COMMANDER AIRCRAFT COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
August 5, 1998
The 1998 Annual Meeting of the Shareholders of Commander Aircraft
Company, a Virginia corporation (the "Company"), will be held on Wednesday,
August 5, 1998 at 3:00 p.m. local time at The Watergate Hotel, 2650 Virginia
Avenue, N.W., Washington, D.C. for the following purposes:
1. to consider and act upon an Agreement and Plan of Merger (the
"Merger Agreement") providing for the merger (the "Merger") of the
Company, a Virginia corporation, with and into a wholly owned
subsidiary of Aviation General, Incorporated, a Delaware
corporation to be organized prior to the Merger ("Aviation
General"), pursuant to which all of the Company's shareholders
will become shareholders of Aviation General on a share-for-share
basis, thus changing the Company from a Virginia operating company
to a Delaware holding company;
2. to elect a Board of three Directors;
3. to consider and act upon an amendment to the Company's 1993 Stock
Option Plan to increase the number of shares of Common Stock that
may be issued pursuant to stock options granted thereunder by
500,000 shares; and
4. to transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
These items are more fully described in the Proxy Statement/Prospectus
accompanying this Notice.
Only shareholders of record at the close of business on June 29, 1998
are entitled to notice of and to vote at the Annual Meeting.
A majority of the Company's outstanding shares must be represented at
the meeting (in person or by proxy) to transact business. To assure proper
representation at the meeting, please mark, sign, and date the enclosed proxy
and mail it promptly in the enclosed self-addressed envelope. Your proxy will
not be used if you revoke such proxy either before or at the meeting.
Stephen R. Buren
Chief Financial Officer
Dated: July 2, 1998
IF YOU ARE UNABLE TO BE PERSONALLY PRESENT, PLEASE SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE. YOUR VOTE IS IMPORTANT.
- --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT/PROSPECTUS
COMMANDER AIRCRAFT COMPANY AVIATION GENERAL, INCORPORATED
PROXY STATEMENT PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the shareholders
of the Company in connection with the proposed merger of the Company with and
into a wholly owned subsidiary of Aviation General, pursuant to which all of the
Company's shareholders will become shareholders of Aviation General on a
share-for-share basis, thus changing the Company from a Virginia operating
company to a Delaware holding company. It is also being furnished to the
shareholders of the Company in connection with the Annual Meeting of
Shareholders of the Company.
This Proxy Statement/Prospectus constitutes (i) the Proxy Statement of
the Company with respect to the solicitation of proxies by the Board of
Directors of the Company for use at the Company's Annual Meeting of Shareholders
at which the holders of the Company's Common Stock will be asked to approve the
Merger, elect three directors, and approve an increase in the number of shares
of Common Stock that may be issued pursuant to stock options granted under the
Company's 1993 Stock Option Plan and (ii) the Prospectus of Aviation General
with respect to the shares of Aviation General Common Stock to be issued to the
Company shareholders upon consummation to the Merger.
---------------
THE SHARES OF AVIATION GENERAL COMMON STOCK TO BE ISSUED IN
CONNECTION WITH THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Proxy Statement/Prospectus, and the approximate date on which
it is first being mailed to shareholders, is July 2, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
with the Exchange Act, the Company files reports, proxy statements, and other
information with the Securities and Exchange Commission (the "Commission").
Aviation General has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Commission under the Securities Act of 1933,
as amended (the "Securities Act") with respect to the shares of Aviation General
Common Stock to be issued upon consummation of the Merger. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto, certain portions of which have
been omitted as permitted by the rules and regulations of the Commission. Copies
of the Registration Statement (including such omitted portions) are available
from the Commission upon payment of prescribed rates. For further information,
reference is made to the Registration Statement and the exhibits filed
therewith. Statements contained in this Proxy Statement/Prospectus relating to
the contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
This filed material can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
Chicago Regional Office (Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661) and New York Regional Office (Seven World Trade Center,
New York, New York 10048). Copies of such material may be obtained by mail from
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
such material can be inspected at the offices of the National Association of
Securities Dealers, Inc. (the "NASD"), 1735 K Street, N.W., Washington D.C.
20006. Such material may also be accessed through the Commission's home page on
the World Wide Web at http:/www.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
This Proxy Statement/Prospectus incorporates by reference documents
relating to the Company that are not presented herein or delivered herewith.
Such documents (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference) are available to any person to whom this
Proxy Statement/Prospectus is delivered, on written or oral request, without
charge, from Commander Aircraft Company, 7200 Northwest 63rd Street, Bethany,
Oklahoma 73008, Attention: Stephen R. Buren, Chief Financial Officer, Telephone:
(405) 495-8080. In order to ensure timely delivery of the documents, any such
request should be made by July 15, 1998. Copies of documents so requested will
be delivered by first class mail, postage paid. Copies of the Company's 1997
Annual Report and its quarterly report on Form 10-Q, as amended, are being
delivered with this Proxy Statement/Prospectus.
The following documents are incorporated by reference herein:
1. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, as amended on June 8, 1998 (Commission File No.
0-21540).
2
<PAGE>
2. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997. (Commission File No. 0-21540).
No person is authorized to give any information or make any representation not
contained in this Proxy Statement/Prospectus, and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, the securities offered by this
Proxy Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction,
to or from any person to whom it is unlawful to make such offer or solicitation
of an offer or proxy solicitation in such jurisdiction. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of securities made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date of this Proxy
Statement/Prospectus.
3
<PAGE>
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited on behalf of the Board of Directors of
Commander Aircraft Company (the "Company") for use at the Annual Meeting of
Shareholders to be held Wednesday, August 5, 1998 at 3:00 p.m. local time, or
any adjournment or postponement thereof. The Annual Meeting will be held at The
Watergate Hotel, 2650 Virginia Avenue, N.W., Washington, D.C. The Company's
principal offices are located at 7200 Northwest 63rd Street, Hangar Eight, Wiley
Post Airport, Bethany, Oklahoma 73008, and its telephone number is (405)
495-8080. These proxy solicitation materials will be mailed to shareholders on
or about July 2, 1998.
Shareholders of record at the close of business on June 29, 1998 are
entitled to notice of, and to vote at, the Annual Meeting. On June 29, 1998,
7,280,548 shares of the Company's Common Stock were issued and outstanding. Each
share of Common Stock outstanding on the record date is entitled to one vote.
Votes Required for Approval
The vote required for approval of the Merger Agreement and the Merger
is two thirds of the outstanding shares of Common Stock entitled to vote
thereon. The three nominees for director receiving a plurality of the votes cast
at the meeting in person or by proxy shall be elected. The amendment to the 1993
Stock Option Plan and all other matters will be approved if the votes cast at
the meeting in person or by proxy favoring the action exceed the votes cast
opposing the action. Abstentions and broker non-votes will not be treated as
votes cast and therefore will have no effect on the outcome of the matters to be
voted on at the Annual Meeting.
Any person may revoke a proxy at any time before its use by delivering
to the Company a written revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
The cost of this solicitation will be borne by the Company. The Company
may reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally, by telephone or otherwise.
Deadline for Receipt of Shareholder Proposals for 1999 Annual Meeting
Proposals of shareholders which are intended to be presented by such
shareholders at the Company's 1999 Annual Meeting must be received by the
Company no later than January 5, 1999.
4
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of April 13, 1998 certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
any person (including any "group" within the meaning of Rule 13d-5 of the
Exchange Act) known by the Company to be the beneficial owner of more than 5% of
the Company's voting securities, (ii) each director and each nominee for
director to the Company, (iii) each of the executive officers named in the
Summary Compensation Table appearing herein, and (iv) all executive officers and
directors as a group.
<TABLE>
<CAPTION>
Number Percent
Name of Shares of Total
<S> <C> <C>
Special Situation Investment Holdings, Ltd.............................................. 4,968,868 68.2%
c/o KuwAm Corporation
2600 Virginia Avenue, N.W.
Washington, D.C. 20037 (1)
Special Situation Investment Holdings, L.P. II.......................................... 373,000 5.1%
c/o KuwAm Corporation
2600 Virginia Avenue, N.W.
Washington, D.C. 20037 (1)
KuwAm Corporation....................................................................... 5,515,868 75.8%
2600 Virginia Avenue, N.W.
Washington, D.C. 20037 (1)
Mishal Yousef Saud Al Sabah (2)(4)...................................................... 468,327 6.4%
Wirt D. Walker, III (3)(4).............................................................. 5,914,790 81.2%
N. Gene Criss (4)....................................................................... 113,441 1.4%
Stephen R. Buren (4).................................................................... 22,100 *
Dean N. Thomas (4)...................................................................... 20,000 *
All Officers and Directors as a Group (5 persons) (5)................................... 6,538,658 89.8%
</TABLE>
* Less than one percent
(1) Special Situation Investment Holdings, Ltd. ("SSIH"), Special Situation
Investment Holdings, L.P. II ("SSIH II") and KuwAm Corporation are members
of a "group" within the meaning of Rule 13d-5 under the Exchange Act (the
"KuwAm Group"). KuwAm Corporation, a Washington, D.C. based private
investment firm, is the general partner of SSIH, the Company's majority
shareholder, and SSIH II. The shareholders of KuwAm include Wirt D. Walker,
III, the Chairman, Chief Executive Officer, President and a director of the
Company, and Mishal Yousef Al Sabah, a director of the Company. Mr. Walker
is also the Managing Director of KuwAm. The KuwAm Group consists of the
following members having the following holdings: SSIH, 4,968,868 shares;
SSIH II, 373,000 shares; KuwAm, 174,000 shares; Mr. Walker, 330,590 shares;
Mr. Walker's son, 15,000 shares;
5
<PAGE>
Mr. Al Sabah, 246,828 shares; Fifth Floor Company for General Trading &
Contracting ("Fifth Floor Company"), 161,500 shares. Each member of the
KuwAm Group disclaims beneficial ownership of shares owned by the other
group members, except that Mr. Walker has sole voting and dispositive power
with respect to the shares owned by him and by SSIH, SSIH II, KuwAm and by
his son, and Mr. Al Sabah has sole voting and dispositive power with
respect to the shares owned by him and Fifth Floor Company.
(2) Includes 161,500 shares owned by Fifth Floor Company of which Mr. Al Sabah
is a principal. Does not include shares that Mr. Al Sabah may be deemed to
own beneficially by virtue of his membership in the KuwAm Group.
(3) Includes 15,000 shares owned by Mr. Walker's son. Mr. Walker also has sole
voting and dispositive power with respect to shares owned by SSIH, SSIH II
and KuwAm. Also includes shares Mr. Walker may be deemed to own
beneficially by virtue of his membership in the KuwAm Group.
(4) Includes shares issuable upon exercise of options that are exercisable
within 60 days, as follows: Mr. Al Sabah, 59,999 shares; Mr. Walker, 53,332
shares; Mr. Criss, 113,331 shares; Mr. Buren, 15,000 shares; and Mr.
Thomas, 20,000 shares.
(5) At April 13, 1998, executive officers and directors of the Company as a
group (5 persons) held options to purchase an aggregate of 498,333 shares
of Common Stock, representing approximately 72% of outstanding options at
that date. The numbers set forth in this table include an aggregate of
261,662 shares underlying options exercisable within 60 days of such date.
6
<PAGE>
PROPOSAL 1 - THE MERGER
The following discussion summarizes certain aspects of the Merger. This
summary is not complete and is qualified by reference to the Merger Agreement, a
form of which is attached to this Proxy Statement/Prospectus as Annex A.
General
Shareholders are being asked to approve the Merger Agreement and the
Merger pursuant to which the Company, a Virginia corporation, will merge with
and into a wholly owned subsidiary of Aviation General, a Delaware corporation
to be organized prior to the Merger. If the Merger is approved, the Company will
become a wholly owned subsidiary of Aviation General and the Company's
shareholders will receive one share of Aviation General Common Stock in exchange
for each share of the Company Common Stock owned by them, thus reorganizing the
Company into a Delaware holding company.
The Merger will not affect the relative voting rights or ownership
interests of shareholders. The members of Aviation General's Board of Directors
will be the same as the members of the Company's Board of Directors. Due to
certain differences between the Delaware General Corporation Law (the "DGCL")
and the Virginia Stock Corporation Act (the "VSCA"), however, not all of the
rights of shareholders will remain the same. See "-- Comparison of Shareholders'
Rights." In addition, the Certificate of Incorporation of Aviation General
("Aviation General's Charter") authorizes the issuance of 20,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, while the Articles of
Incorporation of the Company (the "Company's Charter") authorizes the issuance
of only 10,000,000 shares of Common Stock and 20,000 shares of Series A
Preferred Stock.
The Company's Board of Directors has unanimously approved the Merger
Agreement and the Merger subject to shareholder approval. Shareholder approval
is the only condition precedent to the consummation of the Merger.
Information Concerning Aviation General
Aviation General will be organized prior to completion of the Merger.
Upon organization, it will have no assets, liabilities, or operations. Following
completion of the Merger, it will have no assets other than the stock of the
Company, no liabilities, and no operations independent of those of the Company.
Thus, financial statements of Aviation General following the Merger will be
virtually identical to those of the Company prior to the Merger. Accordingly,
historical financial statements of Aviation General and pro forma financial
statements reflecting completion of the Merger have not been included in this
Proxy Statement/Prospectus.
Reasons for the Merger
The Company currently manufactures, markets and provides support
services for its line of single engine, high performance, aircraft, which
includes the Commander 114B, the Commander 114TC turbo charged, and the
Commander 114AT all-purpose trainer. To a lesser extent, it also provides,
through its aviation services division, aircraft consulting, brokerage, and
refurbishment services for single engine, twin engine, turbine and jet general
aviation aircraft. The Company has announced that it intends to expand its
aviation services division and pursue acquisitions. See the Company's 1997
Annual Report, a copy of which accompanies this Proxy Statement/Prospectus. The
Board of Directors believes that the
7
<PAGE>
Merger will enhance the Company's ability to pursue these plans because it will
(i) result in an improved organizational and capital structure and (ii) change
its domicile from the Commonwealth of Virginia to the State of Delaware, which
the Company believes has a more flexible and predictable body of corporate law.
The Board of Directors also believes that the Company's new name, Aviation
General, Incorporated, reflects the Company's anticipated expansion and
diversification of its business. The Merger is not being proposed in connection
with any particular acquisition, and the Company currently has no agreements,
arrangements, or understandings with respect to any acquisitions.
Improved Organizational and Capital Structure. The Board of Directors
believes that the reorganization from operating company into holding company
structure and the increase in authorized shares of Common Stock will improve its
ability to effectively pursue its expansion strategy. The holding company form
of organization will give Aviation General the ability to structure future
acquisitions in an optimal manner in light of operational and legal
considerations. In addition, there may be circumstances in which it will be
advisable to insulate an acquired business from potential liability of other
operating subsidiaries of the holding company.
The authorized capital stock of the Company currently consists of
10,000,000 shares of Common Stock and 20,000 shares of Class A Preferred Stock.
The authorized capital stock of Aviation General will consist of 20,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock. As of June 29,
1998, 7,280,548 shares of Common Stock and no shares of Class A Preferred Stock
were issued and outstanding, and an additional 800,000 shares of Common Stock
were reserved for issuance upon the exercise of options and warrants that were
outstanding or were available for issuance under Commander's stock option plan.
As of that date, therefore, 1,919,452 shares of authorized and unissued Common
Stock were unreserved and available for issuance.
The Board of Directors considers it advisable to increase the
authorized capital stock so that additional shares will be available for
issuance in connection with possible future actions, such as financings,
acquisitions, mergers, stock splits, stock dividends, use in employee benefit
plans, and other corporate purposes. Although the Company has no plans to issue
any additional shares of capital stock, having shares available for issuance
generally will allow shares to be issued in the future without the expense and
delay of a shareholders' meeting. The Nasdaq SmallCap Market, on which Aviation
General's Common Stock will trade following the Merger, currently requires
shareholder approval of certain corporate actions as a requirement of continued
listing, including certain acquisitions involving the issuance of Common Stock
in amount equal to or greater than 20% of the shares outstanding prior to the
issuance.
The Board of Directors of Aviation General will be authorized, without
further approval or action by the stockholders, to issue shares of Preferred
Stock in one or more series and to determine the rights, preferences,
privileges, and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms, and number of shares constituting any series of Preferred Stock or
the designation of such series. The rights of the holders of Common Stock will
generally be subject to the prior rights of the holders of any outstanding
shares of Preferred Stock with respect to dividends, liquidation preferences,
and other matters. Among other things, the Preferred Stock could be issued by
Aviation General to raise capital to finance acquisitions. The Preferred Stock
could have certain anti-takeover effects under certain circumstances. The
issuance of shares of Preferred Stock could enable the Board of Directors to
render more difficult or discourage an attempt to obtain control of Aviation
General by means of a merger, tender offer, or other business combination
transaction directed at Aviation General by, among other things, placing shares
of Preferred
8
<PAGE>
Stock with investors who might align themselves with the Board of Directors,
issuing new shares to dilute stock ownership of a person or entity seeking
control of Aviation General, or creating a class or series of Preferred Stock
with class voting rights.
Delaware Corporate Law. For a number of years, the State of Delaware
has had a policy of encouraging incorporation in that state. In furtherance of
that policy, it has adopted comprehensive, modern, and flexible corporate laws,
which it periodically updates and revises to meet changing business needs. As a
result, many corporations have chosen Delaware as their state of domicile. In
addition, Delaware courts have developed a body of case law construing Delaware
law and establishing public policies with respect to corporations incorporated
in Delaware. Thus, organization of Aviation General as a Delaware corporation
should provide greater flexibility, certainty, and predictability with respect
to its corporate affairs.
Comparison of Shareholders' Rights
Aviation General will be incorporated under the laws of the State of
Delaware, while the Company is incorporated under the laws of the Commonwealth
of Virginia. Because the Company's shareholders will receive Aviation General
Common Stock in the Merger and thus will become shareholders of Aviation
General, their rights will be governed by the DGCL and Aviation General's
Charter and Bylaws. The following summary describes all material differences
between the DGCL and Aviation General's Charter and Bylaws, on one hand, and the
VSCE and the Company's Charter and Bylaws, on the other hand. Copies of Aviation
General's Charter and Bylaws have been filed as exhibits to the registration
statement of which this Proxy Statement/Prospectus is part.
Board of Directors. Aviation General's Bylaws provide that the Board of
Directors shall have a minimum of three and a maximum of seven members. The
Company's Bylaws provide for the same minimum and maximum numbers of directors.
The DGCL and the VSCA provide that directors may be removed by
shareholders with or without cause. The Company's and Aviation General's Bylaws
provide that any director or the entire Board of Directors may be removed, with
or without cause, by the holders of a majority of shares of Common Stock
entitled to vote at an election of directors.
In accordance with the DGCL, Aviation General's Bylaws provide that
vacancies and newly created directorships may be filled by a majority of the
directors then in office (even if less than a quorum). In accordance with the
VSCA, the Company's Bylaws provide that a vacancy may be filled by the
shareholders, the board of directors, or a majority of the remaining directors
though less than a quorum.
Under the DGCL, cumulative voting in the election of directors is not
mandatory. Aviation General's Charter does not provide for cumulative voting.
Similarly, under the VSCA, shareholders do not have a right to cumulative voting
unless the articles of incorporation so provide. The Company's Charter does not
provide for cumulative voting.
The DGCL allows a corporation to adopt a classified board of directors
consisting of as many as three classes, without specifying any minimum number
required in each class. Aviation General's Charter does not provide for a
classified Board of Directors. The VSCA similarly allows a corporation's
9
<PAGE>
articles of incorporation to provide for a classified board of directors. The
Company's Charter does not provide for a classified board of directors.
Possible Anti-takeover Effects. Aviation General will be subject to
Section 203 of the DGCL ("Section 203"). Pursuant to Section 203, with certain
exceptions, a Delaware corporation may not engage in any of a broad range of
business combinations, such as mergers, consolidations, and sales of assets,
with an "interested shareholder" for a period of three years from the date that
such person became an interested shareholder unless (i) the transaction that
results in the person's becoming an interested shareholder, or the business
combination, is approved by the board of directors of the corporation before the
person becomes an interested shareholder, (ii) upon consummation of the
transaction which results in the shareholder becoming an interested shareholder,
the interested shareholder owns 85% or more of the voting stock of the
corporation outstanding at the time the transaction commenced (other than
certain excluded shares), or (iii) on or after the date the person becomes an
interested shareholder, the business combination is approved by the
corporation's board of directors and by holders of at least two-thirds of the
corporation's outstanding voting stock, excluding shares owned by the interested
shareholder, at a meeting of shareholders. Under Section 203, an "interested
shareholder" is defined as any person, other than the corporation and any direct
or indirect majority-owned subsidiaries of the corporation, that is (i) the
owner of 15% or more of the outstanding voting stock of the corporation or (ii)
an affiliate or associate of the corporation and the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested shareholder. Aviation General has approved
the Company's current 15% shareholders as "interested shareholders."
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested shareholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage persons interested in acquiring Aviation General to
negotiate in advance with Aviation General's Board of Directors because the
shareholder approval requirement would be avoided if a majority of Aviation
General's directors then in office approve either the business combination or
the transaction which results in the person becoming an interested shareholder.
Such provisions also may have the effect of preventing changes in management of
Aviation General. It is possible that such provisions could make it more
difficult to accomplish transactions that shareholders may otherwise deem to be
in their best interests.
As a Virginia corporation, the Company is subject to Section 13.1-725
et seq. of the VSCA ("Section 725") which contains provisions restricting
"Affiliated Transactions." Section 725 requires approval of Affiliated
Transactions between a Virginia corporation and an Interested Shareholder
(defined in Section 725 to include any (i) beneficial owner of more than 10% of
any class of its outstanding voting shares or (ii) an affiliate or associate of
the corporation that at any time within the preceding three years has been an
Interested Shareholder of the corporation) by an affirmative vote of a majority
of the Disinterested Directors (as defined below) and holders of at least
two-thirds of the voting shares other than shares beneficially owned by the
Interested Shareholder as defined in the VSCA. Affiliated Transactions subject
to this approval requirement include, (i) mergers and share exchanges with an
Interested Shareholder, (ii) dispositions of material corporate assets to or
with an Interested Shareholder not in the ordinary course of business, (iii) any
guaranty by the corporation of indebtedness of any Interested Shareholder in an
amount in excess of five percent of the corporation's consolidated net worth,
(iv) dispositions to an Interested Shareholder of an amount of voting shares of
the corporation having an aggregate fair market value in excess of five percent
of the aggregate fair market value of all of the outstanding voting shares
except pursuant to a share dividend or the exercise of rights distributed on a
10
<PAGE>
basis affording substantially proportionate treatment to all holders of the same
class or series of voting shares, (v) a dissolution of the corporation proposed
by or on behalf of an Interested Shareholder, or (vi) any reclassification,
including, reverse stock split, recapitalization or merger of the corporation
with its subsidiaries which increases the percentage of voting shares owned
beneficially by an Interested Shareholder by more than 5%. A Disinterested
Director means, with respect to a particular Interested Shareholder, a member of
the corporation's board of directors who was a member on the date on which an
Interested Shareholder became an Interested Shareholder and who was recommended
for election by, or was elected to fill a vacancy and received the affirmative
vote of, a majority of the Disinterested Directors then on the Board. The VSCA
requires that an Affiliated Transaction with an Interested Shareholder occurring
three years or more after the Interested Shareholder becomes an Interested
Shareholder must be approved by the affirmative vote of the holders of
two-thirds of the voting shares (other than those beneficially owned by the
Interested Shareholder) or by a majority of the Disinterested Directors.
Under the VSCA, the special voting requirements do not apply to
Affiliated Transactions proposed after the three year period has expired if the
transaction satisfies the fair-price requirements of the statute. In general,
the fair-price requirement provides that in a two-step acquisition transaction,
the Interested Shareholder must pay the shareholders in the second step either
the same amount of cash or the same amount and type of consideration paid to
acquire the Virginia corporation's shares in the first step.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder (i) whose acquisition of
shares making such person an Interested Shareholder was approved by a majority
of the Virginia corporation's Disinterested Directors, (ii) who was an
Interested Shareholder on the date the Virginia corporation became subject to
these provisions by virtue of its having 300 shareholders of record, (iii) who
became an Interested Shareholder as a result of acquiring shares by gift,
testamentary bequest or the laws of descent and distribution, or (iv) generally,
who became an Interested Shareholder inadvertently.
These provisions may have the effect of deterring certain takeovers of
Virginia corporations. In addition, the VSCA provides that, by affirmative vote
of a majority of the voting shares other than shares owned by an Interested
Shareholder, a corporation can "opt out" of the Affiliated Transactions
provisions by adopting an amendment to its Articles of Incorporation or Bylaws
providing that the Affiliated Transactions provisions shall not apply to the
corporation. The Company has not "opted out" of the Affiliated Transactions
provisions.
Special Meeting of Shareholders. The DGCL provides that a special
meeting of shareholders may be called by a corporation's board of directors or
by such person or persons as may be authorized by its certificate of
incorporation or bylaws. The VSCA provides that a corporation shall hold a
special meeting of shareholders on call of the chairman of the board of
directors, the president, the board of directors, or the person or persons
authorized to do so by the articles of incorporation or bylaws. Both the
Company's Bylaws and Aviation General's Bylaws provide that a special meeting of
shareholders may be called by the Chairman, the President, or the Board of
Directors.
Shareholder Action in Lieu of Meeting. The DGCL provides that, unless
otherwise provided in a corporation's certificate of incorporation, any action
required or permitted to be taken at an annual or special meeting of
shareholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action that would
be taken, is signed by holders of
11
<PAGE>
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting. Aviation General's Charter does
not eliminate the ability of shareholders to take action by consent in lieu of a
meeting.
The VSCA provides that any action required or permitted to be taken at
a meeting of the shareholders of a corporation may be taken without a meeting,
but only with the written consent of all shareholders entitled to vote with
respect to the subject matter thereof. The action shall be evidenced by one or
more written consents describing the action taken, signed by all the
shareholders entitled to vote on the action and included on the corporate
records. The Company's Charter and Bylaws do not provide for, or prohibit,
shareholder action in lieu of a meeting.
Bylaw Amendments by Directors. Under the DGCL, the power to adopt,
amend, or repeal bylaws is vested exclusively in the shareholders entitled to
vote, unless the certificate of incorporation confers such power upon the board
of directors as well. Aviation General's Charter and Bylaws provide that the
Board of Directors is expressly authorized to make, alter or repeal Aviation
General's Bylaws by an affirmative majority vote.
The VSCA provides that the power to alter, amend or repeal bylaws is
vested in the board of directors, subject to repeal or change by action of the
shareholders, provided such powers are reserved to the shareholders by the
articles of incorporation. The Company's Charter does not reserve such powers to
the shareholders.
Payment of Dividends; Share Repurchases. Under the DGCL, a corporation
may declare and pay dividends either out of its surplus or, if there is no
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Aviation General's Charter provides
that, subject to the provisions of applicable law and the preferences of any
preferred stock, the holders of Aviation General Common Stock shall be entitled
to receive dividends at such times and in such amounts as determined by the
Board of Directors.
The DGCL permits a corporation to purchase or redeem shares of its own
stock when its capital is not impaired and such purchase or redemption would not
cause any impairment of the capital of the corporation, except that a
corporation may purchase or redeem out of capital any of its preferred shares if
such shares will be retired upon their acquisition and the capital of the
corporation will be reduced in accordance with the DGCL. Under the DGCL, a
corporation may not purchase any of its redeemable shares for more than the
price at which they may then be redeemed.
Under the VSCA, a board of directors may authorize and the corporation
may make distributions to its shareholders, subject to restrictions by the
articles of incorporation, except that no distribution may be made if, after
giving it effect, the corporation would not be able to pay its debts as they
become due in the usual course of business or if the corporation's total assets
would be less than the sum of its total liabilities plus (unless the articles of
incorporation permit otherwise) the amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution. The VSCA permits a corporation
to acquire its own shares. Such acquired shares constitute authorized but
unissued shares of the same class, but undesignated as to series.
Director Liability; Reliance. The DGCL and the VSCA are similar with regard
to limitations on director liability. The DGCL and the VSCA permit a corporation
to include in its certificate or articles
12
<PAGE>
of incorporation, as the case may be, a provision eliminating or limiting a
director's liability to the corporation or its shareholders for monetary damages
for breaches of fiduciary duty, including conduct which could be characterized
as negligence or gross negligence. The DGCL and the VSCA expressly provide,
however, that liability for breaches of duty of loyalty, acts or omissions not
in good faith or involving intentional misconduct or knowing violations of the
law, the unlawful purchase or redemption of stock or payment of unlawful
dividends or the receipt of improper personal benefits cannot be eliminated or
limited in this manner. Both statutes further provide that no such provision
shall eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision becomes effective. Aviation
General's Charter contains provisions that eliminate the personal liability of
the directors and officers to the extent permitted under the DGCL. The Company's
Charter contains similar provisions.
Under the DGCL, a member of the board of directors of a corporation or
a member of any committee designated by the board of directors will, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the corporation and upon such information, opinions, reports, or
statements presented to the corporation by any of the corporation's officers or
employees, or committees of the board of directors, or by any other person as to
matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the corporation. The VSCA does not contain a similar
provision.
Both the DGCL and the VSCA provide that a corporation may purchase and
maintain insurance on behalf of any individual who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in such capacity, whether or
not the corporation would have the power to indemnify him against such
liability.
Indemnification. The DGCL permits, but does not require, a corporation
to indemnify its directors, officers, employees or agents and expressly provides
that the indemnification provided for under the DGCL shall not be deemed
exclusive of any indemnification right under any bylaw, vote of shareholders or
disinterested directors, or otherwise. The DGCL permits indemnification against
expenses and certain other liabilities arising out of legal actions brought or
threatened against such persons for their conduct on behalf of the corporation,
provided that each such person acted in good faith and in a manner that he
reasonably believed was in or not opposed to the corporation's best interests
and in the case of a criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful. The DGCL does not allow indemnification of
directors in the case of an action by or in the right of the corporation
(including shareholder derivative suits) unless the directors successfully
defend the action or indemnification is ordered by the court. Aviation General's
Charter and Bylaws provide for indemnification to the fullest extent authorized
by the DGCL and, therefore, these statutory indemnification rights are available
to the directors, officers, employees and agents of Aviation General.
The VSCA requires a corporation to indemnify its directors and officers
against reasonable expenses incurred by them in defense of any proceeding to
which they are made a party because of their position with the corporation and
in which they prevail, unless the corporation's articles of incorporation limit
this right. The VSCA also authorizes a corporation to more broadly indemnify its
directors and officers, and to extend such indemnification to its employees and
agents, and to make additional provisions for advances and reimbursement of
expenses to them, subject to certain limitations, including restrictions against
indemnification for willful misconduct or knowing violation of the criminal law.
The
13
<PAGE>
VSCA does not permit a corporation to indemnify its directors, however, in
connection with a proceeding (i) by or in the right of the corporation in which
the director was adjudged liable to the corporation or (ii) in which a director
has been adjudged liable on the basis that a benefit was improperly received by
him. These statutory indemnification rights of directors and officers are not
limited by the Company's Charter and are, therefore, available to the Company's
directors and officers. In addition, the Company's Charter provides that the
Company's Board of Directors is empowered to cause the Company to indemnify any
person, other than a director or officer of the Company, to the same extent as
it would indemnify a director or officer.
Control Share Acquisitions. The VSCA provides that shares acquired in a
transaction that would cause the acquiring person's voting strength to cross any
of three thresholds (20%, 33% or 50%) have no voting rights unless granted by a
majority vote of shares not owned by the acquiring person or any officer or
employee-director of the corporation. The acquiring shareholder can request a
special meeting of the shareholders to consider granting voting rights to shares
that he owns or proposes to acquire. The request generally must be voted on at a
special meeting of shareholders to be called within 10 days thereafter. Any
special meeting to consider whether to grant voting rights must be held no
earlier than 30 days and no later than 50 days from the date of the request.
Delaware does not have a control share acquisition statute.
Dissenters' Rights. Pursuant to both the VSCA and the DGCL, a
shareholder of a corporation engaging in certain transactions may, under certain
circumstances, dissent from a merger, consolidation or other transaction and
demand payment in cash in the amount of the fair value of his or her shares (as
appraised pursuant to judicial proceedings) in lieu of the consideration such
shareholder would otherwise receive in such transaction.
Under the DGCL, shareholders of a corporation are entitled to appraisal
rights only with respect to certain statutory mergers or consolidations. Unless
otherwise provided in the certificate of incorporation, the DGCL does not grant
appraisal rights to (i) shareholders with respect to a merger or consolidation
of a corporation, the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders, if such shareholders
receive only shares of the surviving corporation or shares of any other
corporation which are either listed on a national securities exchange or held of
record by more than 2,000 holders or (ii) shareholders of a corporation
surviving a merger if no vote of the shareholders of such corporation is
required to approve the merger.
Under the VSCA, shareholders of a corporation are entitled to dissent
from certain mergers, consolidations or share exchanges by such corporation, or
upon the disposition of all or substantially all of its assets. However, unless
otherwise provided in the articles of incorporation, shareholders generally have
no appraisal rights with respect to their shares if the shares (i) are listed on
a national securities exchange or (ii) held by at least 2,000 record
shareholders.
Dissenters' Rights in Connection with the Merger
Under the VSCA, the Company's shareholders objecting to the Merger
Agreement and the Merger do not have any dissenters' rights of appraisal.
14
<PAGE>
Federal Income Tax Consequences of the Merger
The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and thus
neither the Company nor Aviation General will recognize any gain or loss as a
result of the Merger and no gain or loss will be recognized by shareholders upon
their receipt of shares of Aviation General Common Stock in exchange for their
shares of the Company Common Stock.
Effective Time; Termination and Abandonment
The Merger Agreement provides that, subject to approval and adoption by
the shareholders of the Company, the Merger shall become effective when articles
of merger are filed with the Virginia State Corporation Commission and a
certificate of merger relating to the Merger is filed with the Secretary of
State of Delaware (the "Effective Time"). The Company anticipates that the
certificate will be filed promptly after the 1998 Annual Meeting. No State or
Federal regulatory requirements or approvals must be complied with or obtained
in order to consummate the Merger.
The Merger Agreement may be terminated and abandoned by the Board of
Directors of the Company or the Board of Directors of Aviation General at any
time prior to the consummation of the Merger. In addition, the Merger Agreement
may be amended at any time prior to the Effective Time with the mutual consent
of the Boards of Directors of the Company and Aviation General, provided that
the Merger Agreement may not be amended following its adoption by the
shareholders of the Company in any manner that would be prohibited by applicable
law.
Conversion of Shares
At the Effective Time, each share of Company Common Stock will be
converted into one share of Aviation General Common Stock. The holder of each
certificate that immediately prior to the Effective Time evidenced shares of
Company Common Stock shall receive upon surrender for cancellation of such
certificate a new certificate evidencing the same number of shares of Aviation
General Common Stock.
IT WILL NOT BE NECESSARY FOR SHAREHOLDERS OF THE COMPANY TO
EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF
AVIATION GENERAL. Until surrendered for cancellation, such certificates will be
deemed for all corporate purposes to evidence ownership of Aviation General
Common Stock into which Company Common Stock was converted at the Effective
Time.
It is expected that at the Effective Time Aviation General Common Stock
will be listed on the Nasdaq SmallCap Market.
Recommendation of Board of Directors
The Company's Board of Directors unanimously recommends that
shareholders vote "FOR" the Merger Agreement and the Merger.
15
<PAGE>
PROPOSAL 2: ELECTION OF DIRECTORS
Nominees
A board of three directors is to be elected at the Annual Meeting.
Unless marked to the contrary, all properly signed and returned proxies will be
voted for the election of management's three nominees named below, all of whom
are presently directors of the Company. If any nominee is unable or, for good
cause, declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee designated by the present Board of
Directors to fill the vacancy. The Company is not aware of any nominee who will
be unable or will decline to serve as a director. The term of office of each
person elected as a director will continue until the next Annual Meeting of
Shareholders or until a successor has been elected and qualified. Upon
consummation of the Merger, each person elected as a director of the Company
will serve as a director of Aviation General.
The following sets forth certain information regarding each of the
nominees for election as director:
Wirt D. Walker, III, age 52, has served as a director of the
Company from September 1989 to February 1991, as Chairman of the Board
of Directors since May 1991 and as President and Chief Executive
Officer since June 1998. Mr. Walker previously served as the Company's
Chief Executive Officer from May 1991 to August 1991 and from December
1992 to May 1995. Since 1982, Mr. Walker has served as a director and
the Managing Director of KuwAm Corporation, a private investment firm.
He is the Chairman of STRATESEC Incorporated, a publicly traded company
that provides technology-based security solutions for medium and large
commercial and government facilities, and Universal Communications,
Inc., a privately held advertising and marketing communications
company.
N. Gene Criss, age 55, served as President and Chief Executive
Officer of the Company from May 1995 to June 1998. Mr. Criss served as
President and Chief Operating Officer from December 1994 to May 1995,
as Executive Vice President and Chief Operating Officer from November
1992 to December 1994 and as a director since August 1993. He served as
Vice President, Manufacturing at American General Aircraft Company, a
manufacturer of light single engine general aviation aircraft from July
1992 to November 1992. Prior to July 1992, Mr. Criss held a variety of
positions of increasing responsibility during a twenty-two year career
at Piper Aircraft Corporation, including service as Director of
Materials and Manufacturing Support from 1982 to June 1992. During his
tenure with Piper Aircraft Corporation, Mr. Criss was responsible for
corporate scheduling, production and material control, inventory
control and engineering administration.
Mishal Yousef Saud Al Sabah, 37, is a private investor who has
been involved in a broad range of investment activities in the United
States and overseas for the past eighteen years. Mr. Al Sabah has been
a director of the Company since 1991. He has served as the Chairman of
the Board of Directors of KuwAm Corporation since 1982 and is a
director of STRATESEC Incorporated and Universal Communications, Inc.
16
<PAGE>
Director Compensation
Directors are paid an annual fee of $20,000, payable in equal quarterly
installments, for services as a director. Such fees are prorated when a director
does not serve for a full year. Directors receive no additional compensation for
committee participation or attendance at committee meetings, other than
reimbursement of travel and lodging expenses.
The 1993 Stock Option Plan provides for the automatic annual grant of a
stock option to purchase 20,000 shares of Common Stock to each eligible
non-employee and employee director of the Company; non-employee directors will
automatically receive a nonstatutory stock option and employee directors will
automatically receive an incentive stock option. The 1997 annual automatic
options were granted to each of the three directors on December 20, 1997.
Board Meetings and Committees
The Board of Directors held a total of four meetings during the fiscal
year ended December 31, 1997. The Board has two committees: the Audit
Committee and the Compensation Committee.
The Audit Committee, comprised of Messrs. Walker and Al Sabah,
recommends the selection of the Company's independent accountants and approves
the scope of the audit to be conducted. The Committee is primarily responsible
for reviewing and evaluating the Company's accounting practices and its systems
of internal accounting controls. The Audit Committee held one meeting during
fiscal 1997.
The Compensation Committee, comprised of Messrs. Walker and Al Sabah,
recommends the amount and type of compensation to be paid to the Company's
executive officers, reviews the performance of the Company's key employees, and
administers and determines distributions under the Company's Profit Sharing
Plan. The Compensation Committee will also determine the number of shares, if
any, to be granted each employee under such plan and the terms of such grants.
The Compensation Committee held one meeting during 1997.
No director attended fewer than 75% of all meetings of the Board of
Directors held during fiscal 1997 or of all meetings of any committee upon which
such director served during fiscal 1997.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Mr. Walker and Mr. Al
Sabah. Both receive compensation for services as a director (See "Director
Compensation"). Mr. Walker has served as President and Chief Executive
Officer of the Company since June 1998, and previously served in that
capacity from December 1992 to May 1995. Mr. Walker's current salary as
President and Chief Executive Officer is $80,000 per year. Messrs. Walker
and Al Sabah are directors and shareholders of KuwAm Corporation, the
corporate general partner of SSIH, the majority shareholder of the Company.
Other Officers
Stephen R. Buren, age 54, has served as Chief Financial Officer of the
Company since May 1991 and as Vice President and Treasurer of the Company since
1990. He was Vice President, Finance and Treasurer of Mycro-Tek, Inc. from 1987
to 1990, and was Vice President, Finance of Health Technologies, Inc. from 1986
to 1987. From 1974 to 1986 he held division and corporate controllership
17
<PAGE>
positions at Cessna Aircraft Company.
Dean N. Thomas, age 43, has served as Senior Vice President -- Sales
and Marketing since January 1995. He was President of Strategic Marketing
Resources, a marketing consulting firm, from 1990 to 1994, and held various
positions at Piper Aircraft Corporation from 1981 to 1990, including Director of
Marketing and Director of Product Development.
18
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows certain information concerning the
compensation of each of the Company's executive officers for services rendered
in all capacities to the Company for the fiscal years ended 1997, 1996, and
1995.
<TABLE>
<CAPTION>
Long-Term Compensation
Securities
Underlying
Options All Other
Annual Compensation Awarded Compensation
Year Salary(1) Bonus(1) (in shares) (2)
<S> <C> <C> <C> <C> <C>
N. Gene Criss...................................... 1997 $125,000 -- 60,000 $20,000
President, Chief Executive 1996 $125,000 -- 60,000 $20,000
Officer and Director (3) 1995 $125,000 -- 60,000 $10,000
Stephen R. Buren................................... 1997 $ 81,923 -- 10,000 --
Vice President, Chief Financial 1996 $ 80,000 -- 25,000 --
Officer and Treasurer 1995 $ 79,039 -- 10,000 --
Dean N. Thomas..................................... 1997 $ 75,000 $ 18,500 10,000
Senior Vice President-- Sales and 1996 $ 55,692 $ 12,200 10,000 --
Marketing 1995 $ 51,603 $ 4,397 20,000 --
Wirt D. Walker, III................................ 1997 -- -- 20,000 $20,000
Chairman (4) 1996 -- -- 20,000 $20,000
1995 -- -- 20,000 $10,000
</TABLE>
(1) Salary and bonus payments include voluntary salary reduction
contribution to the Company's 401(k) Savings Plan.
(2) Amounts paid as director fees unless otherwise indicated.
(3) Mr. Criss joined the Company in November 1992 and became a director in
August 1993. Mr. Criss resigned as President and Chief Executive
Officer in June 1998, at which time he entered into a one-year
consulting agreement with the Company under which he receives $65,000
per year.
(4) Mr. Walker served as Chief Executive Officer of the Company from
December 1992 to May 1995, for which he received no compensation. Mr.
Walker was appointed President and Chief Executive Officer in June
1998, for which he currently receives a salary of $80,000 per year.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
The following table shows the number of shares of Common Stock acquired
by the executive officers upon the exercise of stock options during fiscal 1997,
the new value realized at exercise, the number of shares of Common Stock
represented by outstanding stock options held by each executive officer as of
December 31, 1997 and the value of such options based on the closing price of
the Company's Common Stock on December 31, 1997, which was $1 13/16 per share.
19
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Value Underlying Unexercised In-the-Money Options
Shares Acquired Realized Options at FY End (#)(1) at FY End ($)(2)
on Exercise (#) ($)(3) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Wirt D. Walker, III.............. -- -- 53,333/ 40,000 $0/0
N. Gene Criss.................... -- -- 100,000/ 120,000 $0/0
Stephen R. Buren................. -- -- 15,000/ 30,000 $0/0
Dean N. Thomas................... -- -- 16,667/ 23,333 $0/0
</TABLE>
(1) Represents the total number of shares subject to stock options held by
each executive officer. These options were granted at various dates
during fiscal years 1993 through 1997 and are exercisable on various
dates beginning in 1994 and expiring in 2002.
(2) Represents the difference between the exercise price and $1 13/16 which
was the December 31, 1997 closing price. Stock option exercise prices
range from $2.00 to $5.25, therefore no options were in-the-money at
December 31, 1997.
(3) Aggregate market value of the shares covered by the option at the date
of exercise, less the aggregate exercise price. No options were
exercised in 1997.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is composed of Wirt D. Walker, III and Mishal Yousef Saud Al Sabah. The
Committee is charged with the responsibility for reviewing the performance and
approving the compensation of key executives and for establishing general
compensation policies and standards for reviewing management performance. The
Committee also reviews both corporate and key executive performance in light of
established criteria and goals and approves individual key executive
compensation.
Compensation Philosophy
The executive compensation policy of the Company is to provide
competitive levels of compensation that advance the Company's annual and
long-term performance objectives, reward corporate performance, and assist the
Company in attracting, retaining and motivating highly qualified executives. The
framework for the Committee's executive compensation programs is to establish
base salaries which are competitive with similar sized companies and to create
incentives for excellent performance by providing executives with the
opportunity to earn additional remuneration linked to the Company's
profitability. The incentive plan goals are designed to improve the
effectiveness and enhance the efficiency of Company operations and to create
value for the shareholders. It is also the Company's policy to encourage share
ownership by executive officers and non-employee directors through the grant of
stock options.
Components of Compensation
The compensation package of the Company's executive officers consists
of base annual salary, participation in the Company's Profit Sharing Plan and
stock option grants.
At executive levels, base salaries are reviewed but not necessarily
increased annually. Base salaries are fixed at levels slightly below competitive
amounts paid to individuals with comparable qualifications, experience and
responsibilities who are engaged in similar businesses as the Company,
20
<PAGE>
based on the experience of the Committee members, directors and employees of the
Company within the aviation industry.
The Company has adopted a Profit Sharing Plan which is intended to
advance the interests of the Company by providing eligible employees with annual
incentive to increase the productivity of the Company. Unless the Board of
Directors determines otherwise prior to the end of a fiscal year, the Profit
Sharing Plan provides for payment to selected employees of an aggregate of 10%
of the consolidated pre-tax profits of the Company for the fiscal year. The
Compensation Committee administers the Profit Sharing Plan and selects the
employees who will receive profit sharing awards. Profit sharing awards are
based upon an employee's salary, level of responsibility and attainment of
performance goals and objectives. Profit sharing awards are paid as soon as
practicable following the end of the fiscal year.
The Company uses stock options both to reward past performance and to
motivate future performance, especially long-term performance. The Committee
believes that through the use of stock options, executive interests are directly
tied to enhancing shareholder value. Stock options are granted at fair market
value as of the date of grant and generally have a term of three to five years.
The options vest 33% per year, beginning on the first anniversary date of the
grant. The stock options provide value to the recipients only when the market
price of the Company's Common Stock increases above the option grant price and
only as the shares vest and become exercisable.
Section 162(m) of the Internal Revenue Code, which provides for a
$1,000,000 limit on the deductibility of compensation, presently is not
applicable to the Company. The Committee will review this policy with respect to
Section 162(m) when and if the section is applicable in the future.
Option Grants in Last Fiscal Year
The Committee approved the following stock option grants for the
executive officers during fiscal year 1997.
<TABLE>
<CAPTION>
Percent of Potential Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Price Appreciation for
Options Employees in Exercise Expiration Option Term
Granted(1) Fiscal Year Price Date 5% 10%
------------------------ ------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Wirt D. Walker, III................ 20,000 10% $ 2.00 12/20/02 $ 11,051 $ 24,420
N. Gene Criss...................... 40,000 19% $ 2.25 1/06/00 $ 14,186 $ 29,790
20,000 10% $ 2.00 12/20/02 $ 11,051 $ 24,420
--------- ------
60,000 29%
Stephen R. Buren................... 10,000 5% $ 2.50 10/11/00 $ 3,941 $ 8,275
Dean N. Thomas..................... 10,000 5% $ 2.50 10/11/00 $ 3,941 $ 8,275
</TABLE>
(1) Each option is non-transferable; vests as to 33% of the shares covered
by such option over three years, commencing on the first anniversary of
the date of issuance; is canceled prior to vesting in the event the
holder either resigns from the Company or is terminated for justifiable
cause; and is void after the date listed under the heading "Expiration
Date." The exercise price of the stock subject to options was equal to
the market value on the date of the grant. The number of shares
21
<PAGE>
issuable upon exercise of each option is subject to adjustment
subsequent to any stock dividend, split-up, recapitalization or certain
other transactions.
During 1997, Messrs. Walker, Al Sabah and Criss, directors of the Company,
were granted an option to purchase 20,000 shares of Common Stock pursuant
to the 1993 Stock Option Plan.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and holders of more than ten percent
of the Company's Common Stock to file reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
The Company believes that during the fiscal year ended December 31, 1997, its
officers, directors and holders of more than 10% of the Company's Common Stock
complied with all Section 16(a) filing requirements.
Compensation of Chief Executive Officer
The Committee makes decisions regarding the compensation of the Chief
Executive Officer using the same philosophy set forth above. The Committee's
approach in setting the Chief Executive Officer's base compensation, as with
that of the Company's other executives, is to be competitive with other
companies within the industry, taking into consideration company size, operating
conditions and compensation philosophy and performance. Mr. Criss' base salary
was not increased during fiscal 1997. Mr. Criss' fiscal 1997 incentive
compensation was earned under the same performance criteria that were described
previously in this report. He was granted options to purchase a total of 60,000
shares of the Company's Common Stock during fiscal 1997, of which 20,000 shares
represent the automatic grant to directors.
COMPENSATION COMMITTEE
Wirt D. Walker, III
Mishal Yousef Saud Al Sabah
22
<PAGE>
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company
include in this Proxy Statement a line-graph presentation comparing cumulative,
five year shareholder returns on an indexed basis with (i) a broad equity market
index and (ii) either an industry index or peer group. An initial public
offering of the Company's stock occurred on April 19, 1993. The following graph
compares the percentage change in the cumulative total return of the Nasdaq
Stock Market -- US Index and the Standard & Poor's Aerospace/Defense Industry
Index for a period of 56 months. Total return for the purpose of this graph
assumes reinvestment of all dividends, if any. The stock price information shown
on the graph is not necessarily indicative of future price performance.
COMPARISON OF 56 MONTH CUMULATIVE TOTAL RETURN*
Among Commander Aircraft Company, the Nasdaq Stock Market -- US Index
And the S&P Aerospace/Defense Index
Commander NASDAQ S&P
Aircraft Stock Aerospace/
Company Market--US Defense
4/19/93 100 100 100
12/93 61 113 127
12/94 51 110 137
12/95 38 156 227
12/96 21 192 303
12/97 19 235 312
* $100 invested on 4/19/93 in stock or on 3/31/93 in index; includes
reinvestment of dividends.
23
<PAGE>
CERTAIN TRANSACTIONS
During 1997, the Company sold, on open account, spare parts for an
aggregate of $57,000 to Commander International, a Commander Authorized Sales
and Service Representative located in Dubai that is owned by Mishal Yousef Al
Sabah, a director of the Company. All sales were at prices comparable to sales
to unrelated parties. The maximum amount outstanding under Commander
International's account during 1997 was $2,650,666, and the amount outstanding
as of December 31, 1997 was $1,496,971. The maturity date of the account was
extended until June 30, 1998 and amounts outstanding under the account bear
interest at 1% over the Morgan Guaranty of New York prime rate (9.5% at December
31, 1997), with interest paid quarterly in arrears. During 1997, the Company
received payments of $1,395,000 on the account, of which $186,745 represented
the payment of interest. In light of Commander International's payment history,
which has resulted in a reduction in the amount of the note from $4,224,000 at
December 31, 1995 to its present amount, and the Company's commercial
relationship with Commander International, the Company anticipates that it will
extend the maturity date of the note beyond June 30, 1998. Commander
International was responsible for establishing a market for the Company's
aircraft in the Middle East and in Europe, and to date has been responsible for
the sale of more than 20 of the Company's aircraft.
In January 1997, the Board of Directors of the Company accepted an
offer by the majority shareholder and its affiliates to exchange $2,000,000 of
10% notes payable for 200,000 shares of newly issued Common Stock effective
February 1, 1997. The repayment of accrued interest outstanding at December 31,
1996 and February 1, 1997 was waived. The maturity date of the remaining
$900,000 notes payable was extended to December 31, 1997 with interest payable
June 30, 1997 and December 31, 1997. Interest paid under the notes to Special
Situation Investment Holdings, Ltd., Special Situation Investment Holdings, L.P.
II and KuwAm Corporation totaled $67,096 for 1997.
In October 1997, the Board of Directors accepted an offer by the
majority shareholder and its affiliates to purchase 360,000 shares of newly
issued Common Stock for $10.00 per share or an aggregate of $3,600,000. Of the
proceeds $900,000 was used to redeem 10% demand notes due December 31, 1997 and
approximately $600,000 was used to repay bank debt.
In February 1998, the Company repurchased a 114B aircraft from
STRATESEC, Incorporated, for $240,000, the fair market value for such an
aircraft. The Company had sold the aircraft to STRATESEC in 1996 for $335,000,
the list price of the aircraft. The majority stockholder of the Company is the
majority stockholder of STRATESEC, and the chairman of the Company is the
chairman of STRATESEC. Since repurchasing the aircraft, the Company sold it for
a profit.
In May 1998, the Company purchased $600,000 of convertible subordinated
debentures of STRATESEC. The debentures have an interest rate of 10%, are due on
December 31, 1999 and are convertible into common stock of STRATESEC at $8.50
per share. In connection with its investment in the debentures, the Company was
also issued warrants to purchase 60,000 shares of STRATESEC common stock at an
exercise price of $2.50 per share and a term of three years.
24
<PAGE>
PROPOSAL 3 - AMENDMENT OF 1993 STOCK OPTION PLAN
Introduction
The Board of Directors of the Company has unanimously approved a
resolution, subject to shareholder approval, approving an amendment to the
Company's 1993 Stock Option Plan (the "Plan") to increase the number of shares
of Common Stock that may be issued pursuant to stock options granted thereunder
by 500,000 shares. Before giving effect to the proposed amendment, 104,650
shares of Common Stock remain available for issuance pursuant to the Plan.
The Board of Directors recommends that shareholders vote for the
amendment of the Plan. The Board believes the Plan provides a means for key
employees and directors upon whose judgment and interest the Company is and will
be largely dependent for the successful conduct of its business to increase
their personal ownership in the Company. It is believed that such incentive
awards will further the identification of directors' and key employees'
interests with those of the Company. No determination has been made as to the
amount of options to be granted to any individual.
A summary of the Company's 1993 Stock Option Plan follows:
Eligibility
All employees of the Company or any parent or subsidiary of the Company
whom the Compensation Committee determines to be key employees are eligible to
receive stock options under the Plan. The Company estimates that it currently
has approximately fifteen such employees (two of whom are officers).
The Plan also provides that both employee directors and non-employee
directors are eligible for automatic grants of options. A non-employee director
is eligible to receive an option under the Plan if he or she is not otherwise an
employee of the Company or any subsidiary and was not an employee of the Company
or subsidiary for a period of at least one year before the date of grant of an
option under the Plan. Two members of the Board presently qualify for the
automatic grant of options under the Plan.
Administration
The Plan is administered by the Compensation Committee, which is
comprised of at least two directors of the Company who are not eligible for
discretionary grants of options under the Plan or any similar plan of the
Company. In addition to having general supervisory and interpretive authority
over the Plan, the Committee determines, upon the recommendation of management
and subject to the terms and limits of the Plan, the employees, if any, to whom
options will be granted, the time at which options are to be granted, the number
of shares to be subject to each option, and the terms and conditions of exercise
of options.
Award of Stock Options
Employees. Options to purchase shares of Common Stock granted to
employees under the Plan may be incentive stock options or nonstatutory stock
options. Incentive stock options qualify for favorable income tax treatment,
while nonstatutory stock options do not. The exercise price of shares
25
<PAGE>
of Common Stock covered by an incentive stock option may not be less than 100%
(or, in the case of an incentive stock option granted to a 10% shareholder,
110%) of the fair market value of the Common Stock on the date of the option
grant. The option price of Common Stock covered by a nonstatutory stock option
granted to an employee may not be less than 85% of the fair market value of the
Common Stock on the date of grant.
An incentive stock option shall be exercisable in any calendar year
only to the extent that the aggregate fair market value (determined at the date
of grant) of the Common Stock with respect to which incentive stock options are
exercisable for the first time during the calendar year does not exceed
$100,000.
Options may be exercised in whole or in part at such times as may be
specified by the Committee in the Participant's stock option agreement; provided
that the exercise provisions for incentive stock options shall in all events not
be more liberal than certain restrictions set forth in the Plan.
Directors. Each eligible non-employee director and employee director of
the Company on the effective date of the Plan, and subsequently on each
anniversary of the effective date of the Plan, automatically receives an option
to purchase 20,000 shares of Common Stock. Eligible directors may receive
multiple annual automatic grants of options pursuant to the terms of the Plan.
The terms and conditions that apply to each such automatic grant are as
follows: (a) the exercise price per share of Common Stock covered by each such
option shall be equal to the fair market value on the date of grant; (b) the
option by its term shall expire five years after the date of grant; (c) each
option shall be exercisable ratably over three years in increments of 331/3% per
year commencing on the first anniversary of the date of grant; (d) the option
may be exercised by one of the methods described under "Exercise of Options";
and (e) all other terms and conditions applicable to the holding and exercise of
the option shall conform to the Company's then current form of option agreement
to the extent not inconsistent with the terms of the Plan applicable to
incentive stock options.
General
If a stock option is canceled, terminates or lapses unexercised, any
unissued shares allocable to such option may be subjected again to an option.
The Committee is expressly authorized to make an award to a Plan participant
(other than a non-employee director) conditional upon the surrender for
cancellation of an existing stock option.
Adjustments will be made in the number of shares that may be issued
under the Plan in the event of a future stock dividend, stock split or similar
pro rata change in the number of outstanding shares of Common Stock or the
future creation or issuance to shareholders generally of rights, options or
options for the purchase of Company Common Stock or preferred stock.
Exercise of Options
Generally, an option may only be exercised by payment of the full
purchase price in cash. If the option so provides, the option may be exercised
by delivering an exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
from the option shares to pay the exercise price. An option may be exercisable
on or after
26
<PAGE>
the date of grant provided, however, that no option may be exercised before the
Plan is approved by the shareholders of the Company.
Transferability of Stock Options
No option may be sold, transferred, pledged, or otherwise disposed of,
other than by will or by the laws of descent and distribution. All rights
granted to a participant under the Plan shall be exercisable during his or her
lifetime only by such participant, or the participant's guardians or legal
representatives. Upon death of a participant, his or her personal representative
or beneficiary may exercise the participant's rights under the Plan.
Amendment of the Plan and Stock Options
The Board of Directors may amend the Plan in such respects as it deems
advisable; provided that the shareholders of the Company must approve any
amendment that would (i) materially increase the benefits accruing to
participants under the plan, (ii) materially increase the number of shares of
Common Stock that may be issued under the plan, or (iii) materially modify the
requirements of eligibility for participation in the Plan. Stock options granted
under the Plan may be amended with the consent of the recipient so long as the
amended award is consistent with the terms of the Plan.
Federal Income Tax Consequences
An employee or director will not incur federal income tax when he or
she is granted a stock option.
Upon exercise of a nonstatutory stock option, an employee or director
generally will recognize ordinary income (which in the case of an employee is
subject to income tax withholding by the Company) equal to the difference
between the fair market value of the Common Stock on the date of the exercise
and the option price. When an employee exercises an incentive stock option, he
or she generally will not recognize income, unless he is subject to the
alternative minimum tax. Non-employee directors are not granted incentive stock
options under the Plan.
The Company usually will be entitled to a business expense deduction at
the time and in the amount that the recipient of an incentive award recognizes
ordinary compensation income in connection therewith. As stated above, this
usually occurs upon exercise of nonstatutory options or the sale or other
impermissible disposition of an incentive stock option before the applicable
holding period has expired.
Generally, the Company's deduction is contingent upon the Company's
meeting withholding tax requirements as to employees; however, tax legislation,
enacted August 10, 1993, generally imposes a $1,000,000 limitation on the amount
of the annual compensation deduction allowable to a publicly-held company in
respect to its chief executive officer and its four most highly paid officers.
An exception is provided for certain performance-based compensation if certain
shareholder approval and outside director requirements are satisfied. Because of
certain interpretations issued under the statutory provisions, and in the
absence of Internal Revenue Service regulations, there can be no assurance that
any of the options granted under the Plan will qualify for this exception. No
deduction is allowed in connection with an incentive stock option, unless the
employee disposes of Common Stock received upon exercise in violation of the
holding period requirements.
27
<PAGE>
Vote Required
Approval of the proposal to amend the plan requires the affirmative
vote of the majority of the shares present in person or by proxy at the Annual
Meeting.
The Board of Directors recommends that you vote "FOR" the proposal to
amend the 1993 Stock Option Plan.
INDEPENDENT AUDITORS
The Board of Directors has approved a resolution retaining Grant
Thornton LLP as its independent auditors for fiscal 1998.
A representative of Grant Thornton LLP will be present at the Annual
Meeting and will have an opportunity at the meeting to make a statement if he
desires to do so and will be available to respond to appropriate questions.
EXPERTS
The financial statements of the Company as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997
incorporated by reference in this Proxy Statement/Prospectus and the
Registration Statement of which it is part have been audited by Grant Thornton
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed form of Proxy to vote the shares they
represent as the Board of Directors may recommend.
Stephen R. Buren
Chief Financial Officer
Dated: July 2, 1998
28
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
Among
AVIATION GENERAL, INCORPORATED
(A Delaware Corporation)
COMMANDER ACQUISITION CORPORATION
(A Delaware Corporation)
COMMANDER AIRCRAFT COMPANY
(A Virginia Corporation)
___________________, 1998
30
<PAGE>
TABLE OF CONTENTS
Section Page
RECITALS ..................................................................A-1
Section 1. THE MERGER................................................A-1
Section 2. OPTIONS...................................................A-4
Section 3. COVENANTS.................................................A-4
Section 4. CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES........A-5
Section 5. CLOSING...................................................A-5
Section 6. REPRESENTATIONS AND WARRANTIES............................A-5
Section 7. TERMINATION OF THE MERGER.................................A-6
Section 8. MISCELLANEOUS.............................................A-6
Exhibits
Exhibit A Merger Certificate
Exhibit B Articles of Merger and Plan of Merger
Exhibit C Certificate of Incorporation and Bylaws of Aviation General,
Incorporated
Exhibit D Certificate of Incorporation and Bylaws of Commander Acquisition
i
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is entered
into on this ___ day of _________, 1998, by and among AVIATION GENERAL,
INCORPORATED, a Delaware corporation ("Aviation General"), COMMANDER ACQUISITION
CORPORATION, a Delaware corporation ("Commander Acquisition"), and COMMANDER
AIRCRAFT COMPANY, a Virginia corporation ("Commander"), with reference to the
following facts:
RECITALS
A. Aviation General was organized for the purpose of entering into this
Agreement and has not yet issued any capital stock, and Commander Acquisition is
a wholly owned subsidiary of Aviation General.
B. The boards of directors of Commander and Commander Acquisition deem
it advisable to merge Commander with and into Commander Acquisition (the
"Merger"), as provided in this Agreement.
C. Pursuant to the Merger, the holders of shares of Common Stock, par
value $.50 per share, of Commander ("Commander Common Stock"), will receive
shares of Common Stock, par value $.50 per share, of Aviation General ("Aviation
General Common Stock") in the manner set forth in Section 1 of this Agreement
and upon the terms and conditions otherwise set forth in this Agreement.
D. To accomplish the foregoing, the parties desire to adopt a plan of
reorganization to effectuate the statutory merger of Commander into Commander
Acquisition in accordance with the provisions of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
E. Commander has outstanding options to purchase 688,683 shares of
Commander Common Stock at prices between $2.00 and $5.25 per share (the
"Commander Options").
F. In connection with the Merger, the parties hereto desire that the
obligation of Commander to issue Commander Common Stock under the Commander
Options, be converted into the obligation of Aviation General to issue Aviation
General Common Stock.
NOW, THEREFORE, in consideration of the agreements hereinafter set
forth, the parties hereto agree as follows:
AGREEMENT
Section 1. THE MERGER.
(a) Execution, Filing and Effective Time. On the date of closing of the
Merger referred to in Section 5 hereof, and subject to the terms and conditions
hereinafter set forth, the parties hereto agree to cause the Merger to be
consummated by filing (i) with the office of the
A-1
<PAGE>
Delaware Secretary of State a Certificate of Merger in the form of Exhibit A to
this Agreement (the "Merger Certificate"), executed and acknowledged by
Commander and Commander Acquisition and such other documents as may be required
by the provisions of the Delaware General Corporation Law and as are necessary
to cause the Merger to become effective, and (ii) with the Virginia State
Corporation Commission Articles of Merger in the form of Exhibit B to this
Agreement (the "Articles of Merger") executed and acknowledged by Commander and
Commander Acquisition, and such other documents as may be required by the
provisions of the Virginia Stock Corporation Act and as are necessary to cause
the Merger to become effective. The Merger shall become effective when the
Merger Certificate, the Articles of Merger and such other necessary documents
are so filed with the Secretary of State of the State of Delaware and the
Virginia State Corporation Commission. The time at which the Merger becomes
effective is referred to herein as the "Effective Time."
(b) Constituent and Surviving Corporations. Commander and Commander
Acquisition shall be the constituent corporations, and Commander Acquisition
shall be the surviving corporation (in such capacity, Commander Acquisition is
sometimes hereinafter referred to as the "Surviving Corporation"). At the
Effective Time, the identity and separate existence of Commander shall cease.
Upon the effectiveness of the Merger, the Surviving Corporation shall possess
all of the rights, privileges, immunities, powers, franchises and authority,
whether of a public or private nature, and be subject to all restrictions,
liabilities, obligations and duties, of the constituent corporation with which
it merged; all the rights, privileges, immunities, powers, franchises and
authority of Commander, and all assets and properties of every description,
real, personal and mixed, and every interest therein wherever located, and all
debts and other obligations belonging or due to Commander on whatever account,
as well as all other things in action belonging or due to Commander, shall be
vested in the Surviving Corporation; all rights of creditors and all liens upon
any property of each constituent corporation shall be preserved unimpaired; and
any claims existing or action or proceeding pending by or against Commander may
be prosecuted to judgment with right of appeal by the Surviving Corporation as
if the Merger had not taken place.
(c) Certificate of Incorporation and Bylaws. At the Effective Time: (i)
Article FIRST of the Commander Acquisition Certificate of Incorporation shall be
amended to read as follows: "FIRST: The name of the Corporation is 'Commander
Aircraft Company'," and (ii) the Bylaws of Commander Acquisition as in effect at
the Effective Time shall remain in effect without change.
(d) Officers and Boards of Directors. The members of the Boards of
Directors of Commander Acquisition at the Effective Time shall remain in office,
each to serve in accordance with the respective Bylaws of Commander Acquisition,
until his or her successor is duly elected and qualified. The Merger shall not
affect or change the officers of Commander Acquisition, who shall continue to
hold their respective offices, at the pleasure of the Board of Directors of
Commander Acquisition.
(e) Conversion of Stock and Other Securities. At the Effective Time,
subject to Section 1(f) hereof:
A-2
<PAGE>
(i) Each outstanding share of Commander Common Stock shall
become and be converted into one share of Aviation General Common Stock, without
any action on the part of the holder thereof.
(ii) Each outstanding share of Common Stock, par value $.50
per share, of Commander Acquisition shall continue to be owned by Aviation
General.
(iii) The Commander Options shall become and be converted into
options to purchase a number of shares of Aviation General Common Stock equal to
the number of shares of Commander Common Stock subject to such options
immediately prior to the Effective Time, and the exercise price per share shall
be an amount equal to the exercise price per share of the Commander Option being
converted with no change in the other terms and conditions.
(iv) All rights of third parties, other than under the
Commander Options converted pursuant to Section 1(e)(iii) hereof, to receive
Commander Common Stock, and all obligations to accept Commander Common Stock,
under any outstanding agreement, commitment or other obligation to which
Commander is a party shall become and be converted into the right to receive or
an obligation to accept shares of Aviation General Common Stock equal to the
number of shares of Commander Common Stock that would otherwise have been issued
under such agreement, commitment or obligation.
(f) Fractional Shares. No fractional shares of Aviation General Common
Stock will be issued in connection with the Merger, and the number of shares of
Aviation General Common Stock deliverable shall be rounded to the nearest full
number. If more than one certificate representing shares of Commander Common
Stock shall be surrendered at one time for the account of the same stockholder
of record, the number of full shares of Aviation General Common Stock for which
certificates shall be delivered shall be computed on the basis of the aggregate
number of shares of Commander Common Stock represented by the certificates so
surrendered.
(g) Treasury Shares. All shares of Commander Common Stock held by any
of the parties hereto at the Effective Time (the "Treasury Shares") shall cease
to exist and all certificates representing any Treasury Shares shall, as
promptly as practicable thereafter, be canceled and no cash or shares of capital
stock of Aviation General shall be issued in exchange therefor.
(h) Exchange. After the Effective Time, each certificate theretofore
representing issued and outstanding shares of Commander Common Stock shall
represent that same number of shares of Aviation General Common Stock. At and
after the Effective Time, all of the certificates which immediately prior to the
Effective Time represented outstanding shares of Commander Common Stock shall be
deemed for all purposes to evidence ownership of, and to represent shares of
Aviation General Common Stock, into which the shares of Commander Common Stock
formerly represented by such certificates have been converted as herein
provided. The registered owner on the books and records of Commander or its
transfer agent of the shares evidenced by any such certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted for
to Aviation General or its transfer agent, have and be entitled to exercise any
voting and other rights with respect to and to receive any dividends and other
distributions upon the
A-3
<PAGE>
shares of Aviation General Common Stock evidenced by such outstanding
certificate as above provided.
Section 2. OPTIONS AND 1993 STOCK OPTION PLAN.
At the Effective Time, Aviation General shall assume all of the rights
and obligations of Commander pursuant to all outstanding Commander Options and
Commander's 1993 Stock Option Plan (the "Plan"), provided that Aviation General
shall not be obligated to issue Commander Common Stock upon exercise of such
options or options to be granted pursuant to the Plan but shall instead be
obligated to issue Aviation General Common Stock pursuant to the terms of such
options or options to be granted pursuant to the Plan as provided in Section
1(e) hereof. All terms and conditions of such options and the Plan, including
terms and conditions relating to the exerciseability and the maximum term of
such options, shall be identical to the terms and conditions of such options and
the Plan in effect immediately prior to the Effective Time. No fractional shares
of Aviation General Common Stock shall be issued upon exercise of all or any
portion of such options and the number of shares of Aviation General Common
Stock deliverable upon such exercise shall be rounded to the nearest full
number.
Section 3. COVENANTS.
(a) Stockholder Approval. Commander and Aviation General each will take
appropriate action to call a meeting of its stockholders, to be held at the
earliest practicable date, to consider and vote upon this Agreement and the
Merger, and the transactions contemplated hereby and thereby, will submit the
same to its stockholders with a recommendation for approval by its Boards of
Directors and will solicit the approval thereof by its stockholders.
(b) Issuance of Aviation General Common Stock. Aviation General agrees
that it will issue to the holders of Commander Common Stock at the Effective
Time shares of Aviation General Common Stock as provided for in Section 1(e) of
this Agreement.
(c) Third Party Consents. Commander will make all filings with, and use
its reasonable best efforts to obtain all consents of, all governmental agencies
and third parties which are required to be filed or obtained by any party hereto
in order for this Agreement, the Merger and the transactions contemplated hereby
and thereby to be effected (including without limitation all required filings
and consents with respect to applicable blue sky laws, certificate of need laws
and similar licenses and permits) and each of the parties hereto will otherwise
use its reasonable best efforts to cause the consummation of the Merger and the
other transactions contemplated herein, all in accordance with the terms of this
Agreement.
(d) Satisfaction of Conditions. Each party hereto agrees that it will
take all actions reasonably within its power and authority to duly and promptly
carry out all of its obligations under this Agreement and to comply with all of
the representations and warranties hereunder applicable to it. In addition,
Commander covenants and agrees to use its reasonable best efforts to cause all
of the conditions to the obligations of the other to effect the Merger to be
satisfied as promptly as possible.
A-4
<PAGE>
Section 4. CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES.
The obligations of each party to this Agreement to effect the Merger,
and of Aviation General to deliver the shares of Aviation General Common Stock
to be issued pursuant to the Merger, shall be subject, at each such party's
option (notwithstanding the waiver by any other party of any such condition), to
the following conditions:
(a) Approval of Commander. The holders of the percentage of Commander's
outstanding capital stock required by the Amended and Restated Articles of
Incorporation and Bylaws of Commander and the laws of the Commonwealth of
Virginia shall have voted to approve this Agreement, the Merger and the
transactions contemplated hereby and thereby.
(c) Action or Proceedings. There shall not be any action or proceeding
by or before any court or other governmental body which shall seek to restrain,
prohibit or invalidate the transactions contemplated by this Agreement, and
there shall not be any action or proceeding seeking a material amount of damages
by reason of consummation of the Merger, the defense of either of which, in the
reasonable judgment of the Board of Directors of Commander (after consultation
with outside counsel handling such matter), would involve expense or lapse of
time that would be materially adverse to Commander's interests.
(d) Outstanding Shares. Immediately prior to the Effective Time, there
shall be issued and outstanding ___________ shares of Commander Common Stock,
and there shall not be issued and outstanding any other shares of capital stock,
or securities convertible into capital stock, of Commander.
Section 5. CLOSING.
The closing of the Merger and other transactions contemplated by this
Agreement shall, unless another date or place is agreed to in writing by the
parties hereto, take place at the offices of Aviation General at 7200 Northwest
63rd Street, Hangar 8, Wiley Post Airport, Bethany, Oklahoma (except for the
filing of the Merger Certificate with the Delaware Secretary of State, which
shall take place in the office of such Secretary, and for filing of the Articles
of Merger with the Virginia State Corporation Commission, which shall take place
in the office of such Commission), on the day of the meeting of the Commander
stockholders to approve the Merger, if all conditions to the Merger have been
satisfied or waived on or before such date, or as soon as practicable following
the satisfaction or waiver of all conditions to the Merger if all such
conditions have not been satisfied or waived on or before the date of such
stockholders meeting.
Section 6. REPRESENTATIONS AND WARRANTIES.
(a) Aviation General. Aviation General represents and warrants to each
of the other parties hereto that the Certificates of Incorporation and Bylaws of
Aviation General and Commander Acquisition each are substantially set forth in
the forms of Exhibits C and D, respectively, to this Agreement.
A-5
<PAGE>
(b) Commander. Commander represents and warrants to each of the other
parties hereto that immediately prior to the Effective Time (i) the authorized
capital stock of Commander will consist of ___________ shares of Commander
Common Stock, of which ____________ shares will be outstanding, (ii) all of the
outstanding shares of Commander Common Stock have been validly issued, fully
paid and nonassessable, and (iii) except for the Commander Options, Commander
will not have any outstanding subscriptions, options, warrants, rights or other
agreements or commitments obligating Commander to issue or sell shares of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock.
Section 7. TERMINATION OF THE MERGER.
(a) Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time by the Boards of Directors of
Commander and Commander Acquisition.
Section 8. MISCELLANEOUS.
(a) Modification or Waiver. This Agreement and the Merger Certificate
may be amended, modified or superseded at any time by a written instrument
executed by the parties hereto, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived by the party
intended to be benefited hereby; provided, however, that the terms of the Merger
set forth in Section 1(e) may be amended, modified or superseded only with the
additional approval of Commander Acquisition and Commander. Except as expressly
otherwise required by the previous sentence, no stockholder approval shall be
required for any amendment, modification or waiver. No waiver of any nature, in
any one or more instances, shall be deemed to be or construed as a further or
continued waiver of any condition or any breach of any other term,
representation or warranty in this Agreement.
(b) Binding Effect and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that prior to the Effective Time, no assignment
of any rights provided for herein may be made by any party without the express
written consent of the other parties.
(c) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
(d) Section Headings. The Section headings contained in this Agreement
are inserted for convenience of reference only and shall not affect the meaning
or interpretation of this Agreement.
(e) Entire Agreement. This Agreement and all other writings referred to
herein and all exhibits and schedules hereto, embodies the entire agreement and
understanding between the parties hereto relating to the subject matter hereof
and supersedes any prior letters of intent, agreements and understandings
relating to the subject matter hereof.
A-6
<PAGE>
(f) No Third Party Beneficiaries. Nothing expressed or referred to in
this Agreement is intended or shall be construed to give any person other than
the parties to this Agreement or their respective successors or permitted
assigns any legal or equitable right, remedy or claim under or in respect to
this Agreement or any provision contained herein, it being the intention of the
parties to this Agreement that this Agreement shall be for the sole and
exclusive benefit of such parties or such successors and assigns and not for the
benefit of any other person.
(g) Counterparts. Separate copies of this Agreement may be signed by
the parties hereto (including by facsimile signature) with the same effect as
though all of the parties had signed one copy of this Agreement.
(h) Severability. If any provision of this Agreement shall be held
invalid under any applicable law, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the invalid
provision and, to this end, the provisions hereof are severable.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the date first above written.
COMMANDER AIRCRAFT COMPANY
By: ____________________________________
Name:
Title:
AVIATION GENERAL, INCORPORATED
By: ____________________________________
Name:
Title:
COMMANDER ACQUISITION CORPORATION
By: ____________________________________
Name:
Title:
A-7
