FIRST AVIATION SERVICES INC.
15 Riverside Avenue
Westport, Connecticut 06880
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------
The 2000 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 June 6, 2000 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 2003.
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, 2001.
3. To act upon any and all matters incident to the foregoing
and transact such other business as may properly come
before the Annual Meeting and any and all adjournments or
postponements thereof.
The Board of Directors, by resolution, has fixed the close of business on May 4,
2000 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 19, 2000
<PAGE>
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 2000 Annual Meeting of Stockholders to be held on June 6,
2000, and at any adjournment 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 19, 2000.
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.
Record Date
The Board of Directors has fixed the close of business on May 4, 2000 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 and may vote in person or by proxy authorized in
writing. At the Record Date, there were 7,680,481 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 2003, and to ratify the appointment of Ernst & Young
LLP as the Company's independent auditors for the year ending January 31, 2001.
The Board of Directors has received timely notice and does not know of any other
matter to be brought before the Annual Meeting. If any other matter properly
comes before the Annual Meeting, the persons named in the enclosed form of proxy
or their substitutes will vote in accordance with their best judgment on such
matters.
Quorum; Required Votes
The required quorum for the transaction of business at the Annual Meeting is a
majority of the shares of Common Stock issued and outstanding on the Record Date
and 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
<PAGE>
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, 2001. With respect to broker non-votes, the shares will be counted
for purposes of determining the presence or absence of a quorum, but will not be
considered entitled to vote at the Annual Meeting for such matter and thus
broker non-voters will have the practical effect of reducing the number of
affirmative votes required to achieve a majority vote for such matters by
reducing the total number of shares from which the majority is calculated.
Voting and Revocation of Proxies
Stockholders are requested to complete, date, sign and promptly return the
accompanying form of proxy in the enclosed envelope. Common Stock represented by
properly executed proxies received by the Company's Transfer Agent and not
revoked will be voted at the Annual Meeting in accordance with the instructions
contained therein. If instructions are not given, shares represented by properly
executed proxies will be voted "FOR" the election of the nominees for director
named herein, and "FOR" the approval of the proposed appointment of Ernst &
Young LLP as the Company's independent auditors for the year ending January 31,
2001.
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.
3
<PAGE>
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Aaron P. Hollander 43 Chairman of the Board
Michael C. Culver 49 President, Chief Executive Officer and Director
Gerald E. Schlesinger 55 Senior Vice President
John A. Marsalisi 44 Chief Financial Officer, Secretary and Director
Philip C. Botana 55 Vice President
Joshua S. Friedman 44 Director
Robert L. Kirk 71 Director
Charles Ryan 49 Director
</TABLE>
Aaron P. Hollander co-founded and has served as Chairman of Board of
Directors of the Company since March 1995. In 1985, Mr. Hollander co-founded
First Equity Development Inc. ("First Equity") along with Mr. Culver, an
aerospace investment and advisory firm, and has served as its President and
Co-Chief Executive Officer 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.com 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 its
Co-Chief Executive Officer since that time.
Gerald E. Schlesinger became Senior Vice President upon his employment
by the Company in June 1997. 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. 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's
Stamford, Connecticut office. Mr. Marsalisi is a Certified Public Accountant.
Philip C. Botana became a Vice President upon his employment by the
Company in June 1998. From July 1997 to June 1998, Mr. Botana served as Vice
President of Operations for Bombardier Aerospace-Business Jet Solutions. From
May 1994 to June 1997, Mr. Botana was the President of Botana & Company, an
aviation-consulting firm. Prior to May 1994, Mr. Botana was a Senior Vice
President of Signature Flight Support.
4
<PAGE>
Joshua S. Friedman became a Director in March 1997. Mr. Friedman has
been an executive officer of Canyon Capital Management L.P. and various related
or predecessor entities ("Canyon Capital") since their inception in 1990. Canyon
Capital is a merchant banking and money management firm which Mr. Friedman
co-founded and which is an affiliate of Canpartners, a former subordinated
creditor and warrant holder of the Company. Mr. Friedman currently serves as a
member of the Board of Directors of Sunterra Resorts, Inc., a publicly traded
developer and operator of timeshare resorts, and several privately held
companies and charitable organizations.
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.
5
<PAGE>
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 4, 2000 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.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
- -------------------- -------------------- ----------------
<S> <C> <C>
First Equity Group Inc. (1) 3,751,833 48.8%
Aaron P. Hollander (1) 3,751,833 48.8%
Michael C. Culver (1) 3,751,833 48.8%
Wynnefield Capital Management, LLC (2) 1,944,192 25.3%
One Penn Plaza, Suite 4720
New York, NY 10119
Canpartners Investments IV, LLC (3) 458,817 6.0%
9665 Wilshire Boulevard
Suite 200
Beverly Hills, California 90212
John A. Marsalisi 11,713 *
Gerald E. Schlesinger 3,098 *
Aerospace Products International Inc.
3778 Distriplex Drive North
Memphis, TN 38118
Philip C. Botana 1,100 *
Aerospace Products International Inc.
3778 Distriplex Drive North
Memphis, TN 38118 *
Joshua S. Friedman (4) -- *
Robert L. Kirk 15,618 *
Charles B. Ryan 50,168 *
All directors and executive
officers as a group (8 persons) 3,833,530 49.9%
</TABLE>
- ----------------------------------
* 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 March 7, 2000 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) Based upon a Form 4 dated April 7, 2000 and the Company's knowledge,
Canpartners Incorporated is a Managing Member of Canpartners. Mr.
Friedman, Mitchell R. Julis and R. Christian B. Evenson are the sole
shareholders and directors of Canpartners Incorporated and such
individuals may be deemed to share beneficial ownership of the shares
shown as owned by Canpartners. Such persons disclaim beneficial
ownership of such shares.
(4) Excludes 458,817 shares shown as owned by Canpartners. Mr. Friedman is
a Vice-President of Canpartners and is a shareholder and director of
Canpartners Incorporated, a Managing Member of Canpartners, and as such
may be deemed to have voting and investment power over such shares. Mr.
Friedman disclaims any beneficial ownership of such shares.
6
<PAGE>
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16 (a) of 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. 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, 2000, except that one report for one
transaction was filed late by Mr. Philip Botana.
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 Securities and Exchange Commission. 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, 2000, except that three reports were filed late
by Wynnefield Capital Management, LLC.
1. Election of Directors (Proposal No. 1)
The nominees for director are Aaron P. Hollander and Joshua S. Friedman. 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 2003.
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.
Mr. Friedman has agreed to stand for re-election and to serve as a Director of
the Company until such time as the Board of Directors has approved a suitable
replacement, which is likely to occur prior to the end of his term. In
accordance with the Articles of Incorporation and the Company's By-Laws, the
Board has established a nominating committee comprised of Messer's Hollander,
Kirk and Ryan. It is the intent of the Board to fill the potential vacancy with
a qualified independent director.
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 Aaron P. Hollander
and Joshua S. Friedman.
Nominees for election to the Board of Directors for a term expiring at the
Annual Meeting of Stockholders in the year 2003.
Aaron P. Hollander
Joshua S. Friedman
7
<PAGE>
Members of the Board of Directors Continuing in Office;
Terms Expire at the 2001 Annual Meeting of Stockholders
Michael C. Culver
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
Committees of the Board of Directors and Meeting Attendance
During the year ended January 31, 2000, the Company's Board of Directors was
comprised of Messrs. Culver, Friedman, Hollander, Kirk, Marsalisi and Ryan. The
Board of Directors held nine meetings during the year ended January 31, 2000,
including four regularly scheduled meetings. Each director attended at least 75%
of the aggregate number of 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 By-laws of the
Company; (ii) adopt an agreement of merger or consolidation or to recommend to
stockholders the sale, lease or exchange of all or substantially all of the
Company's property and assets; (iii) recommend to stockholders a dissolution of
the Company or a revocation of the dissolution; or (iv) declare a dividend or
authorize the issuance of stock of the Company unless expressly authorized by a
resolution of the Board of Directors.
Audit Committee
The Audit Committee consists of three independent directors of the Company,
Messrs. Hollander, Kirk and Ryan. The Audit Committee is responsible for
engaging the Company's independent auditors and reviewing with them the scope
and timing of their audit services, any other services which they are asked to
perform, their report on the Company's accounts following completion of the
annual audit and the Company's policies and procedures with respect to internal
accounting and financial control. The Audit Committee met twice during the year
ended January 31, 2000.
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 twice during the
year ended January 31, 2000.
8
<PAGE>
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. Prior to December 2, 1999 no director
received any additional fees for attendance at meetings of the Board of
Directors or committees thereof. Subsequent to December 2, 1999, each director
is to receive $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. 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.
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.
9
<PAGE>
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, 2000 was paid in
accordance with his employment agreement. Mr. Culver received a bonus approved
by the Committee. Mr. Culver did not receive a stock award under
the Company's plans.
Summary
Executive compensation at First Aviation is considered very seriously by the
Committee, the Board of Directors and senior management. The Committee believes
there should be a strong link between the financial rewards of the executives
and the success of the shareholder. The success of the shareholder is measured
by the increase in shareholder value. The Committee believes that with the
present plans in place management will continue to strive to increase
shareholder value.
Compensation Committee
Aaron P. Hollander
Robert L. Kirk
Charles B. Ryan
Executive Compensation
Summary Compensation Table
The following table sets forth certain information for the years ended January
31, 2000, 1999, and 1998, 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.
<TABLE>
<CAPTION>
Long -Term
Annual Compensation Compensation
---------------------------------- ----------------
Awards
------
Securities
Underlying
Options
Name and Principal Position Year Salary Bonus (#)
- ----------------------------- ------------------------------- ------------------ -------------- ----------------
<S> <C> <C> <C> <C>
Michael C. Culver FYE 1/31/00 $225,000 $200,000
Director, President and Chief FYE 1/31/99 $180,000 $120,000
Executive Officer FYE 1/31/98 $180,000
Gerald E. Schlesinger FYE 1/31/00 $225,000 $200,000 50,000
Senior Vice President FYE 1/31/99 $190,000 $120,000
FYE 1/31/98 $99,167 $40,000 60,000
John A. Marsalisi FYE 1/31/00 $180,000 $100,000 40,000
Director, Secretary and Chief FYE 1/31/99 $155,000 $75,000
Financial Officer FYE 1/31/98 $155,000 $20,000 5,000
Philip C. Botana FYE 1/31/00 139,500 24,920
Vice President FYE 1/31/99 $87,500 25,000
FYE 1/31/98 N/A
</TABLE>
10
<PAGE>
Option Grants in the Last Fiscal Year
The following table sets forth information regarding the stock options that were
granted during the last fiscal year to each of the officers named in the Summary
Compensation Table.
Individual Grants
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to Grant Date
Options Employees in Exercise or Present Value
Name Granted (#) Fiscal year Base Price Expiration date Per Share (1)
- ------------------------ ------------ ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Michael C. Culver None N/A N/A N/A N/A
Gerald E. Schlesinger 50,000 48.8% $4.50 2009 $1.81
John A. Marsalisi 40,000 39.0% $4.50 2009 $1.81
Philip C. Botana None N/A N/A N/A N/A
</TABLE>
(1) Present value on the grant date was determined by using the
Black-Scholes option-pricing model. The model as applied used the
applicable grant date, the exercise price as shown in the table and the
fair market value of the Company's Common Stock on the grant date. The
model assumed (i) a risk-free return of 5.15%, (ii) a dividend yield of
0%, (iii) an average volatility factor of 0.398 and (iv) the exercise
of all options on the final day of their 10-year terms. No discount
from the theoretical value was taken to reflect the waiting period
prior to vesting, the limited transferability of the options, and the
likelihood of the options being exercised in advance of the final day
of their terms. 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
<PAGE>
Fiscal Year-End Option Values
No options were exercised during the year ended January 31, 2000 by any of the
executive officers named in the Summary Compensation Table. The following table
sets forth the aggregate positions in stock options at January 31, 2000 held by
each of the officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
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
- -------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
Michael C. Culver None/None N/A
Gerald E. Schlesinger 30,000/80,000 None/$25,000
John A. Marsalisi 42,500/42,500 None/$20,000
Philip C. Botana 8,333/25,000 None/None
</TABLE>
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. On June 1, 1998, the Company entered into a three-year employment
agreement with Philip C. Botana with a base salary of $150,000. 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 are also generally available to other employees of First
Aviation in similar employment positions, (ii) reimbursement of reasonable
business related expenses, (iii) three weeks paid vacation a year, and (iv) a
severance payment, upon termination without cause or for death or disability,
equal to six months base salary. 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, Marsalisi and Botana 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 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.
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.
12
<PAGE>
In the prior year the cumulative stockholder return on First Aviation Common
Stock was compared to a peer group index that consisted of AVTEAM, Inc.,
Kellstrom Industries, Inc., Satair A/S., and Vector Aerospace Corporation.
Vector Aerospace Corporation was eliminated from the peer group because with the
sale of NAC, the Company's business operations were no longer comparable to
Vector's. Aviall and Aviation Sales Corporation were added to the peer group as
their market capitalizations and operations more closely reflect that of the
Company.
[graphic: line chart]
<TABLE>
<CAPTION>
February 28, 1997 January 31, 1998 January 31, 1999 January 31, 2000
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Russell 2000 $100 $119.40 $118.60 $137.76
Prior Peer Group $100 $141.44 $108.32 $ 74.14
First Aviation $100 $ 67.50 $ 45.00 $ 50.00
Peer Group $100 $149.47 $143.08 $ 41.90
</TABLE>
Certain Relationships and Related Transactions
Effective March 7, 2000, the Company and First Equity, an affiliate 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 directors of
the Company that have no affiliation with First Equity. 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. This agreement replaces a prior agreement
that had been effective as of December 20, 1996. The terms of the new agreement
are substantially the same as the terms and conditions of the prior agreement,
except that the prior agreement related to businesses engaged in the repair and
overhaul of military and commercial aircraft engines. As a result of the sale of
NAC, which is engaged in the repair and overhaul of military and commercial
aircraft engines, the agreement was revised.
13
<PAGE>
During the quarter ended October 31, 1998, the Company, upon the authorization
of the independent members of the Board of Directors, entered into an advisory
agreement with First Equity. Pursuant to the agreement, First Equity provides
the Company investment and financial advisory services relating to potential
acquisitions and other financial transactions. The original agreement expired
February 1, 2000 but was renewed for an additional two-years on substantially
the same terms and conditions as the original agreement. The agreement may be
terminated by either party upon 30-days written notice to the other. Under the
terms of the agreement, the Company pays a fee to First Equity for the
successful completion of certain transactions (the "Success Fee"), and
reimburses 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 scope of the services to be provided, the size and type of
acquisition, and the successful completion of a transaction. The agreement
requires the Company to pay First Equity a $30,000 monthly retainer that can be
applied as a credit against the Success Fee, subject to certain limitations.
During the year ended January 31, 2000, the Company paid First Equity retainer
fees totaling $360,000. With the consummation of the sale of NAC on November 1,
1999, the Company paid First Equity a Success Fee of $945,000, which was after
the application of $360,000 of retainer fees.
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 $102,000, $98,000 and $50,000, respectively, for the years ended
January 31, 2000, 1999 and 1998.
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.
14
<PAGE>
2. Appointment of Auditors (Proposal No. 2)
On the recommendation of the Audit Committee of the Board of Directors, the
Board has appointed Ernst & Young LLP as auditors for the year ended January 31,
2001, subject to ratification by our stockholders. Ernst & Young LLP has audited
the Company's financial statements since 1995.
Representatives of Ernst & Young are expected to attend the Annual Meeting,
where they will have the opportunity to make a statement if they wish to do so,
and will be available to answer appropriate questions from stockholders.
If the foregoing proposal is not approved at the Annual Meeting, or if prior to
the 2001 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 2000 Annual Meeting will be subject to ratification by
the Stockholders at the 2001 Annual Meeting of Stockholders.
Solicitation of Proxies
The cost of soliciting proxies for the Annual Meeting will be borne by the
Company. In addition to solicitation by mail, solicitations 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 19, 2001.
In addition, as more fully explained in the Company's By-laws, 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 By-laws, or the
repeal of a by-law, must be received in writing by the Company's Secretary no
earlier than 90 days and no later than 60 days in advance of the next annual
meeting of stockholders, or, if fewer than 70 days notice or prior public
disclosure of the meeting date is given or made by the Company, not later than
the 10th day after which notice was mailed or such public disclosure was made.
By order of the Board of Directors
John A. Marsalisi
Secretary
15
