
independent auditor describing any material
issues raised by the most recent internal
quality-control review of the firm, or by any
review, inquiry or investigation by
governmental or professional authorities
(including the Public Company Accounting
Oversight Board), within the preceding five
years, regarding one or more independent audits
carried out by the firm, and any steps taken to
deal with any such issues;
15. discuss with management and the independent
auditor, as appropriate, financial information
and earnings guidance (including non-GAAP
financial measures) provided to analysts and to
rating agencies;
D. Oversee Legal and Ethical Compliance
16. review periodically: (i) with the General
Counsel or outside legal counsel, as
appropriate, legal and regulatory matters that
may have a material impact on the Company's
financial statement; and (ii) the scope and
effectiveness of compliance policies and
programs;
17. review at least annually with management,
compliance with, the adequacy of and any
requests for waivers under the Company's
code(s) of business conduct and ethics
(including codes that apply to all employees as
well as those applicable to directors, senior
officers and financial officers and the
Company's policies and procedures concerning
trading in Company securities and use in
trading of proprietary or confidential
information); any waiver to any executive
officer or director granted by the Committee
shall be reported by the Committee to the
Board;
18. review and address conflicts of interest of
directors and executive officers;
19. review, discuss with management and the
independent auditor, and approve any
transactions or courses of dealing with related
parties (e.g., including significant
shareholders of the Company, directors,
corporate officers or other members of senior
management or their family members) that are
significant in size or involve terms or other
aspects that differ from those that would
likely be negotiated with independent parties
and, in any event, any transactions required to
be disclosed pursuant to Item 404 of Regulation
S-K;
E. Report
20. oversee the preparation and approve all reports
required by the Committee, including the report
for inclusion in the Company's annual proxy
statement, stating whether the Committee: (i)
has reviewed and discussed the audited
financial statements with management; (ii) has
discussed with the independent auditors the
matters required to be discussed by SAS Nos.
61, as amended; (iii) has received the written
disclosure and letter from the independent
auditors (describing their relationships with
the Company) and has discussed with them their
independence; and (iv) based on the review and
discussions referred to above, the members of
the Committee recommended to the Board that the
audited financials be included in the Company's
Annual Report on Form 10-K for filing with the
SEC;
21. review and reassess the adequacy of this
Charter, and recommend to the Board amendments
as the Committee deems appropriate; and
22. report regularly to the Board on Committee
findings and recommendations (including on any
issues that arise with respect to the quality
or integrity of the Company's financial
statements, the Company's compliance with legal
or regulatory requirements or the performance
and independence of the independent auditors)
and any other matters the Committee deems
appropriate or the Board requests, and maintain
minutes or other records of Committee meetings
and activities.
B-4
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IMPORTANT
THE BOARD RECOMMENDS THAT STOCKHOLDERS REJECT THE WYNNEFIELD GROUP'S PROXY
SOLICITATION AND THE WYNNEFIELD NOMINEE.
THE BOARD URGES STOCKHOLDERS TO VOTE FOR THE ELECTION OF THE BOARD'S NOMINEES
NAMED IN THIS PROXY STATEMENT AND AGAINST THE STOCKHOLDER PROPOSAL. YOU CAN VOTE
YOUR SHARES IN FAVOR OF THE BOARD'S NOMINEES AND AGAINST THE STOCKHOLDER
PROPOSAL BY SIGNING AND DATING THE ENCLOSED WHITE PROXY CARD OR VOTING
INSTRUCTION FORM AND RETURNING IT IN THE POSTAGE-PAID RETURN ENVELOPE. If you
receive this proxy statement with a voting instruction form from your broker,
bank or other nominee, please vote in accordance with the Board's
recommendations, and sign, date and mail the enclosed voting instruction form in
the postage-paid envelope provided. Because of the proxy contest mounted by The
Wynnefield Group, your broker will not be able to vote your shares at the Annual
Meeting regarding either the election of directors or the stockholder proposal
unless it receives your specific voting instructions - so please have your vote
counted.
IF YOU RECEIVE A PROXY CARD OR VOTING INSTRUCTIONS FROM THE WYNNEFIELD GROUP,
THE COMPANY'S BOARD OF DIRECTORS ASKS THAT YOU DISCARD IT. BUT JUST IN CASE YOU
RETURN THE WYNNEFIELD GROUP'S PROXY CARD OR VOTING INSTRUCTIONS AND THEN DECIDE
TO SUPPORT YOUR BOARD'S NOMINEES, WE URGE YOU TO CHANGE YOUR VOTE BY SIGNING AND
RETURNING THE WHITE PROXY CARD OR VOTING INSTRUCTIONS PROMPTLY. YOUR LATER DATED
WHITE PROXY CARD OR VOTING INSTRUCTIONS WILL REVOKE ANY PRIOR PROXY. IT IS ONLY
YOUR LATEST DATED PROXY WHICH COUNTS.
IF YOU HAVE ANY QUESTIONS OR REQUIRE VOTING ASSISTANCE,
PLEASE CALL D. F. KING & CO., INC., WHICH IS ASSISTING THE BOARD,
TOLL FREE AT 1-800-628-8536.
YOUR VOTE IS IMPORTANT. Please take a moment to SIGN, DATE and PROMPTLY RETURN
your WHITE proxy card or voting instruction form in the postage-paid envelope
provided.
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS OF
FIRST AVIATION SERVICES INC.
JUNE 15, 2004
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
| |
V Please detach and mail in the envelope provided. V
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES LISTED
BELOW, "FOR" PROPOSAL 2, AND "AGAINST" PROPOSAL 3. PLEASE SIGN, DATE
AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE
IN BLUE OR BLACK INK AS SHOWN HERE x
- --------------------------------------------------------------------------------
1. Election of two Directors for a term to expire at the Annual Meeting of
Stockholders in the year 2007 (Class II).
NOMINEES
|_| FOR ALL NOMINEES o Michael C. Culver
o Robert L. Kirk
|_| WITHHOLD AUTHORITY
FOR ALL NOMINEES
|_| FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: o
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of the appointment of Ernst & Young [ ] [ ] [ ]
LLP as the independent auditors of First Aviation
Services Inc.
3. Stockholder proposal regarding cumulative voting [ ] [ ] [ ]
for director elections.
4. In their discretion, the Proxies are authorized to
vote upon such other business as may properly come
before the meeting.
- --------------------------------------------------------------------------------
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 ALL NOMINEES LISTED ABOVE, FOR PROPOSAL 2, AND AGAINST PROPOSAL 3.
PLEASE VOTE, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that [ ]
changes to the registered name(s) on the account may not be submitted via
this method
- --------------------------------------------------------------------------------
Signature of Stockholder ________________________________ Date: _______________
Signature of Stockholder ________________________________ Date: _______________
NOTE: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
WHITE PROXY CARD
FIRST AVIATION SERVICES INC.
15 RIVERSIDE AVE., WESTPORT, CONNECTICUT 06880
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Aaron P. Hollander and Michael C.
Culver as proxies, each with the power to appoint his or her substitute and
hereby authorizes each of them to vote, as designated on the reverse side, all
the shares of Common Stock of First Aviation Services Inc. held of record by the
undersigned on May 11, 2004 at the First Aviation Services Inc. Annual Meeting
of Stockholders to be held on June 15, 2004 or any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)