UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss.240.14a-12
FIRST AVIATION SERVICES INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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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 2006 Annual Meeting of Stockholders of First Aviation Services Inc. (the
"Annual Meeting") will be held at the offices of Aerospace Products
International, Inc., 3778 Distriplex Drive North, Memphis, TN 38118 on Tuesday,
June 13, 2006 at 8:30 a.m. local time for the following purposes:
1. To elect two directors- for a term to expire at the Annual Meeting of
Stockholders in the year 2009 (Class I).
2. To consider and vote upon a proposal to ratify the appointment of
Ernst & Young LLP as the Company's independent registered public
accounting firm for the year ending January 31, 2007.
3. To transact such other business as may properly come before the Annual
Meeting and any and all adjournments or postponements thereof.
The Board of Directors, by resolution, has fixed the close of business on May 5,
2006, 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 a proxy issued in your name from the record holder.
Regardless of how many shares you own, your vote is very important, and we
encourage you to exercise your right to vote. Please COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD TODAY.
By order of the Board of Directors,
Robert G. Costantini
Secretary
Westport, Connecticut
May 11, 2006
[Intentionally Blank]
FIRST AVIATION SERVICES INC.
15 Riverside Avenue
Westport, Connecticut 06880
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PROXY STATEMENT
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Introduction
This proxy statement is furnished to the holders of common stock, par value $.01
per share (the "Common Stock"), of First Aviation Services Inc., a Delaware
corporation ("First Aviation" or the "Company"), in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company (the
"Board") for use at the Company's 2006 Annual Meeting of Stockholders, which is
scheduled to be held on Tuesday, June 13, 2006, at 8:30 a.m. local time at the
offices of Aerospace Products International, Inc., 3778 Distriplex Drive North,
Memphis, TN 38118, and at any adjournment or postponement thereof (the "Annual
Meeting"). The Notice of Annual Meeting, this proxy statement, the accompanying
proxy, the Company's Annual Report on Form 10-K for the year ended January 31,
2006, and the Company's Annual Report are first being furnished to stockholders
on or about May 12, 2006.
The Company's principal executive offices are located at 15 Riverside Avenue,
Westport, Connecticut 06880. Additional information about the Company can be
found on the Company's worldwide web site at www.favs.com, or
www.apiworldwide.com.
Record Date
The Board of Directors has fixed the close of business on May 5, 2006 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 7,357,726 shares of
Common Stock issued and outstanding.
Matters to Be Considered
At the Annual Meeting, stockholders will be asked to consider and vote upon: (1)
the election of two directors for a term to expire at the Annual Meeting of
Stockholders in the year 2009 (Class I), and until his successor is duly elected
and qualified; and (2) the ratification of the appointment of Ernst & Young LLP
as the Company's independent registered public accounting firm for the year
ending January 31, 2007. The Board of Directors does not know of any other
matter to be brought before the Annual Meeting. If any other matter properly
comes before the Annual Meeting, the persons named in the enclosed form of proxy
or their substitutes will vote in accordance with their best judgment on such
matters.
Quorum; Required Votes
In order to transact business at the Annual Meeting, a majority of the shares of
Common Stock issued and outstanding on the Record Date must be present in person
or represented by proxy at the Annual Meeting. Shares that are voted "FOR",
"AGAINST", or "WITHHOLD" on a matter are treated as being present at the Annual
Meeting for purposes of establishing a quorum and will be included in
determining the number of shares that are represented and voted at the Annual
Meeting with respect to such matter.
The affirmative vote of a plurality of the votes cast at the Annual Meeting is
required for the election of directors. Only shares of Common Stock that are
voted in favor of a nominee will be counted toward that nominee's achievement of
a plurality. Shares of Common Stock held by stockholders present in person at
the Annual Meeting that are not voted for the nominee or shares held by
stockholders represented at the Annual Meeting by proxy from which authority to
vote for a nominee has been properly withheld (including broker non-votes) will
not be counted towards a nominee's achievement of a plurality.
The affirmative vote of the holders of a majority of the voting power of the
issued and outstanding shares of Common Stock present in person or represented
by proxy at the Annual Meeting and entitled to vote on such matters is required
for the ratification of the appointment of Ernst & Young LLP as the Company's
independent registered public accounting firm for the year ending January 31,
2007. With respect to broker non-votes, the shares will be counted for purposes
of determining the presence or absence of a quorum, but will not be considered
entitled to vote at the Annual Meeting for such matter and thus broker
non-voters will have the practical effect of reducing the number of affirmative
votes required to achieve a majority vote for such matters by reducing the total
number of shares from which the majority is calculated.
Abstentions will count towards the determination of a quorum at the Annual
Meeting but will have the effect of votes "Against" a proposal, and will have no
effect on votes counted in connection with director elections.
Voting and Revocation of Proxies
Stockholders are requested to complete, date, sign and promptly return the
accompanying form of proxy in the enclosed envelope. Common Stock represented by
properly executed proxies received by the Company's Transfer Agent and not
revoked will be voted at the Annual Meeting in accordance with the instructions
contained therein. If instructions are not given, shares represented by properly
executed proxies will be voted "FOR" the election of the nominees for director
named herein, and "FOR" the ratification of the appointment of Ernst & Young LLP
as the Company's independent registered public accounting firm for the year
ending January 31, 2007. If other matters are properly presented at the Annual
Meeting, the proxy holders named in the accompanying form of proxy will vote
your shares at their discretion.
If your shares of Common Stock are held in the name of your broker, a bank, or
other nominee (sometimes referred to as being held in "street name"), only your
broker, bank or other nominee may execute a proxy and vote your shares. Please
sign, date and promptly return the voting instruction form you receive from your
broker, bank or other nominee, in accordance with the instructions on the form.
If you wish to vote your "street name" shares directly, you will need to obtain
a document known as a "legal proxy" from your broker, bank or other nominee.
Please contact your bank, broker or other nominee if you wish to do so.
Any proxy signed and returned by a stockholder may be revoked at any time before
it is voted by filing with the Company's Transfer Agent, American Stock Transfer
& Trust Company, 59 Maiden Lane, New York, New York 10038, written notice of
such revocation or a duly executed proxy bearing a later date, or by attending
the Annual Meeting and voting in person. Attendance at the Annual Meeting will
not in and of itself constitute a revocation of a proxy.
If you receive this proxy statement with a voting instruction form from your
broker, bank or other nominee, please vote in accordance with the Board's
recommendations, and sign, date and mail the enclosed voting instruction form in
the postage-paid envelope provided.
1. Election of Director (Proposal No. 1)
Board's nominees for election to the Board of Directors for a term expiring at
the Annual Meeting of Stockholders in the year 2009 - Class I Directors.
Aaron P. Hollander
Stanley J. Hill
The nominees for director are Aaron P. Hollander and Stanley J. Hill. The
Company's Restated Certificate of Incorporation provides for a Board of
Directors composed of three classes, each with a term of office of three years,
expiring sequentially at successive Annual Meetings of Stockholders. The Board
of Directors currently is comprised of five directors, two directors each in
Class I and Class II, and one in Class III, and there are no vacancies. The
classes distinguish term of office only. If elected, each nominee for Class I
will serve for a term to expire at the Annual Meeting of Stockholders in the
year 2009, or until his successor is duly elected and qualified.
2
The accompanying proxy will be voted for the election of the Board's nominees
unless contrary instructions are given. Each nominee at present is available for
election as a member of the Board of Directors. If a nominee is unable to serve,
the persons named as proxies intend to vote for such other person or as the
Board of Directors may designate.
Background information for the nominees as well as the three directors
continuing in office can be found under the caption "Directors" below.
Directors will be elected by a plurality of the votes cast. If you do not wish
your shares to be voted for any particular nominee, please identify those
nominees for whom you "withhold authority" to vote in the appropriate space
provided on the enclosed proxy card.
The Board of Directors recommends a vote FOR the election of Aaron P. Hollander
and Stanley J. Hill.
Members of the Board of Directors Continuing in Office:
Terms Expire at the 2007 Annual Meeting of Stockholders - Class II Directors
Michael C. Culver
Robert L. Kirk
Term Expires at the 2008 Annual Meeting of Stockholders - Class III Directors
Joseph J. Lhota
Directors
The directors of the Company are as follows:
Name Age Positions
Aaron P. Hollander 49 Chairman of the Board
Michael C. Culver 55 President, Chief Executive Officer
and Director
Stanley J. Hill 64 Director
Robert L. Kirk 77 Director
Joseph J. Lhota 51 Director
Aaron P. Hollander co-founded and has served as Chairman of the Board
of Directors of the Company since March 1995. In 1985, Mr. Hollander, along with
Mr. Culver, co-founded First Equity Group Inc. ("First Equity Group"), and has
served as its President and Co-Chief Executive Officer since that time. First
Equity Group's ownership interests, in addition to the Company, include First
Equity Development Inc., an aerospace investment and advisory firm, ("First
Equity"), Skip Barber Racing School, LLC ("Skip Barber") and Imtek, Inc.
("Imtek"), a specialty marketing and fulfillment company. Mr. Hollander is a
director and serves as the Chief Executive Officer of Skip Barber, and is the
Chairman of the Board of Directors of Imtek.
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Michael C. Culver co-founded and has served as President, Chief
Executive Officer and Director of the Company since March 1995. Mr. Culver also
serves as Chairman of the Board of the Company's majority owned subsidiary,
Aerospace Products International, Inc. ("API"). Mr. Culver co-founded First
Equity Group, along with Mr. Hollander, and has served as Co-Chief Executive
Officer of First Equity Group since that time. Mr. Culver also serves as
Chairman of the Board of Directors of Skip Barber and is a director and Vice
President of Imtek.
Stanley J. Hill has served as a Director since December 2000. In 2000,
Mr. Hill retired as the President, Chief Executive Officer and Chairman of
Kaiser Aerospace and Electronics Corporation and its parent, K Systems, Inc.
(collectively, "Kaiser Aerospace"). Mr. Hill had been associated with Kaiser
Aerospace for nearly 30 years. Mr. Hill is a director of Intevac Inc., which is
based in Santa Clara, CA, and has its stock traded on the NASDAQ national
market.
Robert L. Kirk has served as a Director since March 1997. In 1998, Mr.
Kirk retired as the Chairman of British Aerospace Holdings, Inc., an
international aerospace corporation. Mr. Kirk had been Chairman since 1992. Mr.
Kirk served as Chairman and Chief Executive Officer of CSX Transportation, Inc.,
the railroad subsidiary of CSX Corporation, from 1990 to 1992, and was Chairman
and Chief Executive Officer of Allied-Signal Aerospace Co. from 1986 to 1989.
Joseph J. Lhota became a Director in April 2002. Mr. Lhota currently
serves as Executive Vice President of Cablevision Systems Corporation. Prior to
joining Cablevision, Mr. Lhota served various positions on former New York City
Mayor Rudolph W. Giuliani's senior management team. From 1998 to 2001, he was
New York's Deputy Mayor for Operations, overseeing the day-to-day operations of
city government. Prior to his government service, Mr. Lhota spent 15 years in
investment banking specializing in public finance. He served as director of
public finance at CS First Boston Corporation and as a member of its Public
Finance Management Committee. He also has been a managing director at Paine
Webber Incorporated.
Information Regarding the Board of Directors and Its Committees
Director Independence
The Board of Directors has determined that each of Messrs. Hill, Kirk and Lhota,
constituting a majority of the Board, is an "independent director" in accordance
with the rules and regulations of The NASDAQ Stock Market, Inc. ("NASDAQ").
Committees of the Board
The Board currently has, and appoints the members of, standing Executive, Audit,
Nominating and Corporate Governance, and Compensation Committees. Each member of
the Audit, Nominating and Corporate Governance, and Compensation Committees is
an "independent director" in accordance with the rules and regulations of
NASDAQ. The members of each of the committees of the Board are as follows:
Nominating and Corporate
Governance Compensation
Executive Committee Audit Committee Committee Committee
- ------------------- --------------- --------- ---------
Michael C. Culver Joseph J. Lhota, Chairman Stanley J. Hill, Chairman Robert L. Kirk, Chairman
Aaron P. Hollander Robert L. Kirk Robert L. Kirk Stanley J. Hill
Stanley J. Hill Joseph J. Lhota Joseph J. Lhota
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Executive Committee
The Executive Committee consists of two directors of the Company, Messrs. Culver
and Hollander. The Executive Committee has the power and authority to exercise
all of the powers and authority of the Board of Directors in managing the
business affairs of the Company, except that it does not have the power and
authority to: (i) amend the Certificate of Incorporation or Bylaws of the
Company; (ii) adopt an agreement of merger or consolidation, or to recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
Company's property and assets; (iii) recommend to stockholders a dissolution of
the Company or a revocation of the dissolution; or (iv) declare a dividend or
authorize the issuance of stock of the Company unless expressly authorized by a
resolution of the Board of Directors.
Audit Committee
The Audit Committee assists the Board of Directors in fulfilling its
responsibility to oversee management regarding: (i) the conduct and integrity of
the Company's financial reporting; (ii) the Company's systems of internal
accounting and financial and disclosure controls; (iii) the qualifications,
engagement, compensation, independence and performance of the Company's
independent registered public accounting firm, their conduct of the annual
audit, and their engagement for any other services; (iv) the Company's legal and
regulatory compliance; (v) the Company's codes of ethics as established by
management and the Board; and (vi) the preparation of the audit committee report
for inclusion in the Company's annual proxy statement. The Audit Committee also
reviews and approves transactions or courses of dealing with related parties.
The Audit Committee may also perform such other tasks as are assigned to it from
time to time by the Board of Directors. The Audit Committee has the power to
retain outside counsel, independent auditors or other advisors to assist it in
carrying out its activities.
The Audit Committee met seven times during the fiscal year ended January 31,
2006.
The Audit Committee is governed by a written charter approved by the Board of
Directors. The charter is available on the Company's website at www.favs.com and
was attached as Annex A to last year's proxy statement.
The Board of Directors has determined that each of the members of the Audit
Committee is "independent" under the listing standards of NASDAQ and under the
independence criteria established by the SEC for audit committee members.
The Board of Directors has also determined that Mr. Lhota is an "audit committee
financial expert" as defined in Item 401(h)(2) of Regulation S-K of the Exchange
Act and is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A
of the Exchange Act.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee assists the Board of Directors
in: (i) identifying, screening and reviewing individuals qualified to serve as
directors and recommending to the Board candidates for nomination for election
at the annual meeting of stockholders or to fill Board vacancies; (ii)
overseeing the Company's policies and procedures for the receipt of stockholder
suggestions regarding Board composition and recommendations of candidates for
nomination by the Board; (iii) overseeing implementation of the Company's
Corporate Governance Guidelines and Principles; and (iv) reviewing the overall
corporate governance of the Company and recommending changes when necessary or
desirable.
The Committee may also perform such other tasks as are assigned to it from time
to time by the Board of Directors. The Committee has the power to retain outside
counsel or other advisors to assist it in carrying out its activities.
The Committee is governed by a written charter approved by the Board of
Directors. The charter is available on the Company's website at www.favs.com.
5
The Committee was constituted in March 2004 and consists entirely of independent
directors. The Committee met two times during the fiscal year ended January 31,
2006.
The Nominating and Corporate Governance Committee is responsible for reviewing
with the Board, on an annual basis, the appropriate skills and characteristics
required of directors in the context of the current make-up of the Board. This
assessment by which the Committee considers candidates for director is based
upon various criteria, including their integrity, independence, ability to
exercise sound business judgment, demonstrated leadership ability, breadth of
knowledge about issues affecting the Company and business experience and
technical skills, in particular the extent to which they possess experience and
skills relevant to the Company's business which would be helpful to the Board in
determining and executing the Company's strategies.
In the case of incumbent directors whose terms of office are set to expire, the
Committee reviews such directors' overall service to the Company during their
terms, including the number of meetings attended, level of participation and
quality of performance.
Consideration of new director nominee candidates typically involves a series of
internal discussions, review of information concerning candidates and interviews
with selected candidates. The Committee identifies potential new director
candidates by recommendations from its members, other Board members, Company
management and stockholders, and may, if necessary or appropriate, utilize the
services of a professional search firm.
The Committee considers recommendations for Board candidates submitted by
stockholders using the same criteria (described above) that it applies to
recommendations from the Committee, directors and members of management. In
order to be considered, a recommendation from a stockholder must be received by
the Committee no later than the 120th calendar day before the date of the
Company's proxy statement released to stockholders in connection with the
previous year's annual meeting, and must include the stockholder's name and
contact information, the candidate's name and contact information, a description
of any relationship between the stockholder and the candidate, a description of
the candidate's qualifications, and a signed statement from the candidate that
he or she is willing and able to serve on the Board. Stockholders must submit
recommendations in writing to the Nominating and Corporate Governance Committee
at c/o Corporate Secretary, First Aviation Services Inc., 15 Riverside Avenue,
Westport, Connecticut 06880.
Compensation Committee
The Compensation Committee assists the Board in overseeing the Company's
management compensation policies and practices, including: (i) determining and
approving the compensation of the Chief Executive Officer ("CEO"); (ii)
reviewing and approving compensation levels for the Company's other executive
officers; (iii) reviewing and approving executive level management incentive
compensation policies and programs; (iv) periodically reviewing, with the
Chairman of the Board and the CEO, succession plans for senior executive
officers; and (v) approving an annual report on executive compensation for
inclusion in the proxy statement. The Committee may also perform such other
tasks as are assigned to it from time to time by the Board of Directors. The
Committee has the power to retain outside counsel or other advisors to assist it
in carrying out its activities.
The Committee is governed by a written charter approved by the Board of
Directors. The charter is available on the Company's website at www.favs.com.
The Compensation Committee met three times during the year ended January 31,
2006.
Directors' Attendance at Meetings of the Board of Directors
The Board of Directors held a total of six meetings during the fiscal year ended
January 31, 2006, which does not include actions by written consent or committee
meetings. Each director attended 100% of the Board Meetings, and 100% of the
aggregate of the total number of meetings of the Board and the total number of
meetings held by all committees of the Board on which he served.
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Directors' Attendance at Annual Meetings of Stockholders
The Board of Directors encourages all of its members to attend the Company's
annual meeting of stockholders. All members of the Board serving as directors
during the fiscal year ended January 31, 2006 attended the 2005 Annual Meeting
of Stockholders.
Stockholder Communications with the Board
A stockholder who wishes to communicate with the Board or with specific
individual directors may send written communications by mail addressed to the
Board of Directors generally, or to such specific director or directors
individually, at c/o Corporate Secretary, First Aviation Services Inc., 15
Riverside Avenue, Westport, Connecticut 06880. All communications so addressed
will be forwarded to the Board of Directors or the individual director or
directors, as applicable.
Codes of Business Conduct and Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics
applicable to all directors, officers and employees of the Company and a
Supplemental Code of Ethics for the CEO, CFO and other senior financial
officers. These Codes of Business Conduct and Ethics are available on the
Company's website at www.favs.com. The Company may disclose certain amendments
to, or waivers from, these Codes of Business Conduct and Ethics by posting such
information on its website.
Report of the Audit Committee
The following is a report of the Audit Committee with respect to the Company's
audited consolidated financial statements for the fiscal year ended January 31,
2006:
o The Audit Committee has reviewed and discussed the audited
consolidated financial statements with management;
o The Audit Committee has discussed with the Company's independent
registered public accounting firm the matters required to be discussed
by Statement of Auditing Standards No. 61, "Communications with Audit
Committees", as amended; and
o The Audit Committee has received the written disclosures and the
letter from the Company's independent registered public accounting
firm as required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees", as may be modified
or supplemented, and has discussed with the independent registered
public accounting firm their independence.
Based on the review and discussions with the Company's management and
independent registered public accounting firm, as set forth above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 2006, for filing with the SEC.
Respectfully submitted by the members of the Audit Committee of the Board of
Directors,
Stanley J. Hill
Robert L. Kirk
Joseph J. Lhota
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of May 5, 2006 (unless otherwise
indicated) by (i) each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each of the
Company's directors and nominees, (iii) each of the executive officers named in
the Summary Compensation Table (included in this Proxy Statement below), and
(iv) all directors and current executive officers as a group. Except as
indicated in the footnotes to the table, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws where
applicable. Each of the persons listed in the table who beneficially own more
than 5% of the outstanding shares of Common Stock maintains an address at 15
Riverside Avenue, Westport, Connecticut 06880, unless otherwise indicated.
7
Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
First Equity Group Inc. (1) 3,785,807 51.5%
Aaron P. Hollander (1)(2) 3,785,807 51.5%
Michael C. Culver (1)(3) 3,785,807 51.5%
The Wynnefield Group (4) 2,230,144 30.3%
450 Seventh Avenue, Suite 509
New York, NY 10123
Paul J. Fanelli (5) 16,668 *
Robert G. Costantini (6) 38,669 *
Stanley J. Hill 40,859 *
Robert L. Kirk 57,183 *
Joseph J. Lhota 31,852 *
All directors and current executive officers
as a group (7 persons) 3,971,038 53.6%
- ----------------------------------
* less than 1%
(1) Aaron P. Hollander and Michael C. Culver own, in the aggregate, all of the
outstanding shares of First Equity Group Inc. First Equity Group Inc. has
pledged 500,000 shares of the Company's Common Stock to Hudson United Bank
as collateral for a loan.
(2) Includes 300 shares held as custodian for his minor children.
(3) Includes 200 shares held as custodian for his minor children.
(4) Based upon a Form 4 filed on September 22, 2005, and a Schedule 13D,
amendment No. 13, filed with the SEC on January 14, 2005, the members of
the "group" (as the term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934) consists of Wynnefield Partners Small Cap Value,
L.P. ("Partners"), Wynnefield Partners Small Cap Value, L.P. I ("Partners
I"), Wynnefield Partners Small Cap Value Offshore Fund, Ltd. ("Offshore"),
Nelson Obus ("Obus"), Joshua H. Landes ("Landes"), Wynnefield Capital
Management, LLC ("Capital Management"), Wynnefield Capital Inc.
("Capital"), and Wynnefield Capital, Inc. Profit Sharing & Money Purchase
Plan ("Capital Plan"). Each member of the group may be deemed to each
share voting and dispositive power with respect to the Common Stock
directly owned by any member. Partners owns 637,958 shares directly, and
Partners I owns 740,834 shares directly. Capital Management has an
indirect beneficial ownership interest in shares of Common Stock owned by
Partners and Partners I. Landes and Obus are co-managing members of
Capital Management. Offshore owns 743,852 shares directly. Capital has an
indirect beneficial ownership interest in the shares of Common Stock owned
by Offshore through its status as investment manager of Offshore. Obus and
Landes are the principal executive officers of Capital. Capital Plan owns
7,500 shares directly. Obus and Landes share the power to vote and dispose
of those shares. Obus owns 100,000 shares directly.
(5) Consists of options exercisable within 60 days.
(6) Consists of options exercisable within 60 days.
8
Compensation of Directors and Executive Officers
Board of Directors Compensation
The Board of Directors revised the compensation of its non-employee directors
effective June 1, 2005. Each of the Company's non-employee directors receives an
annual fee of $25,000, paid in installments each quarter in shares of the
Company's common stock. In addition, each non-employee director receives $2,000
in cash for attendance at meetings of the Board of Directors or committees
thereof, except for four regularly scheduled board meetings and the annual
shareholder's meeting, but not more than $2,000 for all board and committee
meetings that occur on the same day. Members of the Board of Directors are
reimbursed for actual expenses of attendance at meetings.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended January 31, 2006, the Compensation Committee
consisted of Messrs. Hill, Kirk and Lhota, each an independent director, and
neither of such members is a current or former officer of the Company or any of
its subsidiaries or was a party to any disclosable related party transaction
involving the Company.
Report from the Compensation Committee Regarding Executive Compensation
The Compensation Committee of the Board of Directors is responsible for
developing the executive compensation philosophy of the Company and
administering such with respect to the compensation paid to the Chief Executive
Officer and each of the other executive officers.
The basic philosophy behind executive compensation is to award executive
compensation as an incentive to create shareholder value by: (i) enabling the
Company to attract, retain and motivate skilled and experienced personnel that
are critical to the Company's long-term success; (ii) aligning executive
compensation with the short-term and long-term financial performance and
strategic objectives of the Company; and (iii) rewarding superior performance.
Salary increases, bonuses and long-term incentive grants are reviewed annually
to ensure consistency with this philosophy. The compensation of the Company's
executive officers is determined solely by the Compensation Committee.
Base Salary
Decisions regarding base salary are made based upon an analysis of competitive
industry compensation levels. Base salaries are generally 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 the Company.
Bonus
Decisions regarding bonuses are made based upon achievement of the Company's
objectives, upon compensation levels paid to officers of other companies in the
same sector as the Company, upon the performance of those companies compared to
the Company, and a upon the performance review of the individual executive.
Long-Term Incentive Grants
No grants of long-term incentives were made for the fiscal year ended January
31, 2006. The Committee is reviewing its long-term incentives grants program.
Historically, 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.
9
CEO Compensation
Mr. Culver's base salary during the year ended January 31, 2006 was determined
as described above. Mr. Culver also received a discretionary cash bonus of
$250,000. In determining this bonus amount, which represented approximately 42%
of his total cash compensation from the Company for the fiscal year, the
Committee considered, among other things, the Company's full year profitability,
the increase in revenues, management's ability to hold down overall operating
expenses, the implementation of the new Enterprise Resource Planning ("ERP")
system, introduction of a major product line, and information concerning
compensation levels for CEOs at other companies in the industry and comparable
sized companies outside of the industry. Mr. Culver was not granted any stock
option or award.
Respectfully submitted by the members of the Compensation Committee of the Board
of Directors,
Robert L. Kirk
Stanley J. Hill
Joseph J. Lhota
Executive Compensation
Summary Compensation Table
The following table sets forth certain compensation information regarding
compensation awarded to, earned by, or paid to the Company's Chief Executive
Officer, and each of the other executive officers of the Company whose
compensation exceeded $100,000 (collectively, the "Named Executive Officers"),
for the fiscal years ended January 31, 2006, 2005, and 2004, respectively.
Long -Term All Other
Annual Compensation Compensation Compensation
------------------- Awards ------------
Securities
Underlying
Name and Principal Position Year ended January 31, Salary Bonus Options (#)
- --------------------------- ---------------------- ------ ----- ----------- ------------
Michael C. Culver 2006 $350,000 $250,000 - -
President and Chief 2005 $275,000 $75,000 - -
Executive Officer 2004 $275,000 $200,000 - -
Paul J. Fanelli (1) 2006 $250,000 $130,000 - -
President and Chief 2005 $205,962 $65,000 (2) 25,000 $23,151(3)
Executive Officer,
Aerospace Products
International, Inc.
Robert G. Costantini (4) 2006 $200,000 $90,000 - -
Chief Financial Officer 2005 $200,000 $30,000 8,000 -
and Secretary 2004 $50,000 $40,000 (5) 50,000 -
Aaron P. Hollander 2006 $110,000 (6) - - -
Chairman of the Board
(1) Mr. Fanelli's employment commenced February 16, 2004.
(2) Includes a signing bonus of $15,000 upon commencement of employment.
(3) Consists of relocation expenses provided in Mr. Fanelli's relocation
expenses agreement, dated February 16, 2004.
(4) Mr. Costantini's employment commenced October 27, 2003.
(5) Includes a signing bonus of $20,000 upon commencement of employment.
10
(6) Mr. Hollander began receiving, as of June 1, 2005, a salary of $150,000 per
year. Also includes fees or additional compensation of $10,000 (including the
value of stock), that he received from February 1, 2005 through June 1, 2005
with respect to his duties as a member of the Board of Directors.
Option Grants in the Last Fiscal Year
No stock options, stock appreciation rights, or other long-term equity
compensation was granted to Named Executive Officers for the fiscal year ended
January 31, 2006.
Aggregated Option Exercises and Fiscal Year-End Option Values
The following table sets forth certain information with respect to aggregate
positions in stock options at January 31, 2006, held by each of the Named
Executive Officers. No stock options were exercised during the fiscal year.
Value of
Number of Securities Unexercised
Underlying In-The-Money
Unexercised Options Options at Fiscal
at Fiscal Year End Year-End ($)
(#) Exercisable/ Exercisable/
Name Unexercisable Unexercisable(1)
- ------------------------ ---------------------- -----------------
Michael C. Culver - -
Paul J. Fanelli 16,668/8,332 $-/$-
Robert G. Costantini 38,669/19,331 $6,667/$3,333
Aaron P. Hollander - -
(1) Based on the positive difference between the $4.03 closing price of the
Company's Common Stock on January 31, 2006, and the applicable exercise price of
the options.
Employment and Other Agreements
Arrangement with Aaron Hollander
On August 3, 2005, the Compensation Committee (the "Compensation Committee") of
the Board of Directors of First Aviation Services, Inc. (the "Company") approved
an employment arrangement with Aaron P. Hollander, Chairman of the Board of
Directors of the Company ("Chairman"), pursuant to which Mr. Hollander will
receive compensation for certain duties to be performed as Chairman. Effective
as of June 1, 2005, Mr. Hollander received an annual base salary of $150,000, as
well as standard benefits provided to all employees of the Company. Mr.
Hollander may receive a bonus and/or additional benefits at the discretion of
the Compensation Committee. Mr. Hollander's employment as Chairman may be
terminated at-will. In consideration of the compensation granted to Mr.
Hollander in connection with his duties as Chairman, Mr. Hollander, effective as
of June 1, 2005, is no longer entitled to receive any fees or additional
compensation with respect to his duties as a member of the Board of Directors of
the Company.
Agreements with Robert Costantini
Employment Agreement
On October 7, 2003, the Company entered into an employment agreement with Robert
G. Costantini, who became Chief Financial Officer and Secretary, effective as of
October 27, 2003, for a term of three years (unless terminated earlier pursuant
to the agreement) at an annual base salary of $200,000. On March 27, 2006, the
compensation committee increased Mr. Costantini's annual base salary to $220,000
effective February 1, 2006.
11
Under the agreement, Mr. Costantini received a signing bonus of $20,000 and is
permitted to participate in any performance bonus, profit sharing or other
compensation plans available to all executives of the Company, subject to
meeting applicable eligibility requirements. On March 27, 2006, the Compensation
Committee awarded Mr. Costantini a cash bonus of $90,000 for his performance
during the fiscal year ended January 31, 2006.
If Mr. Costantini's employment is terminated for cause, he is entitled to
receive his base salary through the end of the month in which his employment was
terminated. If his employment is terminated without cause or as a result of a
disability, he is entitled to receive an amount equal to six months of base
salary. If Mr. Costantini's employment is terminated due to death, his primary
beneficiary is entitled to receive bi-weekly payments of Mr. Costantini's base
salary until the earlier of the beneficiary's receipt of life insurance benefits
provided pursuant to a Company benefit plan or 180 days after the date of death.
Stock Option Award Agreement
In connection with joining the Company, on October 27, 2003, Mr. Costantini was
granted options to purchase 50,000 shares of Common Stock under the Company's
Stock Incentive Plan, at an exercise price of $3.83 per share. One-third of the
options vest on each of the first, second, and third anniversaries of the grant
date, respectively, and all of the options are immediately exercisable in full
upon a Change of Control Event (as defined in the Stock Incentive Plan). In
addition, on April 26, 2004, Mr. Costantini was granted options to purchase
8,000 shares at an exercise price of $4.55 per share for his performance during
the fiscal year ended January 31, 2005, which had a vesting schedule that was
consistent with the October 27, 2003 option grant. If Mr. Costantini's
employment is terminated otherwise than by retirement, death, disability or a
Change of Control Event (as described above), Mr. Costantini will have forfeited
his options and they will not be exercisable after the date of such termination.
Otherwise, the options will remain exercisable after vesting until the tenth
anniversary of the date of grant.
Agreements with Paul Fanelli
Employment Agreement
On February 2, 2004, the Company's subsidiary, API, entered into an employment
agreement with Paul J. Fanelli, effective as of February 16, 2004, to serve as
Senior Vice President and Chief Operating Officer of API for a term of three
years (unless terminated earlier pursuant to the agreement). Effective April 5,
2004, the agreement was amended to reflect Mr. Fanelli's position as President
of API.
Mr. Fanelli's employment agreement, as amended, provides for an annual base
salary of $225,000, which was increased by the Compensation Committee to
$250,000, effective February 1, 2005. Additionally, Mr. Fanelli received a
signing bonus of $15,000, and was eligible to receive an interim bonus in the
first year of the agreement of up to $10,000 based on meeting the Company's
normal performance-based criteria pursuant to a review of Mr. Fanelli's
performance during his first year of employment. On March 27, 2006, the
Compensation Committee awarded Mr. Fanelli a cash bonus of $130,000 for his
performance during the fiscal year ended January 31, 2006.
Mr. Fanelli is permitted to participate in any performance bonus, profit sharing
or other compensation plans available to all executives of the Company, subject
to meeting applicable eligibility requirements. Specifically, Mr. Fanelli is
eligible to participate in API's annual incentive compensation bonus plan,
except that he is eligible to receive a maximum bonus of 75% of his annual base
salary under the plan (as opposed to any maximum bonus otherwise provided in
such plan). Mr. Fanelli is also reimbursed for expenses related to his
relocation in connection with his employment (pursuant to a separate relocation
expenses agreement).
If Mr. Fanelli's employment is terminated for cause, he is entitled to receive
his base salary through the end of the month in which his employment was
terminated. If his employment is terminated without cause or as a result of a
disability, he is entitled to receive an amount equal to six months of base
salary. If Mr. Fanelli's employment is terminated due to death, his primary
beneficiary is entitled to receive bi-weekly payments of Mr. Fanelli's base
salary until the earlier of the beneficiary's receipt of life insurance benefits
provided pursuant to a Company benefit plan or 180 days after the date of death.
12
Stock Option Award Agreement
On February 16, 2004, Mr. Fanelli was granted options to purchase 25,000 shares
of Common Stock under the Company's Stock Incentive Plan, at an exercise price
of $4.55 per share. One-third of the options vest on each of the first, second,
and third anniversaries of the grant date, respectively, and all of the options
are immediately exercisable upon a Change of Control Event (as defined in the
Stock Incentive Plan). If Mr. Fanelli's employment is terminated otherwise than
by retirement, death, disability or a Change of Control Event (as described
above), Mr. Fanelli will have forfeited his options and they will not be
exercisable after the date of such termination. Otherwise, the options will
remain exercisable after vesting until the tenth anniversary of the date of
grant.
Stock Performance Graph
The following graph compares the cumulative stockholder return on First Aviation
Common Stock with The Russell 2000 Stock Index and a peer group index selected
by the Company. The peer group is composed of the following companies: Aviall,
Inc., Satair A/S and AAR Corp. The comparison assumes $100 was invested as of
January 31, 2001, and the reinvestment of all dividends.
[GRAPHIC OMITTED]
January 31, January 31, January 31, January 31, January 31, January 31,
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
Peer Group $100.00 $72.67 $58.43 $129.26 $186.09 $217.65
First Aviation $100.00 $105.88 $99.20 $125.67 $122.99 $107.75
Russell 2000 $100.00 $95.03 $73.21 $114.25 $122.76 $144.23
13
Certain Relationships and Related Transactions
The Company and First Equity Development Inc. ("First Equity"), the wholly-owned
subsidiary of First Equity Group, Inc., the majority stockholder of the Company,
have an agreement relating to the allocation of potential investment and
acquisition opportunities in the aerospace parts distribution and logistics
businesses. The agreement was approved by the independent members of the Board
of Directors on a month-to-month basis effective February 1, 2004. First Equity
Group, Inc. is beneficially owned by Mr. Aaron P. Hollander and Mr. Michael C.
Culver, respectively chairman of the board and chief executive officer of the
Company. Pursuant to the agreement, neither First Equity nor any of its
majority-owned subsidiaries will consummate any acquisition of a majority
interest in any aerospace parts distribution and logistics 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 can be terminated by either party upon
30 days written notice to the other party. 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,
or to any advisory services performed by First Equity on behalf of third
parties.
The Company subleases from First Equity approximately 3,000 square feet of
office space in Westport, Connecticut. The leased space is utilized by the
Company as its corporate headquarters. First Equity also utilizes space in the
same premises. The sublease, which became effective April 21, 1997, is for a
period of ten years, and is cancelable by either party with six months' notice.
The Company has the option to renew the sublease for two additional five-year
periods. Lease payments under this sublease totaled approximately $93,000,
$84,000, and $80,000, for the years ended January 31, 2006, 2005, and 2004,
respectively.
The Company and First Equity share certain common expenses that arise from
sharing office space in Westport, CT. The Company reimburses First Equity and
vice versa, for expenses each entity incurs related to the common usage of the
office space. The amounts are included in the Company's corporate expenses, and
include expenses such as telephone, computer consulting, office cleaning, office
supplies and utilities. The expenses are allocated based on base salaries of the
Company and First Equity's personnel working in the shared space. Common
expenses are approved by the Company and First Equity, prior to expenditure,
when not of a recurring nature. The allocations are reviewed by the Company's
CFO and the Controller of First Equity each month. In addition, a member of the
Company's Audit Committee reviews the allocation of expenses quarterly. Some
business development expenses, such as joint marketing expenses and business
organizational dues, are shared on an equal basis. Management believes this
method of allocation is reasonable. In addition, the amounts of expenses
reimbursed by the Company are the actual costs incurred for the expense. These
expenses average approximately $5,000 per month.
In order to simplify the administration of payroll, certain employees of the
Company who are authorized to perform services for both the Company and First
Equity are paid through the payroll of First Equity. Employees of the Company
who work exclusively for the Company by agreement are paid through the payroll
of API, the Company's principal subsidiary.
2. Ratification of Appointment of Independent Registered Public Accounting Firm
(Proposal No. 2)
The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as
the Company's independent registered public accounting firm for the year ended
January 31, 2007, subject to ratification by our stockholders. Ernst & Young LLP
has audited the Company's consolidated financial statements since 1995.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, where they will have the opportunity to make a statement if they desire
to do so, and will be available to answer appropriate questions from
stockholders.
If the foregoing proposal is not approved at the Annual Meeting, or if prior to
the 2006 Annual Meeting of Stockholders, Ernst & Young LLP shall decline to act
or otherwise become incapable of acting, or if its engagement shall otherwise be
discontinued by the Audit Committee, then in any such case, the Audit Committee
will appoint another independent registered public accounting firm whose
engagement for any period subsequent to the 2006 Annual Meeting will be subject
to ratification by the Stockholders at the 2007 Annual Meeting of Stockholders.
14
The affirmative vote of a majority of the voting power of the issued and
outstanding shares of Common Stock present in person or represented by proxy at
the Annual Meeting and entitled to vote is required to ratify the appointment of
Ernst & Young LLP.
The Board of Directors recommends a vote FOR the ratification of Ernst & Young
LLP as the Company's independent registered public accounting firm for the year
ended January 31, 2007.
Fees Billed by Independent Registered Public Accounting Firm
The following table sets forth the aggregate fees billed by Ernst & Young LLP
for professional services in each of the fiscal years ended January 31, 2006 and
2005:
Fiscal Year Ending Fiscal Year Ending
January 31, 2006 January 31, 2005
-------------------- --------------------
Audit Fees $344,000 $338,000
Audit Related Fees (1) $ 21,500 $ 17,500
Tax Fees - -
All Other Fees $ - $ -
(1) Audit related fees consisted of work performed in connection with auditing
the API employee benefit plans.
The Audit Committee has a policy requiring pre-approval of audit and non-audit
services. The Audit Committee approved all audit and non-audit services provided
by Ernst & Young LLP during the fiscal year ended January 31, 2006.
Equity Compensation Plan Information
The following table sets forth information as of January 31, 2006 regarding
shares of the Company's common stock to be issued upon exercise and the
weighted-average exercise price of all outstanding options, warrants and rights
granted under the Company's equity compensation plan as well as the number of
shares available for issuance under such plans.
15
Number of
securities
remaining
available for
future issuance
under equity
compensation
Number of securities Weighted average plans
to be issued upon exercise price of (excluding
exercise of outstanding securities
outstanding options, options, warrants reflected in
Plan Category warrants and rights and rights column (a))
------------------------------- ----------------------- ------------------- -----------------
(a) (b) (c)
Equity compensation plans
approved by security holders 206,350 $4.37 654,220 (1)
Equity compensation plans not
approved by security holders -- -- --
TOTAL 206,350 $4.37 654,220
======= ===== =======
(1) In addition to stock options, the Company may make a variety of other
types of stock awards under its Stock Incentive Plan, including
restricted stock and performance share awards.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and any persons who own more than ten percent of the
Company's Common Stock to file reports of initial ownership of the Company's
Common Stock and subsequent changes in that ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten-percent beneficial
owners are also required to furnish the Company with copies of all Section 16(a)
forms they file. Based solely upon a review of the copies of the forms furnished
to the Company, or written representations from certain reporting persons, the
Company believes that all Section 16(a) filing requirements were complied with
for the Company's fiscal year ended January 31, 2006.
Method and Cost of Proxy Solicitation
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, telephone and electronic
mail. You may also be solicited by means of press releases issued by the Company
or postings on our corporate website, www.favs.com. 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 beneficial owners. Consistent with the
Company's confidential voting procedure, directors, officers and other regular
employees of the Company, as yet undesignated, also may request the return of
proxies by telephone, facsimile, telegram, electronic mail or in person.
Stockholder Proposals and Nominations of Board Members
If a stockholder intends to present a proposal for action at the 2007 Annual
Meeting of Stockholders and wishes to have such proposal considered for
inclusion in the Company's proxy materials in reliance on Rule 14a-8 under the
Securities Exchange Act of 1934, the proposal must be submitted in writing and
received by the Secretary of the Company on or before January 12, 2007. Such
proposal also must meet the other requirements of the rules of the SEC relating
to stockholder proposals.
16
The Company's By-laws establish an advance notice procedure with regard to
certain matters, including stockholder proposals and nominations for individuals
for election to the Board of Directors. In general, written notice of a
stockholder proposal or a director nomination for the 2007 Annual Meeting must
be received by the Secretary of the Company not later than the close of business
on the 60th day nor earlier than the close of business on the 90th day prior to
the 2007 Annual Meeting (or, if less than 70 days' notice of the date of the
meeting is given by the Company, notice by the stockholder to be timely must be
received by the Secretary of the Company no later than the 10th day following
the day on which public announcement of the date of the meeting is first made by
the Company), and must contain specified information and conform to certain
requirements, as set forth in the By-laws. If the chairman at any meeting of
stockholders determines that a stockholder proposal or director nomination was
not made in accordance with the By-laws, the Company may disregard such proposal
or nomination.
In addition, if a stockholder submits a proposal outside of Rule 14a-8 for the
2007 Annual Meeting, and the proposal fails to comply with the advance notice
procedures described by the By-laws, then the Company's proxy may confer
discretionary authority on the persons being appointed as proxies on behalf of
the Board of Directors to vote on the proposal.
Proposals and nominations should be addressed to the Secretary of the Company,
Robert G. Costantini, First Aviation Services Inc., 15 Riverside Avenue,
Westport, Connecticut 06880-4214.
By order of the Board of Directors,
Robert G. Costantini
Secretary
Dated: May 11, 2006
17
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IMPORTANT
If you receive this proxy statement with a voting instruction form from your
broker, bank or other nominee, please vote in accordance with the Board's
recommendations, and sign, date and mail the enclosed voting instruction form in
the postage-paid envelope provided.
YOUR VOTE IS IMPORTANT. Please take a moment to SIGN, DATE and PROMPTLY RETURN
your proxy card or voting instruction form in the postage-paid envelope
provided.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
15 Riverside Avenue
Westport, Connecticut 06880
www.favs.com