<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Aviation General, Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
AVIATION GENERAL, INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 11, 1999
The 1999 Annual Meeting of the Shareholders of Aviation General,
Incorporated, a Delaware corporation (the "Company"), will be held on Friday,
June 11, 1999 at 3:00 p.m. local time at 2600 Virginia Avenue, N.W., Suite
900, Washington, D.C. for the following purposes:
1. To elect a Board of three Directors.
2. To approve an amendment to the Company's 1993 Stock Option Plan that
would increase the number of shares of common stock reserved for
issuance thereunder.
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
These items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only shareholders of record at the close of business on May 4, 1999 are
entitled to notice of and to vote at the 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.
Elizabeth Schmitt
Secretary
Dated: April 30, 1999
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>
AVIATION GENERAL, INCORPORATED
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited on behalf of the Board of Directors of
Aviation General, Incorporated (the "Company") for use at the Annual Meeting
of Shareholders to be held Friday, June 11, 1999 at 3:00 p.m. local time, or
at any adjournment or postponement thereof. The Annual Meeting will be held at
2600 Virginia Avenue, N.W., Suite 900, 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)
440-2255. These proxy solicitation materials will be mailed to shareholders on
or about May 7, 1999.
Shareholders of record at the close of business on May 4, 1999 are entitled
to notice of, and to vote at, the Annual Meeting. On May 4, 1999, 7,172,548
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 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 2000 Annual Meeting
Proposals of shareholders which are intended to be presented by such
shareholders at the Company's 2000 Annual Meeting must be received by the
Company no later than January 5, 2000.
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of April 23, 1999 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 of the Company as a group.
<TABLE>
<CAPTION>
Name Number of Shares Percent of Total
- ---- ---------------- ----------------
<S> <C> <C>
Special Situation Investment Holdings,
Ltd........................................ 4,860,868 67.8%
c/o KuwAm Corporation
2600 Virginia Avenue, N.W.
Washington, D.C. 20037(1)
Special Situation Investment Holdings, L.P.
II......................................... 373,000 5.2%
c/o KuwAm Corporation
2600 Virginia Avenue, N.W.
Washington, D.C. 20037(1)
KuwAm Corporation........................... 174,000 2.4%
2600 Virginia Avenue, N.W.
Washington, D.C. 20037(1)
Mishal Yousef Saud Al Sabah(2)(4)........... 451,328 6.3%
Wirt D. Walker, III(3)(4)................... 419,000 5.8%
N. Gene Criss(4)............................ 73,333 *
Stephen R. Buren(4)......................... 37,933 *
Dean N. Thomas(4)........................... 33,333 *
All Officers and Directors as a Group (5
persons)(5)................................ 1,014,927 14.2%
</TABLE>
- --------
* Less than one percent
(1) Special Situation Investment Holdings, Ltd. ("SSIH"), Special Situation
Investment Holdings, L.P. II ("SSIH II") and KuwAm 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 and President of the
Company, and Mishal Yousef Saud 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, 4,860,868
shares; SSIH II, 373,000 shares; KuwAm, 174,000 shares; Mr. Walker,
334,000 shares; a trust for Mr. Walker's son, of which Mr. Walker is the
trustee, 25,000 shares; Mr. Al Sabah, 200,328 shares; Fifth Floor Company
for General Trading & Contracting ("Fifth Floor Company"), 191,000 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 shares owned by him and by SSIH,
SSIH II, KuwAm and the trust for his son, and Mr. Al Sabah has sole voting
and dispositive power with respect to shares owned by him and by Fifth
Floor Company.
(2) Includes 191,000 owned by Fifth Floor Company of which Mr. Al Sabah is a
principal. Does not include shares Mr. Al Sabah may be deemed to own
beneficially by virtue of his membership in the KuwAm Group.
(3) Includes 25,000 shares owned by a trust for Mr. Walker's son, of which Mr.
Walker is the trustee. Mr. Walker also has sole voting and dispositive
power with respect to shares owned by SSIH, SSIH II and KuwAm. Does not
include shares Mr. Walker may be deemed to own beneficially by virtue of
his membership in the KuwAm Group.
2
<PAGE>
(4) Includes shares issuable upon exercise of options that are exercisable
within 60 days, as follows: Mr. Al Sabah, 60,000 shares; Mr. Walker,
60,000 shares; Mr. Criss, 73,333 shares; Mr. Buren, 33,333 shares; and Mr.
Thomas, 33,333 shares.
(5) At April 23, 1999, executive officers and directors of the Company as a
group (5 persons) held options to purchase an aggregate of 717,500 shares
of Common Stock, representing approximately 59.3% of outstanding options
at that date. The numbers set forth in this table include an aggregate of
96,667 shares which are currently exercisable within 60 days of such date.
3
<PAGE>
PROPOSAL ONE
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.
The following sets forth certain information regarding each of the nominees
for election as director:
Wirt D. Walker, III, age 53, 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 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 and Chief Executive Officer of STRATESEC
Incorporated, a publicly traded company that provides technology-based
security solutions for medium and large commercial and government facilities,
and the Chairman of Universal Communications, Inc., a privately held
advertising and marketing communications company.
N. Gene Criss, age 56, 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, age 38, is a private investor who has been
involved in a broad range of investment activities in the United States and
overseas for the past nineteen 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.
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 1998 annual automatic
options were granted to each of the three directors on December 18, 1998.
4
<PAGE>
Board Meetings and Committees
The Board of Directors held a total of three meetings during the fiscal year
ended December 31, 1998. The Board has two committees: the Audit Committee and
the Compensation Committee.
The Audit Committee, comprised of Messrs. Criss 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 1998.
The Compensation Committee 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 two
meetings during fiscal 1998.
No director attended fewer than 75% of all meetings of the Board of
Directors held during fiscal 1998 or of all meetings of any committee upon
which such director served during fiscal 1998.
Compensation Committee Interlocks and Insider Participation
From January 1998 to June 1998, the Compensation Committee was comprised of
Messrs. Al Sabah and Walker. In June 1998, Mr. Criss replaced Mr. Walker on
the Compensation Committee.
Neither Messrs. Al Sabah or Criss is currently an officer or employee of the
Company. They are not eligible to participate in the Company's Profit Sharing
Plan. Both receive compensation for services as a director (See "Director
Compensation"), and Mr. Criss receives compensation under a consulting
agreement with the Company. Mr. Criss served as President and Chief Executive
Officer of the Company from May 1995 to June 1998. Mr. Al Sabah is a director
and shareholder of KuwAm Corporation, the corporate general partner of SSIH,
the majority shareholder of the Company.
Other Officers
Stephen R. Buren, age 55, has served as Chief Financial Officer of the
Company since May 1991 and as Vice President, Finance 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 positions at Cessna Aircraft Company.
Dean N. Thomas, age 44, has served as Senior Vice President--Sales &
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.
5
<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 1998, 1997, and 1996.
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
----------------------- ------------------------
Securities
Underlying
Options All other
Awarded compensation
Year Salary (1) Bonus (in shares) (2)
---- ---------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Wirt D. Walker, III ........ 1998 $ 36,923 -- 95,000 $ 20,000
Chairman and Chief Executive 1997 -- -- 20,000 $ 20,000
Officer (4) 1996 -- -- 20,000 $ 20,000
Stephen R. Buren............ 1998 $ 87,423 -- 22,500 --
Vice President, Chief 1997 $ 81,923 -- 10,000 --
Financial Officer and Trea-
surer 1996 $ 80,000 -- 25,000 --
Dean N. Thomas.............. 1998 $ 73,654 $39,351 20,000 --
Senior Vice President-- 1997 $ 75,000 $18,500 10,000 --
Sales and Marketing 1996 $ 55,692 $12,200 10,000 --
N. Gene Criss............... 1998 $ 77,705 -- 240,000 $ 48,750(5)
Director (3) 1997 $125,000 -- 60,000 $ 20,000
1996 $125,000 -- 60,000 $ 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 was appointed Chief Executive Officer in June 1998, for which
he currently receives a salary of $80,000 per year.
(5) Includes payments received under Mr. Criss' consulting agreement in the
amount of $28,750.
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 1998,
the net 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, 1998 and the value of such options based on the closing price of
the Company's Common Stock on December 31, 1998, which was $3.00.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options
Options at FY End(#)(1) at Fy End($)(2)
Number of ----------------------- --------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) (3) Unexercisable Unexercisable
- ---- --------------- ---------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
Wirt D. Walker, III..... -- -- 60,000/ 115,000 $16,667/ 57,083
Stephen R. Buren........ -- -- 30,000/ 37,500 $ 1,667/ 8,959
Dean N. Thomas.......... -- -- 30,000/ 30,000 $ 1,667/ 8,334
</TABLE>
- --------
(1) Represents the total number of shares subject to stock options held by
each executive officer. These options were granted on various dates during
fiscal years 1994 through 1998 and are exercisable on various dates
beginning in 1999 and expiring in 2003.
(2) Represents the difference between the exercise price and $3.00, which was
the December 31, 1998 closing price. Stock option exercise prices range
from $2.00 to $5.25.
(3) Aggregate market value of the shares covered by the option at the date of
exercise, less the aggregate exercise price.
6
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed of N. Gene Criss 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 philosophy 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 similarly 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 stockholders. 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 engaged in similar businesses as the Company,
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 an 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 its policy with respect to Section 162(m)
when and if the section is applicable in the future.
7
<PAGE>
Option Grants in Last Fiscal Year
The Committee approved the following stock option grants for the executive
officers during fiscal year 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of Percent of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Option Term
Options Employees in Exercise Expiration ---------------------
Name Granted (1) Fiscal Year Price Date 5% 10%
- ---- ----------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Wirt D. Walker, III..... 75,000 11% $2.75 9/05/01 $ 32,510 $ 68,269
20,000 3% $2.00 12/18/03 $ 11,051 $ 24,420
------ ---
95,000 14%
Stephen R. Buren........ 10,000 1% $2.75 6/05/01 $ 4,335 $ 9,103
12,500 2% $2.75 9/05/01 $ 5,418 $ 11,378
------ ---
22,500 3%
Dean N. Thomas.......... 10,000 1% $2.75 6/05/01 $ 4,335 $ 9,103
10,000 1% $2.75 9/05/01 $ 4,335 $ 9,103
------ ---
20,000 2%
</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 grant. The number of shares issuable upon exercise of
each option is subject to adjustment subsequent to any stock dividend,
split-up, recapitalization or certain other transactions.
During 1998, Messrs. Walker, Al Sabah and Criss, directors of the Company,
were each 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, 1998, 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. Walker's
base salary was not increased during fiscal 1998. Mr. Walker's fiscal 1998
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 95,000 shares of the Company's common stock during fiscal 1998, of
which 20,000 shares represents the automatic grant to directors.
COMPENSATION COMMITTEE
N. Gene Criss
Mishal Yousef Saud Al Sabah
8
<PAGE>
PROPOSAL TWO
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, 77,453 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 interest 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 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 (three 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 such director 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. Three members of the Board
presently qualify for the automatic grant of options under the Plan.
Administration
The Plan will be 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 under Code
Section 422, while nonstatutory stock options do not. The exercise price of
shares 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.
9
<PAGE>
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 will receive 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 shall be 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 33 1/3%
per year commencing on the first anniversary of the date of grant; (d) the
option may be exercised by one of the methods described in "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) conditioned upon the surrender for
cancellation of an existing stock option.
Adjustments will be made in the number of shares which 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 the date of grant.
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 the 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.
10
<PAGE>
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
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 of 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 interpretational issues 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.
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.
11
<PAGE>
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Corporation 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. The following graph
compares the percentage change in the cumulative total stockholder return on
the Company's Common Stock against the cumulative total return of the Nasdaq
Stock Market-US Index and the Standard & Poor's Aerospace/Defense Industry
Index. Total return for the purpose of this graph assumes reinvestment of all
dividends, if any. The stock price performance shown on the graph is not
necessarily indicative of future price performance.
Graph produced by Research Data Group.
[CHART APPEARS HERE]
12
<PAGE>
CERTAIN TRANSACTIONS
The Company extends financing for aircraft and spare parts sold either to
Mishal Yousef Al Sabah, a director of the Company, or to Commander
International, a Commander Authorized Sales and Service Representative that is
owned by Mr. Al Sabah, under a line of credit of $5,000,000. All outstanding
advances under this line of credit and accrued interest thereon are due on
June 30, 1999. It is management's intention not to extend the due date at
maturity. The line of credit bears interest at 1% over the Morgan Guaranty of
New York prime rate (8.75% at December 31, 1998), payable quarterly, in
arrears. During 1998, the Company received interest payments totaling $20,140.
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 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.
During 1998, the Company purchased debt securities with detachable stock
purchase warrants for $1,000,000 from STRATESEC Incorporated. The debt
securities 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. The Company was
also issued warrants to purchase 100,000 shares of STRATESEC common stock at
an exercise price of $2.50 per share expiring three years from the date of
issuance. In February 1999, the Company accepted a prepayment of 80%
($800,000) of the principal amount of the debt securities, in return for which
the Company agreed to accelerate the expiration date of the accompanying
100,000 warrants to December 31, 1999.
In March 1999 the Company's Board of Directors authorized the purchase of up
to 1,000,000 shares of the Company's Common Stock. In March 1999, the Company
purchased 50,000 shares of its Common Stock from the majority stockholder of
the Company at a price of $2.00 per share pursuant to this authorization. In
April 1999, the Company purchased 58,000 shares of its Common Stock from the
majority stockholder at a price of $1.75 per share.
INDEPENDENT AUDITORS
The Board of Directors has approved a resolution retaining Grant Thornton
LLP as its independent auditors for fiscal 1999.
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.
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.
Elizabeth Schmitt
Secretary
Dated: April 30, 1999
13
<PAGE>
AVIATION GENERAL, INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 11, 1999
The undersigned, having received the Annual Report to the Stockholders and the
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement dated
April 30, 1999 hereby appoints Wirt D. Walker, III, Elizabeth Schmitt and each
of them, proxies with full power of authorization, and hereby authorizes them
to represent and vote the shares of Common Stock of AVIATION GENERAL,
INCORPORATED (the "Company") which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the Company to be
held on June 11, 1999 at 3:00 p.m. local time, and any adjournment thereof, and
especially to vote
<TABLE>
<S> <C>
1. PROPOSAL ONE -- ELECTION OF DIRECTORS WITHHOLD AUTHORITY
FOR all nominees listed below [_] to vote for all nominees listed below [_]
</TABLE>
Wirt D. Walker, III, Mishal Yousef Saud Al Sabah, N. Gene Criss
To withhold authority to vote for any individual nominee, write that nominee's
name on the space provided below.
-------------------------------------------
2.PROPOSAL TWO -- To consider and vote upon the proposal to amend the Company's
1993 Stock Option Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3.IN THEIR DISCRETION the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued, and to be signed, on the other side.)
<PAGE>
(Continued from the reverse side.)
In the ballot provided for that purpose, if you specify a choice as the action
to be taken this proxy will be voted in accordance with such choice. If you do
not specify a choice, it will be voted FOR Proposal One and Two as described in
the Proxy Statement.
Any proxy or proxies previously given for the meeting are revoked.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
Dated: ______________________, 1999.
____________________________________
(Signature)
____________________________________
(Signature if held jointly)
Please sign exactly as name appears
hereon. When shares are held by
joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian
please give full title of each. If
a corporation, please sign in full
corporate name by president or
other authorized office. If a
partnership, please sign in
partnership name by authorized
person.
