SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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/X/ Definitive Proxy Statement
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/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
First Aviation Services Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
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FIRST AVIATION SERVICES INC.
15 Riverside Avenue
Westport, Connecticut 06880
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------
The 1998 Annual Meeting of Stockholders (the "Annual Meeting") of First Aviation
Services Inc. will be held at the Harvard Club, 27 West 44th Street, New York
City, New York on Wednesday, September 23, 1998 at 9:00 a.m. for the following
purposes:
1. To elect two directors for a term to expire at the Annual Meeting
of Stockholders in the year 2001.
2. To consider and vote upon a proposal to ratify the appointment of
Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending January 31, 1999.
3. To act upon any and all matters incident to the foregoing and
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 July
27, 1998 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 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 from the record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very important. Please
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By order of the Board of Directors,
John A. Marsalisi
Secretary
Westport, Connecticut
August 4, 1998
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 for
use at the Company's 1998 Annual Meeting of Stockholders to be held on September
23, 1998, and at any adjournment thereof (the "Annual Meeting"). The Notice of
Annual Meeting, this proxy statement, the accompanying proxy and the Company's
Annual Report are first being mailed to Stockholders on or about August 4, 1998.
The Company's principal executive offices are located at 15 Riverside Avenue,
Westport, Connecticut 06880.
Record Date
The Board of Directors has fixed the close of business on July 27, 1998 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 for each share of Common Stock held on all matters to come
before the Annual Meeting and may vote in person or by proxy authorized in
writing. At the Record Date, there were 8,983,119 shares of Common Stock issued
and outstanding.
Matters to Be Considered
At the Annual Meeting, stockholders will be asked to consider and vote upon the
election of two directors for a term to expire at the Annual Meeting in the year
2001, and to ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending January 31, 1999. The Board of
Directors not has received timely notice and 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
The required quorum for the transaction of business at the Annual Meeting is a
majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR", "AGAINST", or "WITHHELD FROM" 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.
2
The affirmative vote of the holders of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote on such matter is required for the election of the nominated directors.
Only shares of Common Stock that are 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
nominees 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 the nominee's
achievement of a plurality.
The affirmative vote of the holders of a majority of the 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 fiscal year
ending January 31, 1999. 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.
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, and "FOR" the approval of the proposed appointment of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
January 31, 1999.
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, 40 Wall Street, New York, New York 10005, 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.
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 July 23, 1998 by (i) each person
who is known by the Company to own beneficially 5% or more of the outstanding
shares of Common Stock, (ii) each of the Company's directors, (iii) each of the
officers named in the Summary Compensation Table, and (iv) all directors and
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 maintains an address
at 15 Riverside Avenue Westport, Connecticut 06880, unless otherwise indicated.
3
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
FAS Inc. ("FAS") (1) 3,721,665 41.4%
Canpartners Investments IV, LLC ("Canpartners") (2) 1,293,335 14.4%
9665 Wilshire Boulevard, Suite 200
Beverly Hills, California 90212
The Wynnefield Group (3) 1,132,300 12.6%
One Penn Plaza, Suite 4720
New York, NY 10119
Wellington Management Company, LLP(4) 882,000 9.8%
9665 Wilshire Boulevard, Suite 200
Boston, MA 02109
Aaron P. Hollander (1) 3,744,648 41.7%
Michael C. Culver (1) 3,744,648 41.7%
John A. Marsalisi 4,862 --
Gerald E. Schlesinger -- --
Joshua S. Friedman (5) -- --
Robert L. Kirk 8,433 --
Charles B. Ryan 42,983 0.5%
All directors and executive
officers as a group (7 persons) 3,800,926 42.3%
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(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. indirectly owns all the outstanding shares of common stock of FAS.
In addition to the shares of the Company owned by FAS, 22,983 shares of
the Company are owned directly by First Equity Group Inc.
(2) Based upon a Schedule 13G, dated February 12, 1998, and the Company's
knowledge, Canpartners Incorporated is a Managing Member of
Canpartners. Mr. Friedman, Mitchell R. Julis and R. Christian B.
Evenson are the sole shareholders and directors of Canpartners
Incorporated and such individuals may be deemed to share beneficial
ownership of the shares shown as owned by Canpartners. Such persons
disclaim beneficial ownership of such shares.
(3) Based upon a Schedule 13G, dated May 22, 1998, and the Company's
knowledge, the Wynnefield Group is composed of the Wynnefield Partners
Small Cap Value, L.P., Channel Partnership II L.P., Wynnefield Small
Cap Value Offshore Fund, Ltd., and the Wynnefield Small Cap Value, L.P.
I.
(4) Based upon a Schedule 13G, dated January 13, 1998, and the Company's
knowledge.
(5) Excludes 1,293,335 shares shown as owned by Canpartners. Mr. Friedman
is a Vice-President of Canpartners and is a shareholder and director of
Canpartners Incorporated, a Managing Member of Canpartners, and as such
may be deemed to have voting and investment power over such shares. Mr.
Friedman disclaims any beneficial ownership of such shares.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Exchange Act requires the Company's directors, executive
officers and ten percent shareholders to file initial reports of ownership and
reports of changes in ownership of the Company's Common Stock with the
Securities and Exchange Commission. Directors, executive officers and ten
percent stockholders are required to furnish the Company with copies of all
Section 16 (a) forms that they file. Based on a review of these filings, the
Company notes that Messrs. Hollander, Culver, Marsalisi and Mr. John F. Risko, a
former Director, inadvertently failed to file their Form 3's on a timely basis
upon the consummation of the Company's initial public offering of 3,900,000
shares of its common stock on March 5, 1997 (the "Offering"). Messrs. Hollander,
Culver and Marsalisi made their filings on March 7, 1997 and Mr. Risko made his
filing on May 10, 1997.
4
1. Election of Directors (Proposal No. 1)
The nominees for director are Michael C. Culver and Robert L. Kirk. The
Company's Certificate of Incorporation provides for a Board of Directors
classified into 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 six directors, two directors each in
Class I, Class II and Class III. The classes distinguish term of office only. If
elected, the two nominees will serve for a term to expire at the Annual Meeting
of Stockholders in the year 2001.
The accompanying proxy will be voted for the election of the Board's nominees
unless contrary instructions are given. The nominees at present are available
for election as members of the Board of Directors. If the nominees are unable to
serve, the persons named as proxies intend to vote for such other person or
persons as the Board of Directors may designate.
The Board of Directors recommends a vote FOR the election of Michael C. Culver
and Robert L. Kirk.
Nominees for election to the Board of Directors for a term expiring at the
Annual Meeting of Stockholders in the year 2001.
Michael C. Culver, 47, has been a Director and Chief Executive Officer of the
Company since March 1995. Mr. Culver became a director of the Company's wholly
owned subsidiary, National Airmotive Corporation ("NAC") in June 1995 and
Chairman in August 1996. Mr. Culver also serves as Chairman and Chief Executive
Officer of Aircraft Parts International Combs, Inc. ("API"). In 1985, Mr. Culver
co-founded First Equity Development Inc. ("First Equity"), an aerospace
investment and advisory firm affiliated with the Company, and has served as
Co-Managing Director since that time.
Robert L. Kirk, 69, has been a Director since March 1997. Mr. Kirk recently
retired as Chairman of British Aerospace Holdings, Inc., an international
aerospace corporation. 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.
Members of the Board of Directors Continuing in Office;
Terms Expire at the 1999 Annual Meeting of Stockholders
John A. Marsalisi, 43, has been a Director, Chief Financial Officer and
Secretary of the Company since March 1995. Mr. Marsalisi has been a director of
NAC since June 1995 and its Chief Financial Officer and Secretary since August
1996. Since 1996, he has been an officer of First Equity. From 1991 to May 1996,
Mr. Marsalisi was Director of Taxes for Omega Engineering. Prior to joining
Omega Engineering, Mr. Marsalisi was Director of Taxes for the Entrepreneurial
Services Group of Ernst & Young LLP in Stamford, Connecticut. Mr. Marsalisi is a
Certified Public Accountant.
Charles B. Ryan, 47, has been a Director since March 1997. Mr. Ryan has been the
President and Chief Operating Officer of Nordam Group Inc., a manufacturer and
overhaul agency of airframes, nacelles and thrust reversers since 1982.
Mr. Ryan has been associated with Nordam Group Inc. since 1976.
5
Members of the Board of Directors Continuing in Office;
Terms Expire at the 2000 Annual Meeting of Stockholders
Joshua S. Friedman, 42, has been a Director since March 1997. Mr. Friedman has
been an executive officer of Canyon Capital Advisors LLC and various related or
predecessor entities ("Canyon Capital") since their inception in 1990. Canyon
Capital is a merchant banking and money management firm which Mr. Friedman
co-founded and which is an affiliate of Canpartners, a former subordinated
creditor and warrant holder of the Company. From 1984 to 1990, Mr. Friedman was
an Executive Vice President and Co-Director of Capital Markets of Drexel Burnham
Lambert Incorporated. Mr. Friedman currently serves as a member of the Board of
Directors of Signature Resorts, Inc., a publicly traded developer and operator
of timeshare resorts, and several privately held companies and charitable
organizations.
Aaron P. Hollander, 42, has served as Chairman of the Company since March 1995.
Mr. Hollander became a director of NAC in June 1995. In 1985, Mr. Hollander
co-founded First Equity and has served as Co-Managing Director since that time.
Committees of the Board of Directors and Meeting Attendance
During the fiscal year ended January 31, 1998, the Company's Board of Directors
was comprised of Messrs. Hollander, Culver, Friedman, Kirk, Ryan, and Marsalisi,
and, until his resignation on June 24, 1997, Mr. Risko. The Board of Directors
held four regularly scheduled meetings and one special meeting.
The Board of Directors has the following standing committees, which were first
established in March, 1997. During the fiscal year ended January 31, 1998, each
director attended at least 75% of the aggregate number of meetings of the Board
of Directors and committees on which he served while a member thereof.
Executive Committee
The Executive Committee consists of two directors of the Company, Messrs.
Hollander and Culver. 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 By-laws of the
Company; (ii) adopt an agreement of merger or consolidation or to recommend to
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 consists of two independent directors of the Company,
Messrs. Hollander and Ryan. The Audit Committee is responsible for engaging the
Company's independent auditors and reviewing with them the scope and timing of
their audit services, any other services which they are asked to perform, their
report on the Company's accounts following completion of the annual audit and
the Company's policies and procedures with respect to internal accounting and
financial control. The Audit Committee met twice during the fiscal year ended
January 31, 1998.
Compensation Committee
The Compensation Committee consists of two independent directors of the Company,
Messrs. Hollander and Kirk. The Compensation Committee is responsible for making
recommendations to the Board of Directors with respect to compensation and
benefit levels of executive officers of the Company. During the fiscal year
ended January 31, 1998, the Compensation Committee met two times.
6
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 in cash or stock. No director of the Company receives any
additional fees 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.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or has been an employee of the
Company.
Report From the Compensation Committee Regarding Executive Compensation
The Compensation Committee (the "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.
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
targeted at the median of a comparator group that includes peer group companies,
similar to those reflected in the proxy performance graph, and general industry
companies similar in size to First Aviation.
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.
Total Compensation
Approximately 50% of the total compensation of the Company's most senior
executives is "at risk", based strictly upon the performance of the Company and
the return to the stockholders. In addition, certain elements of the employee
benefit package, such as the Employee Stock Purchase Plan are driven by
increasing shareholder value.
7
Inherent in this "at risk" component is a heavy weighting toward long-term
performance. At First Aviation, long-term incentives for the most senior
executives can make up to half of the total amount of a senior executive's
annual compensation. We believe this feature provides management with a
long-term strategic incentive that will encourage the continued creation of
shareholder value.
The Committee has access to national compensation surveys and the financial
records of the Company. The Committee reviews each element of compensation to
ensure that the total compensation delivered is reflective of company
performance with input on market competitiveness. The executive compensation
program is designed to provide compensation for performance. In the last review,
the Committee confirmed that the executive compensation program was meeting the
targeted objective.
Mr. Culver's base salary during the fiscal year ended January 31, 1998 was paid
in accordance with his employment agreement of December 20, 1996 and during such
period did not receive a cash bonus or stock award under the Company's plans.
Summary
Executive compensation at First Aviation is considered very seriously by the
Committee, the Board of Directors and senior management. The 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 Committee believes that with the
present plans in place management will continue to strive to increase
shareholder value.
Compensation Committee
Aaron P. Hollander
Robert L. Kirk
8
Summary Compensation Table
The following table sets forth certain information for the fiscal years ended
January 31, 1998 and 1997, and the twelve months ended January 31, 1996,
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.
Long-Term
Other Annual Compensation
Name Year Salary Bonus Compensation Securities Options
- ----------------- ------------------------ ---------- --------- ------------ ------------------
Michael C. Culver FYE 1/31/98 $180,000
Chief Executive FYE 1/31/97 23,000
Officer 12-months ended 1/31/96 N/A (1)
John A. Marsalisi FYE 1/31/98 $155,000 40,000
Chief Financial FYE 1/31/97 20,000
Officer 12-months ended 1/31/96 N/A (1)
Gerald E. Schlesinger FYE 1/31/98 $99,167 (2) $40,000 50,000
Senior Vice President FYE 1/31/97 N/A
12-months ended 1/31/96 N/A
- ----------
(1) The Company was formed in March 1995 to acquire NAC. None of the
executive officers of the Company received any employment compensation
from the Company or NAC during the twelve months ended January 31,
1996.
(2) Mr. Schlesinger became employed by FAvS effective July 1, 1997.
Option Grants in Last Fiscal Year
The following table sets forth information regarding the stock options that were
granted during the last fiscal year to each of the officers named in the Summary
Compensation Table.
Individual Grants
---------------------------------------------------------------------------------------
Number of
Securities Percent of Total
Underlying Options Granted
Options to Employees in Exercise or Grant Date Present
Name Granted Fiscal year Base Price Expiration Date Value (1)(2)
- ----------------- ----------- ----------------- ----------- --------------- --------------------
Michael C. Culver None N/A N/A N/A N/A
John A. Marsalisi 40,000 18% $10 2007 $150,400
Gerald E. Schlesinger 50,000 22.5% $10 2007 $188,000
- ----------
(1) Present value on the grant date 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 rate of return of 6.4%, (ii) a dividend
yield of 0%, (iii) an average volatility factor of 0.533 and (iv) the
exercise of all options on the final day of their 10-year terms. 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.
(2) 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 table as of the date of grant. The Black-Scholes option pricing
9
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 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 in the Last Fiscal Year and Fiscal Year-End
Option Values
The following table sets forth the aggregate positions in stock options at
January 31, 1998 held by each of the officers named in the Summary
Compensation Table.
Number of Securities Value of Unexcercised
Underlying Unexercised In-The-Money Options
Options at Fiscal Year End at Fiscal Year End
Name Exercisable/Unexercisable Exercisable/Unexcercisable
- ---------------------- -------------------------- --------------------------
Michael C. Culver None/None None/None
John A. Marsalisi None/40,000 None/None
Gerald E. Schlesinger None/50,000 None/None
Employment Contracts
In December 1996, First Aviation entered into employment agreements with Michael
C. Culver and John A. Marsalisi. Mr. Culver's and Mr. Marsalisi's employment
agreements each are for terms of three years that expire on December 31, 1999,
and provide for an annual base salary of $180,000 and $155,000, respectively. In
July 1997, First Aviation entered into a three-year employment agreement with
Gerald E. Schlesinger. This agreement provided for a base salary of $170,000,
which was increased to $190,000 effective February 1, 1998. Each of the
employment agreements is subject to adjustment at the discretion of the Board of
Directors. In addition, each employment agreement provides for: (i) benefits
which are also generally available to other employees of First Aviation in
similar employment positions, (ii) reimbursement of reasonable business related
expenses, (iii) three weeks paid vacation a year, and (iv) a severance payment,
upon termination without cause or for death or disability, equal to six months
base salary. Any of the agreements may be terminated by First Aviation without
cause at any time upon 30 days notice or by the executive for any reason upon 30
days notice.
Mr. Culver, Mr. Marsalisi and Mr. Schlesinger each have, as part of their
respective employment agreements, agreed not to compete with First Aviation for
a period of six months following the end of their employment by First Aviation
and not to solicit employees or customers of First Aviation for a period of six
months following the end of their employment with First Aviation.
Stock Performance
The following graph compares the cumulative stockholder return on First Aviation
Common Stock with the S&P 500 Stock Index and a peer group index selected by the
Company. The peer group is comprised of the following companies: Aviall Inc.,
AAR Corp, Aviation Sales Corp., Triumph Group, Kellstrom Inc. and Banner
Aerospace. The comparison assumes $100 was invested as of February 28, 1997 (the
date on
10
which shares of common stock began trading on a "when issued" basis) and the
reinvestment of all dividends. [OBJECT OMITTED]
February 28, 1997 January 31, 1998
----------------- ----------------
First Aviation $100 $67.50
S&P 500 $100 $125.93
Peer Group $100 $149.25
Certain Relationships and Related Transactions
On June 1, 1995, in connection with the acquisition by the Company of NAC from
Triton Group Ltd., the Company issued 33,000 shares of its Series A Preferred
Stock to FAS for aggregate proceeds of $1,650,000, and 3,556,665 shares of its
Common Stock for an aggregate price of $551,000. In connection with the Closing
of the Offering, the Company's face value $1,650,000 Series A Preferred Stock
held by FAS was exchanged for 165,000 shares of Common Stock. First Equity Group
Inc. indirectly owns all of the outstanding shares of FAS. In addition to the
shares of the Company owned by FAS, 22,983 shares of the Company are owned
directly by First Equity Group Inc. Messrs. Culver and Hollander, as well as Mr.
Marsalisi, are officers of FAS.
On June 1, 1995, NAC entered into the Loan and Security Agreement (the "Loan
Agreement") between NAC and Canpartners (as assignee of Canpartners Investments
III, L.P.). Mr. Friedman, a director of the Company, is affiliated with
Canpartners. Pursuant to the Loan Agreement, Canpartners made a $3,000,000 loan
(the "Subordinated Debt") to NAC that was subordinated in right of payment to
NAC's bank credit facility. The Subordinated Debt carried interest at the rate
of 15% per year and required scheduled prepayments of principal and interest,
and initially was due no later than July 15, 1997. On June 13, 1996, in
connection with a refinancing of NAC's credit facility, NAC repaid $1,000,000 in
principal to Canpartners and made certain modifications to the Loan Agreement,
including an extension of the final maturity date of the Subordinated Debt to
June 13, 1999. In connection with the execution of the Loan Agreement, NAC and
Canpartners entered into a warrant agreement (the "Warrant Agreement"), pursuant
to which NAC issued warrants to Canpartners to purchase 1,832,225 shares of its
common stock at an exercise price of $0.05 per share. In connection with the
repayment of $1,000,000 of the Subordinated Debt in June 1996, 538,890 of the
warrants held by Canpartners were canceled. Pursuant to the second amendment to
the Warrant Agreement, dated December 20, 1996, the remaining NAC warrants held
by Canpartners became exercisable for and were exercised for shares of the
Company's Common Stock at an exercise price of $0.05 per share upon consummation
of the Offering. The remaining debt to Canpartners was retired with a portion of
the proceeds from the Offering.
11
Pursuant to a shareholders agreement entered into among NAC, the Company and
Canpartners in connection with the execution of the Loan Agreement (the
"Shareholders Agreement"), NAC agreed to pay a management fee to First Equity in
the amount of $300,000 per year, payable quarterly.
NAC reduced payment of this management fee to First Equity by the amount of
compensation paid to Mr. Risko in connection with his services as an officer of
the Company and NAC. The obligation to pay a management fee to First Equity
terminated upon consummation of the Offering.
Pursuant to the Shareholders Agreement, NAC agreed to pay an annual management
fee of $50,000 to Canpartners for each of the four years commencing June 1,
1995. The Shareholders Agreement provided for accelerated payment to Canpartners
of all remaining annual management fees upon the occurrence of certain events,
including the consummation of the Offering.
On September 30, 1996, the Company entered into two agreements with First Equity
whereby First Equity provided certain investment advisory services in connection
with the Offering as well as advice with respect to and assistance in
negotiating the acquisition of API (the "API Combs Acquisition"). Upon the
closing of the Offering, First Equity was paid a fee of $350,000 for assistance
rendered in connection with the Offering and $250,000 for its services with
regard to the API Combs Acquisition. First Equity may render other investment
advisory services to the Company in the future. If it does so, any investment
advisory fees paid to it would not exceed customary fees for such services.
On December 20, 1996, the Company and First Equity entered into an agreement
allocating potential investment and acquisition opportunities in the global
aircraft engine repair and overhaul market. Pursuant to this agreement, First
Equity agreed that commencing with the consummation of the Offering, neither
First Equity nor any of its majority-owned subsidiaries will, as a principal,
consummate any acquisition of a majority interest in any business that is
engaged in the repair and overhaul of military and commercial aircraft engines
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 directors of the Company who
have no affiliation with First Equity. The agreement will remain in effect for a
five-year term, subject to earlier termination in the event First Equity reduces
its ownership interest in the Company to less than 10% of the Company's
outstanding voting securities. In addition, 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 the repair and overhaul of military and
commercial aircraft engines, nor to any advisory services performed by First
Equity on behalf of third parties.
The Company subleases from First Equity approximately 2,000 square feet of
office space in Westport, Connecticut. 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. Monthly payments under this sublease currently are
approximately $5,000, subject to increases on an annual basis.
The Company believes that the terms of the two advisory services agreements and
the sublease agreement between the Company and First Equity are at least as
favorable as the terms which would have been obtained by the Company from an
unaffiliated third party.
12
2. Appointment of Auditors (Proposal No. 2)
On the recommendation of the Audit Committee of the Board of Directors, the
Board has appointed Ernst & Young LLP as auditors for the fiscal year ended
January 31, 1999, subject to ratification by stockholders. Ernst & Young LLP has
audited the Company's financial statements since 1995.
Representatives of Ernst & Young are expected to attend the Annual Meeting,
where they will have the opportunity to make a statement if they wish 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 1999 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 Board of Directors, then in any such case, the Board of
Directors will appoint other independent auditors whose engagement for any
period subsequent to the 1999 Annual Meeting will be subject to ratification by
the Stockholders at the 1999 Annual Meeting of Stockholders.
Solicitation of Proxies
The cost of soliciting proxies for the Annual Meeting will be borne by the
Company. In addition to solicitation by mail, solicitations may also be made by
personal interview, telecopier, telegram and telephone. The Company will use the
services of American Stock Transfer & Trust Company to assist in soliciting
proxies, and expects to pay a nominal fee for such services. Arrangements will
be made with brokerage houses and other custodians, nominees and fiduciaries to
send proxies and proxy material to their principals. Consistent with the
Company's confidential voting procedure, directors, officers and other regular
employees of the Company, as yet undesignated, may also request the return of
proxies by telephone, telecopier, telegram or in person.
Stockholder Proposals
All proposals from stockholders to be included in the proxy materials to be
distributed by the Company in connection with the next Annual Meeting must be
received by the Secretary of the Company, 15 Riverside Avenue, Westport,
Connecticut 06880, not later than the close of business on April 1, 1999.
In addition, as more fully explained in the Company's By-laws, in order to be
properly brought before the next annual meeting of the stockholders, proposals,
including proposals for the nomination of directors, the removal of directors,
amendments to the Company's Certificate of Incorporation or By-laws, or the
repeal of a by-law, must be received in writing by the Company's Secretary no
earlier than 90 days and no later than 60 days in advance of the next Annual
Meeting of stockholders, or, if fewer than 70 days notice or prior public
disclosure of the meeting date is given or made by the Company, not later than
the 10th day after which notice was mailed or such public disclosure was made.
By order of the Board of Directors
John A. Marsalisi
Secretary
13
PROXY
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 John A. Marsalisi
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 July 27, 1998 at the Annual meeting of Stockholders to be held
on September 23, 1998 or any adjournment thereof.
(TO BE SIGNED ON REVERSE SIDE)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
FIRST AVIATION SERVICES INC.
SEPTEMBER 23, 1998
Please Detach and Mail in the Envelope Provided
A /X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR nominee
listed at right
listed at right WITHHOLD AUTHORITY
(except as marked to vote for nominee
to the contrary below) listed at right
1. Election of
Directors for a / / / / NOMINEES: Michael C. Culver
term to expire Robert L. Kirk
at the Annual Meeting of Shareholder's in the year 2001.
(INSTRUCTION: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name in the list at
right.)
(Signature if held jointly)
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of Ernst & Young LLP as
the independent auditors of First Aviation Services Inc. / / / / / /
3. 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 PROPOSALS 1, 2 AND 3.
PLEASE VOTE, SIGN, DATE AND RETURN THE PROXY CARD USING THE
ENCLOSED ENVELOPE.
SIGNATURE________________________ Dated:___________ _________________________________ Dated:___________
(SIGNATURE IF HELD JOINTLY)
Note: Please sign exactly as name appears above. When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
If a corporation, please sign full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.