<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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 Rule 14a-11(c) or Rule 14a-12
TOWER AIR, 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
TOWER AIR, INC.
Hangar No. 17
JFK International Airport
Jamaica, New York 11430
____________________
Notice of Annual Meeting of Stockholders
____________________
Notice is hereby given that the Annual Meeting of Stockholders of
Tower Air, Inc. (the "Company") will be held at the Tower Air Terminal, JFK
International Airport, Jamaica, New York 11430, on Wednesday, May 26, 1999 at
11:00 a.m., for the following purposes:
1. To elect a Board of Directors of six directors to serve for the
ensuing year and until their successors are elected and qualified.
2. To ratify the appointment of Ernst & Young LLP as auditors for the
fiscal year ending December 31, 1999.
3. To approve an amendment to the Company's 1993 Long-Term Incentive
Plan.
4. To transact such other business as may be properly brought before
the meeting or any adjournment thereof.
Holders of record of the Common Stock of the Company at the close of
business on April 30, 1999 will be entitled to vote at the meeting or any
adjournment thereof with respect to all proposals.
Stockholders are invited to attend the meeting. Whether or not you
expect to attend, WE URGE YOU TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. If you attend the meeting,
you may vote your shares in person, which will revoke any previously executed
proxy.
Regardless of how many shares you own, your vote is very important.
Please SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By Order of the Board of Directors
LOGO
STEPHEN L. GELBAND
Secretary
Jamaica, New York
Dated: May 12, 1999
<PAGE>
TOWER AIR, INC.
Hangar No. 17
JFK International Airport
Jamaica, New York 11430
_______________
Proxy Statement
_______________
This proxy statement and the accompanying proxy card are being
furnished in connection with the solicitation of proxies by the Board of
Directors of Tower Air, Inc., a Delaware corporation (the "Company"), for the
Annual Meeting of Stockholders to be held on Wednesday, May 26, 1999, at 11:00
a.m., at the Tower Air Terminal, JFK International Airport, Jamaica, New York
11430 and any adjournment or postponement thereof. This proxy statement and the
accompanying proxy card are first being mailed by the Company on or about May
12, 1999 to the Company's stockholders. The cost of the solicitation of proxies
will be borne by the Company.
Whether or not you plan to attend the Annual Meeting, please sign and
return the enclosed proxy in the accompanying postage-paid and addressed
envelope. Each proxy executed and returned by a stockholder may be revoked at
any time thereafter, except as to any matter or matters upon which, prior to
such revocation, a vote will have been cast pursuant to the authority conferred
by such proxy. If you attend the meeting you may, if you wish, vote in person,
thereby cancelling any proxy previously given. Alternatively, you may revoke
your proxy by notifying the Secretary of the Company in writing prior to the
Annual Meeting or by signing a later-dated proxy.
Only holders of record of the common stock, par value $.01 per share
(the "Common Stock"), of the Company at the close of business on April 30, 1999
(the "Record Date") will be entitled to vote with respect to the proposals set
forth on the attached Notice of Annual Meeting. On March 31, 1999, the Company
had 15,365,424 shares of Common Stock outstanding. Each share of Common Stock is
entitled to one vote on each matter properly brought before the meeting. The
presence in person or by proxy of the holders of a majority in interest of the
Common Stock shall constitute a quorum for matters to be voted on by the Common
Stock. The affirmative vote of the majority of shares of Common Stock present or
represented, and entitled to vote at the meeting, is required for approval of
all matters.
The mailing address of the Company is Hangar No. 17, JFK International
Airport, Jamaica, New York 11430.
All properly executed proxies delivered pursuant to this solicitation
and not revoked will be voted at the Annual Meeting in accordance with the
directions given. Regarding the election of directors, in voting by proxy,
stockholders may vote in favor of all nominees, withhold their votes as to all
nominees or withhold their votes as to specific nominees. With respect to the
ratification of the appointment of Ernst & Young LLP ("Ernst & Young") as
independent auditors, stockholders may vote in favor of the proposal, against
the proposal or they may abstain from voting. With respect to the approval of
the amendment to the Company's 1993 Long-Term Incentive Plan, stockholders may
vote in favor of the proposal, against the proposal or they may abstain from
voting. Stockholders should specify their choices on the enclosed proxy card. If
no specific instructions are given with respect to the
<PAGE>
matters to be acted upon, the shares represented by a signed proxy will be voted
FOR the election of all nominees, FOR the proposal to ratify the appointment of
Ernst & Young as independent auditors and FOR the proposed amendment to the
Company's 1993 Long-Term Incentive Plan, and will be deemed to grant
discretionary authority to vote upon any other matters properly coming before
the meeting. If an executed proxy is returned by a broker holding shares of
Common Stock in street name which indicates that the broker does not have
discretionary authority as to certain shares to vote on one or more matters,
such shares will be considered present at the meeting for the purpose of
determining whether a quorum is present, but not for the purpose of calculating
the vote with respect to such matter.
The Annual Report to stockholders of the Company for the fiscal year
ended December 31, 1998, including financial statements as of December 31, 1998
and for the year then ended, is being mailed herewith to each stockholder of
record. The Company has agreed to provide without charge to stockholders, upon
their written request, copies of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, filed with the Securities and Exchange
Commission. Requests should be sent to: Tower Air, Inc., Hangar No. 17, John F.
Kennedy International Airport, Jamaica, New York 11430, Attention: Badar Mir,
Vice President - Financial Accounting.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1999 (except with
respect to footnote 3) certain information with regard to the ownership of the
Company's outstanding Common Stock by (i) each person who is known by the
Company to beneficially own more than 5% of the Common Stock, (ii) each director
of the Company and each nominee for director of the Company, (iii) each of the
Company's executive officers named in the Summary Compensation Table below and
(iv) all of the Company's current directors and executive officers as a group.
Except as otherwise stated in the footnotes to the following table, beneficial
ownership of shares means that the beneficial owner thereof has sole voting and
investment power with respect to such shares. The Company had 15,365,424 shares
of Common Stock outstanding as of March 31, 1999.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned
----------------------
Name of Percent
Beneficial Owner (1) Number of Class (*)
-------------------- ------ ------------
<S> <C> <C>
Nachtomi Family Limited Partnership.................. 11,733,006(2)(5) 76.4
Hangar 17, JFK International Airport
Jamaica, NY 11430
Dimensional Fund Advisors Inc........................ 897,000(3) 5.8
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Morris K. Nachtomi................................... 11,857,527(2)(4) 77.2
Terry V. Hallcom..................................... 203,000(5)(6) 1.3
Guy A. Nachtomi...................................... 300,000(2)(5) 1.9
Henry P. Baer........................................ 35,000(7)(8) *
Stephen L. Gelband................................... 27,500(7)(8) *
Stephen A. Osborn.................................... 25,000(7) *
Leo-Arthur Kelmenson................................. 3,333 *
Vincent J. Vitale.................................... 16,666 *
Eli J. Segal......................................... - (9) *
Nathan Nelson........................................ - *
All executive officers and directors of the Company
as a group (15 persons).............................. 12,556,608 78.5
</TABLE>
3
<PAGE>
- ----------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to the shares. As to each stockholder, the percentage
ownership is calculated by dividing (i) the sum of the number of shares of
the Company's Common Stock owned by such stockholder plus the number of
shares of the Company's Common Stock that such stockholder would receive
upon the exercise of options and warrants exercisable within 60 days by
(ii) the sum of the total number of outstanding shares of the Company's
Common Stock plus the total number of such stockholder's options and
warrants exercisable within 60 days.
(2) 11,733,006 shares of Common Stock are owned of record by the Nachtomi
Family Limited Partnership, of which Mr. Morris K. Nachtomi, the President,
Chief Executive Officer and Chairman of the Company, is the managing
general partner, and of which Mr. Guy A. Nachtomi, the former Vice
President -- Office of the Chairman of the Company, is a limited partner.
(3) As of February 11, 1999, Dimensional Fund Advisors Inc. ("DFA") held
897,000 shares of the Company's Common Stock in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment company,
or in a series of investment vehicles for qualified employee benefit plans
of the DFA Investment Trust Company, a Delaware business trust, or the DFA
Group Trust and DFA Participation Group Trust. DFA disclaims beneficial
ownership of all such shares.
(4) Amount includes 124,521 shares of Common Stock directly owned.
(5) Amounts include warrants, exercisable within 60 days, to purchase
shares of Common Stock issued in connection with the loan to the
Company by Funding Enterprises LLC as follows: 300,000 shares for Mr.
Guy Nachtomi and 200,000 shares for Mr. Hallcom (a former executive
officer of the Company). See "Certain Transactions."
(6) Pursuant to an employment agreement dated January 6, 1998, Mr. Hallcom, a
former executive officer of the Company, was granted options to purchase
200,000 shares of Common Stock. Mr. Hallcom's employment agreement also
provided that he was to be granted options to purchase an additional
600,000 shares subject to certain conditions. Mr. Hallcom's options and
his prospective right to additional options expired when his employment
terminated on July 10, 1998. The circumstances surrounding the termination
of Mr. Hallcom's employment and his right to such options are currently the
subject of an arbitration proceeding.
(7) Amounts include currently exercisable options, as well as options
exercisable within 60 days of the date hereof, to purchase a total of
25,000 shares of Common Stock granted to each of Messrs. Gelband, Osborn
and Baer pursuant to the Plan.
(8) Messrs. Gelband and Baer own 2,500 and 10,000 shares of the Company's
Common Stock, respectively, jointly with their respective spouses.
(9) Mr. Segal was granted 10,000 options to purchase shares of Common Stock.
None of these options are exercisable within 60 days.
4
<PAGE>
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
I. ELECTION OF DIRECTORS
General
Six directors are to be elected at the Annual Meeting. It is the
intention of the persons named in the accompanying proxy to vote each proxy
executed and returned by a stockholder FOR the election of each of the persons
listed below as a director of the Company unless authority to do so is withheld
on such proxy. All directors will serve until the next Annual Meeting of
Stockholders and until his or her successor has been elected and qualified.
Should any candidate for director become unavailable for any reason,
such proxies will be voted for the alternate candidate, if any, chosen by the
Board of Directors. All the nominees are currently directors of the Company. The
nominees for director listed below have consented to serve if elected and the
Company has no reason to believe that any of them will be unable to serve.
Name Age Director Since
------------------ --- --------------
Morris K. Nachtomi....... 62 1982
Stephen L. Gelband....... 68 1985
Stephen A. Osborn........ 49 1993
Henry P. Baer............ 63 1993
Leo-Arthur Kelmenson..... 72 1997
Eli J. Segal............. 56 1998
Information About Nominees
Information concerning the names, principal occupations and certain
other matters regarding the six nominees for seats on the Board of Directors is
set forth as follows:
Mr. Nachtomi has been Chief Executive Officer and Chairman of the
Board of Directors since 1989, a director since 1982, President of the Company
from 1986 until January 1998 and since July 1998 until the present. After a
thirty year career at El Al Israel Airlines, Mr. Nachtomi became Executive Vice
President of Tower Travel Corporation, and helped establish M.Z.M. Aviation Inc.
and Metro International Airways, G.S.A. Mr. Nachtomi served as President of
M.Z.M. Aviation Inc. and Metro International Airways, G.S.A. before he co-
founded the Company in 1982.
Mr. Gelband has been a director of the Company since 1985, Secretary
since 1988, and General Counsel since 1988. Mr. Gelband is a founder and
director of the Washington Airports Task Force, a coalition of local and state
governments and private businesses promoting service to Reagan Washington
National Airport and Dulles International Airport. He is also a founder and
director of the
5
<PAGE>
Air and Space Heritage Council which promotes the expansion of the National Air
and Space Museum at Washington Dulles International Airport. Mr. Gelband served
as Trial Attorney at the Civil Aeronautics Board from 1957 to 1960, and has been
in private practice of law since 1960. Mr. Gelband is a Vice President in the
law firm of Hewes, Gelband, Lambert & Dann, P.C., Washington, D.C., and provides
legal services to the Company, principally in the areas of corporate and federal
aviation law. Mr. Gelband holds degrees from Yale College and Harvard Law
School.
Mr. Osborn has been a director of the Company from September 1988
until December 1992, and from May 1993 until the present. Mr. Osborn is a
Managing Director in the Private Securities Division of CIGNA Investments, Inc.,
the investment management affiliate of CIGNA Corporation, a position he has held
for more than five years. Prior to 1990, Mr. Osborn managed the investment
activities of CIGNA Venture Capital, Inc. He holds a B.A. degree from Trinity
College and an M.B.A. degree from the Johnson School of Management at Cornell
University.
Mr. Baer has been a director of the Company since January 1993. Since
1990, Mr. Baer has been of counsel to the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP. From January 1978 through June 1990, Mr. Baer was a partner
in Skadden, Arps, Slate, Meagher & Flom, where he headed the firm's labor and
employment law practice between 1982 and 1990. Mr. Baer is also a director of
Hampton Jitney, Inc. He holds a B.A. degree from Brown University and a J.D.
degree from Harvard Law School.
Mr. Kelmenson has been a director of the Company since 1997. Mr.
Kelmenson is currently the Chairman of the Board of Directors of Bozell, Jacobs,
Kenyon & Eckhardt, Inc. ("BJK&E"). Since 1968, he has served as an executive
officer of Kenyon & Eckhardt, the predecessor firm of BJK&E, first as the Chief
Executive Officer, and later as the President, Chairman and Chief Executive
Officer. He is a graduate of Columbia University, the Career Diplomat School of
the University of Geneva (Switzerland) and the University of Mexico.
Mr. Segal has been a director of the Company since May 1998. He served
as Assistant to the President of the United States from January 1993 to February
1996 and was responsible for the design and enactment of the legislation which
created AmeriCorps, President Clinton's national service initiative. In October
1993, Mr. Segal was confirmed by the United States Senate to be the first Chief
Executive Officer of the Corporation for National Service. Mr. Segal served in
that position until October 1995. Mr. Segal now serves as President and Chief
Executive Officer of the Welfare to Work Partnership. He is on the Board of
Directors of Home Shopping Network, Citizens Financial Group, the Corporation
for National Service and the National Alliance to End Homelessness and the Board
of Overseers of the Heller School of Brandeis University. In 1992, Mr. Segal was
the Chief of Staff of the Clinton-Gore campaign and the Chief Financial Officer
during the Presidential transition period. In 1996, he served as Chairman of
Business Leaders for Clinton-Gore. Prior to the 1992 campaign, Mr. Segal served
as President of several consumer product companies including American Publishing
Corporation, Vogart Crafts Corporation and Bits & Pieces, Inc. Most recently, he
was the publisher of GAMES Magazine. Mr. Segal has served on several non-profit
boards, taught courses in government and law in the United States and abroad and
been active in many political campaigns. Mr. Segal received his Bachelor's
degree from Brandeis University in 1964 and a J.D. from the University of
Michigan Law School in 1967.
Board of Directors Committees and Meetings
6
<PAGE>
The Board of Directors has designated from among its members an Audit
Committee which consists of Messrs. Kelmenson and Osborn. During the fiscal
year ended December 31, 1998, the Audit Committee met twice. The Audit
Committee has the duty and authority to oversee the auditing and accounting
functions and procedures of the Company, and to report and make recommendations
to the Board of Directors with respect to such matters. The Board of Directors
has also designated from among its members a Compensation Committee, which
consists of Messrs. Kelmenson and Osborn. The primary responsibility of the
Compensation Committee is to administer the Company's 1993 Long-Term Incentive
Plan (as described below). The Compensation Committee met once during the
fiscal year ended December 31, 1998 as part of a regular Board of Directors
meeting, a significant portion of which was devoted to employment compensation
issues.
During the fiscal year ended December 31, 1998, there were seven
meetings of the Board of Directors. Each director attended at least 75% of the
aggregate of all meetings of the Board of Directors. Both members of the Audit
Committee attended the meetings of the Audit Committee.
Compensation of Directors
Messrs. Osborn, Kelmenson, Baer and Segal each receive a fee of $5,000
per meeting for serving as directors on the Board of Directors. Mr. Osborn
receives no additional compensation for serving as chairman of the Audit
Committee and the Compensation Committee. Mr. Nachtomi, who is Chief Executive
Officer of the Company, and Mr. Gelband, who is Secretary and General Counsel of
the Company, receive no additional compensation for serving on the Board of
Directors. See "Certain Transactions." Pursuant to the Company's 1993 Long-
Term Incentive Plan, as amended (the "Plan"), (i) each individual who is
elected to the Board of Directors for the first time will receive, upon such
election, options to acquire 10,000 shares of Common Stock and (ii) on the date
of each of the next ten annual meetings of the Company's stockholders after such
election, each continuing director will receive an additional grant of options
to acquire 5,000 shares of Common Stock. Thus, pursuant to the Plan, each of
Messrs. Gelband, Osborn and Baer (i) were granted an option to acquire 10,000
shares of Common Stock in November or December 1993 and (ii) were granted an
option to acquire 5,000 shares of Common Stock on the dates of each of the last
five annual meetings of the Company's stockholders held on June 21, 1994, May
23, 1995, May 14, 1996, May 20, 1997 and May 19, 1998. Mr. Kelmenson (i) was
granted an option to acquire 10,000 shares of Common Stock on the date of the
annual meeting of the Company's stockholders held on May 20, 1997 and (ii) was
granted an option to acquire 5,000 shares of Common Stock on the date of the
last annual meeting of the Company's stockholders held on May 19, 1998. Mr.
Segal was granted an option to acquire 10,000 shares of Common Stock on the date
of the last annual meeting of the Company's stockholders held on May 19, 1998.
7
<PAGE>
EXECUTIVE OFFICERS
On the Record Date, the following individuals served as officers and
key employees of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Morris K. Nachtomi................... 62 President, Chief Executive Officer and
Chairman of the Board of Directors
Stephen L. Gelband................... 68 Secretary
Vincent J. Vitale.................... 60 Vice President -- Customer Relations
William J. Cain...................... 42 Senior Vice-President -- Maintenance
& Engineering
Philip R. Brookmeyer................. 44 Vice President -- Legal & Deputy General Counsel
Badar Mir............................ 40 Vice President -- Financial Accounting
Nathan Nelson (1).................... 50 Chief Financial Officer & Treasurer
David Lithgow........................ 58 Vice President -- Flight Operations
Linda M. Zink........................ 34 Vice President -- Ground Operations &
Scheduling
</TABLE>
(1) Mr. Nelson and the Company reached a mutual understanding regarding the
winding down of his employment with the Company in order to enable him to
pursue other business opportunities. Mr. Nelson will leave the Company
effective May 31, 1999.
Information concerning the principal occupations and certain other
matters regarding the executive officers and key employees of the Company (other
than Messrs. Morris K. Nachtomi and Stephen L. Gelband, about whom information
is set forth above) is set forth as follows:
Mr. Vitale has been Vice President -- Maintenance from February 1997
until December 1998 and Vice President -- Customer Relations since January 1999
until the present. From 1968 to 1991, Mr. Vitale held positions of increasing
responsibility in aircraft and engine maintenance at PanAm. His last position
was System Director of station maintenance. Mr. Vitale was Vice President of
Maintenance for PanAm Express until 1992, Vice President of Customer Support for
Jetstream Aircraft from 1992 to 1995 and Vice President of Maintenance for
Airtran Airways from 1995 to 1996. Mr. Vitale holds an FAA Airframe and
Powerplant License. Mr. Vitale attended the State University of New York,
Farmingdale and majored in Business Administration and also graduated from the
Manhattan High School of Aviation Trades.
8
<PAGE>
Mr. Cain rejoined the Company in November 1998 as Senior Vice
President -- Maintenance & Engineering. From 1985 until May 1993, Mr. Cain held
a number of positions with the Company, including Maintenance Manager and
Director of Maintenance. From May 1993 to January 1996, Mr. Cain held the
position of Vice President -- Maintenance & Engineering. From April 1996 to
November 1998, Mr. Cain was Vice President Technical for the Pacific Region of
Atlas Air with responsibility for all technical activity and the development of
customer relationships. Mr. Cain was honorably discharged from the U.S. Navy in
1979.
Mr. Brookmeyer has been Vice President -- Legal & Deputy General
Counsel since July 1998. From 1983 to 1998 he held positions of increasing
legal responsibility with UST Inc. (a Fortune 500 company), including most
recently as Assistant General Counsel & Assistant Secretary. Mr. Brookmeyer
simultaneously served as Senior Vice President -- Business Affairs for Cabin
Fever Entertainment Inc., a UST subsidiary. He holds a B.A. degree from the
State University of New York at Albany and a J.D. from St. John's University
School of Law.
Mr. Mir has been Vice President -- Financial Accounting since January
1999. Mr. Mir joined the Company in February 1989 and has held various
positions of increasing responsibilities within the finance and accounting areas
including, Manager of Accounting and Corporate Controller, the position held
just prior to his recent appointment as Vice President -- Financial Accounting.
He holds a B.S. degree in Accounting and a M.A. degree in Accounting/Economics
from The City University of New York schools system.
Mr. Nelson has been Chief Financial Officer & Treasurer since May
1998. As of March 1, 1999, Mr. Nelson and the Company reached a mutual
understanding regarding the winding down of his employment with the Company in
order to enable him to pursue other business opportunities. Mr. Nelson will
leave the Company effective May 31, 1999. From 1993 until he joined the
Company, Mr. Nelson was Chief Financial Officer of Amana Tool Corporation. From
1992 to 1993, he was Chief Financial Officer of American Dream Airlines and from
1989 to 1992, he was Treasurer of Trump Shuttle, Inc. and USAir Shuttle, Inc.
Mr. Nelson holds a B.A. in Mathematics from Yeshiva University, an M.S. in
Operations Research from New York University and an M.B.A. in Finance from St.
John's University.
Captain David Lithgow has been Vice President -- Flight Operations
since March, 1999. After joining the Company in November 1986, he flew the line
as a Captain and check airman before serving as the Chief of Flight Standards
and Director of Flight Operations from January 1996 to January 1997 and from
January 1997 to March 1999 respectively. Captain Lithgow's aviation career
began with entry into U.S.A.F. pilot training in 1964. His uninterrupted civil
aviation career began after leaving U.S.A.F. active duty in 1970. He has been
qualified as a B-747 captain since 1984 and as a FAA designated check airman
since 1990. Approximately 6,000 of his 18,000 hours of flight experience have
been acquired flying the B-747. He is a graduate of Columbia University and has
attended the University of Massachusetts School of Management as a post graduate
student.
Ms. Linda M. Zink has been Vice President -- Ground Operations &
Scheduling since March 1999. From 1989 to 1999, Ms. Zink held positions of
increasing responsibility in Crew and Aircraft Scheduling and Charter Sales of
the Company. Her last position was Senior Director Scheduling. Ms. Zink
attended the State University of New York, Old Westbury.
9
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation earned by the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers during the 1998 fiscal year for services
rendered in all capacities to the Company for the years indicated (collectively,
the "Named Executive Officers").
<TABLE>
<CAPTION>
Securities
Underlying
Name and Principal Position December 31, Salary($) Bonus ($) Options(#)
- ------------------------------ ------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Morris K. Nachtomi (1)........ 1998 1,000,000 0 0
Chief Executive 1997 1,000,000 0 0
Officer and Chairman 1996 1,000,000 0 0
Guy A. Nachtomi (2)........... 1998 117,174 100,000 0
Vice President -- 1997 160,000 0 2,112
Office of the Chairman 1996 133,333 0 752
Terry V. Hallcom (3).......... 1998 176,570 0 0
President and 1997 - - -
Executive Vice President -- 1996 - - -
Operations
Vincent J. Vitale............. 1998 156,667 0 20,000
Vice President -- 1997 124,256 0 25,000
Customer Relations 1996 - - -
Nathan Nelson (4) 1998 112,740 0 0
Chief Financial 1997 - - -
Officer & Treasurer 1996 - - -
</TABLE>
- ------------------------
(1) Mr. Nachtomi and the Company entered into an employment agreement in
October 1993, pursuant to which he serves as President and Chief Executive
Officer of the Company at an annual salary of $1,000,000.
(2) Mr. Guy Nachtomi's employment with the Company terminated on August 14,
1998.
(3) Mr. Hallcom's employment with the Company terminated on July 10, 1998.
10
<PAGE>
(4) Mr. Nelson and the Company reached a mutual understanding regarding the
winding down of his employment with the Company in order to enable him to
pursue other business opportunities. Mr. Nelson will leave the Company
effective May 31, 1999.
Option/SAR Grants
During the year ended December 31, 1998, options to purchase the Company's
Common Stock were granted to the Named Executive Officers and no stock
appreciation rights ("SARs") were granted to the Named Executive Officers.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual Rates
of Stock Price
Individual Grants(1) Appreciation for
Option Term
- ----------------------------------------------------------------------------- ---------------------
Percentage
Number of of Total
Securities Options/
Underlying SARs
Options Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) Fiscal Year ($/SH) Date 5% ($) 10% ($)
- ---- ------- ----------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Vincent J. 20,000 5.3% 3.6875 7/8/2008 $46,380.97 $117,600
Vitale
</TABLE>
- ----------
(1) Options were granted under the Company's 1993 Long-Term Incentive Plan.
Options to purchase 200,000 shares of Common Stock were granted to Mr.
Hallcom in 1998. Mr. Hallcom's options expired when his employment
terminated on July 10, 1998. See "Security Ownership of Certain Beneficial
Owners and Management" Footnote 6.
Employment Agreements
11
<PAGE>
Mr. Nachtomi is employed by the Company under an agreement which
provides for compensation of $1,000,000 per year. Mr. Nachtomi is eligible to
participate in the Superior Performance Award portion of the Company's Bonus
Plan (as defined herein), pursuant to which he may earn, in addition to the
bonus described below (see "Report of Board of Directors Compensation Committee
as to Executive Compensation -- Executive Compensation"), an additional bonus
based upon the Company's performance with respect to a performance indicator
selected by the Compensation Committee relative to the performance of a peer
group of companies selected by the Committee. Such additional bonus for any year
may range from zero to 200% of the award earned under the Bonus Plan for such
year. The agreement has an initial term of five years, which commenced in
October 1993, and the Company and Mr. Nachtomi have agreed that the term of the
contract will be automatically extended for additional terms of one year unless,
not less than 90 days prior to such anniversary date, either party notifies the
other that the extension will not take place. In addition, if a Change of
Control (as defined in the agreement) occurs during the five year term of the
agreement, such term shall automatically be extended to include the five year
period commencing on the date on which the Change in Control occurs. The
agreement provides that (i) if, prior to a Change of Control, the Company
terminates Mr. Nachtomi's employment in breach of the agreement or if Mr.
Nachtomi terminates his employment for Good Reason (as defined in the
agreement), then the Company will pay him his base salary through the Date of
Termination and the product of (A) the sum of (1) Mr. Nachtomi's annual base
salary in effect upon the Date of Termination and (2) the average of the annual
bonuses, if any, actually paid to Mr. Nachtomi with respect to the two years of
his term immediately preceding the year of the term in which the Date of
Termination occurs and (B) the number of years (including partial years)
remaining in the term and (ii) if, subsequent to a Change in Control, the
Company terminates Mr. Nachtomi's employment in breach of the agreement or if
Mr. Nachtomi terminates his employment for Good Reason, then the Company will
pay his base salary through the Date of Termination and an amount equal to the
product of (A) 2.99 and (B) his Base Amount (as defined in Section 280(b)(3) of
the Internal Revenue Code of 1986, as amended). In addition, Mr. Nachtomi is
eligible to participate fully in all of the Company's health benefits, insurance
programs, pension and retirement plans and other employee benefit and
compensation arrangements.
The Company has also entered into an employment agreement with Mr.
Nelson, with an initial term of two years, effective as of May 11, 1998. The
agreement provides that the term may be extended by mutual agreement if approved
by the Company. The agreement provides that Mr. Nelson shall serve during the
term of the agreement as Chief Financial Officer and Treasurer of the Company.
Mr. Nelson's salary will be at an annual rate of $175,000. The agreement
provides for the grant of 10,000 options to purchase shares of Common Stock of
the Company, in two installments of 5,000 each to occur on his six month and one
year anniversaries of employment with the Company, subject to approval by the
Board of Directors and the stockholders of the Company. The agreement also
provides that if Mr. Nelson's employment is terminated by the Company other than
for "cause" (as such term is defined in the agreement), Mr. Nelson will be
entitled to six month's salary as severance pay. Mr. Nelson and the Company
reached a mutual understanding regarding the winding down of his employment with
the Company in order to enable him to pursue other business opportunities. Mr.
Nelson will leave the Company effective May 31, 1999.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee was formed in December 1993. The members of
the Compensation Committee of the Board of Directors are Messrs. Kelmenson and
Osborn. Neither of these individuals has been at any time an officer or
employee of the Company.
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REPORT OF BOARD OF DIRECTORS COMPENSATION COMMITTEE
AS TO EXECUTIVE COMPENSATION
The Compensation Committee was formed in December 1993, following the
Company's initial public offering of its Common Stock in November 1993. Prior
to the formation of the Compensation Committee, decisions regarding executive
compensation were made by the Board of Directors. The primary responsibility of
the Compensation Committee is to administer the Plan.
Executive Compensation. Beginning in April 1993, the Board of
-----------------------
Directors of the Company, in conjunction with an independent compensation
consultant, conducted a review of the Company's executive compensation program
in order to attract and retain the highest quality executives, and to motivate
such executives to achieve the Company's strategic objectives. The result of the
review was the establishment of a comprehensive executive compensation program
consisting of base salary, annual incentive bonuses and long-term incentive
compensation components.
Base salary guidelines are assigned to executive positions based on
job responsibilities and salary practices for comparable positions within the
airline industry and within companies of comparable size. The Executive Annual
Incentive Plan (the "Bonus Plan") provides for the payment of annual bonuses to
selected key employees of the Company. Each Bonus Plan participant is assigned a
"target award" each year ranging from 15% of salary to 60% of salary, based upon
the participant's position with the Company. Based upon (i) the Company's actual
performance as compared to targets established annually by the Compensation
Committee with respect to performance measures selected by the Committee and
(ii) in the case of certain participants, the extent to which individual
performance objectives are achieved, participants in the Bonus Plan may earn
incentive awards ranging from 90% of the "target award" to 200% of the "target
award." No bonuses were awarded pursuant to the Bonus Plan with respect to
fiscal 1998.
In addition, the Plan links executive compensation to the Company's
performance over a multi-year performance period and provides incentives for
employee retention. Pursuant to the Plan, employees of the Company are eligible
to receive awards of stock options, SARs, restricted stock and other long-term
incentive awards.
The Compensation Committee intends to refine the Company's
compensation policies to enhance the profitability of the Company and to
maximize stockholder value by closely aligning the financial interests of the
Company's executive officers with those of its stockholders. In this regard, the
Compensation Committee, in recommending and approving compensation levels and
performance targets, will review the executive compensation programs maintained
by other public companies that are similarly situated with the Company.
Chief Executive Officer Compensation. Mr. Nachtomi's 1998
-------------------------------------
compensation and the terms of his employment contract were determined in 1993
(prior to the formation of the Compensation Committee), and were based upon his
unique role in achieving increased operating results for the Company and
establishing the Company as a publicly traded corporation, as well as his
substantial work in positioning the Company for sustainable future growth.
Historically, Mr. Nachtomi has been eligible to receive bonus
compensation at the discretion of the Board of Directors in recognition of the
Company's performance. Mr. Nachtomi was not awarded any bonus compensation in
1998.
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Section 162(m) of the Internal Revenue Code of 1986, as amended,
restricts corporate deductions for individual executive compensation in excess
of $1,000,000 per year. Although the Company did not modify its compensation
policies in 1998, the Compensation Committee intends to periodically review the
Company's compensation policies. If necessary or desirable, and to the extent
consistent with the Company's other compensation objectives, the Committee will
propose appropriate modifications to the Company's executive compensation plans
and policies in order to implement the Company's executive compensation program
in a manner that will avoid or minimize any disallowance of the tax deductions
under Section 162(m).
By: Compensation Committee of the Board of Directors:
Leo-Arthur Kelmenson Stephen A. Osborn
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CERTAIN TRANSACTIONS
In February and March 1998, pursuant to a note (the "12% Note"), the
Company borrowed $6.0 million from Funding Enterprises, LLC, a limited liability
company in which the Chairman and the former President of the Company and Althea
Limited Partnership and VBG Capital Inc., parties unrelated to the Company, its
directors and officers, were members. The 12% Note was payable on July 1, 1998.
On July 1, 1998, the Company discharged its obligations under the 12% Note by
issuing a new note (the "Nachtomi Note") due August 7, 1998 to the Company's
Chairman in the principal amount of $3.0 million and repaying the balance of the
12% Note in cash. The Nachtomi Note originally bore interest at an annual rate
of 12.0% per annum, increasing to 15.0% per annum after August 7, 1998. The
Nachtomi Note was amended so that it bears interest at an annual rate of 12.0%
after August 7, 1998 and matures on April 30, 1999. On April 15, 1999, the
Nachtomi Note was amended so that it matures on January 1, 2000. In connection
with the 12% Note, warrants for the purchase of an aggregate of 1,200,000 share
of Common Stock with an exercise price of $5.00 were issued to the Chairman and
the former President of the Company (who received warrants to purchase 600,000
shares and 200,000 shares, respectively, of Common Stock) and to Althea Limited
Partnership and VBG Capital, Inc. In March 1998, the Chairman of the Company
assigned the warrants to purchase 600,000 shares of Common Stock half to his
son, Guy Nachtomi, a former officer of the Company, and half to his daughter.
The warrants expire in February 2008.
Hewes, Gelband, Lambert & Dann, P.C., a law firm of which Stephen L.
Gelband (the Secretary, General Counsel and a director of the Company) is a Vice
President, was paid a total of $617,594.54 in fees and expenses for services
rendered to the Company for the year ended December 31, 1998.
Skadden, Arps, Slate, Meagher & Flom LLP, a law firm to which Henry P.
Baer (a director of the Company) is of counsel, performs certain legal services
for the Company.
PERFORMANCE GRAPH
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The following graph provides a comparison of the cumulative total
stockholder return on the Company's Common Stock with those of the stated
indices between December 31, 1993 and December 31, 1998.
COMPARISON OF CUMULATIVE TOTAL RETURN OF
COMPANY, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
--------------------FISCAL YEAR ENDING-------------------
COMPANY/INDEX MARKET 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Tower Air Inc 100.00 56.15 48.38 19.69 30.68 15.80
S&P Group Index 100.00 69.78 101.90 111.71 188.02 181.90
NASDAQ Market Index-U.S. 100.00 97.75 138.26 170.01 208.58 293.21
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and any persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the National Association of Securities Dealers, Inc. Officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish copies of all Section 16(a) forms they file to the
Company. The specific due dates for these reports have been established by the
SEC, and the Company is required to report in this Proxy Statement any failure
to file by the established dates.
Based solely on its review of the copies of such forms which it has
received, the Company believes that during fiscal 1998, the following required
Section 16(a) filings by officers, directors and greater than ten percent
beneficial owners were late: each of Mr. Mir, the Company's Vice President --
Financial Accounting, Mr. Lithgow, the Company's Vice President -- Flight
Operations, Ms. Zink, the Company's Vice President -- Ground Operations &
Scheduling and Mr. Segal, a director of the Company filed a late Form 3 to
indicate that he or she had received options to purchase Common Stock of the
Company; Mr. Cain, the Company's Senior Vice President -- Maintenance &
Engineering filed a late Form 3 to indicate that he had purchased Common Stock
of the Company and that he had received options to purchase Common Stock of the
Company; Mr. Brookmeyer, the Company's Vice President -- Legal & Deputy General
Counsel filed a late Form 3 to indicate that he had purchased Common Stock of
the Company; Mr. Morris Nachtomi, the Company's President, Chief Executive
Officer and Chairman of the Board filed late Forms 4 and 5 to indicate that he
had purchased Common Stock of the Company
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and that he had assigned warrants to purchase Common Stock of the Company; Mr.
Nelson, the Company's Chief Financial Officer & Treasurer filed a late Form 3 to
indicate that he had become a reporting person; each of Mr. Osborn, Mr. Baer and
Mr. Kelmenson, each a director of the Company filed a late Form 5 to indicate
that he had received options to purchase Common Stock of the Company; Mr.
Gelband, a director of the Company and the Company's Secretary filed a late Form
5 to indicate that he had received options to purchase Common Stock of the
Company; Mr. Vitale, the Company's Vice President -- Customer Relations filed a
late Form 5 to indicate that he had received options to purchase Common Stock of
the Company; and Mr. Guy Nachtomi, the former Vice President -- Office of the
Chairman of the Company filed a late Form 5 to indicate that he had received
options and warrants to purchase Common Stock of the Company.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
election of each of the nominees named above.
II. SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young as independent
auditors for the Company for the current fiscal year. The stockholders are
requested to signify their approval or disapproval of the selection.
Representatives of Ernst & Young are expected to be present at the
Annual Meeting, and will have the opportunity to make a statement and to respond
to appropriate questions.
As auditors of the Company, Ernst & Young provides professional
services in connection with its audit function that include the examination of
the Company's financial statements, the review of the Company's filings with the
Securities and Exchange Commission, and consultation with respect to accounting
and financial reporting matters.
The Board of Directors recommends that the stockholders vote FOR the
selection of Ernst & Young as independent auditors.
III. PROPOSED AMENDMENT TO THE COMPANY'S 1993 LONG-TERM INCENTIVE PLAN
Pursuant to the Company's 1993 Long-Term Incentive Plan, as amended
(the "Plan"), officers and directors of the Company are eligible to receive
awards of stock options, stock appreciation rights, restricted stock and other
long term incentive awards. Options granted under the Plan may be "incentive
stock options" ("ISOs"), within the meaning of Section 422 of the IRC, or
nonqualified stock options ("NQSOs"). Stock appreciation rights ("SARs") may
be granted separately or in tandem with an option. SARs granted in tandem with
an option may be granted simultaneously with the grant of the option or (in the
case of NQSOs), at any time during its term. Restricted stock and other long
term incentive awards may be granted in addition to or in lieu of any other
award granted under the Plan.
The Company has authorized 2,200,000 shares of Common Stock for
issuance of awards under the Plan (subject to antidilution and similar
adjustments). The Plan provides that no individual shall receive more than an
aggregate of 30% of the shares authorized for grant under the Plan over the term
of the Plan, and contains limitations with respect to the number of ISOs granted
which are
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<PAGE>
exercisable for the first time in any one calendar year. The closing price of
the Company's Common Stock as of May 5, 1999 was $2.4688.
The Plan is administered by the Compensation Committee appointed by
the Board of Directors. Subject to the provisions of the Plan, the Compensation
Committee determines the type of award, when and to whom awards are granted, the
number of shares covered by each award and the terms, provisions and kind of
consideration payable, if any, with respect to awards. The Compensation
Committee may interpret the Plan and may at any time adopt such rules and
regulations for the Plan as it deems advisable.
An option may be granted on such terms and conditions as the
Compensation Committee may approve, and may be exercised, for a period of up to
10 years and one day from the date of grant (five years in the case of an ISO
granted to an individual who owns at least 10% of the voting power of the
Company's outstanding voting securities ("10% Stockholder")). Options will be
granted with an exercise price not less than the "Fair Market Value" (as
defined in the Plan) on the date of grant (110% of the value on the date of
grant in the case of an ISO granted to a 10% Stockholder). In the case of ISOs,
the aggregate Fair Market Value of option shares which can become exercisable
for the first time during any one calendar year shall not exceed $100,000, and
certain additional limitations will apply to ISOs granted to any 10%
Stockholder. The Compensation Committee may provide for the payment of the
option price in cash, by delivery of other unrestricted Common Stock having a
Fair Market Value equal to such option price, by a combination thereof or by any
other method. Options granted under the Plan will become exercisable at such
times and under such conditions as the Compensation Committee shall determine,
subject to acceleration of the exercisability of options in the event of, among
other things, a "Change in Control" or "Potential Change of Control" (each
as defined in the Plan).
The Plan also permits the Compensation Committee to grant SARs with
respect to all or any portion of the shares of Common Stock covered by options
or unrelated to such options. Generally, SARs may be exercised only at such time
as the related option is exercisable. SARs unrelated to any option may be
exercised at such time as the Compensation Committee shall provide.
Upon exercise of an SAR, a grantee will receive for each share for
which an SAR is exercised, an amount in cash or Common Stock, as determined by
the Compensation Committee, equal to the excess, if any, of (1) the Fair Market
Value of a share of Common Stock on the date the SAR is exercised over (2) the
exercise price per share of the SAR.
In the event of a Change in Control or Potential Change of Control,
each SAR outstanding for at least six months is automatically exercised and the
grantee receives, in respect thereof, an amount in cash equal to the excess, if
any, of (1) the "Change in Control Price" (as defined in the Plan) over (2)
the exercise price of the SAR.
When an SAR is exercised, the option to which it relates, if any, will
cease to be exercisable to the extent of the number of shares of Common Stock
with respect to which the SAR is exercised, but will be deemed to have been
exercised for purposes of determining the number of shares of Common Stock
available for the future grant of awards under the Plan.
The Plan further provides for the granting to officers and key
employees of restricted stock awards, which are awards of Common Stock which may
not be disposed of, except by will or the laws of descent and distribution, for
such period as the Compensation Committee determines (the "restricted
period"). The Compensation Committee may also impose such other conditions and
18
<PAGE>
restrictions, if any, on the shares as it deems appropriate. All restrictions
affecting the awarded shares lapse in the event of a Change in Control or
Potential Change of Control of the Company.
During the restricted period, the grantee will be entitled to receive
dividends with respect to, and to vote the shares awarded to him. If, during the
restricted period, the grantee's service with the Company terminates for any
reason, any shares remaining subject to restrictions will be forfeited. The
Compensation Committee has the authority to cancel any or all outstanding
restrictions prior to the end of the restricted period.
The Plan also provides for the automatic grant of options to each non-
employee director of the Company. Upon the initial public offering of the
Company's Common Stock in November 1993, each non-employee director received
options to acquire 10,000 shares of Common Stock. According to the Plan, each
individual who is subsequently elected to the Board of Directors for the first
time also receives, upon such election, an option to acquire 10,000 shares of
Common Stock. On the date of each of the next ten annual meetings of the
Company's stockholders after such election, each continuing director receives
an additional grant of options to acquire 5,000 shares of Common Stock. All
such options are granted with an exercise price equal to the Fair Market Value
of the Common Stock on the date of grant and will become exercisable in three
equal annual installments beginning on the second anniversary of the date of
grant. The Board has amended the Plan (the "Amendment"), subject to the
approval of the Company's stockholders at this meeting, to permit the Board of
Directors or the Compensation Committee to amend any such options after they
have been granted and to grant options to members of the Board of Directors on
additional or different terms. Pursuant to such Amendment, the Board of
Directors has amended the options previously granted to members of the Board of
Directors to change the exercise price thereof to $2.50, the closing price of
the shares of the Company's Common Stock on February 16, 1999 (the day preceding
such action). Prior to such Amendment, Messrs. Gelband, Osborn, Baer, Kelmenson
and Segal held 35,000, 35,000, 35,000 15,000 and 10,000 options, respectively,
at exercise prices ranging from $13.875 to $3.50.
The Board of Directors may at any time and from time to time suspend,
amend, modify or terminate the Plan; provided, however, that, to the extent
required by Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act or
any other law, regulation or stock exchange rule, no such change shall be
effective without the requisite approval of the Company's stockholders. In
addition, no such change may adversely affect any award previously granted,
except with the written consent of the grantee. Under the Amendment, shareholder
approval will not be required for future plan amendments.
No awards may be granted under the Plan after May 19, 2008.
Nonstatutory Stock Options
An optionee generally will not be taxed upon the grant of an NQSO.
Rather, at the time of exercise of such NQSO (and in the case of an untimely
exercise of an ISO), the optionee will recognize ordinary income for federal
income tax purposes in an amount equal to the excess of the fair market value of
the shares purchased over the option price. The Company will generally be
entitled to a tax deduction at such time and, in the same amount that the
optionee recognizes ordinary income.
If shares acquired upon exercise of an NQSO (or upon untimely exercise
of an ISO) are later sold or exchanged, then the difference between the sales
price and the fair market value of such shares on the date that ordinary income
was recognized with respect thereto will generally be taxable as long-term or
short-term capital gain or loss (if the shares are a capital asset of the
optionee).
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<PAGE>
Incentive Stock Options
An optionee will not be in receipt of taxable income upon the grant or
timely exercise of an ISO. Exercise of an ISO will be timely if made during its
term and if the optionee remains an employee of the Company or a subsidiary at
all times during the period beginning on the date of grant of the ISO and ending
on the date three months before the date of exercise (or one year before the
date of exercise in the case of a disabled optionee). Exercise of an ISO will
also be timely if made by the legal representative of an optionee who dies (i)
while in the employ of the Company or a subsidiary or (ii) within three months
after termination of employment. The tax consequences of an untimely exercise
of an ISO will be determined in accordance with the rules applicable to NQSOs.
If shares acquired pursuant to the timely exercise of an ISO are later
disposed of, the optionee will, except as noted below, recognize long-term
capital gain or loss (if the shares are a capital asset of the optionee) equal
to the difference between the amount realized upon such sale and the option's
exercise price. The Company, under these circumstances, will not be entitled to
any federal income tax deduction in connection with either the exercise of the
ISO or the sale of such shares by the optionee.
If, however, shares acquired pursuant to the exercise of an ISO are
disposed of by the optionee prior to the expiration of two years from the date
of grant of the ISO or within one year from the date such shares are transferred
to him upon exercise (a "disqualifying disposition"), any gain realized by the
optionee generally will be taxable at the time of such disqualifying disposition
as follows: (i) at ordinary income rates to the extent of the difference between
the option price and the lesser of the fair market value of the shares on the
date the ISO is exercised or the amount realized on such disqualifying
disposition and (ii) if the shares are a capital asset of the optionee, as
short-term or long-term capital gain to the extent of any excess of the amount
realized on such disqualifying disposition over the fair market value of the
shares on the date which governs the determination of his ordinary income. In
such case, the Company may claim a federal income tax deduction at the time of
such disqualifying disposition for the amount taxable to the optionee as
ordinary income.
The amount by which the fair market value of the shares on the
exercise date of an ISO exceeds the option's exercise price will be an item of
adjustment for purposes of the "alternative minimum tax" imposed by Section 55
of the Internal Revenue Code.
Stock Appreciation Rights
A grant of stock appreciation rights has no federal income tax
consequences at the time of such grant. Upon the exercise of rights, the amount
of any cash and the fair market value as of the date of exercise of any shares
of Common Stock received is taxable to the employee as ordinary income, and the
Company will be entitled to a corresponding deduction. Upon the sale of the
Common Stock acquired by the exercise of rights, employees will recognize
capital gain or loss (assuming such shares were held as a capital asset) in an
amount equal to the difference between the amount realized upon such sale and
the fair market value of the shares on the date that governs the determination
of his ordinary income.
Restricted Stock Awards
An employee generally will not be taxed upon the grant of a restricted
stock award, but rather will recognize ordinary income in an amount equal to the
fair market value of the Common Stock at the time the shares are no longer
subject to a substantial risk of forfeiture (as defined in the Internal Revenue
Code). The Company will be entitled to a deduction at the time when, and in the
amount that,
20
<PAGE>
the employee recognizes ordinary income. However, an employee may elect (not
later than 30 days after acquiring such shares) to recognize ordinary income at
the time the restricted shares are awarded in an amount equal to the fair market
value of such shares at that time, notwithstanding the fact that such shares are
subject to restrictions and a substantial risk of forfeiture. If such an
election is made, no additional taxable income will be recognized by such
employee at the time the restrictions lapse. The Company will be entitled to a
tax deduction at the time when, and to the extent that, income is recognized by
such employee. However, if shares in respect of which such election was made are
later forfeited, no tax deduction is allowable to the employee for the forfeited
shares, and the Company will be deemed to recognize ordinary income equal to the
amount of the deduction allowed to the Company at the time of the election in
respect of such forfeited shares.
The Board of Directors recommends that the stockholders vote FOR the
proposed amendment to the Plan.
IV. OTHER MATTERS
Management does not intend to bring any business before the Annual
Meeting other than as set forth above, nor does it know of any business that
will be presented by others for action by stockholders at the meeting. However,
if any other business shall properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote said proxy in
accordance with their judgment on such matters.
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 2000 Annual
Meeting should be sent to the Secretary of the Company at Tower Air, Hangar 17,
JFK International Airport, Jamaica, New York 11430, and must be received on or
before January 1, 2000 to be eligible for inclusion in the Company's proxy
statement and form of proxy relating to that meeting. Due to the complexity of
the respective rights of the stockholder and the Company in this area, any
stockholder desiring to propose such an action is advised to consult with his or
her legal counsel with respect to such rights.
The above notice and proxy statement are being sent by order of the
Board of Directors.
LOGO
STEPHEN L. GELBAND
Secretary
Jamaica, New York
Dated: May 12, 1999
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