FIRST AVIATION SERVICES INC.
15 Riverside Avenue
Westport, Connecticut 06880
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------
The 2001 Annual Meeting of Stockholders (the "Annual Meeting") of First Aviation
Services Inc. will be held at the offices of First Aviation Services Inc., 15
Riverside Avenue, Westport, CT 06880 on Tuesday, July 10, 2001 at 9:30 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 2004.
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, 2002.
3. To consider and vote upon a proposal to amend the First
Aviation Services Inc. Stock Incentive Plan.
4. 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 May
15, 2001 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
May 30, 2001
FIRST AVIATION SERVICES INC.
15 Riverside Avenue
Westport, Connecticut 06880
---------------
PROXY STATEMENT
-----------------
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 2001 Annual Meeting of Stockholders to be held on July 10,
2001, 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 and Form 10-K are first being mailed to Stockholders on
or about May 30, 2001.
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.firstaviation.com, or
www.apiparts.com.
Record Date
The Board of Directors has fixed the close of business on May 15, 2001 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 7,190,268 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 of
Stockholders in the year 2004, to ratify the appointment of Ernst & Young LLP as
the Company's independent auditors for the year ending January 31, 2002, and to
adopt a proposal to amend the First Aviation Services Inc. Stock Incentive Plan.
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 "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
Quorum; Required Votes (continued)
The affirmative vote of a plurality of the votes cast at the Annual Meeting 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 year ending
January 31, 2002, and for the adoption of an amendment to the First Aviation
Services Inc. Stock Incentive Plan. 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, "FOR" the ratification of the appointment of Ernst & Young LLP as
the Company's independent auditors for the year ending January 31, 2002, and
"FOR" the adoption of an amendment to the First Aviation Services Inc. Stock
Incentive Plan.
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.
1. Election of Directors (Proposal No. 1)
Nominees for election to the Board of Directors for a term expiring at the
Annual Meeting of Stockholders in the year 2004.
Michael C. Culver
Robert L. Kirk
The nominees for director are Michael C. Culver and Robert L. Kirk. The
Company's 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 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 2004.
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.
3
Background information for the two nominees as well as the four directors
continuing in office can be found under the caption "Executive Officers and
Directors".
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:
Terms Expire at the 2002 Annual Meeting of Stockholders
John A. Marsalisi
Charles B. Ryan
Terms Expire at the 2003 Annual Meeting of Stockholders
Aaron P. Hollander
Stanley J. Hill
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Positions
Aaron P. Hollander 44 Chairman of the Board
Michael C. Culver 50 President, Chief Executive Officer and Director
Gerald E. Schlesinger 56 Senior Vice President
John A. Marsalisi 45 Chief Financial Officer, Secretary and Director
Stanley J. Hill 59 Director
Robert L. Kirk 72 Director
Charles B. Ryan 50 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 its
aerospace investment advisory subsidiary, First Equity Development Inc.
(collectively, "First Equity"). Mr. Hollander has served as President and
Co-Chief Executive Officer of First Equity Group since that time.
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") and Chief Executive Officer of the
Company's wholly owned subsidiary, AeroV Inc. In June 1995 Mr. Culver became a
director of National Airmotive Corporation ("NAC"), a former wholly owned
subsidiary of the Company. In August 1996 he became NAC's Chairman and in June
1997 he became its Chief Executive Officer. Mr. Culver's relationship with NAC
terminated with the Company's sale of NAC on November 1, 1999. Mr. Culver
co-founded First Equity, along with Mr. Hollander, and has served as Co-Chief
Executive Officer of First Equity Group since that time.
4
Executive Officers and Directors (continued)
Gerald E. Schlesinger became Senior Vice President upon his employment
by the Company in June 1997. He also is President and Chief Executive officer of
API. From November 1993 to June 1997, Mr. Schlesinger was affiliated with the SK
Group and served as its Managing Principal. The SK Group provides consulting and
management advisory services to its clients. Prior to November 1993, Mr.
Schlesinger served as Executive Vice-President, CFO and CIO for Butler Aviation.
John A. Marsalisi has served as Chief Financial Officer, Secretary and
Director of the Company since March 1995. Since December 2000, Mr. Marsalisi has
served as Chief Financial Officer of API. He has been an officer of First Equity
since 1996. In June 1995, Mr. Marsalisi became a director of NAC. Mr. Marsalisi
also served as Chief Financial Officer of NAC from August 1996 to August 1998.
Mr. Marsalisi's relationship with NAC terminated with the Company's sale of NAC
on November 1, 1999. 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's
Stamford, Connecticut office. Mr. Marsalisi is a Certified Public Accountant.
Stanley J. Hill became a Director in 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.
Robert L. Kirk became a Director in 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.
Charles B. Ryan became a Director in March 1997. Since 1986, Mr. Ryan
has been the President and Chief Operating Officer of Nordam Group Inc., a
manufacturer and overhaul agency of airframe components, nacelles and thrust
reversers. Mr. Ryan has been associated with Nordam Group Inc. since 1976. Mr.
Ryan also is a Director of F&M Bank & Trust Company.
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 15, 2001 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.
5
Security Ownership of Certain Beneficial Owners and Management (continued)
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership (3) Percent of Class
- -------------------- ------------------------ ----------------
First Equity Group Inc. (1) 3,756,595 50.9%
Aaron P. Hollander (1) 3,756,595 50.9%
Michael C. Culver (1) 3,756,595 50.9%
Wynnefield Capital Management, LLC (2) 2,180,892 29.5%
One Penn Plaza, Suite 4720
New York, NY 10119
Gerald E. Schlesinger 115,312 1.6%
Aerospace Products International Inc.
3778 Distriplex Drive North
Memphis, TN 38118
John A. Marsalisi 99,483 1.4%
Stanley J. Hill 1,391 *
Robert L. Kirk 20,380 *
Charles B. Ryan 54,930 *
All directors and executive
officers as a group (7 persons) 4,048,091 54.8%
- ----------------------------------
* 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.
(2) Based upon a Form 4 dated May 7, 2001 and the Company's knowledge,
Wynnefield Capital Management, LLC 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.
(3) Includes shares of common stock issuable pursuant to vested stock
option grants awarded under the First Aviation Services Inc. Stock
Incentive Plan in the amounts of 110,000 and 85,000, respectively, for
Mr. Schlesinger and Mr. Marsalisi.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") requires the Company's directors and executive officers to file initial
reports of ownership and reports of changes in ownership of the Company's Common
Stock with the Securities and Exchange Commission (the "SEC"). Directors and
executive officers are required to furnish the Company with copies of all
Section 16 (a) forms that they file. Based upon a review of these filings, the
Company believes that all such filings were made on a timely basis for the year
ended January 31, 2001.
Section 16 (a) of the Exchange Act also requires ten percent shareholders to
file initial reports of ownership and reports of changes in ownership of the
Company's Common Stock with the SEC. Ten percent shareholders are required to
furnish the Company with copies of all Section 16 (a) forms that they file.
Based upon a review of copies of filings submitted to the Company, the Company
believes that all filings were made on a timely basis for the year ended January
31, 2001.
6
Committees of the Board of Directors and Meeting Attendance
During a majority of the year ended January 31, 2001, the Company's Board of
Directors was comprised of Messrs. Culver, Hollander, Kirk, Marsalisi, Ryan, and
Mr. Joshua S. Friedman. In December 2000 Mr. Friedman resigned and Mr. Hill was
appointed to fill the vacancy by a unanimous vote of the remaining directors.
The Board of Directors held four regularly scheduled meetings during the year
ended January 31, 2001. Each director attended at least 75% of the meetings of
the Board of Directors and at least a majority of the meetings of committees on
which he served while a member thereof.
The Board of Directors has the following standing committees, which were first
established in March 1997.
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
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 three directors of the Company, Messrs. Hill,
Kirk and Ryan. All members of the Audit Committee are independent directors in
accordance with the National Association of Securities Dealers listing
standards. Until Mr. Hill's appointment to the Board of Directors in December,
2000 Mr. Hollander also served on the Audit Committee. 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
three times during the year ended January 31, 2001. The report of the Audit
Committee is set forth below.
Compensation Committee
The Compensation Committee consists of three independent directors of the
Company, Messrs. Hollander, Kirk and Ryan. 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, including
bonuses and stock option grants. The Compensation Committee met once during the
year ended January 31, 2001. The report of the Compensation Committee is set
forth below.
Report from the Audit Committee
Effective January 31, 2000, the SEC adopted new rules and amendments relating to
the disclosure of information about companies' audit committees. The new rules
require that the proxy statement must contain a report of the audit committee
addressing several issues identified in the rules. In addition, the SEC
recommends that audit committees adopt written charters. Any such charter must
be included as an attachment to the proxy statement at least once every three
years. The Audit Committee adopted a charter in March 2000. The Charter is
included in this proxy statement as Appendix A.
7
Report from the Audit Committee (continued)
In accordance with the Audit Committee Charter, the Audit Committee has met with
management and the Company's independent auditors, and has:
o reviewed and discussed the consolidated financial statements with
management and the independent auditors;
o discussed with the independent auditors the matters required to be
discussed by Statement of Auditing Standards No. 61 "Communications
with Audit Committees"; and,
o discussed with the independent auditors their independence as required
by Independence Standards Board Standard No. 1 "Independent Discussions
with Audit Committees".
Management has represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board of Directors has
approved, that the audited consolidated financial statements be included in the
Company's Annual Report on Form 10-K for the year ended January 31, 2001, for
filing with the SEC. The Audit Committee also has recommended, subject to
stockholder approval, the selection of Ernst & Young LLP as the Company's
independent auditors for the year ended January 31, 2002. The Board of Directors
has accepted this recommendation, and recommends that the stockholders vote
"FOR" ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ended January 31, 2002.
Respectfully submitted on April 25, 2001 by the members of the Audit Committee
of the Board of Directors,
Stanley J. Hill
Robert L. Kirk
Charles B. Ryan
In accordance with the rules of the SEC, the foregoing information, which is
required by paragraphs (a) and (b) of Item 306 of Regulation S-K of the Exchange
Act, shall not be deemed to be "soliciting material" or to be "filed" with the
SEC or subject Regulation 14A of the Exchange Act, except to the extent that the
Company specifically requests that the information be treated as soliciting
material or specifically incorporates it by reference into a document filed
under the Securities Act of 1933, as amended, or the Exchange Act.
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. 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. Messrs. Hill, Hollander, Kirk and Ryan have elected to
have their compensation paid in the form of Company stock.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or has been an employee of the
Company.
8
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 comparative 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.
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 the Company's
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 year ended January 31, 2001 was paid in
accordance with his employment agreement. Mr. Culver also received a bonus as
approved by the Committee. Mr. Culver did not receive a stock award under the
Company's plans.
9
Report from the Compensation Committee Regarding Executive Compensation
(continued)
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.
Respectfully submitted by the members of the Compensation Committee to the Board
of Directors,
Aaron P. Hollander
Robert L. Kirk
Charles B. Ryan
Executive Compensation
Summary Compensation Table
The following table sets forth certain information for each of the years ended
January 31, 2001, 2000, and 1999, 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.
Long-Term
Annual Compensation Compensation
----------------------------------- ---------------
Awards
---------------
Securities
Underlying
Options
Name and Principal Position Year ended January 31, Salary Bonus (#)
- ------------------------------ --------------------------- ---------------- ---------------- ---------------
Michael C. Culver 2001 $250,000 $150,000 -
Director, President and Chief 2000 $225,000 $200,000 -
Executive Officer 1999 $180,000 $120,000 -
Gerald E. Schlesinger 2001 $250,000 $150,000 50,000
Senior Vice President 2000 $225,000 $200,000 50,000
1999 $190,000 $120,000 -
John A. Marsalisi 2001 $200,000 $75,000 40,000
Director, Secretary and Chief 2000 $180,000 $100,000 40,000
Financial Officer 1999 $155,000 $75,000 -
10
Option Grants in the Last Fiscal Year
The following table sets forth information regarding the stock options that were
granted during the year ended January 31, 2001 to each of the officers named in
the Summary Compensation Table.
Individual Grants
Number of
Securities Percent of Total
Underlying Options Granted Grant Date
Options to Employees in Exercise or Present Value
Name Granted (#) Fiscal year Base Price Expiration date Per Share (1)
- --------------------- ------------ ---------------- ------------- --------------- -------------
Michael C. Culver None N/A N/A N/A N/A
Gerald E. Schlesinger 50,000 27.7% $5.00 2010 $2.24
John A. Marsalisi 40,000 22.2% $5.00 2010 $2.24
1. The 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 return of 5.0%, (ii) a
dividend yield of 0%, (iii) an average volatility factor of 0.493
and (iv) an expected life of four 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
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.
11
Fiscal Year-End Option Values
No options were exercised during the year ended January 31, 2001 by any of the
officers named in the Summary Compensation Table. The following table sets forth
the aggregate positions in stock options at January 31, 2001 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 Excercisable/Unexcercisable
- ---------------------- ------------------------------ -------------------------------
Michael C. Culver None/None N/A
Gerald E. Schlesinger 64,167/95,833 $2,083/4,167
John A. Marsalisi 58,333/66,667 $1,667/3,333
Employment Contracts
In December 1999, First Aviation entered into employment agreements with Michael
C. Culver, Gerald E. Schlesinger, and John A. Marsalisi. Each of these
employment agreements are for terms of three years, expiring on December 31,
2002, and provide for annual base salaries of $225,000, $225,000 and $180,000,
respectively. All of the employment agreements provide for base salaries to be
adjusted at the discretion of the Board of Directors. In addition, each
employment agreement provides for: (i) benefits which also are 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. Each 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.
Messrs. Culver, Schlesinger and Marsalisi 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 his employment by First Aviation and not to
solicit employees or customers of First Aviation for a period of six months
following the end of his employment with First Aviation.
In December 1999 the Company entered into separate three-year agreements with
Messrs. Culver, Schlesinger, and Marsalisi whereby the employee will be
entitled, upon a change in control of the Company's Board of Directors, as
defined, to receive certain payments if the individual's employment subsequently
is terminated for any reason other than cause.
12
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. The peer group is comprised of the following companies: AVTEAM,
Inc., Kellstrom Industries, Inc., Aviation Sales Corporation, Aviall Inc., and
Satair A/S. The comparison assumes $100 was invested as of February 28, 1997
(the date on which shares of the Company's Common Stock began trading on a "when
issued" basis) and the reinvestment of all dividends.
[graph]
February 28, January 31, January 31, January 31, January 31,
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Peer Group $100 $130.76 $124.54 $ 55.25 $ 52.01
First Aviation $100 $ 67.50 $ 45.00 $ 50.00 $ 46.25
Russell 2000 $100 $119.44 $118.66 $137.82 $141.19
Certain Relationships and Related Transactions
Effective March 7, 2000, the Company and First Equity, a subsidiary of First
Equity Group, entered into a two-year agreement relating to the allocation of
potential investment and acquisition opportunities in the aerospace parts
distribution and logistics business. Pursuant to the agreement, First Equity
agreed that neither First Equity nor any of its majority-owned subsidiaries
would, as a principal, 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
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.
13
Certain Relationships and Related Transactions (continued)
Upon the authorization of the independent members of the Board of Directors, the
Company entered into an advisory agreement with First Equity. The advisory
agreement, which was effective February 1, 2000, has a two-year term, and was a
renewal on substantially the same terms and conditions of a prior agreement.
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. In addition, upon the successful completion of certain
transactions, the Company will pay a fee to First Equity ("Success Fee"), and
will reimburse First Equity for its out-of-pocket expenses. 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 to be provided and the size and type of the
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. The agreement
may be terminated by either party upon 30-days written notice to the other
party. During the year ended January 31, 2001, the Company paid First Equity
retainer fees totaling $360,000. No Success Fee was paid.
The Company subleases from First Equity approximately 3,000 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. Lease payments under this sublease totaled
approximately $94,600, $102,000 and $98,000, respectively, for the years ended
January 31, 2001, 2000 and 1999.
The Company believes that the terms of the advisory agreement and the sublease
agreement between the Company and First Equity are at least as favorable as the
terms that would have been obtained by the Company from an unaffiliated
third-party.
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 independent auditors for the year ended
January 31, 2002, 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 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 2002 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 2001 Annual Meeting will be subject to ratification by
the Stockholders at the 2002 Annual Meeting of Stockholders.
Fees related to the audit of the Company's annual consolidated financial
statements for the year ended January 31, 2001 and review of the Company's
quarterly reports on Form 10-Q totaled $272,500.
The Company did not engage Ernst & Young LLP to provide advise regarding
financial information systems design and implementation during the year ended
January 31, 2001, nor did the Company engage Ernst & Young LLP for any other non
audit related services, including tax related services, for the year ended
January 31, 2001.
The Board of Directors recommends a vote FOR the ratification of Ernst & Young
LLP as independent auditors for the year ended January 31, 2002.
14
3. Proposal to Amend the First Aviation Services Inc. Stock Incentive Plan
(Proposal No. 3)
The First Aviation Services Stock Incentive Plan (the "Plan") initially was
adopted by the Company's Board of Directors and approved by the Company's
stockholders on December 20, 1996. The purpose of the Plan is to promote the
success of the Company by providing an additional means through the grant of
awards to attract, motivate, retain and reward key employees of the Company,
including officers, (whether or not directors), for high levels of individual
performance and improved financial performance of the Company, and to attract,
motivate and retain experienced and knowledgeable independent directors.
The Executive Committee to the Board of Directors has approved an amendment to
the Plan to increase the number of shares of Common Stock available for issuance
pursuant to grants thereunder by 200,000, and has directed that such amendment
be submitted to the Company's stockholders for approval at the 2001 Annual
Meeting. As of May 30, 2001, 150,000 stock options had been granted pursuant to
the Plan and exercised, 561,000 stock options have been issued and are
outstanding, and 89,000 shares of the Company's Common Stock remained available
for future grants. The Executive Committee believes that the proposed increase
is necessary because of the need to continue to make grants under the Plan to
attract, retain and motivate eligible persons. The effective date of the
proposed amendment will be on the date such amendment is approved by the
stockholders. Any grants given under the Plan must be approved by the
Compensation Committee.
The following summary of the Plan is not intended to be complete and is
qualified in its entirety by reference to the Plan. A copy of the Plan may be
obtained by contacting the Company directly, or from the SEC website at
www.sec.gov, under "Company Info on EDGAR" for First Aviation Services, Form
Type S-8, filed on April 25, 1997.
Administration of the Plan
The Plan is administered by the Compensation Committee, each member of whom is a
"Non-Employee Director" as such term is defined for purposes of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended and an "Outside Director" as
such term is defined for purposes of Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code").
The Compensation Committee must act by a majority of its members in office. The
Compensation Committee may act by vote at a meeting or by written consent. In
addition to any other powers described herein, the Compensation Committee has
the authority to select those eligible persons who may participate in the Plan
and to determine the terms and conditions of their awards, including the number
of shares subject thereto, subject only to the limitations of the Plan and
applicable law. In addition, the Compensation Committee has the authority to
construe and interpret the terms of the Plan and individual award agreements and
make all other determinations and take any other action that is necessary or
advisable for the administration of the Plan. A member of the Compensation
Committee generally will not be liable for actions or determinations made in
good faith with respect to the Plan.
Amendment, Suspension or Termination of the Plan
The Plan will terminate on December 19, 2006. However, the Board may, at any
earlier time, suspend or terminate the Plan (without shareholder approval). Such
termination typically will not affect rights of participants which accrued prior
to such termination. The Board also may amend the Plan at any time.
Any amendment or termination of the Plan will not be made if it would adversely
affect any material vested benefits under any awards without the consent of the
affected recipients. The Compensation Committee may, with the consent of a
participant, waive any conditions or rights with respect to, or amend, alter,
suspend, discontinue or terminate any unexercised award.
15
3. Proposal to Amend the First Aviation Services Inc. Stock Incentive Plan
(Proposal No. 3) (continued)
Eligibility and Participation
Any officer (whether or not a director), other employees of the Company and its
subsidiaries, any non-employee Director of the Company, or any individual
consultant or advisor who renders bona fide services to the Company, as
determined in the sole discretion of the Compensation Committee, is eligible to
be granted awards under the Plan. The individuals eligible to participate in the
Plan are referred to herein as "Eligible Persons." The Compensation Committee
may grant an award to any Eligible Person who performs significant services for
the benefit of the Company.
Shares Available for Awards and Terms of Awards
The Compensation Committee determines the number of shares subject to each award
granted to an Eligible Person under the Plan, and the terms and conditions of
such award, including the price (if any) to be paid to the Company for the
shares or the award and, in the case of Performance Share Awards, the specific
objectives, goals and performance criteria of such awards. The maximum number of
shares of Common Stock that may be delivered pursuant to awards granted during
any calendar year to any Eligible Employee may not exceed 150,000 shares. These
shares may be unissued shares of the Company or reacquired shares bought on the
open market for that purpose.
Under the Plan, each of the limits described above as well as the kind of shares
available are subject to adjustment in the event of certain reorganizations,
mergers, combinations, recapitalizations, stock splits, stock dividends, or
other similar events which change the number or kind of shares outstanding.
No Transferability
The Plan provides, with limited exceptions, that rights or benefits under any
award are not assignable or transferable except by will or the laws of descent
and distribution, and that only the Eligible Person (or, if the Eligible Person
has suffered a disability, his or her legal representative) may exercise his or
her award during the Eligible Person's lifetime. There are certain exceptions
for transfers to members of the participant's family, charitable institutions or
entities whose beneficiaries are members of the participant's family or
charitable institutions pursuant to conditions that the Compensation Committee
may establish. There also are exceptions for transfers to the Company, transfers
pursuant to domestic relations orders and, if authorized by the Compensation
Committee, "cashless exercises" with unaffiliated third parties who provide
financing or otherwise facilitate the exercise of awards consistent with
applicable legal standards.
Award Agreement
Each award must be evidenced by a written agreement (the "Award Agreement")
executed by an authorized officer of the Company and, if required by the
Compensation Committee, by the Eligible Person, containing all the terms and
conditions of the award.
Possible Early Termination of Awards
In the event that the stockholders of the Company approve the dissolution or
liquidation of the Company, certain mergers or consolidations, or the sale of
substantially all of the business assets of the Company, unless prior to such
event the Board of Directors determines that there shall be either no
acceleration or limited acceleration of awards, each option and or stock
appreciation right shall become immediately exercisable, restricted stock shall
immediately vest and the number of shares covered by each performance share
shall be issued to the participant.
16
3. Proposal to Amend the First Aviation Services Inc. Stock Incentive Plan
(Proposal No. 3) (continued)
The Plan generally provides that if a Participant's employment by the Company
terminates for any reason other than for cause (as determined in the discretion
of the Compensation Committee), the Participant will have three months from the
date of his or her severance to exercise his or her award to the extent it was
exercisable on the date of severance. After such period of time, the award will
terminate. In the case of a termination for cause, a Participant's award will
automatically terminate on the date of severance. In no case, however, will the
exercise period extend beyond the original expiration date of the award.
Nothing in the Plan confers upon an employee the right to remain in the employ
of the Company, or to interfere with the right of the Company to reduce such
employee's compensation.
Awards
a. Options
One or more options ("Options") may be granted to any Eligible Person. The
Compensation Committee will designate options as either Incentive Stock Options,
within the meaning of Section 422 of the Code, or Nonqualified Stock Options,
those not meeting the requirements of the Code, and the appropriate designation
will appear on the respective Award Agreement. However, only employees of the
Company may be granted Incentive Stock Options. Award Agreements need not be
identical and, as previously noted, the terms of individual Award Agreements are
determined by the Compensation Committee, subject to the limitations described
in the Plan.
No Option may be exercised more than 10 years (or, in the case of Incentive
Stock Options granted to an individual who owns (or is deemed to own) more than
10% of the total combined voting power of all classes of stock of the Company,
five years) after the date it is granted or such shorter period as the
Compensation Committee may determine. Specific exercise features are set forth
in the applicable Award Agreements. Typically, options are exercisable until the
expiration of the exercise period, subject to possible acceleration by the
Compensation Committee and early termination as described above (see "Possible
Early Termination of Awards" above).
The purchase price payable upon the exercise of an Incentive Stock Option must
be at least equal to the fair market value of the Common Stock on the award
date. However, with respect to Incentive Stock Options granted to a recipient
who owns (or is deemed to own) more than 10% of the total combined voting power
of all classes of stock of the Company, the exercise price must be at least
equal to 110% of the fair market value of the Common Stock on the award date.
Payment for the exercise may be made (i) in cash, check, or by electronic funds
transfer, (ii) by notice and third party payment in such manner as may be
authorized by the Compensation Committee, (iii) if authorized by the
Compensation Committee, by a promissory note consistent with the requirements of
the Plan, or (iv) subject to the Compensation Committee's approval, by delivery
of shares of common stock of the Company already owned by the Eligible Person.
Holders of Options will have no rights as stockholders with respect to any
shares covered by such Options until stock certificates are issued for such
shares. Except as described above (see "Shares Available for Awards and Terms of
Awards"), no adjustment will be made for cash dividends or distributions or
other rights for which the record date is prior to the date the stock
certificate is issued.
17
3. Proposal to Amend the First Aviation Services Inc. Stock Incentive Plan
(Proposal No. 3) (continued)
b. Stock Appreciation Rights
In its discretion, the Compensation Committee may grant a Stock Appreciation
Right either concurrently with the grant of another award, with respect to an
outstanding award, or independently of an award. A Stock Appreciation Right is
the right to receive payment of an amount equal to the excess of the fair market
value of the Common Stock on the date of exercise of the Stock Appreciation
Right over the exercise price of the related award (or the initial share value
specified in the applicable Award Agreement). The Stock Appreciation Right may
extend to all or a portion of the shares covered by the related award and a
Stock Appreciation Right is only exercisable when and to the extent that the
related award is exercisable (or as provided in the applicable Award Agreement).
Upon exercise of a Stock Appreciation Right, the participant receives, for each
share with respect to which the Stock Appreciation Right is exercised, an amount
equal to the excess of the fair market value of a share of Common Stock on the
date of exercise of the Stock Appreciation Right over the exercise price of the
related award or the initial share value specified in the applicable Award
Agreement. The Compensation Committee, in its sole discretion, may provide for
payment upon exercise of a Stock Appreciation Right to be solely in shares of
Common Stock (valued at fair market value at date of exercise), in cash, or in a
combination of Common Stock and cash.
c. Restricted Stock Awards
A Restricted Stock Award is an award of a fixed number of shares of Common Stock
subject to vesting requirements and other restrictions. The Compensation
Committee specifies the price, if any, the participant must pay for such shares
and the restrictions imposed on such shares. Restricted Stock awarded to a
participant may not be voluntarily or involuntarily sold, assigned, transferred,
pledged or encumbered during the restricted period. Stock certificates
evidencing shares of restricted stock shall be held by the Company, or in trust
or in escrow pursuant to an agreement satisfactory to the Compensation
Committee, until the restrictions have expired. The applicable Award Agreement
shall state whether the recipient of a Restricted Stock Award is entitled to
receive any dividends pertaining to such shares prior to the time they have
vested, and the extent to which cash paid or received in connection with a
Restricted Stock Award must be returned in the event that any of the restricted
shares subject to the award cease to be eligible for vesting. The participant
may vote any restricted shares prior to the time they have vested.
d. Performance Share Awards
The Compensation Committee may, in its discretion, grant one or more Performance
Share Awards to any participant based upon such factors (including financial and
non-financial performance measures) as the Compensation Committee shall deem
relevant in light of the specific type and terms of the award. The amount of
cash or shares or other property that may be deliverable pursuant to such an
award is based upon the degree of attainment over a specified period of such
measure(s) of performance of the Company (or any part thereof) or the
participant as may be established by the Compensation Committee. In general, an
Award Agreement shall specify the minimum, target and maximum number of shares
(if any) subject to the Performance Share Award, the consideration (but not less
than the minimum lawful consideration) to be paid for any such shares as may be
issuable to the participant, the duration of the award and the conditions upon
which delivery of any shares or cash to the participant will be based. No award
shall be paid if minimal performance is not achieved. In addition, if the
Compensation Committee determines in its sole discretion that established
performance measures or objectives are no longer suitable because of a change in
business operations, corporate or capital structure or other conditions that are
appropriate, the Compensation Committee may modify performance measures and
objectives as appropriate.
18
3. Proposal to Amend the First Aviation Services Inc. Stock Incentive Plan
(Proposal No. 3) (continued)
e. Tax Withholding
The Compensation Committee may in its discretion grant a participant the right
to elect to have the Company reduce the number of shares to be delivered by (or
otherwise reacquire) the appropriate number of shares valued at their then fair
market value to satisfy applicable tax withholding requirements.
Employee Retirement Income Security Act of 1974
The Plan is not subject to the Employee Retirement Income Security Act of 1974
and is not qualified under Section 401(a) of the Code.
Benefits under the Stock Incentive Plan
The number of options that may be granted to employees, consultants or executive
officers in the future under the Stock Incentive Plan cannot be determined with
any reasonable degree of certainty, although it is anticipated that grants to
executive officers will be made in the future. In addition, awards of stock may
be made to Directors in lieu of cash payments of Directors fees. The table under
the caption "Option Grants in the Last Fiscal Year" provides information
regarding stock options granted during the year ended January 31, 2001 to each
of the officers named in the Summary Compensation Table. The following table
reflects the options that were received by or allocated to each of the groups
set forth below during the year ended January 31, 2001:
Name and Position Number of Shares
Executive Officer Group in total 90,000
Non Executive Director Group -
Non Executive Officer Group (8 persons) 75,500
The Board of Directors recommends a vote FOR the adoption of the amendment to
the First Aviation Services Stock Incentive Plan.
19
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 also may be made by
personal interview, facsimile, telecopy, 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, also may
request the return of proxies by telephone, facsimile, 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 of
stockholders must be received by the Secretary of the Company, 15 Riverside
Avenue, Westport, Connecticut 06880, not later than the close of business on
January 30, 2002.
In addition, as more fully explained in the Company's Bylaws, in order to be
properly brought before the next annual meeting of stockholders, proposals,
including proposals for the nomination of directors, removal of directors,
amendments to the Company's Certificate of Incorporation or Bylaws, or the
repeal of a bylaw, 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,
/s/ John A. Marsalisi
-------------------------
John A. Marsalisi
Secretary
20
APPENDIX A
FIRST AVIATIONS SERVICES INC.
PROXY STATEMENT
2001 ANNUAL MEETING OF STOCKHOLDERS
AUDIT COMMITTEE CHARTER
Organization
This charter governs the operations of the audit committee. The committee shall
annually review and reassess the charter and obtain the approval of the board of
directors. The committee shall be appointed by the Board of Directors and shall
be comprised of at least three directors, each of whom are independent of
management and the Company. Members of the committee shall be considered
independent if they have no relationship that may interfere with the exercise of
their independence from management and the Company. However, the committee may
include one director who is not independent if after due consideration and the
exercise of prudent business judgment the Board of Directors determines the
appointment to be in the best interests of the corporation and its shareholders.
All committee members shall be financially literate, and at least one member
shall have accounting or related financial management expertise.
Statement of Policy
The audit committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In so
doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors, the internal auditors
and management of the Company. In discharging its oversight role, the committee
is empowered to investigate any matter brought to its attention with full access
to all books, records, facilities, and personnel of the Company and the power to
retain outside counsel, or other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the audit committee is to oversee the Company's
financial reporting process on behalf of the board and report the results of
their activities to the Board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedures shall remain flexible, in
order to best react to changing conditions and circumstances. The committee
shall take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
AUDIT COMMITTEE CHARTER (continued)
The following shall be the principal recurring process of the audit committee in
carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the committee may supplement them as
appropriate.
o The committee shall have a clear understanding with management and
the independent auditors that the independent auditors are
ultimately accountable to the board and the audit committee, as
representatives of the Company's shareholders. The committee shall
have the ultimate authority and responsibility to evaluate and,
where appropriate, replace the independent auditors. The committee
shall discuss with the auditors their independence from management
and the Company and the matters included in the written disclosures
required by the Independence Standards Board. Annually, the
committee shall review and recommend to the board the selection of
the Company's independent auditors, subject to shareholders'
approval.
o The committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their
respective audits including the adequacy of staffing and
compensation. Also, the committee shall discuss with management, the
internal auditors, and the independent auditors the adequacy and
effectiveness of the accounting and financial controls, including
the Company's system to monitor and manage business risk, and legal
and ethical compliance programs. Further, the committee shall meet
separately with the internal auditors and the independent auditors,
with and without management present, to discuss the results of their
examinations.
o The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent
auditors under generally accepted auditing standards. The chair of
the committee may represent the entire committee for the purpose of
this review.
The committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form 10-K
(or the annual report to shareholders if distributed prior to the filing of Form
10-K), including their judgment about the quality, not just acceptability, of
accounting principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. Also, the committee
shall discuss the results of the annual audit and any other matters required to
be communicated to the committee by the independent auditors under generally
accepted auditing standards.