<PAGE> 1
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 240.14a-11(c) or 240.14a-12
MERCURY AIR GROUP, INC.
- --------------------------------------------------------------------------------
(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:
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(2) Aggregate number of securities to which transaction applies:
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(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
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[ ] 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
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
MERCURY AIR GROUP, INC.
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
--------------------------
TO BE HELD DECEMBER 3, 1998
To the Shareholders of Mercury Air Group, Inc.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of the Shareholders (the
"Meeting") of Mercury Air Group, Inc. (the "Company") will be held on December
3, 1998 at 10:00 o'clock a.m. Pacific Standard Time at the principal office of
the Company located at 5456 McConnell Avenue, Suite 100, Los Angeles, California
90066, for the following purposes:
1. To elect six directors to serve until the next Annual Meeting of
Shareholders and until their successors are elected and
qualified.
2. To consider and vote upon a proposal to adopt the Company's 1998
Long-Term Incentive Plan pursuant to which 600,000 shares of
common stock, $.01 par value ("Common Stock"), of the Company
will be reserved for issuance pursuant to options to be granted
to employees, officers and consultants under such plan.
3. To consider and vote upon a proposal to adopt the Company's 1998
Directors Stock Option Plan pursuant to which 300,000 shares of
Common Stock will be reserved for issuance pursuant to options
to be granted on an annual basis to outside directors under such
plan.
4. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Only holders of record of the Company's Common Stock at the close of
business on October 23, 1998 which has been fixed as the record date for the
Meeting, shall be entitled to notice of and to vote at the Meeting and any
adjournment or postponement thereof.
Shareholders are cordially invited to attend the Meeting in person.
Whether or not you plan to attend the Meeting, please sign, date and return the
enclosed proxy to ensure that your shares are represented at the Meeting.
Shareholders who attend the Meeting may vote their shares personally even though
they have sent in their proxies.
Randolph E. Ajer
Secretary
Los Angeles, California
October 27, 1998
<PAGE> 3
MERCURY AIR GROUP, INC.
5456 MCCONNELL AVENUE
SUITE 100
LOS ANGELES, CALIFORNIA 90066
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 3, 1998
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Mercury Air Group, Inc., a New York
corporation (the "Company" or "Mercury"), to be voted at the Annual Meeting of
Shareholders of the Company (the "Meeting") which will be held on December 3,
1998 at 10:00 o'clock a.m. Pacific Standard Time at the principal offices of the
Company located at 5456 McConnell Avenue, Suite 100, Los Angeles, California
90066, and any adjournment or postponement thereof, for the purposes set forth
in the accompanying Notice of Annual Meeting of Shareholders and in this Proxy
Statement.
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this Proxy Statement,
the proxy and any additional information furnished to shareholders. Copies of
solicitation material will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward proxy materials to such beneficial owners. The Company may
reimburse persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
Proxies duly executed and received in time for the Meeting will be
voted at the Meeting in accordance with the instructions on the proxies. Unless
previously revoked or unless other instructions are on the proxy, proxies will
be voted at the Meeting: (a) for the six director nominees named herein; (b) for
the Company's 1998 Long-Term Incentive Plan; (c) for the Company's 1998
Directors Stock Option Plan; and (d) as determined by the persons holding the
proxies with regard to all other matters which come before the Meeting.
The approximate date on which this Proxy Statement and accompanying
proxy will first be sent or given to shareholders is October 28, 1998.
VOTING SECURITIES
At the record date for the Meeting, the close of business on October
23, 1998 (the "Record Date"), the Company had outstanding 6,576,496 shares of
common stock, par value $0.01 ("Common Stock"). Each shareholder is entitled to
one vote for every share of Common Stock standing in his name as of the Record
Date. A shareholder who has given a proxy may revoke it at any time before it is
exercised at the Meeting by filing with the Secretary of the Company a written
notice of revocation, by executing and delivering a subsequent proxy bearing a
later date, or by attending the Meeting and voting in person. The presence at
the Meeting or any adjournments or postponements thereof, in person or by proxy,
of the holders of record of one-third of the shares of Common Stock will
constitute a quorum for the transaction of business. Shareholders who either (a)
specifically abstained from voting on one or more matters by so marking their
ballot or proxy card (abstentions) or (b) are nominees holding shares for
beneficial owners who, although they may have voted on certain matters at the
Meeting pursuant to discretionary authority or instructions from the beneficial
owners, have not voted on the specific matter in question because they have not
received instructions from the beneficial owners with respect to such matter and
they do not have discretionary authority with respect thereto (broker non-votes)
will be considered as present at the Meeting for purposes of determining whether
a quorum exists
<PAGE> 4
with respect to all other matters considered at the Meeting. Mr. Seymour Kahn,
Chairman of the Board and Chief Executive Officer of the Company and the
beneficial owner of approximately 21.9% of the outstanding Common Stock, has
indicated that he intends to vote for the six director nominees named herein,
for adoption of the 1998 Long-Term Incentive Plan and for adoption of the 1998
Directors Stock Option Plan.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Board of Directors has nominated six individuals for election to
the Company's Board of Directors. The solicited proxies may be voted to fill
only the six vacancies on the Board of Directors for which nominees are named in
this Proxy Statement. Each director elected will hold office until the next
annual meeting of shareholders and until his successor is elected and qualified
or until the director's earlier death, resignation or removal. All of the
nominees are currently directors of the Company previously elected by the
shareholders.
Unless otherwise indicated thereon, all proxies received will be voted
in favor of the election of the indicated six nominees of the Board of Directors
named below as directors of the Company. Should any of the nominees not remain a
candidate for election on the date of the Meeting (which contingency is not now
contemplated or foreseen by the Board of Directors), proxies solicited hereunder
may be voted for substitute nominees selected by the Board of Directors.
INFORMATION REGARDING NOMINEES
Listed below are the persons who have been nominated to serve as
directors for the ensuing year, together with their ages and all Company
positions held by them.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Seymour Kahn 71 Chairman of the Board and Chief Executive Officer
Joseph A. Czyzyk 51 President, Chief Operating Officer and Director
Philip J. Fagan, Jr., M.D. 54 Director
Frederick H. Kopko, Jr. 43 Director
William G. Langton 51 Director
Robert L. List 61 Director
</TABLE>
Seymour Kahn served as President of Mercury from 1969 until 1989 and
has served as Chief Executive Officer and Chairman of the Board of Directors of
Mercury since 1974.
Joseph A. Czyzyk has been President, Chief Operating Officer and a
Director of Mercury since November 1994. Mr. Czyzyk also served as President of
Mercury Service, a division of Mercury which sells aviation fuel and provides
refueling services for commercial aircraft, from August 1985 until August 1988,
and President of Mercury Air Cargo, Inc. from August 1988 until August 1997. Mr.
Czyzyk served as an Executive Vice President of Mercury from November 1990
through November 1994. Pursuant to his employment agreement, the Board of
Directors will continue to nominate Mr. Czyzyk as a candidate for election to
the Board of Directors while Mr. Czyzyk remains employed by Mercury. See
"Employment Agreements."
Philip J. Fagan, Jr., M.D. has been a director of Mercury since
September 1989. Dr. Fagan has been the Chief Executive Officer and President of
the Emergency Department Physicians Medical Group, Inc. since its inception in
1978. Dr. Fagan has also been President of Fagan Emergency Room Medical Group
since its inception in 1989. Both companies are currently located in Burbank,
California.
Frederick H. Kopko, Jr. has been a director of Mercury since October
1992. Mr. Kopko has been a partner in the law firm of McBreen, McBreen & Kopko
since January 1990. Mr. Kopko presently serves on the board of directors of
Butler International, Inc. and Sonic Foundry, Inc.
2
<PAGE> 5
William G. Langton has been a director of Mercury since August 1993.
Since June 1998, Mr. Langton has been President of AAR Aircraft Sales and
Leasing, a provider of aircraft parts and engines and worldwide aircraft sales
and leasing. From March 1983 to March 1998, Mr. Langton was President and Chief
Operating Officer of Southern Air Transport, a provider of a wide range of
commercial and supplemental aviation services. Subsequent to Mr. Langton's
resignation, in October 1998, Southern Air Transport filed for protection under
Chapter 11 of the United States Bankruptcy Code.
Robert L. List has been a director of Mercury since 1990. Since May
1997, Mr. List has been the President of Hammond's Candies and West Indies Candy
Company based in Denver, Colorado. From December 1989 to August 1992, Mr. List
was President of Yellowstone Environmental Services, Inc. of Phoenix, Arizona,
an environmental/engineering consulting firm. Mr. List serves on the board of
directors of Pancho's Mexican Buffet, Inc.
There were seven meetings of the Board of Directors of the Company held
during fiscal 1998, the period from July 1, 1997 through June 30, 1998.
The Audit Committee reviews the internal controls of the Company and
the objectivity of its financial reporting and meets with appropriate Company
financial personnel and the Company's independent public accountants in
connection with these reviews. During fiscal 1998, the Audit Committee consisted
of Messrs. Kopko, Langton and List and Dr. Fagan. During fiscal 1998, the Audit
Committee met two times.
The Compensation Committee makes all decisions regarding cash and
non-cash compensation (excluding standard employee benefits) paid or given to
executive officers of the Company; negotiates and approves all employment
agreements with executive officers; and negotiates and approves all transactions
between the Company and its executive officers (whether or not the primary
purpose of such transactions are compensatory). During fiscal 1998, the
Compensation Committee consisted of Messrs. Kopko and List and Dr. Fagan and met
four times.
On April 23, 1998, the Board of Directors created the Stock Option
Committee, a special subcommittee of the Compensation Committee. The Stock
Option Committee administers the Company's non-cash employee incentive plans,
including stock purchase and stock option grants. During fiscal 1998, the Stock
Option Committee consisted of Messrs. Langton and List and Dr. Fagan. The Stock
Option Committee met one time during fiscal 1998.
The Board does not have a nominating committee or any other committee
performing a similar function.
During fiscal 1998, each member of the Board of Directors attended at
least 75% of the Board meetings and committee meetings for the committees on
which he served.
In order to be elected, a nominee must receive the vote of a plurality
of the votes cast by the Common Stock at the Meeting. Shares may be voted for or
withheld from each nominee. Shares that are withheld and broker non-votes will
have no effect on the outcome of the election because directors will be elected
by a plurality of the shares voted for directors at a meeting at which a quorum
is present.
THE MERCURY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS
OF COMMON STOCK VOTE FOR THE ELECTION OF ALL NOMINEES.
3
<PAGE> 6
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of October 23,
1998, with respect to the ownership of the Company's Common Stock by: (a) each
director or director nominee of the Company; (b) each executive officer named in
the Summary Compensation Table; (c) the directors, nominees and executive
officers of the Company, as a group; and (d) all persons known to the Company to
be the beneficial owners of more than five percent of its outstanding Common
Stock. As of October 23, 1998, there were 6,576,496 shares of Common Stock
outstanding.
The stock ownership information includes current shareholdings and
shares with respect to which the named individual has the right to acquire
beneficial ownership under options exercisable or other securities convertible
within 60 days.
<TABLE>
<CAPTION>
NAME AND ADDRESS (1) SHARES OF COMMON PERCENT
- -------------------- ---------------- -------
<S> <C> <C>
Seymour Kahn ................................................................... 1,515,782(2) 21.9%
Joseph A. Czyzyk ............................................................... 539,425(3) 8.2%
Randolph E. Ajer ............................................................... 190,125(4) 2.9%
Kevin J. Walsh ................................................................. 118,250 1.8%
William L. Silva ............................................................... 189,062(5) 2.9%
Robert L. List ................................................................. 15,125(6) *
511 17th Street
Golden, CO 80401
Philip J. Fagan, Jr., M.D. ..................................................... 213,370(7) 3.2%
1130 West Olive Avenue
Burbank, CA 91506
Frederick H. Kopko, Jr. ........................................................ 82,500(8) 1.2%
20 North Wacker Drive, Suite 2520
Chicago, IL 60606
William G. Langton ............................................................. 45,375(9) *
One Aar Place
1100 North Wood Dale Road
Wood Dale, IL 60191
Heartland Advisors, Inc. . ..................................................... 479,442(10) 7.3%
790 North Milwaukee Street
Milwaukee, WI 53202
FMR Corp. ...................................................................... 662,284(11) 9.9%
82 Devonshire Street
Boston, Massachusetts 02109
All directors and executive officers as a group (9 persons) .................... 2,757,764(12) 38.7%
</TABLE>
- ---------
* Less than one percent.
4
<PAGE> 7
(1) Unless otherwise indicated in the table, the address for each of the
individuals named in the table is 5456 McConnell Avenue, Suite 100, Los Angeles,
California 90066.
(2) Includes 1,140,780 shares held of record by SK Acquisition, Inc., a Delaware
corporation wholly-owned by Mr. Kahn ("SKAI"). Also includes 151,250 shares
owned by an executive officer of Mercury which SKAI holds a proxy to vote and
which are subject to a security interest held by SKAI. See "Certain
Transactions." Includes 151,250 shares issuable to Mr. Kahn upon the exercise of
options exercisable within 60 days from the date hereof, and 45,375 shares
issuable to SKAI upon the exercise of options exercisable within 60 days from
the date hereof. Also includes 13,955 shares held of record by Mr. Kahn's wife,
as to which Mr. Kahn disclaims beneficial ownership.
(3) Includes 31,460 shares issuable upon exercise of options exercisable within
60 days from the date hereof. Includes 764 shares held by Mr. Czyzyk, as
custodian for his children, and 4,262 shares held by Mr. Czyzyk's wife as
custodian for their children, as to which Mr. Czyzyk disclaims beneficial
ownership.
(4) Includes 23,750 shares issuable upon exercise of options exercisable within
60 days from the date hereof.
(5) Includes 37,812 shares issuable upon exercise of options exercisable within
60 days from the date hereof. Includes 151,250 shares beneficially owned by Mr.
Silva which Mr. Silva has granted a proxy to SKAI and which are subject to
security interests. See "Certain Transactions."
(6) Consists of 15,125 shares issuable upon exercise of options exercisable
within 60 days from the date hereof.
(7) Includes 121,000 shares issuable upon exercise of options exercisable within
60 days from the date hereof. Includes 1,370 shares which may be acquired upon
conversion of convertible bonds beneficially owned by Dr. Fagan.
(8) Consists of 82,500 shares issuable upon exercise of options exercisable
within 60 days from the date hereof.
(9) Consists of 45,375 shares issuable upon exercise of options exercisable
within 60 days from the date hereof.
(10) Based on publicly available information reported on October 9, 1998,
Heartland Advisors, Inc. ("Heartland") is beneficial owner of 460,250 shares and
bonds convertible into 19,192 shares within 60 days from the date hereof held in
investment advisory accounts ("Advisory Accounts") of Heartland. Heartland has
the sole power to vote and dispose of the shares and bonds owned by the Advisory
Accounts.
(11) Based on publicly available information reported on February 10, 1998,
Fidelity Management & Research Company ("Fidelity"), a wholly-owned subsidiary
of FMR Corp., is a beneficial owner of 593,740 shares and bonds convertible into
68,544 shares within 60 days from the date hereof as a result of acting as an
investment advisor to various investment companies (the "Funds"). In addition,
FMR Corp. and Edward C. Johnson 3d, each has the sole power to dispose of the
593,740 shares and bonds convertible into 68,544 shares owned by the Funds.
Through their ownership of voting common stock and the execution of a
shareholder's voting agreement, Abigail P. Johnson and other members of the
Johnson family may be deemed to be a controlling group with respect to FMR Corp.
(12) Includes 553,647 shares issuable upon exercise of options exercisable
within 60 days from the date hereof and includes 1,370 shares which may be
issued upon conversion of bonds within 60 days from the date hereof.
5
<PAGE> 8
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and positions held by
all executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Seymour Kahn 71 Chairman of the Board and Chief Executive Officer
Joseph A. Czyzyk 51 President, Chief Operating Officer and Director
Randolph E. Ajer 45 Executive Vice President, Chief Financial Officer, Secretary and Treasurer
William L. Silva 48 Executive Vice President and Executive Vice President of Maytag Aircraft
Corporation ("Maytag")
Kevin J. Walsh 48 Executive Vice President
</TABLE>
Executive officers of the Company are elected and serve at the
discretion of the Board of Directors. Set forth below is a brief description of
the business experience for the previous five years of all executive officers
other than Messrs. Kahn and Czyzyk, who are also directors and whose business
experience is described above under the caption "Information Regarding
Nominees."
Randolph E. Ajer has been Chief Financial Officer of Mercury since 1987
and Secretary and Treasurer since May 1985. Mr. Ajer served as a director of
Mercury from September 1989 until December 1990. He was appointed an Executive
Vice President of Mercury in November 1990.
William L. Silva served as Director of Operations of Maytag from
October 1982 to October 1987 and was appointed Vice President of Maytag in
November 1987. Since June 1992, Mr. Silva has been an Executive Vice President
of Maytag. Mr. Silva became an Executive Vice President of Mercury in August
1993.
Kevin J. Walsh served as Vice President and then Senior Vice President
of Maytag from 1987 to April 1996. Since January 1992, Mr. Walsh has been
managing the Mercury Service division. Mr. Walsh was appointed an Executive Vice
President of Mercury in November 1990. Mr. Walsh has been employed by Mercury in
various capacities since 1972.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by
the Company for the Chairman of the Board and Chief Executive Officer and for
each of the four additional most highly compensated executive officers
(collectively, the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
AWARDS PAYOUTS
--------------------------
ANNUAL COMPENSATION SECURITIES LONG-TERM
FISCAL ----------------------- UNDERLYING COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR (1) SALARY (2)($) BONUS ($) OPTIONS (#) PAYOUTS ($) COMPENSATION ($)
- --------------------------- -------- ------------- --------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Seymour Kahn 1998 366,042 83,000 -0- -0- 12,729(3)
Chairman of the Board 1997 350,000 213,000 -0- -0- 11,871
1996 350,000 248,000 -0- -0- 15,737
Joseph A. Czyzyk 1998 331,371 71,000 -0- -0- 723(4)
President 1997 325,000 123,000 -0- -0- 557
1996 325,000 99,500 -0- -0- 493
Randolph E. Ajer 1998 192,913 44,000 -0- -0- 590(5)
Executive Vice President 1997 186,825 131,000 -0- -0- 465
1996 186,825 155,000 -0- -0- 407
Kevin J. Walsh 1998 245,023 200,000 -0- -0- 355(6)
Executive Vice President 1997 212,813 158,000 -0- -0- 260
1996 212,813 -0- -0- -0- 248
William L. Silva 1998 233,748 135,000 -0- -0- 558(7)
Executive Vice President 1997 159,000 61,000 -0- -0- 475
1996 105,000 -0- -0- -0- 425
</TABLE>
- ------------
(1) The period July 1, 1995 through June 30, 1996 is referred to as Fiscal Year
1996; the period July 1, 1996 through June 30, 1997 is referred to as Fiscal
Year 1997; and the period July 1, 1997 through June 30, 1998 is referred to
as Fiscal Year 1998.
(2) Includes and has been restated to include loan forgiveness with respect to
Mercury financed purchases of Common Stock.
(3) Consists of 401(k) contributions and life insurance premiums in the amounts
of $300 and $12,429, respectively.
(4) Consists of 401(k) contributions and life insurance premiums in the amounts
of $300 and $423, respectively.
(5) Consists of 401(k) contributions and life insurance premiums in the amounts
of $300 and $290, respectively.
(6) Consists of life insurance premiums.
(7) Consists of 401(k) contributions and life insurance premiums in the amounts
of $300 and $258, respectively.
No named executive officer was granted options during fiscal 1998.
7
<PAGE> 10
The following table sets forth information regarding option exercises
during fiscal 1998, as well as the number and total of in-the-money options at
June 30, 1998, for each of the named executive officers:
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-THE-
SHARES UNEXERCISED OPTIONS AT MONEY OPTIONS AT
ACQUIRED FISCAL YEAR-END (#) FISCAL YEAR-END ($)(3)(4)
ON ------------------- -------------------------
NAME EXERCISE (#) VALUE REALIZED ($)(2)(3) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ ------------------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
SEYMOUR KAHN -0- -0- 196,625/-0-(5) 1,117,991/-0-(5)
JOSEPH A. CZYZYK -0- -0- 31,460/-0- 198,693/-0-
RANDOLPH E. AJER -0- -0- 23,750/-0- 147,909/-0-
KEVIN J. WALSH 10,000 74,221 10,250/-0- 63,834/-0-
WILLIAM L. SILVA -0- -0- 37,812/-0- 215,375/-0-
</TABLE>
- -----------
(1) As adjusted to effect stock dividends and stock splits since date of
issuance.
(2) In accordance with the rules of the Securities and Exchange Commission,
the amounts set forth in the "Value Realized" column of this table are
calculated by subtracting the exercise price from the fair market value
of the underlying Common Stock on the exercise date. The amounts
reported thus reflect the increase in the price of the Common Stock
from the option grant date to the option exercise date, but do not
necessarily reflect actual proceeds received upon option exercises.
(3) For purposes of this table, fair market value is deemed to be the
average of the high and low Common Stock price reported by the American
Stock Exchange Composite Transactions on the date indicated.
(4) Based upon a fair market value of $7.71875 per share at June 30, 1998.
(5) Includes 45,375 options issued to SKAI, a corporation wholly-owned by
Seymour Kahn.
EMPLOYMENT AGREEMENTS
Mr. Kahn has an employment agreement with Mercury dated as of December
1, 1993 pursuant to which Mercury will employ him as Chairman of the Board and
Chief Executive Officer for a three year period with automatic one year
extensions at the end of each year unless either party terminates the agreement
in writing prior to such renewal. Under the employment agreement, Mr. Kahn's
annual compensation is $367,500 per year.
If Mr. Kahn is disabled for more than six weeks while employed, his
compensation will be reduced by 50%. If Mr. Kahn is disabled for more than
twelve months, Mercury may terminate his employment with a severance payment
equal to his salary for the lesser of one year or the remaining term of the
employment agreement. If Mr. Kahn's employment is terminated without cause,
Mercury will be obligated to pay him all amounts which would otherwise be paid
to him over the remaining term of the employment agreement. Mr. Kahn may
voluntarily terminate the employment agreement and receive all amounts which
would otherwise be paid to him over the remaining term of the employment
agreement if any of the following events occurs without Mr. Kahn's written
consent, including: (i) any person gains sufficient control over the voting
stock of Mercury so as to control Mercury or the election of a majority of the
Board of Directors, (ii) Mercury is acquired by another entity, either through
the purchase of Mercury's assets or stock or a combination thereof, or (iii)
Mercury is merged or consolidated with another entity or reorganized, in a
manner in which Mercury's present status, business or methods are changed. If
Mr. Kahn dies during the term of the employment agreement, Mercury will pay to
Mr. Kahn's estate the compensation which would otherwise be paid to Mr. Kahn
through the end of the month in which he dies. In addition, Mercury will pay Mr.
Kahn's estate or other designated beneficiary $2,025,000 upon his death.
Relating to this obligation, Mercury has obtained a life insurance policy on Mr.
Kahn's life in the amount of $2,025,000 which designates Mr. Kahn's wife as
beneficiary to fund this payment.
8
<PAGE> 11
Mr. Kahn has agreed not to compete with Mercury within a radius of 300
miles from Mercury's present place of business for five years after the
termination of the employment agreement. Mercury must make the severance
payments required by the employment agreement for this non-competition agreement
to be effective.
Mr. Czyzyk has an employment agreement with Mercury, dated as of
November 15, 1994, pursuant to which Mercury will employ him as its
President/Chief Operating Officer for a term ending on November 15, 1998,
subject to automatic one-year extensions each successive November 15, unless
either party gives 30 days' notice of non-renewal. As of the date hereof,
neither Mr. Czyzyk nor Mercury has given notice of non-renewal. The agreement
provides that Mr. Czyzyk's tenure as President/Chief Operating Officer shall
serve as a period of training and evaluation for appointment as Chief Executive
Officer of Mercury, when and as such position may be vacated by Mr. Kahn,
subject to the sole discretion and judgment of the Board of Directors. The
agreement further provides for the continued nomination of Mr. Czyzyk to the
Board of Directors of Mercury, so long as Mr. Czyzyk continues to serve as
President/Chief Operating Officer.
Mr. Czyzyk will receive an annual salary of $283,500. Mr. Czyzyk also
receives a bonus equal to: (i) 25% of his base compensation to the extent that
Mercury's operating income on a consolidated basis minus sales and general
administrative expense and depreciation (EBIT) for the most recently completed
fiscal year exceeds the average of EBIT for the prior three fiscal years; and
(ii) 2-1/2% of the amount by which EBIT for the most recently completed fiscal
year exceeds the average of EBIT for the prior three fiscal years. Mr. Czyzyk's
employment agreement was amended to reflect EBIT for fiscal 1998 will be deemed
to be $15,156,000 (effectively adding back the $7,050,000 loss attributable to
an airline bankruptcy). See "Report of the Compensation Committee of the Board
of Directors."
In the event Mr. Czyzyk's employment is terminated for cause, Mr.
Czyzyk will not be entitled to receive or be paid a bonus. In the event Mr.
Czyzyk's employment is terminated without cause, Mercury will be obligated to
pay Mr. Czyzyk the lesser of one year's base compensation or the base
compensation that would otherwise be paid to him over the remaining term of the
agreement, and a bonus for the fiscal year of termination in an amount which
would otherwise be paid to him prorated over the days Mr. Czyzyk was employed by
Mercury during the fiscal year of termination. "Cause" is defined in the
employment agreement as misappropriation of corporate funds, negligence, Mr.
Czyzyk's voluntary abandonment of his job (other than following a Change in
Control) or a breach of the employment agreement. In the event of Mr. Czyzyk's
death, Mr. Czyzyk's estate or beneficiary will be entitled to receive the death
benefits of a $1,000,000 insurance policy, but all other obligations under his
employment agreement will terminate and Mercury's only obligation will be to pay
Mr. Czyzyk or his estate all accrued salary through the end of the month of his
death. In the event of Mr. Czyzyk's disability (as determined by the Chief
Executive Officer of Mercury), Mr. Czyzyk's base salary will be reduced by 50%
during the period of disability. If Mr. Czyzyk is disabled for a period of more
than 12 months (as determined by the Chief Executive Officer of Mercury),
Mercury will be obligated to pay Mr. Czyzyk the same amount that would have been
paid to Mr. Czyzyk if his employment was terminated without cause, except that
all amounts paid to Mr. Czyzyk under any long-term disability insurance policy
maintained by Mercury will be credited as if paid by Mercury to Mr. Czyzyk and
after giving effect to any federal or state income tax savings resulting from
the payment under a disability policy (as opposed to taxable salary). The
employment agreement further provides that Mr. Czyzyk may terminate his
employment following a "Change in Control", in which event Mr. Czyzyk will be
entitled to be paid the lesser of one year's base compensation or the entire
balance of his base compensation remaining to be paid to Mr. Czyzyk over the
remaining term of the agreement. The agreement provides for a five-year
post-employment, non-competition covenant.
CERTAIN TRANSACTIONS
Pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement")
dated August 9, 1993 between Mercury, SKAI and William L. Silva, SKAI sold
151,250 shares of Common Stock to Mr. Silva at a price of $1.98 per share (as
adjusted to reflect stock splits and dividends since the date of the
transaction), with Mr. Silva paying a total purchase price of $300,000. On
August 9, 1993, the closing price of the Common Stock on the American Stock
Exchange was $2.06 per share, as adjusted. Mr. Silva paid $30,000 cash at the
closing of his purchase and agreed to pay the remaining $270,000 over a period
of five years from the date of purchase, together with interest at the rate of
9
<PAGE> 12
10% per annum on the outstanding balance. SKAI advanced the purchase price
pursuant to a non-recourse loan, secured by a first security interest in the
Common Stock sold to Mr. Silva. Mr. Silva has given SKAI an irrevocable proxy to
vote the Common Stock purchased by him for all purposes until the purchase price
for his Common Stock has been paid in full.
As part of the Stock Purchase Agreement, Mercury has agreed to loan the
principal balance of the unpaid purchase price to Mr. Silva during the five-year
payment period as each payment is required to be made to SKAI on March 1, June
1, September 1 and December 1 of each year until payment in full on December 1,
1998. Such loan is non-recourse, bears no interest, and is secured by a second
security interest in the purchased stock. Mr. Silva has agreed to pay his own
interest on the balance of the purchase price due SKAI from personal funds.
Commencing January 1, 1997, and annually thereafter, if he remains employed by
Mercury, one-fifth of Mr. Silva's loan will be forgiven. If Mr. Silva remains
employed by Mercury through January 1, 2001, his loans will be forgiven in full,
his shares of Common Stock will be owned without any further lien in favor of
Mercury or SKAI and the proxy granted to SKAI will expire by its terms.
During fiscal 1998, Mercury loaned an aggregate of $81,000 to Mr. Silva
which was used to make the four quarterly payments to SKAI. Amounts outstanding
on the loans made by the Company to Mr. Silva for payments to SKAI were $108,000
as of June 30, 1998, and $148,500 as of September 30, 1998. During fiscal 1998,
Mercury also loaned Mr. Silva $22,880, which was used to pay withholding taxes
associated with the loan forgiveness under the Stock Purchase Agreement. Such
loan bears no interest and was repaid with Mr. Silva's year-end bonus.
Mercury has Indemnity Agreements with each of its directors and
executive officers which require Mercury, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors, officers, employees or agents of Mercury, and, under certain
circumstances, to advance their expenses incurred as a result of proceedings
brought against them. In order to be entitled to indemnification, the executive
officer or director must have acted in a manner reasonably believed to be in, or
not opposed to, the best interests of Mercury and, with respect to a criminal
matter, in a manner which he had no reason to believe was illegal.
COMPENSATION OF DIRECTORS
During fiscal 1998, directors who were not employees of the Company
were paid $1,000 per meeting with an annual minimum of $7,500 in fees paid in
advance on the annual meeting date. Directors were also reimbursed for their
travel, meals, lodging and out-of-pocket expenses incurred in connection with
attending Board meetings. In addition, during fiscal 1998 and continuing through
fiscal 1999, the law firm of McBreen, McBreen & Kopko, of which Mr. Kopko is a
partner, has been providing legal services to the Company at its standard
billing rates. See "Compensation Committee Interlocks and Insider
Participation."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. List and Kopko
and Dr. Fagan. The Stock Option Committee consists of Messrs. List, Fagan and
Langton. During fiscal 1998, the Company paid $47,557 to the law firm of
McBreen, McBreen & Kopko for legal services.
In June 1998, the Company and Dr. Philip Fagan, Jr. each contributed
$36,000 to capital of and received a one-half interest in Mercmed, LLC, a Nevada
limited liability company ("Mercmed"). In June 1998, Mercmed purchased an
aircraft from an unrelated third-party for $1,440,000 financed entirely by a
bank loan, which bears interest at the rate of 7.93% per annum, is payable in
sixty equal installments and is guaranteed jointly by Dr. Fagan and the Company.
Under the applicable Operating Agreement, the Company and Dr. Fagan (the
"Members") each make pro rata monthly capital contributions to cover debt
service, the professional pilot's annual fee, routine and annual maintenance,
episodic repairs and insurance. Each Member pays for fuel, an hourly fee and
pilot out-of-pocket fees associated with its actual aircraft usage.
10
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
This report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing made by the Company under the Securities
Act of 1933 or under the Securities Exchange Act of 1934, except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such acts.
Under the rules established by the Securities and Exchange Commission,
the Company is required to provide certain data and information regarding the
compensation and benefits provided to the Company's Chairman of the Board and
Chief Executive Officer, Mr. Kahn, and the four other most highly compensated
executive officers, Messrs. Czyzyk, Ajer, Walsh and Silva. The disclosure
requirements for the named executive officers include the use of tables and a
report explaining the rationale and considerations that led to fundamental
executive compensation decisions affecting those individuals. In fulfillment of
this requirement, the Compensation Committee, at the direction of the Board of
Directors, has prepared the following report for inclusion in this Proxy
Statement.
COMPENSATION PHILOSOPHY
This report reflects the Company's compensation philosophy as endorsed
by the Compensation Committee and resulting actions taken by the Company for the
reporting periods shown in the various compensation tables supporting this
report. The Compensation Committee determines salary and bonus amounts, other
award levels and benefits for all executive officers of the Company. Effective
April 23, 1998, the Board of Directors formed the Stock Option Committee which
is responsible for administering the Company's non-cash compensation plans,
including stock option and stock purchase arrangements. During fiscal 1998, the
Stock Option Committee did not make any decisions which affected the
compensation of the executive officers of the Company. In connection with its
decisions, the Compensation Committee reviews and considers the written
recommendations of the Company's Chairman of the Board and Chief Executive
Officer, Mr. Kahn. As described below, a large portion of Mr. Kahn's
compensation is based on the earnings of the Company and Mr. Kahn is a
significant shareholder of the Company. Accordingly, the Compensation Committee
believes that Mr. Kahn's recommendations are likely to be consistent with the
Compensation Committee's philosophy of encouraging earnings growth and strategic
decisions designed to maximize shareholder return.
The executive compensation programs of the Company have been designed
to:
- Embody a pay for performance policy where compensation amounts are
affected by corporate, operating unit and individual performance as measured by
earnings;
- Motivate key senior executives to achieve strategic business
initiatives and reward them for their achievements;
- Provide compensation opportunities which are, in the judgment of the
Compensation Committee, comparable to those offered by other leading companies,
thus allowing the Company to compete for and retain talented executives who are
critical to the Company's long-term success; and
- Align the interest of executives with long-term interests of the
shareholders through Common Stock ownership and stock option programs.
COMPENSATION MECHANISMS
At present, the executive compensation program is comprised of salary,
annual cash bonus programs, long-term incentive opportunities in the form of
Company financed stock ownership opportunities and stock options and other
benefits typically provided to executives by major corporations.
11
<PAGE> 14
Executive officer salaries are determined based on individual
performance, position, tenure, salary history, internal comparability
considerations and in some instances the results of arm's length negotiations in
connection with the start-up of a new operating unit. In determining salaries,
the Compensation Committee uses the personal knowledge of its members regarding
compensation levels for similar positions at other companies generally. The
Compensation Committee is in the process of conducting a review of the over-all
compensation packages of the Company's executive officers including salary
levels. The Compensation Committee has not commissioned peer group or other
salary surveys to determine salaries at comparable companies. For each executive
officer, a significant portion of total compensation is a bonus based on the
earnings of the Company or the specific operating unit for which he has profit
and loss statement responsibility. As a result, an executive officer's
compensation can vary substantially from year-to-year based on the Company's or
a specific operating unit's earnings performance. For fiscal 1998 and 1999, the
bonus for executive officers with operating unit responsibility was/will be
based on an individual's success in exceeding the budgeted earnings for his
operating unit and can be up to 100% of base salary. The budgeted earnings for
each unit are based on a comprehensive review of unit operations conducted by
Messrs. Kahn, Czyzyk and Ajer and the responsible executive officer at the start
of each fiscal year and are subject to approval by the Board of Directors.
During the budget process, Messrs. Kahn, Czyzyk and Ajer focus on challenging
each executive officer to attain revenue growth and cost savings for his
operating unit. As described below, the bonus plan for Messrs. Kahn, Czyzyk and
Ajer is based on exceeding the Company's average earnings for the prior three
years, encouraging Messrs. Kahn, Czyzyk and Ajer to budget for aggressive
growth. The Compensation Committee also retains discretion to reward exceptional
achievement or correct over-all inequities through discretionary bonuses which
were awarded in fiscal 1998 as discussed later in this section.
Each of the Company's executive officers is also compensated in part
through Company financed common stock ownership and stock options. The Company
currently has in place the 1990 Long-Term Incentive Plan which provides for
stock option grants to key employees at the current fair market value on the
date of grant. Each of the Company's executive officers currently holds options
granted under the plan. Option awards to each executive officer have been based
on the executive's level of responsibility, past performance and internal
comparability considerations. In addition, the Company financed the purchase of
151,250 shares of Common Stock at $1.98 per share for Messrs. Ajer, Walsh and
Czyzyk over a seven-year period ended March 31, 1998 and is currently financing
a purchase of 151,250 shares of Common Stock at $1.98 per share over a
seven-year period ending January 1, 2001 subject to continued employment for Mr.
Silva. The shares are being or were purchased from SKAI, a corporation
wholly-owned by Mr. Kahn. In addition to serving as a compensation device, the
stock purchase program was designed to insure an orderly transition in control
of the Company, to avoid excessive dilution and to some degree to maintain
internal comparability in officer compensation. As a result of the stock options
and company financed stock purchases, each executive officer has a strong
incentive to continue his association with the Company and to enhance the value
of the Company's equity securities in the long-term.
During fiscal 1998, the executive officers requested assistance in
paying taxes associated with the annual forgiveness of the stock purchase loans.
The Compensation Committee determined that each executive vice president should
invest in his own future and the Company by personally bearing the taxes
associated with the loan forgiveness. The Compensation Committee agreed,
however, to somewhat mitigate the cash flow effects of the withholding for taxes
by providing annual, interest-free loans to be paid back from bonus or payroll
deductions. See "Certain Transactions."
COMPENSATION DECISIONS FOR THE CHAIRMAN OF THE BOARD
Mr. Kahn has an employment agreement with the Company dated as of
December 1, 1993 pursuant to which Mercury will employ him as Chairman of the
Board and Chief Executive Officer for a three-year period with automatic one
year extensions at the end of each year unless either party terminates the
agreement in writing prior to such renewal. The Compensation Committee has not
increased Mr. Kahn's base salary for fiscal 1998 but has undertaken a review of
his over-all compensation package including salary.
A cash bonus plan for Mr. Kahn was approved by the Board of Directors
in November 1990 (commencing fiscal 1991). The Compensation Committee continued
the bonus plan during fiscal 1998 and will continue the bonus plan during fiscal
1999, subject to adjustment as described below. The two-part bonus plan is based
on earnings before
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<PAGE> 15
interest and taxes ("EBIT") of the Company for the year in which the bonus is
calculated. Under Part I of the bonus plan, if the bonus year's EBIT meets or
exceeds the trailing three-year EBIT average, Mr. Kahn is entitled to a bonus
equal to 25% of his salary. For years where EBIT falls below the trailing
three-year average, any bonus paid to Mr. Kahn is solely at the discretion of
the Compensation Committee. Under Part II of the bonus plan, an additional bonus
is paid to Mr. Kahn in an amount equal to 6.67% of any increase in the bonus
year's EBIT level over the trailing three-year average EBIT level.
During fiscal 1998, the Company experienced a loss of $7,050,000
associated with a customer bankruptcy. The effect of such loss was to reduce
fiscal 1998 EBIT below the applicable trailing three-year average. Without such
loss, EBIT growth during fiscal 1998 was extremely strong. Accordingly, the
Compensation Committee determined to reward Mr. Kahn (and Messrs. Ajer and
Czyzyk who have comparable EBIT based bonus formulas) for adjusted EBIT growth
by awarding discretionary bonuses equal to 25% of each such officer's base
salary. On the other hand, to avoid lowering the trailing three-year EBIT
average in future years, and inflating future years' bonuses, the Compensation
Committee adjusted fiscal 1998 EBIT upward for purposes of all future bonus
calculations by the amount of the bankruptcy loss. On this basis, for fiscal
1998, Mr. Kahn earned a discretionary bonus in the amount of $92,000. At Mr.
Kahn's request, the Compensation Committee, however, reallocated $9,000 of Mr.
Kahn's discretionary bonus, as a special bonus for Mr. Ajer, and paid Mr. Kahn a
bonus of $83,000. Mr. Kahn made this request based on his personal appreciation
of Mr. Ajer's over-all contribution to the Company. The Compensation Committee
felt Mr. Kahn's perceptions regarding merit and personal generosity should be
respected.
OTHER EXECUTIVE OFFICER COMPENSATION
Mr. Czyzyk is compensated pursuant to an employment agreement described
under "Employment Agreements." As was the case for Mr. Kahn, Mr. Czyzyk's bonus
plan was adjusted to reflect the loss associated with a customer bankruptcy and
he was awarded a $71,000 discretionary bonus. A cash bonus plan for Mr. Ajer was
approved by the Board of Directors in November 1990 (commencing fiscal 1991).
The Compensation Committee continued the bonus plan during fiscal 1998 and will
continue the bonus plan during fiscal 1999, subject to the adjustment to fiscal
1998 EBIT for the bankruptcy loss described above. As with Mr. Kahn, the
two-part bonus plan is based on EBIT of the Company for the year in which the
bonus is calculated. Under Part I of the bonus plan, if the bonus year's EBIT
meets or exceeds the trailing three-year EBIT average, Mr. Ajer is entitled to a
bonus equal to 25% of his salary. For years where EBIT falls below the trailing
three-year average, any bonus paid to Mr. Ajer is solely at the discretion of
the Compensation Committee. Under Part II of the bonus plan, an additional bonus
is paid to Mr. Ajer in an amount equal to 3.33% of any increase in the bonus
year's EBIT level over the trailing three-year average EBIT level. For fiscal
1998, Mr. Ajer received a discretionary bonus in the amount of $35,000. Due to
reallocation of $9,000 of Mr. Kahn's bonus, as described above, Mr. Ajer was
paid a total bonus of $44,000.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for annual compensation over $1 million paid to a
corporation's chief executive officer and four other most highly compensated
individuals. Qualifying performance-based compensation will not be subject to
the deduction limit if certain requirements are met. Because the current
compensation levels of the Company's executive officers are well below the $1
million threshold, the Compensation Committee has not determined what steps are
required to structure qualifying performance-based compensation and whether or
not the required steps would be in the best interest of the Company.
Compensation Committee Members
Robert L. List
Frederick H. Kopko, Jr.
Dr. Philip J. Fagan, Jr.
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<PAGE> 16
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph set forth below shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing made by the Company under the Securities
Act of 1933 or under the Securities Exchange Act of 1934, except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such acts.
The graph below compares cumulative total return of the Company, the
AMEX Market Value and the S & P Transportation Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG MERCURY AIR GROUP, INC., THE AMEX MARKET VALUE INDEX
AND THE S & P TRANSPORTATION INDEX
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/93 6/94 6/95 6/96 6/97 6/98
MERCURY AIR GROUP, INC. 100.00 179.17 307.87 325.01 322.85 393.99
AMEX MARKET VALUE 100.00 97.66 115.19 132.83 147.06 172.57
S & P TRANSPORTATION 100.00 103.46 113.72 142.82 178.64 199.22
</TABLE>
* $100 INVESTED ON JUNE 30, 1993 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
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<PAGE> 17
PROPOSAL 2 -- 1998 LONG-TERM INCENTIVE PLAN
At the Meeting, shareholders of the Company will be asked to consider
and act upon the 1998 Long-Term Incentive Plan (the "1998 Incentive Plan")
pursuant to which 600,000 shares of Common Stock will be reserved for issuance
pursuant to options. On April 23, 1998, the Board of Directors adopted the 1998
Incentive Plan, subject to the shareholders' approval at the Meeting. The 1998
Incentive Plan must be approved by a majority of the outstanding shares of
Common Stock entitled to vote at the Meeting. Accordingly, votes withheld and
broker non-votes will have the same effect as votes against adoption of the 1998
Incentive Plan.
Employees, consultants and executive officers of the Company and its
subsidiaries will be eligible for stock option grants under the 1998 Incentive
Plan. As of October 23, 1998, approximately 1241 employees, consultants and
executive officers were eligible to participate in the 1998 Incentive Plan.
Through October 23, 1998, non-qualified stock options to purchase an aggregate
of 42,500 shares of Common Stock have been granted to key employees, subject to
shareholder approval at the Meeting, at an exercise price of $7.875 per share
(the closing price on the American Stock Exchange as of the April 23, 1998 grant
date). Each such option has a term of ten years, vests and becomes exercisable,
subject to continued employment, one-year from the date of grant and is
otherwise subject to the terms of the 1998 Incentive Plan. The grants under the
1998 Incentive Plan are summarized below:
<TABLE>
<CAPTION>
Number of Shares
Name Subject to Option
---- -----------------
<S> <C>
Non-Executive Officer 42,500
Employee Group
</TABLE>
In addition, the Stock Option Committee has adopted a plan to grant
each person who qualifies as a Long-Term Employee on January 4, 1999 (an
estimated 622 persons) a non-qualified stock option to purchase 100 shares of
Common Stock at the closing price of the Common Stock on the American Stock
Exchange on such day. A Long-Term Employee will be any full-time employee, who
as of the option grant date has eighteen or more months of continuous service
with the Company and its subsidiaries and has not otherwise received an
individualized stock option grant under any of the Company's plans. Each
Long-Term Employee option will have a term of ten years, will vest and become
exercisable subject to continued employment in three equal annual installments
and otherwise will be subject to the terms of the 1998 Incentive Plan. The Stock
Option Committee will consider additional formula grants to Long-Term Employees
on an annual basis.
DESCRIPTION OF INCENTIVE PLAN
The purpose of the 1998 Incentive Plan is to enable the Company to
attract and retain employees and consultants who provide significant services to
the Company; motivate participating employees and consultants to achieve
long-range goals; provide incentive compensation opportunities that are
competitive with those of other corporations; further identify participating
employees' and consultants' interests with those of the Company's other
shareholders through compensation based on the Common Stock; and thereby promote
the long-term financial interests of the Company and its subsidiaries, including
the growth in value of the Company's equity and enhancement of long-term
shareholder return.
Subject to shareholder approval at the Meeting, the 1998 Incentive Plan
shall be effective as of April 23, 1998. The 1998 Incentive Plan shall be
unlimited in duration and, in the event of any plan termination, shall remain in
effect as long as any awards under it are outstanding.
The 1998 Incentive Plan provides that it shall be administered by the
Stock Option Committee of the Board of Directors which presently consists of
Messrs. Langton and List and Dr. Fagan. The Stock Option Committee has complete
discretion as to selection of optionees under the 1998 Incentive Plan, the time
and conditions under which
15
<PAGE> 18
options will become exercisable and the amount of options granted to the
respective optionees. The Stock Option Committee also has complete discretion as
to the exercise price of options, but the exercise price must be at least equal
to the fair market value of the Common Stock on the date the option is granted.
The Stock Option Committee also sets the termination date for each option when
it grants that option, but the options must expire within ten years after the
date of grant, upon the termination of continuous employment within one year
from the date of grant and such other events as the Stock Option Committee may
specify in the option agreement. Incentive stock options, and based on prior
practices of the Company, non-qualified stock options will expire in any event
no more than three months from the date of termination of employment (other than
as a result of death). The 1998 Incentive Plan contains no limit as to the
number of shares covered by options which may be granted at any one time or in
the aggregate to any one optionee, except that the value of the Common Stock
subject to incentive stock options first exercisable in any calendar year cannot
exceed $100,000 for any optionee (with such value determined as of the grant
date).
Notwithstanding the conditions to execisability imposed by the Stock
Option Committee in any stock option agreement, all options become immediately
exercisable upon the occurrence of a "Change of Control" as defined under the
1998 Incentive Plan (which definition includes the acquisition by any person
other than Mr. Kahn or his affiliates of beneficial ownership of 50% or more of
the outstanding Common Stock; the commencement of a tender offer (which is not
negotiated with and approved by the Board of Directors) that results in any
party owning or accepting for payment shares constituting 25% of the outstanding
Common Stock or which could within three days of termination of the offer (if
the offer is not withdrawn by such time) result in any party owning 50% of the
outstanding Common Stock; or the failure of the Board of Directors' nominees to
capture a majority of the seats on the Board of Directors at any meeting of
shareholders).
Options granted under the 1998 Incentive Plan may be intended to
qualify as incentive stock options or they may be designated and treated as
non-qualified stock options. There are certain differences between an incentive
stock option and a non-qualified stock option with respect to the income tax
effect on both the optionee and the granting employer. As discussed below, the
Company may not take a deduction from its taxable income upon the exercise of an
incentive stock option, whereas the Company is allowed such a deduction upon the
exercise of a non-qualified stock option to the extent of the income then
attributed to the optionee.
Options may be exercised under the 1998 Incentive Plan by payment of
the full exercise price in cash or such other form of lawful consideration as
the Stock Option Committee may approve from time to time, including promissory
notes, and also including the assignment and transfer by the optionee to the
Company of outstanding shares of Common Stock previously held by the optionee.
The shares of Common Stock transferred to the Company in payment of the exercise
price of an option would be valued at their fair market value on the date of
transfer. This permits the so-called "pyramiding" of shares. Pyramiding is a
technique under which an optionee requests an issuer automatically to apply the
shares received upon the exercise of a portion of a stock option to satisfy the
exercise price for additional portions of the option. The effect of pyramiding
is to allow an optionee to deliver a relatively small number of shares in
satisfaction of the exercise price of a significantly greater number of shares
subject to the option. Incentive stock options are not assignable except by will
or by the laws of descent and distribution. Non-qualified stock options are not
assignable except by will or by the laws of descent or distribution and if the
relevant option agreement provides to immediate family, a trust or partnership
for immediate family or to a former spouse pursuant to a qualified domestic
relations order.
There are 600,000 shares of Common Stock subject to the 1998 Incentive
Plan. If, for any reason, any award under the 1998 Incentive Plan otherwise
distributable in shares of Common Stock, or any portion of the award, shall
expire, terminate or be forfeited or canceled, or be settled in cash pursuant to
the terms of the 1998 Incentive Plan and, therefore, any such shares are no
longer distributable under the award, such shares of Common Stock shall again be
available for award to an eligible employee (including the holder of such former
award) under the 1998 Incentive Plan. The maximum number of shares which may be
issued under the 1998 Incentive Plan, and all options outstanding thereunder,
will be adjusted for stock splits, stock dividends and similar capital changes.
The 1998 Incentive Plan provides that the Stock Option Committee may amend the
plan and modify an option, accelerate exercise dates or amend certain of the
terms of the plan, but no existing rights may be altered without the optionee's
approval.
16
<PAGE> 19
The above description of the 1998 Incentive Plan is necessarily brief
and general, and is qualified by reference to the full text of such plan set
forth in Appendix A to this Proxy Statement.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. No taxable income will be recognized by an
optionee upon the grant or exercise of any incentive stock option. However, the
excess of the fair market value of incentive stock options on the date of
exercise over the exercise price will be treated as an item of tax preference
and may subject the optionee to the alternative minimum tax. The Company will
not be entitled to any income tax deduction as the result of the grant or
exercise of any incentive stock option.
Gain or loss resulting from the subsequent sale of stock acquired upon
exercise of any incentive stock option will be long-term capital gain or loss if
such sale is made after two years from the date of grant of the option and after
one year from the transfer of such stock to the optionee upon exercise, provided
that the optionee is an employee of the Company from the date of grant until
three months before the date of exercise. In the event of the optionee's death
or disability prior to the exercise of an incentive stock option, special rules
apply in determining whether gain or loss upon sale of the stock acquired upon
exercise of such option will be taxable as long-term capital gain or loss.
If the subsequent sale of stock is made prior to the expiration of such
two-year or one-year periods, the optionee will recognize ordinary income in the
year of sale in an amount equal to the difference between the exercise price and
the fair market value of the stock on the date of exercise, provided that if
such sale is a transaction in which a loss (if sustained) would have been
recognized by the optionee, the amount of ordinary income recognized by the
optionee will not exceed the excess (if any) of the amount realized on the sale
over the option price. The Company will then be entitled to an income tax
deduction of like amount. Any excess gain recognized by the optionee upon such
sale would then be taxable as capital gain, either long-term or short term,
depending on whether the stock had been held for more than one year prior to
sale.
Non-qualified Stock Options. Generally, at the time of the grant of a
non-qualified stock option, no taxable income will be recognized by the optionee
and the Company will not be entitled to a deduction. Upon the exercise of such
option, the optionee generally will recognize taxable income and the Company
will then be entitled to a deduction, in the amount by which the then fair
market value of the share of Common Stock issued to such optionee exceeds the
option price.
Income recognized by the optionee upon exercise of a non-qualified
option will be taxed as ordinary income subject to the current maximum federal
tax rate for ordinary income. Such income constitutes "wages" with respect to
which the Company is required to deduct and withhold federal and state income
tax. Such deductions will be made from the wages, salary, bonus or other income
to which the optionee would otherwise be entitled and, at the Company's
election, the optionee may be required to pay to the Company (for withholding on
the optionee's behalf) any amount not so deducted but required to be so
withheld.
Upon the subsequent disposition of shares acquired upon the exercise of
a non-qualified stock option, the optionee will recognize capital gain or loss
in an amount equal to the difference between the proceeds received upon
disposition and the fair market value of such shares at the time of exercise. If
such shares have been held for more than one year at the time of such
disposition the capital gain or loss will be long-term.
Capital Gains. If a sale of stock received upon exercise of either an
incentive stock option or non-qualified stock option qualifies for either short-
or long-term capital gain treatment, any gain from such a sale would be taxed at
the current maximum federal tax rate for capital gains.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
HOLDERS OF COMMON STOCK VOTE FOR PROPOSAL 2.
17
<PAGE> 20
PROPOSAL 3 -- 1998 DIRECTORS STOCK OPTION PLAN
At the Meeting, shareholders of the Company will be asked to consider
and act upon the 1998 Directors Stock Option Plan (the "1998 Directors Plan")
pursuant to which 300,000 shares of Common Stock will be reserved for issuance
pursuant to options. On April 23, 1998, the Board of Directors adopted the 1998
Directors Plan, subject to the shareholders' approval at the Meeting. The 1998
Directors Plan must be approved by a majority of the outstanding shares of
Common Stock entitled to vote at the Meeting. Accordingly, votes withheld and
broker non-votes will have the same effect as votes against adoption of the 1998
Directors Plan.
The Board of Directors believes that the award of stock options to
non-employee directors serves to: (i) attract and retain qualified individuals
to serve as directors; (ii) motivate non-employee directors to achieve
long-range goals; (iii) provide incentive opportunities to non-employee
directors that are comparable to those offered by other corporations; and (iv)
further identify the non-employee directors' interests with those of the other
shareholders through compensation based on Common Stock. The 1998 Directors Plan
provides an on-going vehicle for achieving these goals.
DESCRIPTION OF THE DIRECTORS PLAN
The grant of options under the 1998 Directors Plan is nondiscretionary.
On the date of each annual meeting of shareholders ("Annual Meeting Date")
occurring after April 23, 1998, each individual who serves as a director and who
is not employed by the Company or any of its subsidiaries (a "Non-Employee
Director") at any time since the last Annual Meeting Date is awarded options to
purchase 10,000 shares of Common Stock. The exercise price of each option
awarded is the fair market value of the Common Stock on the date of the award.
Each option expires upon the earlier of: (i) ten years from the date of grant;
or (ii) the termination of the holder's status as a director less than one-year
from the date of grant. Subject to adoption of the 1998 Directors Plan, options
will no longer be granted on Annual Meeting Dates pursuant to the 1990 Directors
Stock Option Plan.
Messrs. List, Fagan, Kopko and Langton have all served as Non-Employee
Directors of the Company since the last Annual Meeting Date. Accordingly,
assuming that Proposal 3 is adopted by the shareholders, Messrs. List, Fagan,
Kopko and Langton will each receive options to purchase 10,000 shares of Common
Stock on the December 3, 1998 Annual Meeting Date. The benefits that would have
been received had the 1998 Directors Plan been in effect during fiscal 1998 are
summarized below:
<TABLE>
<CAPTION>
Number of Shares
Name Subject to Option
---- -----------------
<S> <C>
Non-Executive Officer 40,000
Director Group
</TABLE>
Under the 1998 Directors Plan, no option may be exercised by a
participant prior to the date on which the participant completes one continuous
year as a director of the Company following the granting of the option.
Notwithstanding this requirement, all options become immediately exercisable
upon the occurrence of a "Change of Control" which is defined the same as in the
1998 Incentive Plan described above.
Options may be exercised under the 1998 Directors Plan by payment of
the full exercise price in cash or such other form of lawful consideration as
the Stock Option Committee may approve from time to time, including promissory
notes and also including the assignment and transfer by the optionee to the
Company of outstanding shares of Common Stock previously held by the optionee.
The shares of Common Stock transferred to the Company in payment of the exercise
price of an option would be valued at their fair market value on the date of
transfer. This permits the so-called "pyramiding" of shares, as discussed in the
1998 Incentive Plan described above.
18
<PAGE> 21
There are 300,000 shares of Common Stock subject to the 1998 Directors
Plan. The maximum number of shares which may be issued under the 1998 Directors
Plan, and all options outstanding thereunder, will be adjusted for stock splits,
stock dividends and similar capital changes. Otherwise the number of shares
subject to options granted under the 1998 Directors Plan may not be increased
without shareholder approval. The 1998 Directors Plan provides that the Stock
Option Committee may amend the plan and modify an option, accelerate exercise
dates or amend certain of the terms of the plan, but no existing rights may be
altered without the optionee's approval.
Options granted under the 1998 Directors Plan will be designated and
treated as non-qualified stock options. The federal income taxes associated with
the grant and exercise of options for optionees and the Company are described
above under "Proposal 2--1998 Long-Term Incentive Plan--Federal Income Tax
Consequences."
The above description of the 1998 Directors Plan is necessarily brief
and general, and is qualified by reference to the full text of such plan set
forth in Appendix B to this Proxy Statement.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
HOLDERS OF COMMON STOCK VOTE FOR PROPOSAL 3.
SECTION 16 DISCLOSURE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
the Common Stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the American Stock Exchange. Based solely
on its review of the copies of such forms received by it, or written
representations from certain reporting persons that no annual corrective filings
were required for those persons, the Company believes that all filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with.
INFORMATION RELATING TO INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public accountants for fiscal year 1998 were
Deloitte & Touche and the Board of Directors of the Company has selected
Deloitte & Touche as the Company's independent public accountants for fiscal
year 1998. Representatives of Deloitte & Touche are expected to be present at
the Meeting and will have an opportunity to respond to appropriate questions and
to make a statement if they desire to do so.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended June 30, 1998, including a complete copy of the Company's Annual
Report on Form 10-K for the period (the "10-K") , has been mailed to each
shareholder of record as of October 23, 1998. Any such shareholder may request
copies of the exhibits to the 10-K by mailing such request to Randolph E. Ajer,
Secretary, Mercury Air Group, Inc., 5456 McConnell Avenue, Suite 100, Los
Angeles, California 90066. Each request must indicate the name of the
shareholder, the shareholder's telephone number, the amount of shares held on
October 23, 1998, the specific exhibits requested and the address to which the
exhibits are to be sent. The Company reserves the right to charge for its
copying expenses before providing any requested exhibits.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any shareholder proposal intended to be presented at the Company's next
annual meeting must be received by Randolph E. Ajer, the Secretary of the
Company, at 5456 McConnell Avenue, Suite 100, Los Angeles, California 90066, no
later than June 30, 1999 in order to be considered for inclusion in the proxy
statement and form of proxy for such meeting.
19
<PAGE> 22
OTHER MATTERS
Management knows of no other matter to be presented at the Meeting
which are proper subjects for action by the shareholders. However, if any other
matters should properly come before the Meeting, it is intended that proxies in
the accompanying form will be voted thereon in accordance with the judgment of
the person or persons voting such proxies.
The Annual Report to Shareholders of the Company for the fiscal year
ended June 30, 1998 has been mailed to the shareholders of the Company with this
Proxy Statement. Except to the extent that portions of such report are
specifically referenced in this Proxy Statement, such report is not to be
regarded as proxy soliciting material and is not incorporated in this Proxy
Statement.
By Order of the Board of Directors
Los Angeles, California Randolph E. Ajer
October 27, 1998 Secretary
20
<PAGE> 23
MERCURY AIR GROUP, INC.
1998 LONG-TERM INCENTIVE PLAN
I. GENERAL
1. Purpose. The Mercury Air Group, Inc. 1998 Long-Term Incentive Plan
(the "1998 Plan") has been established by Mercury Air Group, Inc., a New York
corporation (the "Company"), to:
(a) attract and retain employees and with consultants who provide
significant services to the Company and its Subsidiaries;
(b) motivate participating employees and consultants, by means of
appropriate incentives, to achieve long-range goals;
(c) provide incentive compensation opportunities which are
competitive with those of other corporations; and
(d) further identify Participants' interests with those of the
Company's other shareholders through compensation alternatives
based on the Company's common stock;
and thereby promote the long-term financial interest of the Company and its
Subsidiaries, including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
2. Effective Date. Subject to the approval of the shareholders of the
Company at the Company's 1998 annual meeting of its shareholders, the 1998 Plan
shall be effective as of April 23, 1998. The 1998 Plan shall be unlimited in
duration and, in the event of plan termination, shall remain in effect as long
as any awards under it are outstanding.
3. Definitions. The following definitions are applicable to the 1998
Plan:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Stock Option Committee selected by the Board.
"Disability" means a permanent and total disability within the meaning
of Code section 22(e)(3), provided that in the case of options other
than incentive stock options, the Committee in its discretion may
determine whether a permanent and total disability exists in accordance
with uniform and non-discriminatory standards adopted by the Committee
from time to time.
"Fair Market Value" of any Stock means, as of any date, the closing
market composite price for such Stock as reported for the American
Stock Exchange Composite Transactions on that date or, if Stock is not
traded on that date, on the next preceding date on which Stock was
traded.
"Immediate Family" of an individual means the spouse, parents or other
ancestors, and children and other direct descendants of that individual
or of his or her spouse (including such ancestors and descendants by
adoption).
Appendix "A"
A-1
<PAGE> 24
"Participant" means any employee or consultant of the Company or any
Subsidiary who is selected by the Committee to participate in the 1998
Plan.
"Related Company" means any corporation during any period in which it
is a Subsidiary, or during any period in which it directly or
indirectly owns 50% or more of the total combined voting power of all
classes of stock of the Company that are entitled to vote.
"Stock" means Mercury Air Group, Inc., common stock, $.01 par value.
"Stock Option" means the right of a Participant to purchase Stock
pursuant to an Incentive Stock Option or Non-Qualified Option awarded
pursuant to the provisions of Part II or Part III.
"Subsidiary" means any corporation during any period in which 50% or
more of the total combined voting power of all classes of stock
entitled to vote is owned, directly or indirectly, by the Company.
4. Administration. The authority to manage and control the operation
and administration of the 1998 Plan shall be vested in the Committee. Subject to
the provisions of the 1998 Plan, the Committee will have authority to select
employees and consultants to receive awards of Stock Options, to determine the
time or times of receipt, to determine the types of awards and the number of
shares covered by the awards, to establish the terms, conditions, performance
criteria, restrictions, and other provisions of such awards, and to cancel or
suspend awards. In making such award determinations, the Committee may take into
account the nature of services rendered by the respective employee or
consultant, his or her present and potential contribution to the Company's
success and such other factors as the Committee deems relevant. The Committee is
authorized to interpret the 1998 Plan, to establish, amend, and rescind any
rules and regulations relating to the 1998 Plan, to determine the terms and
provisions of any agreements made pursuant to the 1998 Plan, and to make all
other determinations that may be necessary or advisable for the administration
of the 1998 Plan. The Committee, in its sole discretion and on such terms and
conditions as it may provide, may delegate all or any part of its authority and
powers under the 1998 Plan to one or more directors or officers of the Company;
provided, however, that unless otherwise provided by the Board, the Committee
may not delegate its authority and powers in any way which would jeopardize the
1998 Plan's qualifications under Section 162(m) of the Code or Rule 16b-3 of the
Securities Exchange Act of 1934. Any interpretation of the 1998 Plan by the
Committee or any delegate of the Committee and any decision made by them under
the 1998 Plan is final and binding on all persons.
5. Participation. Subject to the terms and conditions of the 1998 Plan,
the Committee shall determine and designate, from time to time, the employees
and consultants of the Company and its Subsidiaries who will participate in the
1998 Plan. In the discretion of the Committee, an eligible employee or
consultant may be awarded Stock Options and more than one award may be granted
to a Participant. Except as otherwise agreed to by the Company and the
Participant, any award under the 1998 Plan shall not affect any previous award
to the Participant under the 1998 Plan or any other plan maintained by the
Company or its Subsidiaries.
6. Shares Subject to the 1998 Plan. The shares of Stock with respect to
which awards may be made under the 1998 Plan shall be either authorized and
unissued shares or issued and outstanding shares (including, in the discretion
of the Board, shares purchased in the market). Subject to the provisions of
paragraph I.10, the number of shares of Stock which may be issued with respect
to awards under the 1998 Plan shall not exceed 600,000 shares in the aggregate.
If, for any reason, any award under the 1998 Plan otherwise distributable in
shares of Stock, or any portion of the award, shall expire, terminate or be
forfeited or cancelled, or be settled in cash pursuant to the terms of the 1998
Plan and, therefore, any such shares are no longer distributable under the
award, such shares of Stock shall again be available for award to an eligible
employee (including the holder of such former award) under the 1998 Plan.
A-2
<PAGE> 25
7. Compliance With Applicable Laws and Withholding of Taxes.
Notwithstanding any other provision of the 1998 Plan, the Company shall have no
liability to issue any shares of Stock under the 1998 Plan unless such issuance
would comply with all applicable laws and the applicable requirements of any
securities exchange or similar entity. Prior to the issuance of any shares of
Stock under the 1998 Plan, the Company may require a written statement that the
recipient is acquiring the shares for investment and not for the purpose or with
the intention of distributing the shares. All awards and payments under the 1998
Plan are subject to withholding of all applicable taxes, which withholding
obligations may be satisfied, with the consent of the Committee, through the
surrender of shares of Stock which the Participant already owns, or to which a
Participant is otherwise entitled under the 1998 Plan.
8. Transferability. Stock Options awarded under the 1998 Plan are not
transferable except as designated by the Participant by will or by the laws of
descent and distribution. Stock Options may be exercised during the lifetime of
the Participant only by the Participant. Notwithstanding the above, Stock
Options which are not Incentive Stock Options may, if the instrument evidencing
it so provides, also be transferable to members of the Participant's Immediate
Family, to a partnership whose members are only the Participant and/or members
of the Participant's Immediate Family, to a former spouse pursuant to a
qualified domestic relations order or to a trust for the benefit of only the
Participant and/or members of the Participant's Immediate Family.
9. Employment and Shareholder Status. The 1998 Plan does not constitute
a contract of employment, and selection as a Participant will not give any
employee the right to be retained in the employ of the Company or any
Subsidiary. No award under the 1998 Plan shall confer upon the holder thereof
any right as a shareholder of the Company prior to the date on which he fulfills
all service requirements and other conditions for receipt of shares of Stock. If
the redistribution of shares is restricted pursuant to paragraph I.7,
certificates representing such shares may bear a legend referring to such
restrictions.
10. Adjustments to Number of Shares Subject to the 1998 Plan. Subject
to the following provisions of this paragraph 10, in the event of any change in
the outstanding shares of Stock of the Company by reason of any stock dividend,
split, spinoff, recapitalization, merger, consolidation, combination, exchange
of shares or other similar change, the aggregate number of shares of Stock with
respect to which awards may be made under the 1998 Plan, and the terms and the
number of shares of any outstanding Stock Options may be equitably adjusted by
the Committee in its sole discretion.
11. Change in Control. Notwithstanding any other provision of the 1998
Plan, in the event of a change in control after April 23, 1998, all outstanding
Stock Options will automatically become fully exercisable and/or vested. For
purposes of this paragraph 11, the term "change in control" means a change in
the beneficial ownership of the Company's voting stock or a change in the
composition of the Board which occurs as follows:
(a) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other than
Seymour Kahn or an affiliate of Seymour Kahn is or becomes a
beneficial owner, directly or indirectly, of stock of the
Company representing 50 percent or more of the total voting
power of the Company's then outstanding stock;
(b) a tender offer (for which a filing has been made with the
Securities Exchange Commission ("SEC") which purports to
comply with the requirements of Section 14(d) of the
Securities Exchange Act of 1934 and the corresponding SEC
rules) is made for the stock of the Company, which has not
been negotiated and approved by the Board, provided that in
case of a tender offer described in this subparagraph (b), the
change in control will be deemed to have occurred upon the
first to occur of (i) any time during the offer when the
person (using the definition in (a) above) making the offer
owns or has accepted for payment stock of the Company with 25
percent or more of the total voting power of the Company's
stock or (ii) three business days before the offer is to
terminate unless the offer is withdrawn first, if the person
making the offer could own,
A-3
<PAGE> 26
by the terms of the offer plus any shares owned by this
person, stock with 50 percent or more of the total voting
power of the Company's stock when the offer terminates; or
(c) individuals who were the Board's nominees for election as
directors of the Company immediately prior to a meeting of the
shareholders of the Company involving a contest for the
election of directors shall not constitute a majority of the
Board following the election.
12. Agreement With Company. At the time of any awards under the 1998
Plan, the Committee will require a Participant to enter into an agreement with
the Company in a form specified by the Committee, agreeing to the terms and
conditions of the 1998 Plan and to such additional terms and conditions, not
inconsistent with the 1998 Plan, as the Committee may, in its sole discretion,
prescribe.
13. Amendment and Termination of 1998 Plan. Subject to the following
provisions of this paragraph 13, the Board may at any time and in any way amend,
suspend or terminate the 1998 Plan. No amendment of the 1998 Plan and, except as
provided in paragraph I.10, no action by the Committee shall, without further
approval of the shareholders of the Company, increase the total number of shares
of Stock with respect to which awards may be made under the 1998 Plan. No
amendment, suspension or termination of the 1998 Plan shall alter or impair any
Stock Option previously awarded under the 1998 Plan without the consent of the
holder thereof.
II. INCENTIVE STOCK OPTIONS
1. Definition. The award of an Incentive Stock Option under the 1998
Plan entitles the Participant to purchase shares of Stock at a price fixed at
the time the option is awarded, subject to the following terms of this Part II.
2. Eligibility. The Committee shall designate the Participants to whom
Incentive Stock Options, as described in section 422A(b) of the Code or any
successor section thereto, are to be awarded under the 1998 Plan and shall
determine the number of option shares to be offered to each of them. In no event
shall the aggregate Fair Market Value (determined at the time the option is
awarded) of Stock with respect to which Incentive Stock Options are exercisable
for the first time by an individual during any calendar year (under all plans of
the Company and all Related Companies) exceed $100,000. Incentive Stock Options
may be granted only to persons who are employees or consultants of the Company
or a Subsidiary on the date of grant.
3. Price. The purchase price of a share of Stock under each Incentive
Stock Option shall be determined by the Committee; provided, however, that in no
event shall such price be less than the greater of (a) 100% of the Fair Market
Value of a share of Stock as of the date the option is granted or (b) the par
value of a share of Stock on such date, provided, however that if on the date
the option is granted, the Participant (together with persons whose stock
ownership is attributed to the Participant pursuant to Section 424(d) of the
Code) owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any of its Subsidiaries, the purchase
price shall be not less than one hundred and ten percent (110%) of the Fair
Market Value of a share as of the date the option is granted. To the extent
provided by the Committee, the full purchase price of each share of Stock
purchased upon the exercise of any Incentive Stock Option shall be paid in cash
or in shares of Stock (valued at Fair Market Value as of the day of exercise),
or in any combination thereof, at the time of such exercise and, as soon as
practicable thereafter, a certificate representing the shares so purchased shall
be delivered to the person entitled thereto. Notwithstanding the foregoing
provisions of this paragraph 3, the Committee may, in its sole discretion, by
the terms of the Agreement granting Incentive Stock Options to a Participant, or
thereafter, determine that the Company (or a Subsidiary) shall offer a
Participant a loan for all or a portion of the option price. The terms of such
loan, including the interest rate, security to be provided to the lender and the
terms of repayment, shall be established by the Committee. Notwithstanding the
above, in the event that the Company or a Subsidiary consummates a transaction
described in section 424(a) of the Code (e.g., the acquisition of property or
stock from an unrelated corporation), persons who become Employees on account of
such transaction may be granted options
A-4
<PAGE> 27
in substitution for options granted by their former employer. If such substitute
options are granted, the Committee, in its sole discretion and consistent with
section 424(a) of the Code, shall determine the exercise price of such
substitute options.
4. Exercise. The Committee may impose such rules relating to the time
and manner in which Incentive Stock Options may be exercised as the Committee
deems appropriate; provided, however, that no Incentive Stock Option may be
exercised by a Participant (a) prior to the date on which he completes one
continuous year of employment with the Company or any Related Company after the
date of the award thereof; or (b) after the Expiration Date applicable to that
option. The Committee may, in its sole discretion, accelerate the exercisability
of an Incentive Stock Option.
5. Option Expiration Date. The "Expiration Date" with respect to an
Incentive Stock Option or any portion thereof awarded to a Participant under the
1998 Plan means the earliest of:
(a) the date that is ten years after the date on which the
Incentive Stock Option is awarded provided, however, that if
the Incentive Stock Option is awarded to an employee or
consultant who, together with persons whose stock ownership is
attributed to the employee or consultant pursuant to section
424(d) of the Code, owns stock possessing more than 10% of the
total combined voting power of all classes of the Company or
any of its Subsidiaries, the Incentive Stock Option may not be
exercised after the expiration of five (5) years from the date
of award;
(b) the date, if any, on which the Participant's continuous
employment with the Company and all Related Companies
terminates, if such continuous employment terminates prior to
the first anniversary of the date of the award of the option;
or
(c) the date established by the Committee, or the date determined
under a method established by the Committee, at the time of
the award, provided, however, that no Incentive Stock Option
may be exercised more than three (3) months after the
Participant's termination of employment for any reason other
than Disability or death, unless the Participant dies during
such three-month period, and the option agreement or the
Committee permits later exercise.
All rights to purchase shares of Stock pursuant to an Incentive Stock Option
shall cease as of such option's Expiration Date.
6. Grant of Reload Options. The Committee may provide in an option
agreement that a Participant who exercises all or part of an option by payment
of the exercise price with already-owned shares, shall be granted an additional
option (a "Reload Option") for a number of shares of stock equal to the number
of shares tendered to exercise the previously granted option plus, if the
Committee so determines, any shares withheld or delivered in satisfaction of any
tax withholding requirements. As determined by the Committee, each Reload Option
shall: (a) have a date of grant which is the date as of which is the date as of
which the previously granted option is exercised, and (b) be exercisable on the
same terms and conditions as the previously granted option, except that the
exercise price shall be determined as of the date of the grant.
III. NON-QUALIFIED STOCK OPTIONS
1. Definition. The award of a Non-Qualified Stock Option under the 1998
Plan entitles the Participant to purchase shares of Stock at a price fixed at
the time the option is awarded, subject to the following terms of this Part III.
2. Eligibility. The Committee shall designate the Participants to whom
Non-Qualified Stock Options are to be awarded under the 1998 Plan and shall
determine the number of option shares to be offered to each of them.
A-5
<PAGE> 28
3. Price. The purchase price of a share of Stock under each
Non-Qualified Stock Option shall be determined by the Committee; provided,
however, that in no event shall such price be less than the greater of (a) 100%
of the Fair Market Value of a share of Stock as of the date the option is
granted or (b) the par value of a share of such Stock on such date. To the
extent provided by the Committee, the full purchase price of each share of Stock
purchased upon the exercise of any Non-Qualified Stock Option shall be paid in
cash or in shares of Stock (valued at Fair Market Value as of the day of
exercise), or in any combination thereof, at the time of such exercise and, as
soon as practicable thereafter, a certificate representing the shares so
purchased shall be delivered to the person entitled thereto. Notwithstanding the
foregoing provisions of this paragraph 3, the Committee may, in its sole
discretion, by the terms of the Agreement granting Non-Qualified Stock Options
to a Participant, or thereafter, determine that the Company (or a Subsidiary)
shall offer a Participant a loan for all or a portion of the option price. The
terms of such loan, including the interest rate, security to be provided to the
lender and the terms of repayment, shall be established by the Committee.
4. Exercise. The Committee may impose such rules relating to the time
and manner in which Non-Qualified Stock Options may be exercised as the
Committee deems appropriate; provided, however, that no Non-Qualified Stock
Option may be exercised by a Participant: (a) prior to the date on which the
Participant completes one continuous year of employment with the Company or any
Related Company after the date of the award thereof; or (b) after the Expiration
Date applicable to that option.
5. Option Expiration Date. The "Expiration Date" with respect to a
Non-Qualified Stock Option or any portion thereof awarded to a Participant under
the 1998 Plan means the earliest of:
(a) the date that is 10 years after the date on which the
Non-Qualified Stock Option is awarded;
(b) the date, if any, on which the Participant's continuous
employment with the Company and all Related Companies
terminates, if such continuous employment terminates prior to
the first anniversary of the date of the award of the option;
or
(c) the date established by the Committee, or the date determined
under a method established by the Committee, at the time of
the award.
All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
A-6
<PAGE> 29
MERCURY AIR GROUP, INC.
1998 DIRECTORS STOCK OPTION PLAN
I. GENERAL
1. Purpose. The Mercury Air Group, Inc. 1998 Directors Stock Option
Plan (the "1998 Plan") has been established by Mercury Air Group, Inc., a New
York corporation (the "Company"), to:
(a) enable the Company to attract and retain individuals to serve
as Non-Employee Directors on the Board;
(b) motivate Non-Employee Directors to achieve long-range goals;
(c) provide incentive opportunities to Non-Employee Directors that
are competitive with those of other corporations; and
(d) further identify the Non-Employee Directors' interests with
those of the Company's other shareholders through compensation
based on the Company's common stock;
and thereby promote the long-term financial interest of the Company and its
Subsidiaries, including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
2. Effective Date. Subject to the approval of the shareholders of the
Company at the Company's 1998 annual meeting of its shareholders, the 1998 Plan
shall be effective as of April 23, 1998. The 1998 Plan shall be unlimited in
duration and, in the event of plan termination, shall remain in effect as long
as any awards under it are outstanding.
3. Definitions. The following definitions are applicable to the 1998
Plan:
"Annual Meeting Date" means the day of the Company's annual meeting of
its shareholders (or the last day of such meeting, if it continues for
more than one day).
"Board" means the Board of Directors of the Company.
"Committee" means the Stock Option Committee selected by the Board.
"Fair Market Value" of any Stock means, as of any date, the closing
market composite price for such Stock as reported for the American
Stock Exchange-Composite Transactions on that date or, if Stock is not
traded on that date, on the next preceding date on which Stock was
traded.
"Immediate Family" of an individual means the spouse, parents or other
ancestors, and children and other direct descendants of that individual
or of his or her spouse (including such ancestors and descendants by
adoption).
"Non-Employee Director" means an individual during any period in which
he is a member of the Board, excluding periods, if any, during which he
is an employee of the Company or a Related Company.
Appendix "B"
B-1
<PAGE> 30
"Option" means the right of a Participant to purchase Stock pursuant to
an option awarded pursuant to the provisions of Part II.
"Participant" means any Non-Employee Director who is awarded one or
more Options under the 1998 Plan.
"Related Company" means any corporation during any period in which it
is a Subsidiary, or during any period in which it directly or
indirectly owns 50% or more of the total combined voting power of all
classes of stock of the Company that are entitled to vote.
"Stock" means Mercury Air Group, Inc. common stock, par value $.01.
"Subsidiary" means any corporation during any period in which 50% or
more of the total combined voting power of all classes of stock
entitled to vote is owned, directly or indirectly, by the Company.
4. Administration. The authority to manage and control the operation
and administration of the 1998 Plan shall be vested in the Committee. The
Committee is authorized to interpret the 1998 Plan, to establish, amend, and
rescind any rules and regulations relating to the 1998 Plan, and to make any
determinations that may be necessary or advisable for the administration of the
1998 Plan. Any interpretation of the 1998 Plan by the Committee and any decision
made by it under the 1998 Plan is final and binding on all persons.
5. Participation. Subject to the terms and conditions of the 1998 Plan,
as of December 3, 1998, each individual who is a Non- Employee Director on such
date shall receive an Option to purchase 10,000 shares of Stock. As of each
Annual Meeting Date occurring after December 4, 1998, each individual who was a
Non-Employee Director at any time since the end of the next preceding Annual
Meeting Date shall be awarded Options to purchase 10,000 shares of Stock.
Notwithstanding the foregoing provisions of this Section 5, no award shall be
made to any individual as of any Annual Meeting Date who was an employee of the
Company or a Related Company at any time since the end of the next preceding
Annual Meeting Date. Any award under the 1998 Plan shall not affect any previous
award to the Participant under the 1998 Plan or any other plan maintained by the
Company or its Subsidiaries.
6. Shares Subject to the 1998 Plan. Subject to the provisions of
paragraph I.10, the number of shares of Stock which may be issued with respect
to awards under the 1998 Plan shall not exceed 300,000 shares in the aggregate.
If, for any reason, any Option, or any portion of an Option, shall expire or
terminate and, therefore, any such shares are no longer distributable under the
1998 Plan, such shares of Stock shall again be available for delivery pursuant
to the exercise of an Option. If, for any Annual Meeting Date, there are
insufficient shares of Stock available under the 1998 Plan to make all of the
awards otherwise required, the number of shares of Stock available for award on
that Annual Meeting Date shall be prorated among eligible Non-Employee
Directors, except that Options shall not be granted for fractional shares under
the 1998 Plan.
7. Compliance With Applicable Laws and Withholding of Taxes.
Notwithstanding any other provision of the 1998 Plan, the Company shall have no
liability to issue any shares of Stock under the 1998 Plan unless such issuance
would comply with all applicable laws and the applicable requirements of any
securities exchange or similar entity. Prior to the issuance of any shares of
Stock under the 1998 Plan, the Company may require a written statement that the
recipient is acquiring the shares for investment and not for the purpose or with
the intention of distributing the shares.
8. Transferability. Options awarded under the 1998 Plan are not
transferable except as designated by the Participant by will or by the laws of
descent and distribution. Options may be exercised during the lifetime of the
Participant only by the Participant. Notwithstanding the above, options awarded
under the 1998 Plan may, if the instrument evidencing it so provides, also be
transferable to members of the Participant's Immediate Family, to a partnership
whose members are only the Participant and/or members of the Participant's
Immediate Family, to a
B-2
<PAGE> 31
former spouse pursuant to a marital dissolution decree or property separation
agreement or to a trust for the benefit of only the Participant and/or members
of the Participant's Immediate Family.
9. Director and Shareholder Status. The 1998 Plan does not constitute a
contract to be retained as a director of the Company. No award under the 1998
Plan shall confer upon the holder thereof any right as a shareholder of the
Company prior to the date on which he fulfills all service requirements and
other conditions for receipt of shares of Stock. If the redistribution of shares
is restricted pursuant to paragraph I.7, certificates representing such shares
may bear a legend referring to such restrictions.
10. Adjustments to Number of Shares Subject to the 1998 Plan. Subject
to the following provisions of this paragraph 10, in the event of any change in
the outstanding shares of Stock of the Company by reason of any stock dividend,
split, spinoff, recapitalization, merger, consolidation, combination, exchange
of shares or other similar change, the aggregate number of shares of Stock with
respect to which awards may be made under the 1998 Plan, and the terms and the
number of shares of any outstanding Options shall be equitably adjusted by the
Committee.
11. Change in Control. Notwithstanding any other provision of the 1998
Plan, in the event of a change in control, all outstanding Options will
automatically become fully exercisable. For purposes of this paragraph 11, the
term "change in control" means a change in the beneficial ownership of the
Company's voting stock or a change in the composition of the Board which occurs
after April 23, 1998 as follows:
(a) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other than
Seymour Kahn or an affiliate of Seymour Kahn is or becomes a
beneficial owner, directly or indirectly, of stock of the
Company representing 50 percent or more of the total voting
power of the Company's then outstanding stock;
(b) a tender offer (for which a filing has been made with the
Securities Exchange Commission ("SEC") which purports to
comply with the requirements of Section 14(d) of the
Securities Exchange Act of 1934 and the corresponding SEC
rules) is made for the stock of the Company, which has not
been negotiated and approved by the Board, provided that in
case of a tender offer described in this subparagraph (b), the
change in control will be deemed to have occurred upon the
first to occur of (i) any time during the offer when the
person (using the definition in (a) above) making the offer
owns or has accepted for payment stock of the Company with 25
percent or more of the total voting power of the Company's
stock or (ii) three business days before the offer is to
terminate unless the offer is withdrawn first, if the person
making the offer could own, by the terms of the offer plus any
shares owned by this person, stock with 50 percent or more of
the total voting power of the Company's stock when the offer
terminates; or
(c) individuals who were the Board's nominees for election as
directors of the Company immediately prior to a meeting of the
shareholders of the Company involving a contest for the
election of directors shall not constitute a majority of the
Board following the election.
12. Agreement With Company. Each Option award granted to a Participant
under the 1998 Plan shall be reflected in an agreement between the Company and
the Participant having the form set forth as Exhibit A to the 1998 Plan.
13. Amendment and Termination of 1998 Plan. Subject to the following
provisions of this paragraph 13, the Board may at any time and in any way amend,
suspend or terminate the 1998 Plan. No amendment of the 1998 Plan and, except as
provided in paragraph I.10, no action by the Committee shall, without further
approval of the shareholders of the Company, increase the total number of shares
of Stock with respect to which awards may be made under the 1998 Plan. No
amendment, suspension or termination of the 1998 Plan shall alter or impair any
B-3
<PAGE> 32
Option previously awarded under the 1998 Plan without the consent of the holder
thereof. Furthermore, no amendment may be enacted altering paragraphs I.5 and
II.2.
II. TERMS OF OPTIONS
1. Definition. The award of an Option under the 1998 Plan entitles the
Participant to purchase shares of Stock at a price fixed at the time the Option
is awarded, subject to the following terms of this Part II.
2. Price. The purchase price of a share of Stock under an Option shall
be equal to the greater of: (a) 100% of the Fair Market Value of a share of
Stock as of the date the Option is granted; or (b) the par value of a share of
such Stock on such date. The full purchase price of each share of Stock
purchased upon the exercise of any Option shall be paid in cash or in shares of
Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto.
3. Exercise. Subject to paragraph I.11, no Option may be exercised by a
Participant: (a) prior to the date on which the Participant completes one
continuous year of service as a director of the Company after the date as of
which the award is made; or (b) after the Expiration Date applicable to that
Option.
4. Option Expiration Date. The "Expiration Date" with respect to an
Option or any portion thereof awarded to a Participant under the 1998 Plan means
the earlier of:
(a) the date that is 10 years after the date as of which the
Option is awarded;
(b) the date which is three months following the date on which the
Participant's period as a director of the Company ceases for
any reason; or
(c) the date, if any, on which the Participant's period as a
director of the Company ceases, if such continuous period
terminates prior to the first anniversary of the date of the
award of the Option.
All rights to purchase shares of Stock pursuant to an Option shall cease as of
such Option's Expiration Date.
B-4
<PAGE> 33
Exhibit A
STOCK OPTION AGREEMENT
MERCURY AIR GROUP, INC.
1998 DIRECTORS STOCK OPTION PLAN
THIS AGREEMENT, entered into as of the _____ of ___________, 19__ (the
"Agreement Date"), by and between _____________________ (the "Director"), and
Mercury Air Group, Inc., a New York corporation (the "Company")(the
"Agreement"),
WITNESSETH THAT:
WHEREAS, the Company maintains the Mercury Air Group, Inc. 1998
Directors Stock Option Plan (the "Plan"), which is incorporated into and forms a
part of this Agreement; and
WHEREAS, the Director is eligible for an option award under the Plan;
NOW, THEREFORE, IT IS AGREED, by and between the Company and the
Director, as follows:
1. Award, Purchase Price. Subject to the terms of this Agreement and
the Plan, the Director is hereby awarded an Option to purchase a total of ______
shares of Stock (the "Option"). The option price of each share of Stock subject
to the Option shall be $______.
2. Method of Option Exercise. The Option may be exercised in whole or
in part by filing a written notice with the Secretary of the Company at its
corporate headquarters prior to the date the Option expires. Such notice shall
specify the number of shares which the Director elects to purchase, and shall be
accompanied by payment of the option price for such shares of Stock indicated by
the Director's election. Subject to the provisions of the following sentence,
payment shall be by cash or by check payable to the Company. At the election of
the Director, all or a portion of such required amount may be paid by delivery
of shares of Stock having an aggregate Fair Market Value (valued as of the date
of exercise) that is equal to the amount of cash which would otherwise be
required.
3. Change In Control. In the event that a "Change in Control" occurs
prior to the date on which the Director completes one continuous year of service
as a director of the Company after the Agreement Date, the Director shall have
the right to immediately exercise the Option.
4. Heirs and Successors. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
Subject to the terms of the Plan, any rights of the Director to purchase shares
of Stock that have not been exercised at the time of the Director's death shall
be transferred to the beneficiary designated by the Director in writing filed
with the Committee in such form and at such time as the Committee shall require.
If the deceased Director fails to designate a beneficiary, or if the designated
beneficiary of the deceased Director dies before the Director or before the
complete exercise of the rights to purchase shares of Stock under this
Agreement, the Committee shall, in its discretion, direct that such rights be
transferred to:
(a) one or more of the Director's relatives by blood, adoption or
marriage and in such proportion as the Committee decides; or
(b) the legal representative or representatives of the estate of
the last to die of the Director and his beneficiary.
Page 1
<PAGE> 34
The rights transferred to a beneficiary under this paragraph 4 with respect to
the Option to purchase shares of Stock shall be subject to the provisions of the
Plan (including, without limitation, the provisions relating to the Expiration
Date of the Option).
5. Definitions. Except where the context clearly implies or indicates
the contrary, a word, term, or phrase used in the Plan is similarly used in this
Agreement.
6. Non-Qualified Option. The right to purchase shares of Stock under
this Agreement is not intended to constitute, and shall not be treated as, an
incentive stock option, as that term is used in section 422A of the Internal
Revenue Code of 1986, as amended.
7. Administration. The authority to manage and control the operation
and administration of this Agreement shall be vested in the Committee, and the
Committee shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of the Agreement by the Committee and
any decision made by it with respect to the Agreement is final and binding on
all persons.
8. Plan Governs. Notwithstanding anything in this Agreement to the
contrary, the terms of this Agreement shall be subject to the terms of the Plan,
a copy of which may be obtained by the Director from the office of the Secretary
of the Company.
9. Amendment. This Agreement may be amended by written agreement of the
Director and the Company, without the consent of any other person.
IN WITNESS WHEREOF, the Director has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf
all as of the Agreement Date.
Director
----------------------------------------
Mercury Air Group, Inc.
By:
------------------------------------
Page 2
<PAGE> 35
MERCURY AIR GROUP, INC.
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Mercury Air Group, Inc., a New York
corporation (the Company), acting under the New York General Corporation law,
hereby constitutes and appoints Seymour Kahn and Randolph E. Ajer, and each of
them the attorneys and proxies of the undersigned, each with the power of
substitution, to attend and act of the undersigned at the Annual Meeting of
Shareholders of the Company (the Meeting) to be held on December 3, 1998 at
10:00 a.m., Pacific Standard Time, at the Company's headquarters located at 5456
McConnell Avenue, Suite 100, Los Angeles, California 90066 and at any
adjournments thereof, and in connection therewith to vote and represent all of
the shares of Common Stock of the Company which the undersigned would be
entitled to vote, as specified on the reverse side.
Said attorney and proxies, and each of them, shall have all the powers
which the undersigned would have if acting in person. The undersigned hereby
revokes any other proxy to vote at the Meeting and hereby ratifies and confirms
that said attorneys and proxies, and each of them, may lawfully do by virtue
hereof. Said proxies, without hereby limiting their general authority, are
specifically authorized to vote in accordance with their best judgment with
respect to matters incident to the solicitation of this Proxy; and with respect
to the election of any person as a director if a bona fide nominee for that
office is named in the Proxy Statement and such nominee is unable to serve or
for good cause will not serve.
Important - Please sign on the Other Side
<PAGE> 36
A [X] Please mark your
vote as in this
example.
PROPOSAL 1.
Election of Directors:
FOR WITHHOLD Nominees: Seymour Kahn
all nominees AUTHORITY Joseph A. Czyzyk
(except as marked to vote for Dr. Philip J. Fagan, Jr.
to the contrary below) all nominees Frederick H. Kopko, Jr.
[ ] [ ] William G. Langton
Robert L. List
Instruction: To withhold authority to vote for any nominee,
write that nominee's name in the space provided
- ---------------------------
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
PROPOSAL 2. [ ] [ ] [ ]
Adoption of the Company's 1998 Long-Term Incentive Plan pursuant to which
600,000 shares of common stock, $.01 par value (Common Stock), of the
Company will be reserved for issuance pursuant to options to be granted to
employees, officers and consultants under such plan.
PROPOSAL 3. [ ] [ ] [ ]
Adoption of the Company's 1998 Directors Stock Option Plan pursuant to
which 300,000 shares of Common Stock will be reserved for issuance
pursuant to options to be granted on an annual basis to outside directors
under such plan.
</TABLE>
A majority of the named proxies present at the Meeting, either in
person or by substitute (or if only one thereof shall be present and act, that
one), shall have and exercise all the powers of said proxies hereunder. This
proxy will be voted in accordance with the choices specified by the undersigned
below. IF NO INSTRUCTIONS TO THE CONTRARY ARE INDICATED HEREON, THIS PROXY WILL
BE TREATED AS A GRANT OF AUTHORITY FOR THE NOMINEES AND PROPOSALS NAMED ABOVE.
The undersigned hereby acknowledges receipt of a copy of the Notice of
Annual Meeting and Proxy Statement and a copy of the Company's Annual Report to
Shareholders for the year ended June 30, 1998.
Shareholder's Signature(s) ____________________________________
__________________________________________ DATE _____________
IMPORTANT Sign your name or names on the signature line in the same way it is
stenciled on this proxy.
