<PAGE> 1
MERCURY AIR GROUP, INC.
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
--------------------------
TO BE HELD DECEMBER 2, 1999
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. ("Mercury" or the "Company") will be held
on December 2, 1999 at 10:00 o'clock a.m. Pacific Standard Time at the principal
office of the Company located at 5456 McConnell Avenue, 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 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 22, 1999 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.
/s/ WAYNE J. LOVETT
--------------------------
Wayne J. Lovett
Secretary
Los Angeles, California
October 27, 1999
<PAGE> 2
MERCURY AIR GROUP, INC.
5456 MCCONNELL AVENUE
LOS ANGELES, CALIFORNIA 90066
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 2, 1999
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 ("Mercury" or the "Company"), to be voted at the Annual Meeting of
Shareholders of the Company (the "Meeting") which will be held on December 2,
1999 at 10:00 o'clock a.m. Pacific Standard Time at the principal offices of the
Company located at 5456 McConnell Avenue, 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,
facsimile, 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; and (b)
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 27, 1999.
VOTING SECURITIES
At the record date for the Meeting, the close of business on October
22, 1999 (the "Record Date"), the Company had outstanding 6,684,765 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
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<PAGE> 3
with respect to all other matters considered at the Meeting. Mr. Seymour Kahn,
Chairman of the Board of the Company and the beneficial owner of approximately
21% of the outstanding Common Stock, has indicated that he intends to vote for
the six director nominees named herein.
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.
Directors shall be elected by a plurality of the votes cast by the Common Stock
at the Meeting.
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 72 Chairman of the Board
Joseph A. Czyzyk 52 President, Chief Executive Officer and Director
Philip J. Fagan, Jr., M.D. 55 Director
Frederick H. Kopko, Jr. 44 Director
William G. Langton 52 Director
Robert L. List 62 Director
</TABLE>
Seymour Kahn served as President of Mercury from 1969 until 1989 and
served as Chief Executive Officer from 1974 until 1998 and has been Chairman of
the Board of Directors of Mercury since 1974.
Joseph A. Czyzyk has been President and a Director of Mercury since
November 1994 and has served as Chief Executive Officer since December 1998. Mr.
Czyzyk also served as President of Mercury Fuel Sales and Services, 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. ("Mercury Air Cargo") 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.
3
<PAGE> 4
William G. Langton has been a director of Mercury since August 1993.
Mr. Langton was President of AAR Aircraft Sales and Leasing from June 1998 until
March 1999, 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. In October 1998, Southern Air
Transport filed for protection under Chapter 11 of the United States Bankruptcy
Code. Mr. Langton is currently self-employed as an Aviation Consultant.
Robert L. List has been a director of Mercury since 1990. From May 1997
to present, Mr. List has been the President of Hammond's Candies. In addition,
Mr. List has been President of West Indies Candy Company based in Denver,
Colorado from March 1993to present. 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 five regular scheduled meetings and two telephonic meetings
of the Board of Directors of the Company held during fiscal 1999, the period
from July 1, 1998 through June 30, 1999.
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 1999, the Audit Committee consisted
of Messrs. Kopko, Langton and List and Dr. Fagan. During fiscal 1999, the Audit
Committee met one time.
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 1999, 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 1999, the Stock
Option Committee consisted of Messrs. Langton and List and Dr. Fagan and met
four times.
The Board does not have a nominating committee or any other committee
performing a similar function.
During fiscal 1999, a special committee ("Special Committee") composed
of all of the outside directors formed to consider the proposed acquisition of
the Company by an unnamed suitor. Subsequently, the Special Committee was
expanded to include all members of the Board of Directors. The Special Committee
held five meetings.
During fiscal 1999, 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.
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<PAGE> 5
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of October 22,
1999, with respect to the ownership of the Company's Common Stock by: (a) each
director of the Company; (b) each officer named in the Summary Compensation
Table; (c) the directors 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 (5%) of its outstanding Common Stock.
As of October 22, 1999, there were 6,684,765 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 1,467,710(2) 21%
Joseph A. Czyzyk 539,425(3) 8.0%
Randolph E. Ajer 190,125(4) 2.8%
William L. Silva 189,062(5) 2.8%
Robert L. List 30,500(6) *
511 17th Street
Golden, CO 80401
Philip J. Fagan, Jr., M.D. 227,125(7) 3.3%
1130 West Olive Avenue
Burbank, CA 91506
Frederick H. Kopko, Jr. 90,750(8) 1.3%
20 North Wacker Drive, Suite 2520
Chicago, IL 60606
William G. Langton 60,500(9) *
7277 Lithopolis Rd.
Groveport, OH 43125
FMR Corp. 542,940(10) 8.1%
82 Devonshire Street
Boston, Massachusetts 02109
J. H. Whitney Mezzanine Fund, L.L.P. 503,126(11) 7.5%
177 Broad Street
Stamford, CT 06901
All directors and executive officers as a group (9 persons) 2,643,947(12) 36.2%
</TABLE>
* Less than one percent.
(1) Unless otherwise indicated in the table, the address for each of the
individuals named in the table is 5456 McConnell Avenue, 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. Includes 99,250 shares
issuable to Mr. Kahn
5
<PAGE> 6
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.
(6) Consists of 30,250 shares issuable upon exercise of options exercisable
within 60 days from the date hereof.
(7) Includes 136,125 shares issuable upon exercise of options exercisable within
60 days from the date hereof.
(8) Consists of 90,750 shares issuable upon exercise of options exercisable
within 60 days from the date hereof.
(9) Consists of 60,500 shares issuable upon exercise of options exercisable
within 60 days from the date hereof.
(10) Based on information obtained on October 14, 1999, Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., is a
beneficial owner of 542,940 shares 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 sole power to dispose of 542,940 shares owned
by the Funds. Through their ownership of voting common stock and the execution
of 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.
(11) Based on publicly available information reported September 10, 1999, J.H.
Whitney Mezzanine Fund, L.L.P., ("J. H. Whitney") is the beneficial owner of
503,126 shares which consist of 503,126 shares issuable upon exercise of
warrants exercisable within 60 days from the date hereof.
(12) Includes 607,272 shares issuable upon exercise of options exercisable
within 60 days from the date hereof.
6
<PAGE> 7
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 72 Chairman of the Board
Joseph A. Czyzyk 52 President, Chief Executive Officer and Director
Randolph E. Ajer 46 Executive Vice President, Chief Financial Officer, and Treasurer
William L. Silva 49 Executive Vice President and Executive Vice President of Maytag Aircraft
Corporation ("Maytag")
</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
experiences are described above under the caption "Information Regarding
Nominees."
Randolph E. Ajer has been Chief Financial Officer of Mercury since 1987
and Treasurer since May 1985. Mr. Ajer served as Secretary of Mercury from May
1985 until May 1999. He served as a director of Mercury from September 1989
until December 1990. Mr. Ajer 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. He was appointed Chief Operating Officer of Maytag in March 1999. Mr.
Silva became an Executive Vice President of Mercury in August 1993.
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<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by the
Company for the Chief Executive Officer and for each of the 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 1999 368,283 286,000 -0- -0- 14,589(3)
Chairman of the Board 1998 366,042 83,000 -0- -0- 12,729
1997 350,000 213,000 -0- -0- 11,871
Joseph A. Czyzyk 1999 278,694 155,000 -0- -0- 980(4)
President /CEO 1998 331,371 71,000 -0- -0- 723
1997 325,000 123,000 -0- -0- 557
Randolph E. Ajer 1999 140,013 185,000 -0- -0- 685(5)
Executive Vice President 1998 192,913 44,000 -0- -0- 590
1997 186,825 131,000 -0- -0- 465
William L. Silva 1999 189,780 135,000 -0- -0- 558(6)
Executive Vice President 1998 233,748 135,000 -0- -0- 558
1997 159,000 61,000 -0- -0- 475
</TABLE>
- ------------
(1) The period July 1, 1996 through June 30, 1997 is referred to as Fiscal
Year 1997;the period July 1, 1997 through June 30, 1998 is referred to as
Fiscal Year 1998; and the period July 1, 1998 through June 30, 1999 is
referred to as Fiscal Year 1999.
(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 $14,289 respectively.
(4) Consists of 401(k) contributions and life insurance premiums in the
amounts of $300 and $680, respectively.
(5) Consists of 401(k) contributions and life insurance premiums in the
amounts of $300 and $385, respectively.
(6) Consists of 401(k) contributions and life insurance premiums in the
amounts of $300 and $258, respectively.
No named executive officer was granted options during fiscal 1999.
8
<PAGE> 9
The following table sets forth information regarding option exercises
during fiscal 1999, as well as the number and total of in-the-money options at
June 30, 1999, for each of the named executive officers:
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(3)(4)
------------------------- -------------------------
SHARES
ACQUIRED ON VALUE REALIZED
NAME EXERCISE(#) ($)(2)(3) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Seymour Kahn 52,000 254,566 144,625/-0-(5) 629,578/-0-(5)
Joseph A. Czyzyk -0- -0- 31,460/-0- 162,318/-0-
Randolph E. Ajer -0- -0- 23,750/-0- 120,448/-0-
William L. Silva -0- -0- 37,812/-0- 171,655/-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 $ 6.5625 per share at June 30, 1999.
(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
10, 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. Mr. Kahn resigned as Chief Executive
Officer in December 1998.
If Mr. Kahn is disabled for more than six (6) 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 $2,250,000 upon his death.
Relating to this obligation, Mercury has obtained a life insurance policy on Mr.
Kahn's life in the amount of $2,250,000 which designates Mr. Kahn's wife as
beneficiary to fund this payment.
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<PAGE> 10
Mr. Kahn has agreed not to compete with Mercury within a radius of 300
miles from Mercury's present place of business for five (5) 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, amended as of October 15, 1998 and April 1, 1999 pursuant to
which Mercury will employ him as its President/Chief Executive Officer for a
term ending on November 15, 1997, 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. This original agreement provided 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. Mr. Czyzyk assumed the position of Chief
Executive Officer in December 1998. 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's annual salary under the agreement is $278,694. 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. The amendment
of October 15, 1998 provided that 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 for a period of more than six (6)
weeks, 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,
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, SK Acquisition, Inc. ("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
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<PAGE> 11
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 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 1999, Mercury loaned Mr. Silva $22,618 which was used to
pay withholding taxes associated with the loan forgiveness ($54,000) 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 1999, 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. Beginning December 1999, Directors will be
paid an annual minimum of $15,000 in fees and $500 per telephonic meeting.
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 1999 and continuing through fiscal 2000, 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.
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.
11
<PAGE> 12
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 Executive Officers, the
Chief Executive, Mr. Czyzyk, and Messrs. Kahn, Ajer, 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
will be responsible for administering the Company's non-cash compensation plans,
including stock option and stock purchase arrangements. During fiscal 1999, 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 Mr. Kahn and Chief
Executive Officer, Joseph A. Czyzyk. As described below, a large portion of
their compensation is based on the earnings of the Company and they are both
significant shareholders of the Company. Accordingly, the Compensation Committee
believes that their 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
12
<PAGE> 13
benefits typically provided to executives by major corporations.
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 1999 and 2000, 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. 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.
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 (other than Mr. Kahn) 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
each of Messrs. Ajer 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 1999, one of the executive officers requested assistance
in paying taxes associated with the annual forgiveness of the stock purchase
loans. The Compensation Committee determined that such officer 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 10, 1993 pursuant to which Mercury will employ him as Chairman of the
Board 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 1999 but has undertaken a review of his over-all compensation package
including salary.
13
<PAGE> 14
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 1999 and will continue the bonus plan during fiscal
2000, subject to adjustment as described below. The two-part bonus plan is based
on earnings before 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 1999 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
1999, Mr. Kahn earned a discretionary bonus in the amount of $318,000. At Mr.
Kahn's request, the Compensation Committee, however, reallocated $32,000 of Mr.
Kahn's discretionary bonus, as a special bonus for Mr. Ajer, and paid Mr. Kahn a
bonus of $286,000. 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." 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 1999 and will
continue the bonus plan during fiscal 2000, subject to the adjustment to fiscal
1998 EBIT for a bankruptcy loss describe 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
1999, Mr. Ajer received a discretionary bonus in the amount of $123,000. Due to
reallocation of $32,000 of Mr. Kahn's bonus, as described above, Mr. Ajer was
paid a total bonus of $155,000.
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.
14
<PAGE> 15
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 Mercury Air Group,
Inc., the AMEX Market Value and the S & P Transportation Index.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
6/94 6/95 6/96 6/97 6/98 6/99
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Mercury Air Group, Inc. 100 172 181 180 220 190
AMEX Market Value 100 118 136 151 177 199
S&P Transportation 100 110 138 173 193 207
</TABLE>
15
<PAGE> 16
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 1999 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 2000. 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, 1999, 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 22, 1999. Any such shareholder may request
copies of the exhibits to the 10-K by mailing such request to Wayne J. Lovett,
Secretary, Mercury Air Group, Inc., 5456 McConnell Avenue, Los Angeles,
California 90066. Such request must indicate the name of the shareholder, the
shareholder's telephone number, the amount of shares held on October 22, 1999,
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 Wayne J. Lovett, the Secretary of the
Company, at 5456 McConnell Avenue, Los Angeles, California 90066, no later than
June 30, 2000 in order to be considered for inclusion in the proxy statement and
form of proxy for such meeting.
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, 1999 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
/s/ WAYNE J. LOVETT
-----------------------
Los Angeles, California Wayne J. Lovett
October 27, 1999 Secretary
16
<PAGE> 17
MERCURY AIR GROUP, INC.
--------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
--------
TO BE HELD DECEMBER 2, 1999
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 for the undersigned at the Annual Meeting of
Shareholders of the Company (the "Meeting") to be held on December 2, 1999 at
10:00 a.m., Pacific Standard Time, at the principal office of the Company
located at 5456 McConnell Avenue, 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> 18
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
MERCURY AIR GROUP, INC.
DECEMBER 2, 1999
Please Detach and Mail in the Envelope Provided
[X] PLEASE MARK YOUR
VOTE AS IN THIS
EXAMPLE.
<TABLE>
<S> <C>
FOR WITHHOLD
all nominees AUTHORITY
(except as marked to to vote for
the contrary below) all nominees
[ ] [ ]
</TABLE>
1. To elect six directors to serve until the next Annual Meeting of Shareholders
and until their successors are elected and qualified. Instructions: To
withhold authority to vote for any nominee. Write that nominee's name in the
space provided.
- ---------------------------------------------
NOMINEES:
Seymour Kahn
Joseph A. Czyzyk
Philip J. Fagan, Jr., M.D.
Fredrick H. Kopko, Jr.
William G. Langton
Robert L. List
2. To transact such other business as may properly come before the Meeting or
any adjournment thereof.
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, THEN 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 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, 1999.
Check here if you plan to attend the Meeting. [ ]
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.
